Just a few weeks before the anticipated January 1 salary bump under the U.S. Department of Labor (USDOL)’s 2024 overtime rule (the “Overtime Rule”), a Texas federal court issued a ruling on Friday, November 15, 2024,[1] that set aside and vacated that Overtime Rule. This decision means that employers no longer have to choose between revisiting—and possibly increasing—the salaries of their employees classified as “exempt” and re-classifying those positions for minimum wage and overtime eligibility, so long as those employees meet current exemption requirements.
What did the Overtime Rule require?
Originally effective July 1, 2024, the Overtime Rule increased the minimum salary level threshold for exempt Executive, Administrative, or Professional (EAP) employees to $43,888 per year, and for Highly Compensated Employees (HCEs) to $132,964 per year. The Overtime Rule was to again raise the minimum salary threshold on January 1, 2025, to $58,656 for EAP employees and $151,164 per year for HCEs.
The Overtime Rule included an ongoing updating mechanism beyond January 1, 2025. Beginning July 1, 2027, and again every three years, the minimum salary thresholds would be revised based on then-current earnings data and the methodology prescribed in the Overtime Rule.
What did the Texas federal court decide?
Because the Fair Labor Standards Act defines the EAP exemptions in terms of the job duties for EAP employees, the Texas court found that the planned salary increase was incompatible with the statute. The Texas court applied the same reasoning to the HCE exemption. Thus, the Texas court found that the Overtime Rule exceeded the USDOL’s statutory authority by essentially replacing the statutory duties test for those exemptions with the revised salary threshold.
The Texas court granted summary judgment in favor of the State of Texas and the business organization plaintiffs. In its ruling, it found that circumstances justified setting aside the Overtime Rule on a nationwide basis.
What does this mean for employers?
The USDOL may choose to appeal this ruling to the Fifth Circuit Court of Appeals, and so this may not be the last that we hear of this Overtime Rule.
In the meantime, however, employers should review their employee classifications in accordance with the requirements that existed before the Overtime Rule. This includes the prior minimum salary thresholds for exempt EAP employees and HCEs:
- $35,568 per year ($684 per week) for EAP employees
- $107,432 per year (paid on a salary fee basis at a rate of at least $684 per week) for HCEs
Employers who adjusted salaries to comply with the July 1 increase under the Overtime Rule should work closely with counsel to determine whether any subsequent adjustments are necessary or advisable. State-law wage and hour requirements, employee morale and retention efforts, and other factors may be relevant to this analysis.
Our labor and employment team is available to assist employers with strategies to assess the impact of this update on their workforces and implement any changes to employee pay or classifications.
[1] The Texas federal district court previously blocked the July 1, 2024 salary threshold increase for only the State of Texas as an employer.