No raise for you? How agencies are coping with overtime limbo

Agency employees hoping for bigger paychecks this week may be facing a long wait.

No raise for you? How agencies are coping with overtime limbo

Just days before thousands of employees at ad agencies across the country were set to begin receiving larger paychecks, a judge in Texas issued an injunction last week preventing the implementation of sweeping new federal overtime rules.

For the last eight months, agencies have been scrambling to figure out how to rearrange their budgets to meet the requirements of the law, which mandated overtime pay for any employee making less than $47,476 per year. Solutions ranged from across-the-board pay raises to strict timesheet keeping to base salary reductions.

When the December 1 implementation deadline loomed, the fixes seemed like long-term solutions. Now it looks like much of that work was moot, and without clear guidance from the Labor Department, or an imminent Trump administration, agency executives and employees have been left in an awkward halfway space between the old guidelines and the now-defunct update.

"This is uncharted territory in labor law," said Sharon Napier, CEO of Partners + Napier, a 150-person Project: Worldwide shop based in Rochester, New York. After months of planning, the agency had decided to pay the new overtime costs for employees working more than 40 hours per week, rather than give out blanket promotions and raises. At a mid-size agency in a non-major market, "people aren’t working a zillion hours," she said, so overtime is more often an exception than an expectation.

In the immediate wake of the injunction, "we don't know enough to give an informed response, but call on the government and courts to provide clarity as soon as possible," Napier said. "We of course want to take care of our people while being compliant with the law and will always do what’s right for our people and our company—the government and court's confusion won’t stop us from that."

Other agencies are also holding for more information. "We’re just going to hit the pause button," said Steve Connelly, president of Connelly Partners in Boston. To meet the requirements of the overtime law, the agency had planned to raise all salaries above the minimum threshold, a move that would have affected 23 of its 150 employees. An additional 20 people with salaries just above the threshold would have seen their salaries rise as well, to differentiate them from their entry-level colleagues. The agency was holding off on implementation until the compliance deadline, because "there was some suspicion that something weird would happen," Connelly said.

Larger agencies are also caught up in the confusion. Last week, FCB was bracing itself to pay overtime to employees under the new threshold, according to Cynthia Augustine, global chief talent officer. TBWA\Chiat\Day New York had decided to implement overtime changes on a case-by-case basis. "It was common sense compliance," said CEO Rob Schwartz. "We looked at all the salaries and figured out who can go to hourly and who can’t. It was very arithmetic." The injunction means a reevaluation of all that math.

None of the agencies that Campaign US spoke to last week has yet implemented any changes to salaries or pay structure, but many American companies already have, and it’s likely there are ad agencies among them. In October, retail giant Walmart preemptively gave raises to its assistant managers.

It would be problematic at best for those companies to now walk back those raises.

"You’d have a workforce with pretty low morale," said Angela Cornell, clinical professor of law and founding director of the Labor Law Clinic at Cornell Law School. "You’d really have to think twice. It’s not a sound business practice."

However, if an employer chooses to roll back raises or end newly awarded overtime pay, there is little employees can do about it.

"Some employers have already instituted raises, and hopefully those increases will not be withdrawn. Employees will have no recourse if those increases are reduced," Cornell said, "unless perhaps they are covered by a collective bargaining agreement that would require negotiations prior to changes."

Though the overtime rule’s situation looks bleak, its future is uncertain. The judge in the overtime case, Amos Mazzant, U.S. District Judge for the Eastern District of Texas, issued a preliminary injunction, not a permanent one, and the Justice Department is expected to file an appeal.

"It is becoming increasingly more difficult for the rule to be implemented," said Cornell. "It could be reversed, but the clock is ticking." 

More likely, the appeal will be dropped on January 20, when Donald Trump takes the oath of office and his administration takes over the Department of Labor. If that happens, the overtime threshold of $23,660, a cap that’s been raised only once since 1975, will stand.

But that doesn’t mean agency employees won’t end up with more money in their pockets—eventually. Opposition to the overtime rule from business groups and Republicans was a matter of degree; they lobbied for an increase in the threshold to about $35,000, not nearly $50,000, and some agency owners expect they’ll revive those proposals.

"That would be my guess. That would be appropriate," Connelly said. "Clearly there needs to be an increase in the threshold."

The Obama administration and the Department of Labor spent years shepherding the rules past a reluctant Congress. Flanked by two Republican-controlled houses of Congress, President Donald Trump could undertake the same task that Obama did—an increase in take-home pay—and brand it as his own.

"There are two choices," said Dick O’Brien, EVP of government relations at the 4A’s, the American Association of Advertising Agencies. "They could issue a new rule proposal. The problem with that is it’s a lengthy process. You’ve got to promulgate the rule, you’ve got to open it to comments, and then you’ve got to respond."

This is the path the Obama administration took when it created the rule. It avoids Congressional gridlock, but needed to wend its way through a minefield of red tape.

"The rule-making process is cumbersome and time consuming," Cornell said. "If they alter it through the administrative process, it could take a couple years." In the meantime, agency employees would see their paychecks unchanged.

Passing an entirely new overtime threshold with the help of a simpatico Congress would be "more efficient," O’Brien said. "It could be done more quickly and it would go into effect faster."

In mid-October, the 4A’s signed onto a letter from the Partnership to Protect Workplace Opportunity, a coalition spearheaded by the Society for Human Resource Management that includes pro-business groups like the U.S. Chamber of Commerce. The group supports a business-friendly version of the rule proposed by Sen. Lamar Alexander (R-TN). It recommends phasing in threshold increases over four years and removes the automatic increases called for by the rule to account for cost of living increases and inflation.

"This could be the template," O’Brien said, of Alexander’s proposal. "It would probably get picked up in the House, easily signed by President Trump."

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