Department of Labor’s 2024 Overtime Rule Overturned by Federal Texas Court

HR / Workplace

By:  Kim Adamson

On November 15, 2024, the U.S. District Court for the Eastern District of Texas overturned the Department of Labor’s (DOL) 2024 Overtime Rule to increase salary thresholds for overtime exemptions for executive, administrative, and professional (EAP) categories under the Fair Labor Standards Act (FLSA). This ruling immediately vacated the DOL’s 2024 Overtime Rule in its entirety for all employers nationwide. It reverted the salary threshold for EAP exempt status to previous levels in effect before July 1, 2024, and invalidated the proposed increases scheduled to be effective January 1, 2025. This decision impacts approximately three million employees who would have become non-exempt under DOL’s new rule.

The court’s decision in the case of State of Texas v. Department of Labor to vacate DOL’s Overtime Rule was based on the argument that the DOL exceeded its authority by setting the salary threshold at an exceptionally high level, thereby overshadowing the duties test for EAP exemptions. The ruling emphasized that the salary threshold was set low to screen out non-exempt employees and that the intent of the FLSA requires eligibility for such exemptions to be determined primarily by job duties performed by employees and not by salary. The court also invalidated the automatic increasing mechanism, stating it was outside the DOL’s statutory authority.

Background of the 2024 Overtime Rule

The DOL’s 2024 Overtime Rule proposed the first significant update to salary levels for overtime exemptions since 2020 and aimed to increase the salary threshold for employees to qualify as exempt under the FLSA’s EAP categories. The rule proposed a two-stage increase:

  • The first stage, effective July 1, 2024, set the salary threshold for EAP from $684 per week (or $35,568 annually) to $844 per week (or $43,888 annually) and for highly compensated employees from $107,432 annually to $132,964 annually.
  • The second stage, scheduled for January 1, 2025, would have raised the threshold for EAP to $1,128 per week (or $58,656 annually).
  • Additionally, the rule included provisions for automatic increases without additional rule-making every three years starting in 2027.

 Next Steps for Employers 

  • Employers are advised to review job descriptions and salaries of employees and reassess compensation and compliance strategies. This is to ensure that employees’ classifications align with the reverting to pre-July 1, 2024 FLSA standards for exempt status, taking into consideration the potential impact on their work and compensation.
  • Employers can reduce salaries that were increased on July 1, 2024 (or scheduled to increase January 1, 2025). However, 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 state and local minimum salary threshold requirements for exempt employees that exceed those under federal law (such as Alaska, California, Colorado, Maine, New York, and Washington). Review state and local laws regarding overtime pay for non-exempt employees.
    • The minimum salary requirement for Colorado employers is higher than the federal requirement. In Colorado, the minimum salary threshold for EAP (Executive, Administrative, and Professionals) is $1,086.25 per week and is $34.07per hour for highly technical computer-related employees, and for Highly Compensated Employees (HCE), the minimum is $2,444 per week.

The DOL has the option to appeal the decision, but the future of DOL’s Overtime Rule remains uncertain. Legal experts suggest that the court’s ruling may face significant challenges in higher courts.  Employers and employees must stay informed about further developments as the legal landscape continues to evolve.

Sources:

 

 

Recent Posts

Archives