On November 15, 2024, the U.S. District Court for the Eastern District of Texas vacated and set aside the 2024 DOL Final Overtime Rule in its entirety nationwide. The Department of Labor (DOL) Final Overtime Rule had raised the minimum salary thresholds for Executive, Administrative, Professional, Outside Sales, and Computer (EAP) employees to be considered exempt from the Fair Labor Standards Act (FLSA) as well as the total annual compensation required for the Highly Compensated Employee (HCE) exemption. In vacating the rule, the Court determined that the DOL had exceeded its authority, thereby rendering the rule unlawful.
The Court’s decision comes just four months after the interim increase to $844.00 per week ($43,888.00) which was effective July 1, 2024, and approximately six weeks prior to the full increase under the Rule to $1,128.00 per week ($58,656.00 annually).
Impact of the Court’s Ruling
The result of the Court’s ruling is a reversion back to the 2019 salary threshold and total compensation level for the EAP and HCE exemptions, respectively. Both the July 1, 2024, interim increase (which made approximately one million employees newly eligible for overtime pay according to Court documents) as well as the January 1, 2025, full increase were overturned. Additionally, the rule had also incorporated a mechanism to effectuate a triennial update to the salary threshold to keep pace with economic growth and reflect current earnings data. The first update was scheduled to become effective on July 1, 2027. Under the Court’s ruling, these automatic triennial salary level adjustments were also invalidated.
2019 Figures:
Weekly salary threshold: $684.00
Annual salary threshold: $35,568.00
Highly compensated employees (HCE) threshold: $107,432 in total annual compensation
Case Background
The lawsuit initiated by the state of Texas against the DOL, on June 3, 2024, was consolidated with a second challenge by the Plano Chamber of Commerce which featured a coalition of trade associations and employers. On June 28, 2024, District Judge Sean Jordan issued a preliminary injunction barring enforcement of the Final Rule as against the state of Texas as an employer only. After hearing oral arguments on November 8, 2024, Judge Jordan granted summary judgment in favor of Texas and the several employers and trade associations which had joined the suit.
Legal Analysis
The Court was tasked with answering the question, “whether the 2024 Rule’s changes to the salary-level test exceed the Department’s authority to ‘define and delimit’ the terms of the EAP exemption.” The Court used the new standard of review for agency action under the Loper Bright Enters. v. Raimondo decision which was released by the US Supreme Court in June of this year, and which overturned Chevron deference to agency interpretation of ambiguous laws. Under the Loper Bright decision, federal courts are required to exercise independent judgment in deciding whether an agency has acted within its statutory authority.
In exercising that independent authority, the Court ultimately concluded that yes, the DOL had exceeded its authority. The Court acknowledged that while the Department of Labor’s authority included the ability to “define and delimit” the terms of the EAP exemption, including by creating regulations imposing a minimum salary level, such authority was not without its limits. The Court found that the DOL’s Final Rule had made salary predominate over duties for millions of employees in contravention of the statutory requirement that evaluation of an employee’s status under the FLSA for purposes of the EAP Exemptions must be made primarily on the duties of the employee. Accordingly, the rule was unlawful and required vacatur.
Employer Next Steps
For employers who complied with the interim increase effective July 1, 2024, this may be a bell that will be difficult to un-ring. While employers would have a sound basis to argue that they raised certain employee salaries in order to comply with a legal requirement which has since been determined to be unlawful, reducing these employees’ salaries to pre-July 1, 2024, levels may cause significant employee morale issues. Employers may consider maintaining the 2024 increases, and perhaps taking these amounts into consideration for future compensation decisions. Employers with questions on how to proceed in their specific circumstance in light of the vacation of the DOL Final Rule should consult with counsel.
Additionally, there still remains some uncertainty ahead. The DOL could appeal the decision to the Fifth Circuit Court of Appeals. With the upcoming change in administrations, whether the DOL will do so remains to be seen. Employers should continue to monitor developments as they arise.
Disclaimer: The information contained herein is not intended to be construed as legal advice, nor should it be relied on as such. Employers should closely monitor the rules and regulations specific to their jurisdiction(s) and should seek advice from counsel relative to their rights and responsibilities.