New Overtime Rules Hit Contractors, But Legal Challenges Mount

Construction contractors and other employers are now faced with new, expanded federal overtime rules for employees.

The U.S. Department of Labor’s rule took effect July 1 and extended overtime protection to about 1 million workers in the U.S., including those in the construction industry.

The rule, however, faces legal challenges. A federal judge in Texas has already blocked the rule from affecting public workers in Texas. Business groups, including those representing the construction industry, have also filed suit to block the new rule.

But for now, the rule is in effect. As of July 1, the minimum threshold on salaried workers eligible for overtime rose from $35,568 to those earning $43,888 a year. The eligibility threshold rises again January 1 to $58,656. Beginning July 1, 2027, salary levels will update every three years.

The Associated Builders and Contractors joined a lawsuit filed by other business groups in May to block the rule.

“This will disrupt the entire construction industry, specifically harming small businesses, as the rule will greatly restrict employee workplace flexibility in setting schedules and hours, hurting career advancement opportunities,” said Ben Brubeck, ABC vice president of regulatory, labor and state affairs.

He added that “virtually all” of ABC’s more than 23,000 members employ workers who were exempt from overtime rules but now would be reclassified. The new rule will hurt the economy and increase inflation, he says. “The rule’s triennial automatic indexing provision will exacerbate the harmful impact on businesses and will add to rampant inflation that is already harming the economy as a whole.”

The Labor Department argues that the new rule is about fairness for workers on the lower rungs of the salary ladder.

“This rule helps ensure that more lower-paid salaried workers who should receive overtime protections under the law actually receive those protections,” said Acting Secretary of Labor Julie Su. “… That means more money in these workers’ pockets and a little more breathing room.”

The Associated General Contractors and the American Road & Transportation Builders Association have also lodged concerns with the Department of Labor about the new rule and sought a delay in its implementation so it could face judicial review.

A similar rule enacted in 2016 by the Labor Department was struck down in federal court in 2017. It was the same court, the U.S. District Court for the Eastern District of Texas, where ABC and others have filed their recent lawsuit and where the judge recently blocked the rule from affecting workers in Texas.

“In 2017, this court permanently enjoined the DOL’s 2016 overtime rule,” Brubeck said. “We are once again back before the court because the DOL, in direct defiance of this court’s previous ruling, decided to move forward with a new overtime rule that increases the minimum salary level threshold for exemption far beyond a level which the DOL is permitted to adopt.”

At this point, though, the rule is in effect, while the legal challenges are underway.

A blog on the Littler's Workplace Policy Institute’s website offers this advice:

“In the meantime, employers should review their salaries and evaluate their classification policies to determine what is necessary to come into compliance with the new overtime rule, if and when it becomes effective. Employers may need to increase salaries or reclassify currently exempt employees. That decision can be complicated and should be made with the guidance of experienced counsel.”