Legal Blogs and Updates

The U.S. District Court of the Eastern District of Texas has vacated and set aside a recently promulgated U.S. Department of Labor’s (“USDOL”) rule that effectively made it easier for salaried employees qualify for the Fair Labor Standards Act’s (“FLSA’s”) overtime protections.

As discussed in a prior alert, the rule, enacted by the USDOL on April 23, 2024, raised the threshold annual amount that employees covered by the FLSA must earn to meet the salary part of the exemption test and receive overtime pay.

However, on November 15, 2024, after granting injunctive relief in June that temporarily blocked the rule from taking effect for public employees in Texas, the U.S. District Court of the Eastern District of Texas in Texas v. U.S. Dep’t of Labor vacated and set aside on a nationwide basis the USDOL’s rule imposing the salary-threshold increases  that apply to the executive, administrative and professional (“EAP”) exemptions, and establishing new salary levels for determining the applicability of the highly compensated employee (“HEC”) exemption. The court wrote, “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 Department’s authority to define and delimit the relevant terms.”

The court held that, given that the text of the FLSA expressly requires that increases to the salary threshold must be made via regulations in accordance with the Administrative Procedure Act (“APA”), the USDOL lacked the authority to set salary increases and create automatic increases. Notably, the District Court reviewed the case under the new standard for agency review outlined in the June 2024 Supreme Court of the United States decision in Loper Bright Enterprises v. Raimondo, which held that federal courts must exercise independent judgment in deciding whether an agency acted within its statutory authority, as required by the APA.

The court considered the nationwide effect of the USDOL rule on hundreds of thousands of employers and millions of employees and ruled that striking down the rule on a nationwide basis was warranted. Judge Jordan found that, instead of setting the salary levels low to screen out those workers who were obviously nonexempt employees, the DOL’s rule would lead to the “nonexempt” classification applying to significant portions of employees who would otherwise meet the duties test.

Therefore, the scheduled increase in the overtime threshold effective January 1, 2025 will no longer go into effect and the July 1, 2024 increase and the triennial automatic threshold increase are struck down.

Bottom Line: As a result of the U.S. District Court of the Eastern District of Texas’ holding in Texas v. U.S. Dep’t of Labor, the salary threshold exempt status reverts to the USDOL’s 2019 rule, which set the EAP exemption at $684 per week, or $35,568 annually, and the HCE exemption at $107,432 per year. While the USDOL could appeal the decision to the Fifth Circuit, because a decision by a federal appeals court would likely be impacted by the upcoming change in the presidential administration, the USDOL would likely abandon any appeal. Connell Foley’s Labor and Employment Team will continue to monitor developments and provide updates on this topic.