Employment Law Update: DOL's Overtime Rule Struck Down in its Entirety
On Friday, November 15, the US District Court for the Eastern District of Texas struck down the DOL’s overtime rule that increased the salary basis threshold for the white-collar exemptions on a nationwide basis.
Background: What did DOL’s New Overtime Rule Do?
On April 23, 2024, the DOL issued its Final Rule to increase the minimum salary requirements for the executive, administrative and professional exemptions (“EAP exemptions”). The DOL set increases to the minimum salary requirements to be implemented in three ways:
- On July 1, 2024, the DOL raised the salary basis level to $844/week ($43,888/year), with a corresponding increase to the highly compensated employee (HCE) exemption to $107,432.
- On January 1, 2025, the DOL set to raise the salary basis level to $1,128/week ($58,656/year), with a corresponding increase to the HCE exemption
- The DOL built in automatic increases to the salary basis level in future years, starting in 2027.
Tell me about the Court Ruling:
On November 15, 2024, the US District Court for the Eastern District of Texas found that the DOL Rule in its entirety exceeded the DOL’s rulemaking authority. Previously the same court had halted implementation of the July 1 changes for Texas employers only. The November 15 decision broadens the reach of the ban to a nationwide basis.
The court found that the DOL Rule was an unlawful exercise of agency power because the DOL exceeded the authority delegated to it by Congress. The court explained that while the DOL can define and delimit the EAP exemptions through the addition of a proxy characteristic like salary, that ability “is not unbounded.” The court reasoned that because the terms “executive, administrative and professional” all relate to an employee’s functions or duties, the meaning of these terms guides and limits the DOL’s ability to “define and delimit” them. Meaning, the DOL “cannot enact rules that replace or swallow the meaning those terms have.”
In short, the court found that by raising the salary basis level, the DOL had impermissibly made a calculated attempt to disqualify a great number of workers from exempt status through their salary alone – essentially eliminating the equally important duties test. The court stated: “In sum, because the EAP Exemption requires that an employee’s status turn on duties—not salary—and because the 2024 Rule’s changes make salary predominate over duties for millions of employees, the changes exceed the [DOL’s] authority to define and delimit the relevant terms.”
The court also found that given that the FLSA requires increases to the salary threshold must be made via regulations in accordance with the Administrative Procedure Act, the DOL lacked the authority to put future increases on autopilot.
Impact of the Court’s Ruling:
Due to this Ruling, all three portions of the DOL’s Rule are vacated and set aside. The U.S. District Court for the Eastern District of Texas noted that it was vacating a portion of the rule that had already gone into effect, but found that vacating this portion of the rule was not disruptive, stating: “Although the July 1 change to the EAP Exemption has gone into effect, the centerpiece of the 2024 Rule, the 35th-Percentile Increase, is not scheduled to go into effect until January 2025, and the Automatic Indexing Mechanism will not directly impact employees and employers until 2027.”
In sum, the court’s ruling means:
- The July 1, 2024 increase in salary basis is nullified.
- The January 1, 2025 increase in salary basis will not go into effect as scheduled.
- The automatic increases will not take effect.
What Should Employers Do Now?
January 1, 2025 increase: If you made plans or adjustments due to the planned January 1, 2025, those adjustments are no longer needed, at least on a federal basis.
July 1, 2024 increase: If you made previous adjustments to salaries or the exempt status of your employees to account for the July 1, 2024 increase, you should contact your employment counsel to discuss best next steps and consider how or if to rescind those changes.
But be careful to check your state laws too. Before rolling back your changes, you should check your state wage and hour laws too. For example, if you have employees in Alaska, California, Colorado, Maine, New York, or Washington these states have salary thresholds that exceed the pre-DOL increase levels. And remember, for those remote employees, check the state where the employee is located.
Is there going to be an appeal?
The DOL may seek to appeal the Texas federal district court decision to the 5th Circuit Court of Appeals. However, my opinion is that new Trump Administration will abandon any appeal and allow the Texas federal court decision to stand. The 5th Circuit is notoriously business-friendly, so even if the decision is appealed, it is very unlikely that the ruling would be overturned.
Please contact an employment law attorney with any questions and we will continue to update you.
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Disclaimer: This information is intended for general information purposes only and is not intended, nor should it be construed or relied on, as legal advice. Please consult your attorney if specific legal information is desired.