The SBLC Examines How Trump Administration Could Affect Federal Overtime Regulations
In its latest SBLC Report, the Small Business Legislative Council (SBLC), of which PPAI is a member and for which PPAI President and CEO Paul Bellantone, CAE, serves as a board director, offers a quick and candid review of what’s going on in Washington, D.C. The mission of the SBLC is twofold: to make improvements in public policy for small business and to help member associations in their communications with business members. Please note that this weekly is for the sole personal, informational use of PPAI members and should not be posted to any website. Reproduced below for PPB Newslink readers, the SBLC Report looks at what effect President-elect Trump’s administration may have on a number of regulations in Washington, D.C.
Throughout his campaign Donald Trump promised to “get rid” of many of the regulations that were implemented during the Obama Administration. Trump coming into office with this promise and a Republican majority in the House and Senate brings into question the future of a number of regulations—including the new overtime regulations that are set to go into effect on December 1, 2016.
That said, the process for eliminating or changing regulations is far more complex than campaign talking points often suggest. Moreover, as to the overtime regulations specifically, it is unclear whether a Trump Administration will have the incentive or time.
Here are the key points as to where things stand.
- The new overtime rules are set to go into effect on December 1, 2016. There is currently a case pending in federal court in Texas challenging the new overtime rules (Plano Chamber of Commerce v. Perez). The judge in that case will be issuing a decision next week as to whether he will grant a preliminary injunction that would temporarily stay the immediate implementation of the new overtime rules. Most experts who have been following this case believe that there is a solid chance that the request for an injunction will be denied. That said, at the end of October, another district court judge in Texas issued a temporary injunction staying a big DOL government contracting regulation that was set to go into effect the next day, so a last-minute injunction as to the overtime rules is certainly not outside the realm of possibility.
- Assuming that no injunction is issued, the regulations will go into effect on December 1, 2016. President Obama would certainly veto any bill that Congress passes before then to repeal the rules, and there are not enough votes to override such a veto. That said, there is currently a Democrat-sponsored bill pending in the House (H.R. 5813) that would amend the new overtime rules to phase in the new salary threshold and eliminate the provision to automatically update the threshold every three years. With the Trump victory, it is unclear whether the Democrats will still be interested in supporting such a compromise or if the Congressional Republicans would be interested in anything short of a complete repeal.
- Again, assuming that no injunction is issued, the overtime regulations will be in effect for 50 days before Trump even takes office. Every day that the regulation is in effect and that businesses do not comply with the regulation is another day for which a misclassified employee can claim overtime. In other words, by the time Trump takes office, most businesses will have already reclassified employees or increased employee salaries and employees will have seen the effect of these changes. From a political perspective, this may make it more challenging, and less palatable, for a Trump Administration to move for a full repeal. This is particularly true in light of the fact that much of Trump’s success was due to support from blue collar and working class people, a group that is expected to benefit from the new rules.
- Unlike executive orders, final regulations—that is all final regulations, not just the overtime regulations—cannot be changed simply with the flick of a pen. The ability to change regulations is limited by the Administrative Procedure Act (APA).Under the APA, to change a regulation, an agency must make a determination that a change is necessary, propose the change and open the change up for public notice and comment. In general, this means that the agency must provide the public with 60 days after it proposes a regulatory change to comment on the changes and the agency must then give consideration to those comments. The APA only allows agencies to issue rules without engaging in the notice and comment period if the agency shows that there is good cause for the immediate issuance of the rule and that the notice and comment requirement would be “impracticable, unnecessary, or contrary to public interest.” In short, there must be a real and time-sensitive threat for an agency to avoid notice and comment, not simply a strong motivation on the part of the Administration to get something done quickly. Once notice and comment is complete, the agency can issue a final regulation. Absent good cause, the effective date of the final rule must be at least 30 days after its issuance.In summary, even if the Trump Administration issues a proposed rule to change or repeal the overtime rules on Trump’s first day in office (which is very unlikely), it would be at least another 90 days before the rule could be finalized. Thus, realistically, even if changing the overtime rules is Trump’s No. 1 priority (which it does not appear to be), absent court or congressional action, by the time the overtime rules could be changed through regulation, they would have been in effect for almost half a year.
