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Congress Fights Back Against DOL Attack on Flexible Work and Small Business

Congress may have missed an opportunity to defund the Department of Labor’s overtime rule via the appropriations process, but they have not given up the fight.

On June 16, Representative Virginia Foxx (R-N.C.) introduced a resolution of disapproval (H. J. Res. 95) under the Congressional Review Act to nullify the DOL’s overtime regulation. In May, the Competitive Enterprise Institute led a coalition of 17 free market groups in support of such action.

In a press release, Rep. Fox said, “Our nation’s overtime rules need to be modernized, but the Department of Labor’s extreme and partisan approach will lead to damaging consequences that the American people simply cannot afford.”

Under the new rule, the DOL dramatically increased the salary threshold when an employee is eligible for overtime from $23,660 to $47,476. That is an unprecedented spike—an over 100 percent increase—which threatens flexible work arrangements and paths to success in addition to small businesses, non-profits and universities.

On top of the salary threshold increase, the rule puts future raises are on autopilot. Every three years, the DOL will tie the salary threshold to the 40th percentile of salaried employees in the lowest income region, normally the southeast. This component of the rule is concerning.

One, in the past, the DOL has never set the salary threshold at a level as high as the 40th percentile of all non-hourly employees’ salaries (see pg. 5 of former DOL Wage and Hour administrator Tammy McCutchen’s written testimony). Two, making increases to the salary threshold automatic subverts the regulatory process and Administrative Procedure Act protections like notice and comment periods. Three, it also undermines the intent of Congress and the Fair Labor Standards Act, which gives authority to the Secretary of Labor to define and delimit overtime exemptions “from time to time by regulations.” Four, the automatic increase will cause an upward ratcheting effect. An unintended consequence of the rule is that many employers will choose to demote salaried employees to hourly work. This will decrease the pool of salaried employees that creates the 40th percentile of all non-hourly workers. Mostly, employees reclassified as hourly would be employees earning lower salaries so the pool of workers that determine the salary threshold earn higher incomes, which will make the salary threshold skyrocket in the future (see Edgeworth Economics analysis, here).

As I wrote in RealClearPolicy.com, many of the entities harmed—non-profits and universities—are normally “traditional supporters of the Democratic Party.” Recently, the House Education & Workforce Committee held a hearing where university and non-profit representatives spoke of the dire consequences of the rule change. Universities may need to raise tuition and non-profits may cancel operations that are labor intensive to compensate for the added costs of the rule.

Hopefully, Democrats take the concerns of the constituents seriously and consider supporting Rep. Foxx’s effort to roll back the DOL’s misguided overtime regulation.