Publication
Federal Court in Texas Strikes Down the DOL’s New Overtime Rule
By Jennifer R. Yee and Tyler Wills
On November 15, 2024, a federal judge in the Eastern District of Texas put an end to the Department of Labor’s (DOL) recent increases to the minimum salary thresholds for certain exempt employees under the Fair Labor Standards Act (FLSA). The DOL’s new rule had expanded overtime eligibility to millions of additional “white collar” employees by increasing the minimum salary level for an employee to qualify as exempt under the FLSA. The judge ruled that the DOL’s increases to the minimum salary level exceeded the DOL’s statutory authority and scrapped the rule nationwide.
The DOL’s 2024 Rule
To qualify for the executive, administrative, or professional (EAP) overtime exemption to the FLSA, an employee must satisfy (1) the applicable duties test; and (2) the salary basis test. Specifically, the 2024 DOL Rule raised the minimum salary for exempt EAP employees from $684 per week to $844 per week ($43,888 per year) effective on July 1, 2024. The 2024 DOL Rule was set to increase the minimum salary threshold again to $1,128 per week ($58,656 per year) for exempt EAP employees effective on January 1, 2025. The 2024 DOL Rule also increased the minimum salary level for exempt highly compensated employees (HCE) from $107,732 to $132,964 per year effective on July 1, 2024, and scheduled an additional increase to $151,164 effective on January 1, 2025. Lastly, the DOL’s 2024 Rule created a mechanism to automatically increase the salary thresholds every few years.
The DOL estimated that the salary increases for the EAP and HCE exemptions would change the exemption status of millions of employees over the next several years. These employees who no longer met the minimum salary thresholds would become eligible for overtime pay for all hours worked beyond 40 in a workweek.
The Texas Federal Court’s Ruling
The Texas federal court’s ruling follows a September 2024 decision by the Fifth Circuit Court of Appeals, which concluded that the DOL’s power to “define and delimit” the terms of the FLSA’s overtime exemptions includes the power to use a minimum salary as a proxy for an employee’s exemption status. The Fifth Circuit explained, however, that this power is not unlimited and that the DOL may not promulgate salary thresholds that had the effect of replacing the duties test. Citing to the Fifth Circuit decision, the Texas federal court concluded that the DOL’s salary increases “effectively displaced the duties test” for many employees who would have otherwise qualified for the EAP exemption. The DOL therefore exceeded its authority to “define and delimit” the terms of the FLSA exemptions. The Texas federal court also concluded that the DOL exceeded its authority with regard to the HCE exemption salary increases and its mechanism to promulgate automatic salary increases.
Considerations for Employers
The DOL could appeal the Texas federal court’s ruling to the Fifth Circuit. However, it is unlikely that President-elect Trump and his administration will advocate for the Biden Administration’s iteration of the 2024 DOL Rule. In the meantime, employers should consider the following in the wake of the ruling:
- The Texas court’s ruling restored the minimum salary levels that were in effect for exempt EAP and HCE employees before July 1, 2024.
- While employers can reduce salaries prospectively that were increased (or scheduled to increase) to meet the July 1, 2024 and/or January 1, 2025 salary thresholds, employers should consider the impact this may have on employee morale. Employers that have already communicated pay increases to employees should communicate in writing any cancellation of such increase to employees as soon as possible.
- Employers must continue to comply with any local or state-imposed minimum salary threshold requirements for exempt employees, that exceed those under federal law. Such states include Alaska, California, Colorado, Maine, New York, and Washington.
Employers with questions or concerns about the impact of the Eastern District of Texas’s ruling should consider contacting their legal counsel.
About Snell & Wilmer
Founded in 1938, Snell & Wilmer is a full-service business law firm with more than 500 attorneys practicing in 16 locations throughout the United States and in Mexico, including Los Angeles, Orange County and San Diego, California; Phoenix and Tucson, Arizona; Denver, Colorado; Washington, D.C.; Boise, Idaho; Las Vegas and Reno, Nevada; Albuquerque, New Mexico; Portland, Oregon; Dallas, Texas; Salt Lake City, Utah; Seattle, Washington; and Los Cabos, Mexico. The firm represents clients ranging from large, publicly traded corporations to small businesses, individuals and entrepreneurs. For more information, visit swlaw.com.