- In theory, Congress could pass legislation to eliminate or force a change of the new overtime rules. However, while they hold the majority in both chambers, the Republicans do not have a filibuster-proof majority in the Senate. Thus, Republicans would need Democratic support to get a bill like this passed. While, as discussed above, the Democrats may be willing to support certain changes to the new overtime rules, there is little to no chance that the Republicans would be able to get enough Democrats to support a repeal of the overtime rules to avoid a filibuster.
- While applicable for the overtime rules, this need for 60 votes in the Senate for the regulation to be changed will not be true for all of the regulations issued by the Obama Administration. Under the Congressional Review Act (CRA), Congress has 60 legislative days (i.e. days that they are in session) after the issuance of a final regulation in which it can pass a resolution of disapproval by a simple majority to overturn the regulation. That resolution is then either vetoed or approved by the President. This means that the 60-day review period for regulations issued at the end of an Administration can carry over to the next Congress with a different president deciding whether to veto or approve the resolution. Since the CRA’s passage in 1996 only one regulation has been repealed through this approach.It remains to be seen exactly how many days Congress will be in session before January 20. However, based on rough calculations the practical reality of the CRA means that any Obama Administration regulation that was issued after approximately May 31, 2016, can be subject to a resolution of disapproval by a simple Republican majority and approved by Donald Trump. Fully aware of this deadline, many of the Obama Administration’s biggest regulations, including the overtime regulations, were issued well before May 31. However, there are more than a hundred regulations, including the regulation on mandatory paid sick leave for government contractors that, under the CRA, can be subject to review by the next Congress.
- As noted above, in light of the populist message that helped carry him to victory, it is unclear how eager Donald Trump will be to fully repeal the new overtime rules. While Trump has made many general statements about eliminating Obama Administration regulations, he has never specifically stated an intent to eliminate the new overtime rules. The only definitive thing that Trump has said about the new overtime rules is that he believes that there should at least be an exemption for small businesses.Technically, the overtime rules do already have an exemption for small businesses. The Fair Labor Standards Act (FLSA), which is the law from which the overtime rules stem, only applies to employers with annual sales of $500k or more or who engage in interstate commerce. Thus, businesses with annual sales of under $500k that do not engage in interstate commerce are not subject to the new overtime rules. However, in our digital inter-connected economy it is very difficult to find any business that is not engaged in interstate commerce. Thus, a “real” exemption from the overtime rules for small business would be welcome inasmuch as a company with sales under $500k is a very small business.
- Should Donald Trump not seek a full repeal of the overtime rules (which would put him at odds with many members of his party who have called for full repeal), the three changes to the overtime rules which we are most likely to see are (1) an exemption for small business, (2) the elimination of the provision to automatically update the salary thresholds every three years, and (3) either a phase in or a reduction of the new salary threshold. As noted above, the second and third of these are items that have been supported by Democrats, meaning, theoretically they could get passed without much of a fight from the left (though they might face opposition from an all or nothing coalition on the right).
- It is interesting to note that during his first presidential campaign, President Obama promised to repeal many of the Bush Administration regulations. However, President Obama ultimately ended up changing just a small fraction of the Bush era regulations even though the Democrats controlled the House and Senate in his first years in office.
As far as the overtime rules are concerned, the bottom line for businesses is that, if no injunction is issued next week, they should immediately prepare to comply with the new rules by December 1 by reviewing and confirming their employee classifications and should not expect the rules to revert back as soon as Donald Trump becomes president (or possibly ever).
Looking at Obama Administration regulations more broadly, any regulation that has been issued since May 2016 is primed for the chopping block but any regulation issued before then will be more difficult and slow to unwind.