Department of Labor’s 2024 Overtime Exemption Rule

The rule at issue in the lawsuit was promulgated by the Department of Labor (DOL) in April 2024. The rule would have raised the minimum salary required to be paid to most employees classified as exempt under the Fair Labor Standards Act (FLSA). The rule specifically impacted those employees classified as exempt under the executive, administrative and professional employee exemptions (the so-called “white-collar” exemptions).

Generally, to treat an employee as exempt for FLSA purposes, the employee must meet the following three tests:

1. Salary Basis Test: The employee must receive a predetermined and fixed salary that is not subject to reduction based on the quality or quantity of work performed.
2. Salary Level Test: The employee’s salary must meet or exceed a specified minimum amount.
3. Duties Test: The employee must perform executive, administrative, or professional duties as defined by the DOL.

Under the new rule, the minimum salary threshold for the white-collar exemptions increased from $684 per week ($35,568 annually) to $844 per week ($43,888 annually), effective July 1, 2024. A second increase, effective January 1, 2025, would have further raised the threshold to $1,128 per week ($58,565 annually). Additionally, the rule included automatic increases to the salary level every three years, beginning in 2027, based on available earnings data.

The DOL’s final rule also increased the salary threshold for certain highly compensated employees.

The Texas Federal Court’s Decision

The State of Texas, joined by several business organizations, brought suit in federal court challenging the rule and arguing that it exceeded the DOL’s statutory authority. Citing to a September 2024 decision by the Fifth Circuit Court of Appeals, the Texas Federal Court concluded that the DOL’s power to “define and delimit” is not without limits. Specifically, the court held that the DOL cannot implement salary thresholds that effectively replace the duties test, a key component of determining employee exemptions. The Court determined that the rule exceeded the DOL’s statutory authority because it prioritized salary levels over an employee’s actual duties. The Court found that the DOL may use salary as part of its authority to define exemptions, but the salary threshold cannot be so high that it displaces the duties test.

The Court’s ruling vacated the DOL’s 2024 rule in its entirety on a nationwide basis, including the provisions that already took effect in July 2024. This means, the slated January 2025 salary increases will not be implemented. As a result, the salary thresholds for the white-collar exemptions will revert back to the levels required under the DOL’s previous rule ($684 per week).

Although the Court’s ruling did not conduct a detailed analysis of the highly compensated employee exemption, the ruling also vacated the increase to the highly compensated employee salary threshold (which reverts back to $107,432 annually). Importantly, the Court’s decision does not affect any state-law minimum salary requirements, which remain in effect.

Why is this important?

The DOL is expected to appeal the ruling to the U.S. Court of Appeals in the Fifth Circuit. This decision is particularly significant because the court relied on the recent U.S. Supreme Court ruling in Loper Bright Enterprises v. Raimondo, which overturned the Chevron doctrine. For decades, the Chevron doctrine required courts to defer to an agency’s interpretation of the law. However, that precedent no longer applies. Notably, the Texas court’s decision leveraged this new authority following Loper Bright, making the ruling especially impactful.

For now, the minimum salary levels for FLSA purposes have reverted to pre-2024 requirements. However, employers are encouraged to continue following this topic for developments in the event of an appeal.

¹ State of Texas et al. v. United States Department of Labor et al., No. 4:24-CV-468-SDJ, 2024 WL 4806268 (E.D. Tex. Nov. 15, 2024).