Court Vacates New Overtime Rule in Major Win for NAHB

In a major win for NAHB members on Friday, the Eastern District of Texas issued a nationwide injunction in a coalition lawsuit NAHB filed challenging the Department of Labor’s 2024 Overtime Rule. As a result of the ruling, the salary level for determining overtime pay eligibility for salaried employees — categorized as executive, administrative or professional workers — has been lowered to the pre-2024 level of $35,568.

“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 late 2023, the DOL proposed a rule that would increase the current salary level for determining overtime pay requirements for executive, administrative, professional, outside sales and computer employees from $684 a week ($35,568 annualized) to $1,059 a week ($55,068 annualized) — a nearly 55% increase.

The court noted that the Fair Labor Standards Act (FLSA), which allows 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 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 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.”

The court also 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.

As explained by the court, the DOL “endorses the Automatic Indexing Mechanism based on its conclusions that (1) it hasn’t done a bang-up job administering the EAP Exemption over the years; (2) its sporadic regulation has been driven by the difficulty of its task; so (3) the best way forward is to abdicate from more frequent and thorough rulemaking efforts by placing the regulation of the EAP Exemption on autopilot through the Automatic Indexing Mechanism. While this may be a satisfying solution for [DOL], it is unlawful under the [Administrative Procedures Act]. As it turns out, the APA’s notice-and-comment provisions must be followed even when an agency finds them inconvenient.”

The court relied on the Supreme Court’s recent decision in Loper Bright Enterprises v. Raimondo, which overturned the long-held Chevron deference, to guide its interpretation of FLSA. It also utilized the APA to vacate the rule nationally and remand it to DOL for further consideration in light of the opinion.

NAHB remained active throughout the rulemaking process and submitted comments when DOL issued the proposed rule, citing the negative impact such a significant increase would have on housing affordability, among other concerns.