The Law: Federal court vacates overtime salary rule

Employers no longer need to concern themselves with the anticipated Jan. 1, 2025, rule raising the salary threshold for overtime compensation.

On Nov. 15, the U.S. District Court for the Eastern District of Texas issued a ruling invalidating and vacating the Department of Labor’s 2024 final overtime regulations.

The final rule issued in 2024 had raised the minimum salary at which employees are exempt from overtime requirements under the Fair Labor Standards Act, pursuant to the exemptions for executive, administrative and professional (EAP) employees and highly compensated employees (HCE).

The 2024 rule implemented three changes to the EAP salary-level test:

Soon after the rule’s publication, the state of Texas sued the DOL in the Eastern District of Texas, asserting that the agency’s rulemaking exceeded its statutory authority under the Fair Labor Standards Act.

On June 28, 2024, the court entered a preliminary injunction enjoining the DOL from implementing and enforcing the rule against Texas as an employer.

However, for all other U.S. employers, the first salary level increase went into effect on July 1, 2024, resulting in an estimated 1 million employees being reclassified as nonexempt.

After its ruling, the court consolidated that lawsuit with another lawsuit challenging the rule filed by a coalition of trade associations and employers.

Nationwide ruling

On Nov. 15, 2024, the court issued an order vacating the rule nationwide, holding that the DOL had exceeded its authority.

While it acknowledged that the 5th Circuit recently confirmed the DOL’s authority to impose a salary level test for the executive, administrative and professional exemption, the court held that such authority is limited and does not authorize the agency to set salary minimums at a level that effectively displaces the Fair Labor Standards Act’s EAP duties-based test.

The court noted that under the act’s EAP exemption, it is an employee’s “duties and not their dollars that really matter.”

And while the court confirmed that salary can be a proxy for EAP -exempt status, the salary minimum must be reasonable, and those set out in the DOL’s 2024 rule “swallowed the duties test whole, effectively replacing it with a salary-level only test.”

Further, the court held that the DOL does not have authority to implement automatic triennial salary increases not subject to the requirements under federal agency rulemaking that there be 1) notice of the change and 2) a time for the public to comment.

What it means

As a result of the court’s ruling, the Department of Labor’s 2024 final rule is no longer enforceable, the Jan. 1, 2025, increases will not go into effect, and the July 1, 2024, increase is void.

This means the current EAP salary level reverts to its pre-July 2024 minimum of $684 a week (or $35,568 annually) and the HCE salary minimum reverts to $2,066 a week (or $107,432 annually).

The Department of Labor could appeal the adverse rulings with the 5th Circuit. However, if it were to appeal, it seems likely the incoming Trump administration would withdraw the appeal, leaving the ruling intact.

What should employers do?

It would be a blow to workplace morale for you to “roll back” any raises already given, but you can reassess whether to change back any employees who had been exempt and were made “non-exempt” due to the Department of Labor’s 2024 rule.

Wilford H. Stone is a lawyer with Lynch Dallas in Cedar Rapids. Comments: (319) 365-9101; wstone@lynchdallas.com