On November 15, 2024, the U.S. District Court for the Eastern District of Texas issued a nationwide injunction blocking the U.S. Department of Labor’s (DOL) new overtime rule. This rule was set to expand overtime eligibility for millions of workers across the country.
As a result of this decision, the planned increase in salary thresholds for Fair Labor Standards Act (FLSA) overtime exemptions, which was scheduled for January 1, 2025, will no longer take effect. Importantly, the salary threshold increases that took effect on July 1, 2024, are now blocked as well. This means the salary threshold returns to $684/week (or $35,568/year) for executive, administrative, and professional (“EAP”) exemption employees, while the annual earnings threshold for highly compensated exemption employees returns to $107,432.
In the 62-page decision, the Texas court concluded the DOL exceeded its authority delegated to it by Congress when it increased the salary thresholds to such an extent that it effectively overrode the duties test, the FLSA’s other criteria for exemption. In the Texas case, the court found that while the DOL may use salary as a part of its authority to define and limit the EAP exemption, such a salary-basis test “is not included in the statutory text” and “is not unbounded.” Accordingly, the salary threshold cannot “displace” or “swallow” the duties test for the exemption. Additionally, the court blocked the rule’s provision to automatically increase the salary thresholds every three years, without meeting the requirements of the Administrative Procedure Act. The court wrote, “[n]othing in the EAP Exemption authorizes the [DOL] to set its rulemaking on autopilot and evade the procedural requirements of the [Administrative Procedures Act],” including the notice-and-comment rulemaking requirements — “even when an agency finds them inconvenient.”
While the DOL may appeal to the Fifth Circuit Court of Appeals, it is highly unlikely that the court will rule on the matter before the arrival of a new administration on January 20, 2025. And it is just as unlikely that the administration under President-Elect Donald Trump would care to continue an appeal or restore the 2024 rule. Regardless of whether there is an appeal, the November 15th decision has no effect on state and local law overtime exemptions, so employers will need to continue complying with all requirements under those laws.
So what now?
Employers should consider what steps they may need to take regarding their workforce’s exemption classifications and salary levels.
If an employer has not yet communicated changes in salary or exemption status to its employees, it now has a basis to hold off on making those changes.
Employers who made changes in response to the July 2024 salary increase—for example, raising the EAP salary threshold from $684/week to $844/week—have the option to reverse those changes prospectively, if they choose. However, it’s important to recognize that undoing these adjustments could be challenging in practice. Employers will need to carefully consider the potential impact on employee morale and retention before making any decisions. The same analysis applies for those employers who have already communicated January 1st changes to employees. It is always advisable for employers to consult with counsel before deciding what changes, if any, to make as a result of these developments.
If you have any questions on the issues discussed, our team is ready and available to assist.
