Federal Overtime Rule Changes Struck Down AGAIN

A federal court in Texas has once again invalidated a U.S. Department of Labor (DOL) rule that sought to broaden overtime eligibility for workers nationwide. Judge Sean D. Jordan of the United States District Court for the Eastern District of Texas ruled on November 15, 2024, in State of Texas v. United States Dep’t of Labor, that the DOL overstepped its authority by increasing the minimum salary for exemption as an executive, administrative, or professional (EAP) employee under the Fair Labor Standards Act.

The DOL's rule, released in April 2024, raised the minimum salary for exemption as an EAP employee to $844 per week ($43,888 annualized) starting July 1, 2024. A subsequent increase would have pushed the threshold to $1,128 per week ($58,656 annualized) effective January 1, 2025. Additionally, the rule increased the minimum total annual compensation level for exemption as a "highly compensated employee" to $132,964 effective July 1, 2024 and $151,164 effective January 1, 2025. Triennial increases in the minimum salary for exemption as an EAP employee and the minimum annual compensation level for exemption as an HCE, linked to current earnings data, were also outlined to begin on July 1, 2027.

Judge Jordan's decision nullifies the entire regulation, which includes the raised amounts that became effective in July 2024.
 

Reflecting back to 2017

In a flashback to May 2016, during the final year of the Obama administration, the DOL introduced a new overtime rule that significantly raised the minimum salary for exemption as an EAP employee. This rule was set to go into effect on December 1, 2016, with planned automatic increases every three years starting in 2020. However, just before the rule was to be implemented, Judge Amos L. Mazzant, III from the Eastern District of Texas halted the rule nationwide. Fast forward to August 2017, Judge Mazzant granted the plaintiffs' motion for summary judgment, deeming the rule invalid and concluding the case at the district court.

Too Much Overreach

The reasoning behind invalidating the rule remains consistent then and now. Judge Jordan, like Judge Mazzant before him, determined that job responsibilities, not salary, define an EAP employee. By prioritizing salary over duties to such an extent, the DOL overstepped its authority to establish and limit the EAP exemptions granted by Congress. Judge Jordan highlighted that the proposed salary increase in January 2025 would have been a significant 65% jump from the previous salary level, which would have had a profound impact. The court criticized the 2024 rule for essentially replacing the FLSA's duties test with a salary-level test, a move that the DOL did not have the power to make.
 

Judge Jordan, while presiding in the Fifth Circuit, took into account the recent ruling in Mayfield v. United States Dep't of Labor by the Court of Appeals. This ruling stated that the DOL has the power to establish a minimum salary for exemption when defining the terms of the EAP exemptions. The Court of Appeals emphasized that although the DOL has the authority to consider salary level in defining exemptions, this authority is not limitless.

 

Using salary as a proxy for EAP status is a permissible choice because … the link between the job duties identified and salary is strong. That does not mean, however, that use of a proxy characteristic will always be a permissible exercise of the power to define and delimit. If the proxy characteristic frequently yields different results than the characteristic Congress initially chose, then use of the proxy is not so much defining and delimiting the original statutory terms as replacing them.

 

Judge Jordan highlighted the language from Mayfield when differentiating between the 2019 and 2024 rules.

As Mayfield makes clear, the [DOL] cannot use a proxy characteristic (salary) to measure eligibility for the EAP Exemption[s] when it will “frequently yield different results than the characteristic Congress initially chose,” i.e., duties. The [DOL’s] attempt to do so in the 2024 Rule demonstrates that its use of the salary proxy is not so much defining and delimiting the original statutory terms as replacing them.

What's Next

Judge Jordan, unlike Judge Mazzant in 2016, had an additional advantage this time - the Supreme Court's ruling in Loper Bright Enterprises v. Raimondo in July 2024. This decision overturned Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc. and removed the requirement for courts to defer to an administrative agency's interpretation of a statute. Judge Jordan's opinion, based on Loper Bright, highlights the recent and growing attack on the administrative state. This trend of dismantling executive agency power shows no signs of slowing down in the aftermath of Chevron.

The DOL would have appealed to the Fifth Circuit a year ago, arguing that the 2024 rule aligns with Mayfield and should be revived. However, with a new administration taking office in January, it is unlikely that the DOL will continue to pursue the appeal post-Inauguration Day. Therefore, it is safe to assume that the 2024 rule is permanently gone. It remains uncertain what actions a second-term Trump DOL will take regarding overtime. The 2019 rule, which raised the minimum salary for exemption from $455 to $684, was implemented during President Trump's first term. Therefore, it is possible that his administration may support an increase above $684.

Employers who increased salaries to $844 per week last summer to keep certain employees exempt may choose to keep those salaries at the higher rate, despite being able to legally roll them back. This could lead to potential employee relations challenges. It is probable that many employers will opt to leave the raised salaries in place and factor in the 2024 increases when making future compensation choices.

"It's of no consequence..."

Employers need to be aware that some states have minimum salary requirements for exemption that are significantly higher than the federal minimum salary. For instance, in New York, the minimum salary for exemption as an executive or administrative employee in certain areas is currently $1,200 per week ($62,400 annually), increasing to $1,237.50 per week ($64,350 annually) by January 1, 2025. In California, exempt employees must earn at least two times the State's minimum wage for full-time work, which is currently $66,560 per year, to pass the state's EAP employee exemption test.