U.S. President Barack Obama
The verdict imperils one of the outgoing President Barack Obama's signature achievements for boosting wages.Reuters

A federal judge in Texas on Tuesday (22 November) blocked a new rule by the Obama administration from coming into effect that could have extended overtime pay eligibility to about 4.2 million workers.

In May, the Labor Department had released the new rule, which would have come into force from December 1. The new regulation would have doubled the threshold at which executive, administrative and professional employees are exempt from overtime to $47,476 (£38,252) from $23,660 (£19,069).

The rule required an employer to pay time-and-a-half to the employee whenever they worked more than 40 hours a week and earned less than $47,476 a year.

However, district judge Amos Mazzant, in Sherman, Texas sided with plaintiffs of the case, who complained that the new rules would have increased government costs at a state level and made it compulsory for businesses to pay millions more in salaries and granted a nationwide preliminary injunction that will delay the implementation of the regulation.

Business groups argued that the new overtime rule would have eventually led to job cuts.

Mazzant wrote in the 20-page ruling, "The Fair Labor Standards Act says that employees can be exempt from overtime if they perform executive, administrative or professional duties, but the rule "creates essentially a de facto salary-only test."

The ruling further read: "The State Plaintiffs have shown a likelihood of success on the merits because the Final Rule exceeds the Department's authority."

In a written statement, Justice Department said that it was "reviewing the court's opinion and order and considering any next steps."

Juanita Duggan, CEO of the National Federation of Independent Business said "This is a victory for small business owners and should give them some breathing room until the case can be properly adjudicated."

Christine Owens, head of the National Employment Law Project, an advocacy group for workers, told USA Today, "Unfortunately, for the time being, workers will continue to work longer hours for less pay thanks to this obstructionist litigation."

Officials at the Labor Department and advocacy groups argued that it would make sure that administrative employees and managers are paid fairly for the extra hours they put in and shorten a wage gap between wealthy and low to middle income households.