Legal Updates
Federal Judge Invalidates DOL's Proposed Overtime Rule
Last month, a federal district court judge in the Eastern District of Texas issued a ruling invalidating the Department of Labor’s (“DOL”) proposed Overtime Rule under the Fair Labor Standards Act (“FLSA”).
As a result of the court’s ruling, the new minimum weekly salary threshold for the “white-collar” FLSA exemptions that went into effect this past July has been rescinded, and the further increase to that minimum salary threshold that had been scheduled to take effect on January 1, 2025 has been nullified.
Background
The FLSA governs, among other topics, which employees are eligible for overtime pay when working more than 40 hours in a week. Employers are not obligated to provide overtime pay to employees properly classified as “exempt.”
Under longstanding DOL regulations, to qualify for an FLSA “white-collar” overtime exemption—the most common type—an employee must (1) be paid on a salary basis (i.e., receive a fixed, minimum weekly salary irrespective of variations in hours worked), at no less than the minimum weekly level set by the regulations; and (2) perform a job whose primary duties involve executive, administrative, or professional functions. (Certain occupations, including teachers, lawyers, and physicians, are excluded from the “salary basis” requirement.)
In addition to the white-collar exemptions, the FLSA regulations provide for various other overtime exemptions. For instance, the “highly compensated employee” (“HCE”) exemption covers employees who are paid at least a certain annual salary and regularly perform at least one exempt job function.
The Overtime Rule
As of July 1, 2024, the DOL’s Overtime Rule increased the salary threshold for exempt white-collar employees from $684 per week ($35,568 annually) to $844 per week ($43,888 annually). This salary threshold was set to rise again to $1,128 per week ($58,656 annually) on January 1, 2025. Additionally, under the Overtime Rule, the annual salary threshold for the HCE exemption was scheduled to increase to $151,164, effective January 1, 2025.
The Overtime Rule also provided for these new salary thresholds to increase automatically every three years.
District Court’s Ruling
The DOL’s Overtime Rule quickly sparked a number of legal challenges by state governments and employer groups.
In the matter at hand, in June 2024, the State of Texas filed suit against the DOL, arguing that the increased salary thresholds provided for in the Overtime Rule exceeded the DOL’s authority under the FLSA. Texas also requested a preliminary injunction enjoining the DOL from implementing and enforcing the Overtime Rule.
On November 15, 2024, the district court issued an order enjoining the Overtime Rule on a nationwide basis. The court concluded that the salary threshold increases prescribed by the Overtime Rule were so substantial that they effectively (and improperly) nullified the FLSA’s requirement that overtime exemptions be determined based on job duties.
Implications For Employers
It seems likely that the district court’s decision, coupled with the recent presidential election, spells the end of the Overtime Rule. Although the DOL has appealed the decision to the Fifth Circuit Court of Appeals, many observers anticipate that the appeal will be dropped once President-elect Trump has taken office.
Nonetheless, many employers may still face tricky compensation decisions. While the new weekly salary threshold that took effect this past July 1 is no longer binding, employers that implemented salary increases to comply with that new threshold may be reluctant to undo those salary increases, out of concern for employee morale. The same is true for employers that had scheduled salary increases to take effect in the new year.
* * *
If you have questions about the rescission of the DOL’s Overtime Rule, or about any other compensated-related issues, please reach out to one of our experienced employment attorneys.
