Texas Court Enjoins DOL Overtime Rule (This Time, for Everyone)

On November 15, 2024, the U.S. District Court for the Eastern District of Texas issued a nationwide injunction enjoining the Department of Labor’s (“DOL”) Final Rule increasing the salary thresholds for the overtime exemptions for executive, administrative, and professional (“EAP”) roles. The State of Texas challenged the Final Rule earlier this year, arguing that it exceeded the DOL’s authority under the Fair Labor Standards Act (“FLSA”). In a preliminary ruling issued on June 28, 2024, the court agreed, concluding that the Final Rule sought to implement sweeping changes to the regulatory framework for the EAP exemptions, effectively displacing the FLSA’s duties test with a predominant, if not exclusive, salary-level test. With this initial ruling, however, the court only enjoined the Final Rule for employees of the State of Texas.

The November 2024 order now enjoins the Final Rule for all employers nationwide. Accordingly, as AGG covered in a previous alert, the salary and compensation levels that the DOL announced on April 23, 2024, including an initial increase that went into effect on July 1, 2024, are no longer required. Of particular importance, the increases planned for January 1, 2025, and subsequent years will not go into effect absent further agency or court action.

History Repeats Itself

This is not the first time the Eastern District of Texas has enjoined the DOL’s efforts to increase the minimum salary threshold on a nationwide basis. In May 2016, under the Obama administration, the DOL published a new overtime rule that would have more than doubled the salary thresholds for the EAP overtime exemptions. That rule was scheduled to take effect on December 1, 2016, and, like the 2024 Final Rule, included automatic increases to the minimum salary levels every three years beginning in 2020. Before that rule could take effect, however, a different judge in the Eastern District of Texas enjoined the rule on a nationwide basis, concluding that the rule increased the minimum salary to a level that “essentially ma[de] an employee’s duties, functions, or tasks irrelevant if the employee’s salary f[ell] below the new minimum salary level,” and unlawfully “ma[de] salary rather than an employee’s duties” the determinative factor for the EAP exemptions. Fast forward to 2024, and the DOL’s Final Rule has suffered the same fate.

The Court’s Opinion

In a 62-page decision, the court found that “the Department’s changes to the minimum salary level in the 2024 Rule exceed its statutory jurisdiction[.]” In this regard, the court explained that “the minimum salary level imposed by the 2024 Rule ‘effectively eliminates’ consideration of whether an employee performs ‘bona fide executive, administrative, or professional capacity’ duties in favor of what amounts to a salary-only test.” Thus, while the DOL has the authority to define and delimit the terms of the overtime exemptions, “that authority ‘is not unbounded.’” Given the impact of the Final Rule on millions of employees and the anticipated cost to employers, the court reasoned that enjoining the Final Rule on a nationwide basis was warranted. In (perhaps) a signal of things to come for other challenges to federal agency rulemaking, the court applied the new standard of judicial review announced in Loper Bright Enters. v. Raimondo, in which the Supreme Court of the United States made clear that “[c]ourts must exercise their independent judgment in deciding whether an agency has acted within its statutory authority.” Citing Loper Bright, the court reasoned that “when there is an ambiguity ‘about the scope of an agency’s own power . . . abdication in favor of the agency is least appropriate’” (italics in original).

Next Steps

As a result of the court’s ruling, the Final Rule is no longer in effect, and the current salary threshold level for the EAP exemptions returns to a minimum of $684 a week (or $35,568 annually), with the highly compensated employee salary level returning to a minimum of $2,066 a week (or $107,432 annually). While the outcome of any appeal by the DOL to the United States Court of Appeals for the Fifth Circuit is unclear, we do not expect to see any immediate attempts to revive the Final Rule in its current form under the incoming Trump administration.

Although employers may now refrain from implementing salary increases or other compensation changes in preparation for compliance with the Final Rule, the timing of the court’s ruling presents challenges for employers who made changes prior to the July 1, 2024, deadline and announced or made changes in anticipation of the January 1, 2025, deadline. Employers who are contemplating rescinding any prior changes should consider potential effects on employee morale, as well as compliance with other wage laws. In particular, employers should bear in mind that many states have minimum wage and overtime requirements that differ from the FLSA.

If you have questions about how the court’s decision will impact your workplace, please contact a member of AGG’s Employment team.