Businesses around the country on Wednesday cheered a court decision blocking the Obama administration's sweeping new overtime rules, but many had already raised salaries or ordered managers to stick to a strict 40-hour workweek to avoid costs they expected to incur starting next week.
An injunction issued Tuesday by the federal court in the Eastern District of Texas prevents the Department of Labor from mandating overtime pay for salaried employees who make less than about $47,500 a year — a dramatic jump from the old threshold of $23,660.
More than 4 million workers would have been newly eligible for time-and-a-half pay under the rule, which now faces far more uncertainty from Donald Trump's incoming administration.
The ruling giving businesses a reprieve "is a little late for a lot of people's taste," said Tom Gimbel of Chicago-based LaSalle Network, a staffing firm that advised companies on how to prepare for the new rule. "A lot of companies had already rolled it out."
Wal-Mart, for example, raised entry-level managers' starting salaries by $3,500 in September to stay above the threshold. But there were also raises among clerical workers for Opportunity Village in Las Vegas, a nonprofit that teaches vocational skills to people with disabilities and raises its money through private donations and running a thrift store.
Opportunity president Bob Brown said he couldn't bear to backtrack on the decision.
"It's put us in a difficult situation — you're spending money you wouldn't have been spending," he said.
In Colorado, some restaurant owners operating on thin margins shifted salaried managers to hourly pay so they could better track their hours and cap them at 40.
"That was demoralizing for managers who felt they were being demoted," said Sonia Riggs, CEO of the Colorado Restaurant Association.
The Department of Labor last May ordered the changes to give overtime to many more American workers, saying they would "go a long way toward realizing President Obama's commitment to ensuring every worker is compensated fairly for their hard work."
Inflation had weakened the U.S. overtime law passed decades ago. Overtime provisions applied to 62 percent of U.S. full-time salaried workers in 1975 but just 7 percent today.
That means some low-level retail and restaurant managers are making $25,000 a year but aren't eligible for overtime, even when they're working 60 hours a week.
The court agreed with the rule's opponents that the labor department overstepped the authority it has from Congress and that the rule could cause irreparable harm if it took effect Dec. 1 as scheduled. The department is now considering its legal options, but Trump will be in charge of the department after taking office on Jan. 20.
Mr. Trump told the news website Circa in August that he hoped small businesses would get an exception from the overtime rule, although the issue was not a prominent presidential campaign theme.
The rule's supporters are now grappling with implications for workers who were expecting more overtime pay just as the holiday shopping rush gets underway.
"This is about the worst news they could get heading into Thanksgiving and the holiday season," said Vicki Shabo, vice president of the National Partnership for Women & Families, a Washington, D.C.-based group that promotes workplace fairness.
Workers who want to make a good impression on their employers, feel compelled to cover for absent co-workers or are passionate about their jobs often put in far more than 40 hours a week and end up making a sub-minimum wage. Advocacy groups say employees who work for free are giving up time they could be spending with their families or advancing their education to get better paying jobs.
But businesses said the rules would have created an overly restrictive environment that would have penalized younger and slower workers.
"We were going to have to send them home at times," said Jose Villa, president of the Los Angeles-based ad agency Sensis. "Say, 'You're done for the day, you have to go,' even though we're working on some important stuff that's going to be very educational for them."
With the overtime pay order suspended, Trump's administration could choose to make its own rule changes through a lengthy administrative process.
The Republican-controlled Congress could change the country's labor laws, although House Speaker Paul Ryan had decried the overtime plan "an absolute disaster" that Obama rushed through to boost his political legacy.
If the labor department lawyers appeal Tuesday's ruling, they could end up facing a Supreme Court that includes some Trump appointees.
The injunction takes political pressure off the president-elect at a good time, said labor law professor Ruben Garcia of the University Nevada Las Vegas' Boyd School of Law.
With no new overtime changes kicking in next week, Trump can accept the status quo and does not risk angering workers by revoking the new overtime benefits shortly after employees start receiving them, Mr. Garcia said.
Associated Press writers Jim Anderson in Denver and Jonathan Cooper in Sacramento, California, contributed to this report.