For the second time, a Texas federal court has struck down a Department of Labor (DOL) rule that sought to expand the scope of overtime eligibility. In his decision, Judge Sean Jordan ruled that the DOL exceeded its rulemaking authority by raising the minimum salary for exemption as an executive, administrative or professional employee under the Fair Labor Standards Act (FLSA).
The Fair Labor Standards Act Background
The FLSA mandates that employers pay nonexempt employees one-and-a-half times their regular rate for hours worked beyond 40 hours per week. But the FLSA includes an exception for any employee in a bona fide executive, administrative or professional role ("EAP Exceptions"). Importantly, the FLSA does not define these terms or specify a minimum salary. That is a job for the DOL.
The Department of Labor's Rule
The DOL's recently issued rule (the "2024 Rule") was set to update the minimum salary at which executive, administrative and professional employees are exempt from overtime pay under the FLSA. The 2024 Rule would implement three staged changes to the EAP Exceptions:
- First, the 2024 Rule raised the minimum salary level from $684 per week to $844 per week, starting on July 1, 2024.
- Second, the 2024 Rule raises the salary level from $844 per week to $1,128 per week starting on January 1, 2025.
- Third, the 2024 Rule would implement a mechanism to automatically increase the salary level every three years based on contemporaneous earnings data.
The 2024 Rule also increased the minimum annual compensation level for exemption as a "highly compensated employee" from $107,432 to $132,964 effective July 1, 2024, and to $151,164 effective January 1, 2025. The DOL suggested that its new rule would have made approximately four million employees eligible for overtime under the FLSA.
Judge Jordan's Decision
On November 15, 2024, Judge Jordan, of the United States District Court for the Eastern District of Texas, issued a decision invaliding the entirety of the DOL's 2024 Rule. Although the DOL is tasked with defining the terms of the overtime exception, "that authority is not unbounded." The court stated that the DOL "exceeded the authority delegated by Congress" because it increased the minimum salary to a level that effectively displaced the duties test required by the FLSA with a salary-level test. The court found that the 2024 Rule would have major effects on employers and employees, and accordingly, struck down the rule on a nationwide basis.
What Does this Decision Mean for Employers?
By invalidating the DOL's 2024 Rule, the old salary threshold for the EAP Exceptions remain in effect (i.e., a minimum of $684 per week or $35,568 annually). The previous minimum annual compensation for highly compensated employees remains in effect as well (i.e., $107,432 annually).
The upcoming change in administration adds a level of uncertainty as to whether the DOL will seek an appeal. If an appeal is filed by the current administration, the DOL under the Trump-Vance administration may ask for a stay while it implements new regulations that undo or change the regulations that were set to take effect on January 1, 2025.
How Should Employers React to this Decision?
- Whether the DOL seeks appeal or not, this decision currently has no impact on state or local overtime exceptions. Employers should continue to comply with all such requirements.
- An employer that has yet to notify employees of changes in salary or exemption status has a basis to hold off on making those changes under invalidation of the 2024 Rule.
- An employer that has notified employees that changes will go into effect in the future may revise its notifications to its employees that the planned changes have been withdrawn.
- An employer that has already made salary increases or reclassified employees as eligible for overtime may legally withdraw that action. But, employers should be cautious of any effects this may have on employee morale.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.