What happened?

On November 15, 2024, the U.S. District Court for the Eastern District of Texas vacated the Department of Labor’s (DOL) regulation raising the salary threshold for the “white collar” overtime exemption and Highly Compensated Employees (HCE). This decision nullifies both the planned January 1, 2025 increase and the increase that took effect on July 1, 2024.

Quick Summary:

• The U.S. District Court for the Eastern District of Texas struck down the DOL Overtime Rule (OR) to raise the salary threshold for white-collar overtime exemptions, which was set to take effect in January 2025.

• This decision also affects the increase implemented in July 2024, reverting the salary threshold to the previous level of $684 per week ($35,568 annually) nationwide.

• Judge Sean Jordan ruled that “the 2024 Rule exceeds the Department’s authority and is unlawful.”

What are the details?

Background:

• As we previously reported in Vensure, the DOL enacted the Overtime Rule which would raise the minimum salary thresholds for the Fair Labor Standards Act’s (FLSA) white-collar overtime exemptions.

• On June 28, 2024, a judge from the U.S. District Court for the Eastern District of Texas issued a preliminary injunction, blocking the enforcement of the rule against the state of Texas as an employer. 

Key Points for Employers:

• On November 15, 2024, the U.S. District Court for the Eastern District of Texas struck down the Department of Labor’s (DOL) rule that aimed to raise the salary threshold for white-collar overtime exemptions under the Fair Labor Standards Act (FLSA).

• The rule had already raised the threshold to $844 per week ($43,888 annually) on July 1, 2024, and was set to increase it further to $1,128 per week ($58,656 annually) in January 2025.

• The court found that the DOL exceeded its statutory authority with the rule, which included a significant salary threshold increase and “an automatic escalator” provision to adjust the threshold every 3 years.

• The court held that by setting the salary threshold as high as it did, the DOL created a de facto “salary only” test for the EAP exemption, which exceeded the Department’s authority under the statute. The FLSA focuses on the duties an employee performs, not the salary they earn.

• The court also found that the automatic increases violated the regulatory procedures required by the FLSA and the Administrative Procedure Act.

• Given the nationwide effect of the rule, striking it down on a nationwide basis was warranted.

• As a result of the court’s decision, the salary threshold for employers nationwide reverts to the previous level of $684 per week ($35,568 annually) who must now adhere to the pre-July 2024 salary levels for determining overtime exemptions.

• The DOL may seek to appeal the decision to the Fifth Circuit Court of Appeals. Vensure will monitor the development and inform employers.

Business Considerations

• Employers should consider consulting with legal counsel before making any changes to the salaries or exemption status of employees who were affected by the now-invalidated July 1 increase.

• Employers should ensure compliance with state-specific salary thresholds, which may exceed the federal FLSA threshold, particularly in states like Alaska, California, Colorado, Maine, New York, and Washington.

• Employers should stay informed about potential appeals by the DOL to the Fifth Circuit Court of Appeals and any subsequent legal developments.

• Employers should review and adjust their payroll and HR practices to ensure they are in line with the current legal requirements following the court’s decision for 2025.

Source References

• DOL Overtime Rule Has Now Arrived (VensureHR)
• DOL Overtime Rule WILL Apply to All Private Sector Employers (VensureHR)
• DOL Final Rule for Overtime is Coming Soon (VensureHR)
• DOL Overtime Rule
• US District Court Eastern District of Texas

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