Texas Federal Judge Strikes Down DOL’s New Overtime Rule

Quick Hits

• A federal judge in Texas struck down the DOL’s April 2024 overtime rule that sought to raise the minimum salary levels for the FLSA’s white-collar overtime exemption.
• The ruling comes in a challenge by the state of Texas and a group of more than a dozen business organizations.
• The DOL rule had raised the minimum salary level on July 1, 2024, to the equivalent of $43,888 per year, and it was set to increase to $58,656 per year on January 1, 2025.

U.S. District Judge Sean Jordan for the Eastern District of Texas granted summary judgment in Texas v. Department of Labor to the state of Texas and a group of more than a dozen business organizations, striking down the DOL’s April 2024 rule to raise the minimum salary for the FLSA’s executive, administrative, and professional (EAP) employee overtime exemption.

“[T]he Department’s changes to the minimum salary level in the 2024 Rule exceed its statutory jurisdiction,” Judge Jordan wrote in the decision.

The decision comes a week after Judge Jordan heard oral arguments in the case and just over one month before the DOL rule was set to next increase the salary threshold on January 1, 2025. The ruling further invalidated the salary increase that went into effect on July 1, 2024, and the automatic triennial salary level adjustments included in the DOL’s April 2024 rule.

The case has been closely watched by the business community. The DOL’s January 1, 2025, salary increase was set to render an estimated 4.8 million workers (or 38 percent of the 12.7 million salaried white-collar workers in the United States) overtime exempt, regardless of whether they otherwise perform duties qualifying them for the EAP exemption.

“In sum, because the EAP Exemption requires that an employee’s status turn on duties—not salary—and because the 2024 Rule’s changes make salary predominate over duties for millions of employees, the changes exceed the Department’s authority to define and delimit the relevant terms,” Judge Jordan wrote.

DOL Rule Exceeds Authority

The DOL’s April 2024 overtime rule had made three key changes: (1) it had raised the minimum weekly salary to qualify for the EAP exemption from $684 per week to $844 per week or the equivalent salary of $43,888 per year, on July 1, 2024; (2) the rule would have further increased that threshold to $1,128 per week, the equivalent of a $58,656 annual salary on January 1, 2025; and (3) it would have set adjusted the salary thresholds every three years based on up-to-date wage data.

In September 2024, the Fifth Circuit Court of Appeals held in Mayfield v. U.S. Department of Labor that a salary basis test is within the DOL’s “explicitly delegated authority to define and delimit the terms of the [e]xemption.”

However, in the Texas case, Judge Jordan found that while the DOL may use salary as a part of its authority to define and delimit the EAP exemption in Section 213(a)(1) of the FLSA, such a salary-basis test “is not included in the statutory text” and “is not unbounded.”

The salary cannot “displace” or “swallow” the duties test for the exemption, which is for workers who perform “bona fide” EAP duties, Judge Jordan wrote.

Notably, he reviewed the case under the new standard for agency review outlined in the June 2024 Supreme Court of the United States decision in Loper Bright Enterprises v. Raimondo, which held that federal courts must exercise independent judgment in deciding whether an agency acted within its statutory authority and may not simply defer to the agency’s interpretation of ambiguities in the law.

As such, the judge examined the impact of the 2024 salary threshold increases in comparison with the impact of prior adjustments and the frequency of such adjustments, noting that this increase comes only five years after the DOL increased the salary levels in 2019 as compared to the previous average of once every nine years.

Judge Jordan found that instead of setting the salary levels low to screen out those workers who were obviously nonexempt employees, the DOL’s 2024 rule would lead to significant portions of employees who would otherwise meet the duties test being classified as nonexempt.

The judge calculated that the July 2024 increase renders at least a third of the employees who meet the duties test nonexempt.

“When a third of otherwise exempt employees who the Department acknowledges meet the duties test are nonetheless rendered nonexempt because of an atextual proxy characteristic—the increased salary level—something has gone seriously awry,” Judge Jordan wrote.

Next Steps

The ruling vacates the DOL’s rule in its entirety nationwide, including the increase that went into effect on July 1, 2024. As a result, the salary threshold exempt status reverts back to the DOL’s 2019 rule, which set it at $684 per week or $35,568 annually. However, the DOL could appeal the decision to the Fifth Circuit, though that could be impacted by the incoming DOL under the new Trump administration.

Ogletree Deakins’ Wage and Hour Practice Group will continue to monitor developments and will provide updates on the Wage and Hour blog.

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