What Does Striking Down the Overtime Rule Mean for Small Businesses?

After a coalition of businesses filed a lawsuit earlier this year in objection to a Biden administration rule that would have seen mandatory overtime pay extended to 4 million additional workers, as Reuters reported, that rule was recently struck down by a federal judge in Texas.

The rule in question applied to salaried workers earning less than $1,128 per week, or $58,656 per year, when they worked more than 40 hours in a week. Under such a scenario, as of Jan. 1, 2025, those workers would have been entitled to overtime premiums.

A smaller threshold hike had already been enacted by the Department of Labor (DOL) on Apr. 26 and took effect on July 1. However, now that the DOL's new rule has been struck down by U.S. District Judge Sean Jordan, the threshold is returning to $35,568, which was originally enacted in 2019 under the Trump administration.

Small Business Owners Mostly Pleased With the Ruling

Small business owners — and more prominently, organizations representing them — appeared pleased with the judge's decision to strike down the incoming rule, as AP News detailed.

“As a small business, managing labor costs is critical, and the proposed change would have increased expenses significantly,” Sheldon Sutherland, owner of Epoxy Werx, a San Diego-based business, said. “The decision allows us to maintain current pay structures, ensuring financial stability while continuing to offer competitive wages.”

“Although blocking any increase to the threshold fails to take into account inflation, the Department of Labor tried to do too much too fast resulting in sticker shock for small businesses that are still recovering from the pandemic,” Small Business Majority Founder and CEO John Arensmeyer said. “More measured and predictable increases are in order.”

While most responses from entrepreneurs and small business owners and organizations were in support of striking down the Department of Labor (DOL) rule change, some exhibited displeasure over the recent ruling, as AP's Mae Anderson underscored.

“From a business perspective, having clearer guidelines around overtime pay also helps to avoid potential disputes or misunderstandings about compensation,” Stephanie Penn, owner of Tee & Honey, an online T-shirt boutique based in Southfield, Michigan, said. “By striking down the rule, it places a heavier burden on businesses like mine, which strive to do right by their employees, while also leaving room for inequities that could harm both morale and retention.”

Department of Labor To Appeal the Ruling, but There Are Complications

On its website, the DOL made it clear that it had already filed an appeal against the ruling from Jordan.

"Lawsuits regarding the 2024 final rule are currently pending in two other federal district courts, and the United States has filed a notice of appeal from the November 15 decision," the DOL stated, going on to say it would provide updates as soon as they become available.

As law firm Armstrong Teasdale pointed out in a Nov. 18 advisory, however, things remain quite uncertain as to the future of the Biden administration's proposed rule change.

Indicating that it was highly unlikely that the DOL's appeal would be resolved by the proposed Jan. 1, 2025, date of the next planned increase, the law firm suggested it was also uncertain whether the incoming Trump administration would endorse the rule at all — or perhaps abandon it altogether.

The tug of war between what some observers might call fair remuneration and what other analysts might term expected operating costs is certainly not a novel contest, but it is one that this most recent ruling has done an excellent job of highlighting.