Carmen Alvarez said she was crushed when her employer, Chipotle Mexican Grill Inc., reversed its decision to pay her and her fellow workers overtime late last year, despite a new federal rule that she believed enabled her to receive time-and-a-half for work over 40 hours.

The 55-year-old, who worked for the fast-food chain in New Jersey since 2013, said she finally received the boost, along with millions of other workers newly eligible for overtime pay. It was then quickly pulled away thanks to a court decision that temporarily halted the U.S. Department of Labor from enforcing the regulation, according to a lawsuit filed in the U.S. District Court of New Jersey Wednesday.

The lawsuit claims the overtime rule is still in effect, despite the injunction, and companies that decided not to comply are violating federal labor laws. In 2016, the Labor Department updated the federal salary threshold for overtime eligibility for the first time in 12 years, from $23,660 to $47,476. It made 4.2 million workers newly eligible for overtime pay.

“This case isn’t just about Chipotle, though. Millions of Americans are working long hours and not getting paid the money to which they are entitled,” said Alvarez, who no longer works for Chipotle, in a statement accompanying the suit. “It’s time for that to stop.”

The regulation came under fire in a lawsuit filed by 21 states and a coalition of business groups that argued the Labor Department’s enforcement of the rule would be harmful to their bottom lines. That case is pending before the U.S. Court of Appeals for the Fifth Circuit.

Companies were expected to comply with the regulation by last Dec. 1. A Texas judge in late November blocked the rule, and the Labor Department filed an appeal in the Fifth Circuit. The case is pending there.

The injunction inspired many companies to hedge their bets and keep the status quo for their workers as the issue was tied up in the courts, observers have said.

Yet, the lawsuit filed against Chipotle argues that private companies must still comply with the rule unless it is overturned and the appeals court ruling applies only to certain state government employees.

“Chipotle is denying overtime pay to thousands of workers that live paycheck to paycheck and rely on their weekly income to make ends meet,” said Joseph Sellers, a partner at Cohen Milstein Sellers & Toll, which represents the lead plaintiff in the suit. “More broadly, Chipotle is not the only company to avoid paying overtime to its employees by illegally hiding behind a ruling that does not apply to them.”

Attorneys from Cohen Milstein, Outten & Golden and Green Savits are representing the Chipotle workers in this case.

Chipotle spokesman Chris Arnold said the company’s policy is to not comment on ongoing legal proceedings. He said all of the chain’s employment practices are compliant with applicable laws. He added, “A lawsuit is nothing more than allegations, and the filling of a suit is in no way proof of any wrongdoing.”

The Labor Department did not respond to a request for comment.

Peter Fox, counsel with the National Employment Law Project, said companies that did not comply with the overtime rule could have made a mistake. He said a preliminary injunction stops only the parties before the court, and in this case that would be the Department of Labor. It does not stop the private right to action to give employees the right to sue under the regulation.

“I think that would be a risky decision on their part,” Fox said. “If a company consulted administrative lawyers, I think they would have said ‘we don’t have an order to set aside this rule.’ They still risk private lawsuits.”

In April, the Texas appeals court extended the deadline for the Labor Department to file its reply brief—the third and final brief in any appeal—until June 30. The Labor Department, represented in the case by the Justice Department, asked for an extension to allow “incoming leadership personnel adequate time to consider the issues.”

Labor Secretary Alex Acosta, at a hearing Wednesday before a House Appropriation subcommittee, reaffirmed a comment he made during his confirmation hearing that the overtime threshold should be addressed, while acknowledging that nearly doubling it was a “shock to the system.”

Some employers tried to get their compliance plans in place by Dec. 1, others implemented them before and others kept their policies in place, said Marc Freedman, executive director of labor law policy at the U.S. Chamber of Commerce. There were not any broad patterns, he said. To comply, an employer could increase exempt salaries or move them to nonexempt.

“Employers did both and there are examples of them doing both,” Freedman said. “The ones who increased the salary threshold would have a harder time undoing that change.”

Mark Konkel of Kelley Drye & Warren said many companies will wait for implementation to change their practices.

“Payroll was about to massively increase for companies. Now, that regulation has been blocked,” Konkel said. “But I would not be surprised if some of those companies still feel a social pressure to address overtime. They exist in an economy where there is upward wage pressure.”

Michael Lotito, co-director of Littler Mendelson’s Workplace Policy Institute, a conservative think tank associated with the labor and employment firm, noted some companies, like Wal-Mart, embraced the overtime rule publicly.

“They either did or didn’t,” Lotito said. “The companies made decisions and are living with them. From a practical standpoint, given the fact that we’ve added jobs and wages are up, now we’ve got a labor market where employees are in the driver’s seat. That will create wage and benefit pressure. For some $47,000 is not as high as it once was.”

Instant Insights /

Chipotle workers sue for overtime, testing scope of Obama-era rule

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