Breach of Contract and Morale Issues Threaten Businesses After Injunction

Changing the overtime threshold was never going to be easy but pausing the rule complicates things in a big way. Do employers undo what was already done – take back their promises of a salary increase or eligibility for overtime? How will employees deal with the news? What does the law allow?

The Difficulty of the Threshold Changes

for employers

Besides the expense of raising salaries and paying overtime, one of the biggest hurdles with this change included informing employees and helping them understand what’s happening and why. Employers had to practically “demote” salaried employees to hourly status, restructure their benefits, their pay rates, their scheduled hours, etc. This process was very upsetting for some employees and positively joyous for others.

for employees

Salaried employees who didn’t work much, if any, overtime were probably the hardest hit by this rule. They were about to lose their regular, steady paycheck for one based on hours they now had to record. Salaried status comes with benefits and one of those is the steady paycheck regardless of how many hours the employee works. These employees will be happy to hear things are back to normal (for the time being anyway).

Employees who would now work less for more money, however, couldn’t be happier. Employees who had been expected to work unlimited hours of overtime, would now get either a break or compensation for the extra hours they put in. Employees who were being instructed not to work overtime from now on could either enjoy more free time or pick up a second job, thereby increasing their salary from what it was previously. How do you take all that away?

How to Deal With The Reversal

Many larger companies, and plenty of small ones too, simply won’t rescind their promises. The injunction came just 10 days prior to the day the new overtime rule was scheduled to go into effect. Many employees were switched over to hourly status early or were scheduled to receive a raise come December 1st. Taking back the raise employees were expecting might be a nightmare for employee morale. Switching employees back to salary that were expecting to start making overtime will also be difficult news to break.

What to tell employees

If the changes were not yet implemented, employers can just tell employees like it is: the law is on hold, we will wait for a final answer. But do they want to do that? Employees that were on the edge of the salary threshold were probably offered small raises. Employees that were expecting to start making overtime may have already started tracking time and were aware of the added benefit they would be getting (as was this commenter on a previous blog post). To soften the blow, employers can explain the hardship that raises would have put on the business and hope employees understand.

Employers should weigh the damage. Offering raises and overtime anyway or hurting employee morale and potentially suffering losses from employee turnover.

Legal implications

Reversing salary increases may not be as simple as employers think. Some states require a notice period. Employers that already implemented the changes should work with a lawyer to be clear of any breach of contract issues.

“In most states, employers merely need to give employees notice of a change in pay before the beginning of the pay period in which the new wage rate comes into effect.

But some states require impose additional requirements.  The New York Department of Labor, for example, explains that if the information in an employee’s wage statement changes, “the employer must tell employees at least a week before it happens unless they issue a new paystub that carries the notice. The employer must notify an employee in writing before they reduce the employee’s wage rate. Employers in the hospitality industry must give notice every time a wage rate changes.”

Maryland (and Iowa) requires notice at least one pay period in advance.  Alaska, Maine, Missouri, North Carolina, Nevada and South Carolina have their own notice requirements.” – From Epstein, Becker, Green