Federal Court Strikes Down Labor Department’s Overtime Rule, Rejecting $44K and $59K Salary Thresholds
On November 15, 2024, the United States District Court of the Eastern District of Texas struck down the Department of Labor Wage and Hour Division’s (DOL) final rule, Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees. This rule would have significantly increased the required minimum salary level to be exempt from overtime and minimum wage requirements under the Fair Labor Standards Act (FLSA). The court’s order vacates the rule nationwide effective immediately, meaning that employers do not have to comply with the final rule.
The final rule raised the minimum salary level from $35,568 to $43,888 in July 2024. The final rule would have raised the minimum salary level to $58,656 in January 2025. Under the order, the minimum salary threshold will revert to $35,568, or $684 per week. Advocacy held multiple roundtables and wrote a comment letter on this rule.
The court’s ruling
To be exempt from overtime pay under this provision of the Fair Labor Standards Act (FLSA), workers must be paid a minimum salary level and must also perform certain job duties under the executive, administrative, and professional (EAP) employment categories. The federal court in this case found that the 2024 final rule’s high salary increases exceeded the DOL’s authority to define this exemption under the FLSA. The new high salary level tests would displace the other component of the test that is based on job duties, making millions eligible for overtime although they perform the EAP job duties.
The federal court reviewed the case under the new standard for agency review outlined in the 2024 Supreme Court of United States decision in Loper Bright Enterprises v. Raimondo, which made clear that “courts must exercise their independent judgment in deciding whether an agency has acted within its statutory authority.” The court also found that the final rule, which required automatic increases every three years, would evade the agency’s statutory requirement to complete rulemaking under the Administrative Procedure Act to define the EAP exemption.
What comes next?
Employers are not required to implement the federal minimum salary threshold increases outlined in the final rule, and the minimum will not increase every three years. However, employers should be aware that state laws may have higher salary thresholds than the federal FLSA for overtime exemptions.
DOL has updated its website to note that lawsuits regarding the 2024 final rule are currently pending in two other federal district courts, and the United States has filed a notice of appeal from the November 15 decision. The next administration may continue to appeal this ruling, abandon this appeal, rescind the final rule, and issue a new rule, or do nothing. Advocacy will send additional updates with any developments on this rule. If you have any questions, contact Janis Reyes at Janis.Reyes@sba.gov.
Disclaimer: This article is for informational purposes only and it is not intended to serve as legal advice.