The U.S. Department of Labor's ("DOL") Final Rule expanding overtime eligibility has been blocked nationwide, six weeks prior to its January 1, 2025 deadline for employers to comply with a second minimum salary increase for qualified employees. On November 15, 2024 a federal court in the Eastern District of Texas vacated the DOL's Final Rule expanding overtime eligibility to over four million workers. The Final Rule, which significantly increased the minimum weekly salary to qualify for the FLSA's white-collar exemption, was to be enacted in phases, including: (1) a first increase in minimum weekly salary on July 1, 2024; (2) a second increase of the minimum weekly salary to $1,128 on January 1, 2025; and (3) implementation of an "escalator" provision to increase the minimum salary level every three years. The court struck down every component of the 2024 Rule. More information on the 2024 Rule can be found in our prior article, DOL's New Rule Increases Salary Threshold for FLSA Overtime Exemption Eligibility.
The court framed the issue as one of the DOL's authorization to increase the minimum salary level. Judge Sean Jordan held that the FLSA did not so authorize the DOL, and thus the DOL exceeded its authority when enacting the rule. This is the same analysis the Eastern District of Texas employed in June 2024 to block the Final Rule's implementation as against the State of Texas and its employees. The court's November 15th ruling blocks the Final Rule nationwide.
Determining whether employees are exempt from overtime pay under the white-collar exemption requires an examination of the employee's duties and salary. The court explained that although the DOL may consider salary as a part of its authority in determining overtime requirements, "a salary test cannot displace the duties test." The court found that the salary thresholds set by the 2024 Rule "effectively eliminate" consideration of the employee's duties. To support its conclusion, the court emphasized the breadth of the 2024 Rule, as it was estimated to render 4 million workers overtime exempt.
In light of this decision, the January 1, 2025, increase will not take effect, and employers do not need to increase salaries to maintain overtime exemption status. The DOL may seek an appeal to the Fifth Circuit Court of Appeals, but the likelihood of the DOL seeking that appeal is unclear in light of changes within DOL leadership expected as President-elect Donald Trump's administration transitions into control.
If you have any questions on the invalidation of the 2024 Rule, please contact a Thompson Coburn attorney.
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