Obama Administration’s Final Flurry of Labor Initiatives has Critics Crying Foul About Compliance Costs

Tuesday December 6th, 2016

PoliticalPresident Obama has spent the last year of his presidency focused on enforcing labor measures that generally favor workers. The most notable of these initiatives include the wide-ranging overtime rule and an executive order expanding disclosure requirements for federal contractors.

Citing high costs and excessive administrative burdens, business groups opposed to these and other measures are airing arguments to them from taking effect—or, at the least, to slow the process until the next president comes along.

The National Association of Manufacturers didn’t wait. A few weeks before Election Day, NAM released a report estimating that the Obama Administration’s labor initiatives will cost U.S. businesses an average of $8 billion per year, and the U.S. economy an average of 15,000 jobs per year, between now and 2027. NAM’s report said its estimate is so high because the compliance standards will force employers to cut jobs and hours, while increasing the prices of goods and services.[1]

As employers prepare for the uncertainty of a new administration under President-elect Donald Trump, we’ve checked in on the current status of the overtime rule and the executive order, and what the measures would really mean for employers if they were to take effect.

Overtime

The overtime rule was scheduled to take effect on Dec. 1 before it was halted in an injunction by a Texas federal court judge. If it ultimately passes court scrutiny, the rule is expected to make about 4 million workers newly eligible for overtime pay and more than double the salary threshold (up to $47,500) under which workers are automatically entitled to overtime pay.

Both the Labor Department and NAM have said that these requirements would put an extra $1.2 billion in workers’ pockets. Where the two groups disagree is the cost and administrative burden of the paperwork associated with the rule.

The Labor Department said employers should expect to spend about $300 million per year on expenses related to familiarizing themselves with the rules, determining whether workers satisfy the rule’s exemption requirements and more closely monitoring employee hours.

But the NAM report argues that DOL is overlooking anywhere from $952 million and $2.4 billion in additional paperwork costs. All in all, the report claims, employers would pay as much as $24 billion to comply over the next 10 years.[2]

Contractor Disclosure Requirements

NAM and other business groups are also concerned about the compliance costs associated with the Fair Pay and Safe Workplaces executive order. Implemented by DOL and the Federal Acquisition Regulatory Council, the order requires certain contractors to disclose violations of 14 federal labor and employment laws and state-law counterparts to compete for government projects.

Critics say the order gives government agencies the power to “blacklist” contractors based on unproven allegations and subjective interpretations of settlements and administrative rulings that were not final. Republicans oppose the order for adding an unnecessary layer of bureaucracy to an already complex federal procurement process.’

In its report, NAM predicts that contractors will have to create expensive systems to track compliance with the 14 laws and are at risk for higher litigation costs because they won’t be able to rely on mandatory arbitration to settle worker disputes. NAM estimates total compliance costs of $3.2 billion over the next 10 years.

However, a federal judge in Texas—a different federal judge in Texas than the one who placed the injunction on the overtime rule—granted business groups’ motion for a nationwide injunction in October, temporarily halting the rule’s provisions hours before they were to take effect.[3]

What happens next?

The court battle isn’t nearly over for these two initiatives. In fact, they’re just getting started. But the clock on the Obama Administration is ticking. Adding to the uncertainty about the fate of these measures is what President-elect Trump will do. The general assumption is that there will be changes (most likely in favor of employers) but neither lawmakers nor employers know if that means a complete overturning of a rule or changes to some parts.

Because of this general uncertainty, employers should continue to track news and updates on the impact of these and future court rulings.

 


[1] NAM estimates are based on figures from the Labor Department, the White House's Acquisition Regulatory Council, the U.S. Chamber of Commerce and the National Federation of Independent Businesses, among other sources.

[2] We recommend reading this previous blog post on the overtime rule for more detailed information.

[3] The court did keep the rule's pay transparency requirement for covered bids, which is effective Jan. 1, 2017.