ALERT – 2024 DOL Final Overtime Rule Set Aside – 11/15/2024
2024 DOL Final Overtime Rule Set Aside
On November 15, 2024, the United States District Court for the Eastern District of Texas issued a decision invalidating the U.S. Department of Labor’s (DOL) Final Rule, which had raised the minimum salary level for the “white collar” overtime exemptions effective July 1, 2024, and which would have raised it again on January 1, 2025. (State of Texas v. Department of Labor, Case No. 4:24-CV-499 (E.D. Tex. 2024)).
The 2024 Final Rule sought to raise the salary threshold for the “Executive, Administrative, and Professional” (EAP) overtime exemptions. The court invalidated the Final Rule on the basis that the DOL exceeded its statutory authority under the Fair Labor Standards Act (FLSA).
1. DOL Exceeded Its Authority in Interpreting the FLSA
The court’s analysis centered on the statutory language of the FLSA, which provides exemptions for employees engaged in bona fide executive, administrative, or professional (EAP) capacities. The court held that the DOL’s focus on a salary threshold to determine exempt status improperly elevated salary levels over employees’ actual duties.
While the DOL has the discretion to issue regulations, the court emphasized that this discretion does not permit the agency to redefine the statute’s scope beyond its plain language. The court highlighted that the FLSA does not mandate a specific salary threshold, and the court criticized the DOL’s reliance on salary as the primary determinant of exempt status.
The court noted that setting a high salary threshold, such as $1,128 per week, risks excluding employees who meet the statutory duties test, contradicting Congress’s intent. This aligns with judicial precedent that warns against agency overreach when interpreting ambiguous statutory provisions.
Additionally, the court invalidated the Final Rule’s automatic updates to salary thresholds every three (3) years, finding that these updates violated the Administrative Procedure Act (APA). Automatic adjustments bypass procedural safeguards such as notice-and-comment rulemaking, which are required by law.
2. DOL’s Final Rule Was Arbitrary and Capricious
The court also addressed the procedural and substantive justifications for the DOL’s Final Rule, finding that DOL failed to adequately justify the substantial increase in the salary threshold. Specifically, the court criticized the DOL’s lack of consideration for regional economic disparities and insufficient evidence to support its claim that the new thresholds aligned with the statutory purpose of the EAP exemptions.
3. Implications for Employers
The invalidation of the DOL’s 2024 Final Rule means the salary threshold for the EAP exemptions reverts to the 2019 rule: $684 per week ($35,568 annually). Employers who raised salaries to comply with the now-invalidated $844 per week ($43,888 annually) threshold can reevaluate their pay structures:
a. Maintain Increases: Employers may choose to retain higher salary levels to support employee retention, morale and internal pay equity.
b. Adjust Salaries: Reducing salaries back to the previous levels may offer financial relief but risks employee dissatisfaction and potential attrition.
c. Reclassify Employees: Employees reclassified as non-exempt due to not meeting the $844 per week threshold may now be reclassified as exempt, provided they meet the duties tests and earn at least $684 per week.
Employers operating in states with their own salary thresholds for exemptions (e.g., California or New York) must continue to comply with those higher state-mandated thresholds, regardless of federal court rulings on the FLSA.
4. What’s Next?
DOL could appeal the district court’s adverse decision to the US Court of Appeals for the Fifth Circuit. However, that circuit is mostly pro-employer and it’s unlikely a decision would be entered on appeal prior to the incoming Trump administration assuming control over the department on January 20, 2025.
The Trump DOL could withdraw the appeal or propose a new overtime rule. That is what it did the last time this scenario occurred. In 2017, after the Obama administration’s overtime rule was invalidated by the federal courts, the Trump administration chose not to appeal the decision. Instead, the Trump DOL issued a new rule in 2019, setting the salary threshold at the current $684 per week, which was significantly lower than the threshold proposed by DOL under the Obama-era rule.
Employers having questions or seeking advice on these issues are encouraged to contact a Wimberly Lawson employment law attorney.