Court Invalidates Overtime Rule Unpopular Within Construction Sector
Remodelers, home builders, and subcontractors are claiming victory in their effort to strike down a Department of Labor rule that increased the salary threshold for workers eligible to receive overtime pay. On Nov. 15, the U.S. District Court for the Eastern District of Texas invalidated the overtime rule, finding that the DOL exceeded its statutory authority by issuing the final rule earlier this year.
The rule had been challenged by a coalition of small businesses and industry associations, including the National Association of Home Builders and the Associated Builders and Contractors, citing the negative effect it could have on the housing sector, among other concerns.
The rule took effect in July and increased the annual salary level eligible for overtime pay from $35,568 to $43,888, with another increase to $58,656 to occur on Jan. 1, 2025. Additionally, beginning July 1, 2027, salary levels were to update every three years. As a result of the court’s ruling, the salary level for determining overtime pay reverted to the pre-2024 level, with a minimum salary threshold of $35,568, and a "highly compensated employee" exemption salary threshold of $107,432.
“This is a huge win for NAHB, home builders and remodelers, and associated subcontractors,” said NAHB Chairman Carl Harris. “The ruling means that bureaucrats in Washington cannot arbitrarily mandate salary levels when regulating how employees are paid and must abide by established labor laws.”
In issuing its ruling, the court noted that the Fair Labor Standards Act (FLSA), which allows the DOL to define and delimit which employees are exempt from overtime pay requirements, focused on the duties an employee performs rather than their wages to determine whether they should be exempt from overtime pay. Although the court acknowledged that the DOL has authority to include a salary threshold component in determining whether an employee is exempt, the court held that the salary threshold must be a reasonable proxy for the duties test.
The court also held that “because the 2024 Rule’s changes make salary predominate over duties for millions of employees, the changes exceed [DOL’s] authority to define and delimit the relevant terms.” The court further noted: “When a third of otherwise exempt employees who the [DOL] acknowledges meet the duties test are nonetheless rendered nonexempt because of an atextual proxy characteristic — the increased salary level — something has gone seriously awry.”
Additionally, the court held that the FLSA requires DOL to define and delimit the exemption through the formal notice-and-comment rulemaking process, which means that the 2024 Rule’s automatic updating feature is unlawful and exceeds DOL’s statutory authority.
The law firm Foley Hoag, which had monitored the court challenge, noted that with the upcoming change in administrations, the 2024 Rule is likely dead in the water. However, they noted that overtime exemptions remain a popular topic, so they anticipate future action from the incoming Trump administration on this subject.
