On November 15, 2024, a federal court judge in the Eastern District of Texas vacated and set aside the Department of Labor’s (“DOL”) 2024 rule that raised the salary minimums for overtime-exempt employees under the Fair Labor Standards Act (“FLSA”) (the “2024 Overtime Rule”), effectively halting the salary threshold increase scheduled to take effect on January 1, 2025. The State of Texas v. U.S. Department of Labor decision also nullified the salary threshold increase that had taken effect on July 1, 2024, as part of the same rule.

Below are answers to common questions from employers regarding the 2024 Overtime Rule, the State of Texas decision, and how this ruling will affect employers moving forward.

1. What did the 2024 Overtime Rule change?

As outlined in our previous client alert, the 2024 Overtime Rule introduced three primary staged increases to the salary minimums required for employees to be eligible for exemption from the FLSA’s overtime and minimum wage requirements. These changes were scheduled as follows:

  • On July 1, 2024, the salary threshold for employees classified under the white-collar exemptions (executive, administrative, and/or professional) increased from $684 per week ($35,568 annually) to $844 per week ($43,888 annually). The salary threshold for employees qualifying as highly compensated employees also increased from $107,432 annually to $132,964 annually.
  • On January 1, 2025, the salary threshold for white collar exempt employees was set to increase to $1,128 per week ($58,565 annually), while the salary threshold for highly compensated employees was scheduled to rise to $151,164 annually.
  • Starting July 1, 2027, and every three years thereafter, the salary thresholds for exempt employees were to be recalculated based on a new methodology tied to the 35th percentile of weekly earnings in the lowest-wage region in the U.S., using the most current wage data available.

The DOL stated that these increases aimed to expand overtime protections by making more workers eligible for overtime pay. Notably, the 2024 Overtime Rule did not change the job duties test, which is considered alongside the salary threshold in determining whether an individual is exempt from receiving overtime.

2. What was the Texas federal court’s ruling regarding the 2024 Overtime Rule?

The Texas federal court vacated and set aside the 2024 Overtime Rule, effectively invalidating the salary threshold increases outlined in the Rule. The court’s decision was based on its finding that the DOL overstepped its statutory authority under the FLSA regarding overtime exemption criteria when it issued the 2024 Overtime Rule.

In its ruling, the court acknowledged that the DOL has the statutory authority to “define and delimit” the FLSA’s overtime exemptions, including setting minimum salary thresholds. However, the court found that the DOL exceeded this authority by raising the salary thresholds so high that salary alone became the sole factor determining an employee’s exempt status, without considering the employee’s job duties. The court emphasized that Congress intended for both the salary threshold and the duties test to be used in tandem to determine exemption status under the FLSA. By raising the salary threshold without regard to job duties, the 2024 Overtime Rule was found to be inconsistent with Congress’ original intent for the FLSA.

3. What does the court ruling mean for employers?

By vacating and setting aside the 2024 Overtime Rule, the court not only prevented the January 1, 2025 salary increases from taking effect, but it also invalidated the salary increases that took effect on July 1, 2024. This means that the exempt salary thresholds return to the pre-2024 Overtime Rule levels of $684 per week ($35,568 annually) for white collar employees and $107,432 for highly compensated employees, unless the ruling is overturned on appeal or new regulations are issued.

4. Will the DOL appeal the State of Texas ruling?

As of now, it is unclear whether the DOL will appeal the Texas federal court’s decision in State of Texas. If the DOL chooses to appeal, the case would be reviewed by the Fifth Circuit Court of Appeals, which could either uphold or reverse the ruling. If the Fifth Circuit upholds the decision, the 2024 Overtime Rule will remain invalid. However, if the Fifth Circuit overturns the district court’s ruling, the 2024 Overtime Rule could be reinstated. In the absence of an appeal or a higher court’s decision, the district court ruling stands, and employers should continue to follow the previous salary thresholds, as outlined in Question 3. The DOL has 60 days from the date of entry of judgment to appeal the State of Texas decision, so we may know more in the coming months.

5. How does this ruling affect the broader overtime exemption rules?

While this ruling specifically addresses the salary thresholds for overtime exemptions, it does not change the overall framework for overtime exemptions under the FLSA. The decision simply means that the salary component cannot be raised as much as the DOL had hoped, but the duties test for exemption still remains in place. Employees who meet the duties criteria for exempt positions (e.g., executive, administrative, or professional roles) may still qualify for exemption from overtime pay, provided they meet the pre-2024 Overtime Rule salary threshold and are paid on a salary basis. However, this ruling emphasizes that salary should not be the sole factor in determining exempt status.

6. What should employers do now? What if an employer already increased the salaries of employees based on the July 1, 2024 increase?

Following the court’s decision to vacate the 2024 Overtime Rule, employers should return to using the previous salary threshold of $684 per week ($35,568 annually) to determine which employees qualify for exemption from overtime pay. If an employer has already raised salaries or reclassified employees based on the now-invalidated 2024 Overtime Rule (either due to the July 1, 2024 salary threshold increase or in anticipation of the January 1, 2025 increase), they may consider reverting those salary increases or reclassifications in light of the vacated rule. When making these adjustments, employers should carefully consider factors such as employee morale, potential dissatisfaction, and the need for clear communication to explain the changes. Additionally, employers should evaluate the financial implications and ensure that any decisions are in compliance with both federal and state regulations.

7. Can the DOL propose a new overtime rule? Is that likely in the upcoming Trump administration?

Yes, the DOL has the authority to propose a new rule regarding the overtime salary threshold. However, any new rule would need to go through a formal rulemaking process, which includes public notice and an opportunity for public comment. This process could take months or even years before a new rule is finalized. Additionally, the DOL would need to ensure that any new rule addresses the court’s concerns regarding salary thresholds and the job duties test, as outlined in the State of Texas decision.

Under the previous Trump administration, the DOL proposed a similar rule to the 2024 Overtime Rule in 2019, which sought to increase salary thresholds for overtime exemptions. Given this history, it’s possible that the DOL could propose another increase to the salary thresholds for exempt employees as part of future regulatory changes. While the specifics and timing remain uncertain, employers should prepare for potential adjustments that could impact employee classifications and overtime eligibility. Our Employment team will continue to monitor developments and provide updates as the situation unfolds.

8. How does this ruling impact state specific overtime laws?

The ruling only impacts federal overtime rules under the FLSA and does not affect state-specific overtime laws. Some states have their own overtime laws with higher salary thresholds or different exemption criteria, and those laws remain in effect. Employers must ensure compliance with both federal and state overtime regulations, as applicable. In some cases, state law may require a higher salary threshold or stricter duties tests than the federal FLSA. Employers in those states must adhere to the stricter requirements. If you have any questions regarding state-specific overtime exemption requirements, please reach out to any member of our Employment team for guidance.

9. What should I do if I have questions about how this ruling affects my business?

Employers are encouraged to contact a member of our Employment team with any questions regarding how the State of Texas ruling may impact their business, especially if they have already begun implementing changes based on the 2024 Overtime Rule. As always, employers should also regularly review their practices to ensure compliance with current FLSA regulations, including the salary threshold and duties test.

November 21, 2024