FastCasual: Judge strikes down Obama's OT ruling, industry leaders urge compromise

While many restaurateurs might be relieved to hear that a Texas judge struck down the 2016 rule expanding overtime protection to millions of white collar workers, one industry leader said it signaled a need for compromise. 

"Today's decision is a horrible step backwards for tens of thousands of workers," Boloco CEO John Pepper said of U.S. District Judge Amos Mazzant's ruling Thursday that the U.S. Department of Labor improperly used a salary-level test to determine which workers were exempt from overtime compensation.

"While overtime at 1.5 times regular pay is incredibly harsh and hurts workers inadvertently by forcing them to find second and third jobs — because few businesses can afford to essentially pay 50 percent bonuses on hours 41 and after, and therefore don't — this is a loophole that needed to be closed," he said. "Seesawing back and forth between policy extremes is going to hurt everyone. If opposing sides would compromise, we might actually make progress. I've found neither side willing to do so with any consistency." 

Mazzant granted summary judgment to the Plano Chamber of Commerce and more than 55 business groups challenging the rule — initially created under the Obama administration — which raised the minimum salary threshold required to qualify for the Fair Labor Standards Act's "white collar" exemption to just over $47,000 per year. The mandate also would increase the overtime eligibility threshold for highly compensated workers from $100,000 to approximately $134,000.

"The department has exceeded its authority and gone too far with the final rule," Mazzant wrote in his order. "The department creates a final rule that makes overtime status depend predominately on a minimum salary level, thereby supplanting an analysis of an employee's job duties. Because the final rule would exclude so many employees who perform exempt duties, the department fails to carry out Congress' unambiguous intent."

The National Restaurant Association's Restaurant Law Center supports today's decision, said Executive Director Angelo Amador.

"The Department of Labor under the previous administration overstepped its authority in making changes to the federal overtime rule," he said in a press release. "Today's decision to invalidate the rule demonstrates the negative impacts these regulations would have had on businesses and their workers. We will continue to work with DOL on behalf of the restaurant industry to ensure workable changes to the overtime rule are enacted." 

A reply brief from the DOL said that although it still could change the rules to allow more salaried employees to be eligible for time-and-a-half pay, it would not advocate for "the specific salary level $913 per week set in the final rule at this time."

Leaders call for a compromise

Many fast casual leaders said that although the Obama-era ruling had good intentions, it simply went too far. Today's decision is a chance to fix that, said Laura Rea Dickey, CEO of Dickey's. "The OT law is a classic example of good intention resulting in bad legislation," she said in an interview with FastCasual. "The OT legislation had the unintended consequence of employers scrambling to reduce workforce instead of grow it, reduce hours instead of increasing them because the burden was too great for employers to bear. I would like to see the restaurant industry propose better legislation for retaining great talent instead of regulations suppressing talent, profit and free market principles."

Don Fox, CEO of Firehouse Subs, said he expects the Department of Labor to continue to collect comments regarding a possible escalation in the salary level, but that middle ground should be sought. 

"So I strongly suspect that will continue and that there will be a reset on the minimum salary requirement, but one that makes sense — unlike what was proposed by the prior administration," he said.

Fazoli's CEO Carl Howard agreed, saying that exempt salary workers deserve a raise, but that the Obama plan was dreadful for several small business owners.

"I am very thankful that it will not go to $47,496. It should go up by 30-35 percent from the current rate, and then it should be increased every year with cost of living or some rational inflation wage rule," he said in an interview with FastCasual. "I think it can get to where the Democrats want it to go, but it needs to be gradual so businesses can adjust and plan for the new norm. "

Overall, Howard believes the ruling is good news for the brands that operate lower AUV locations.

"I heard from several Subway owners, and they were freaking out," he said. "With unemployment at 4 percent, very few hourly or exempt workers are being hired at the minimum threshold. The best part about democracy is the market really dictates the wage rate. If brands need employees or talent, they will pay for them.

"The fact is that the hourly and salary employee today has several choices, and almost every organization is in a need state to add quality workers to their business." 

Bill DiPaola,  president and COO of Dat Dog Enterprises, said that although he agrees with the court's decision, it doesn't mean that restaurants and other industries can maintain the status quo. 

"I believe it imperative that the DOJ and the trade associations need to work together to find a more detailed, more nuanced means test that would properly classify employees so that the flexibility of scheduling, which is crucial to the restaurant industry, is maintained while also not allowing businesses to unfairly classify employees in order to avoid paying overtime," he said in an interview with FastCasual. "Having an imprecise duties test that is too broad is what causes this problem."