Texas Federal Court Rejects Department of Labor Overtime Rule on a Nationwide Basis

On Friday, November 15, 2024, in the consolidated case of State of Texas/Plano Chamber of Commerce v. the United States Department of Labor, the federal district court in the Eastern District of Texas (United States District Judge Sean D. Jordan) granted the motions for summary judgment for the plaintiffs, the State of Texas and approximately one dozen business organizations. The ruling has several immediate impacts, as follows:

The Department of Labor Final Rule that would raise the minimum salary threshold to be exempt from overtime under the Fair Labor Standards Act (FLSA) that was scheduled to go into effect on January 1 (raising the minimum salary threshold to $58,656 annually) is now blocked on a nationwide basis for all employers.
The ruling also prevents the automatic salary threshold increases that were scheduled to go into effect every three years after 2025.
The portion of the Final Rule that was effective on July 1, 2024 raising the minimum salary threshold to $43,888 annually was also struck down retroactively.
The proposed changes to the highly compensated employee (HCE) exemption that raised the threshold to an annual salary of $132,964 on July 1, 2024, up from $107,432, and was also set to significantly increase to $151,164 per year on January 1, 2025, were overturned.

As part of his analysis, Judge Jordan held the Final Rule “exceeded [the Department of Labor’s] statutory jurisdiction.” The Court opined that “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.” Observing that a third of otherwise exempt employees whose duties met the duties test would no longer be exempt under the new rule solely because of salary level, the Court found that the minimum salary threshold cannot displace the duties test for the EAP Exemption because such would be in direct contrast to the language of the statutory text found in Section 213(a)(1) of the FLSA, which does not mention a minimum salary level.

The ruling is effective immediately and returns the salary basis test minimum threshold for the EAP (Executive, Administrative, and Professional) exemptions to $684 per week ($35,568 annually), down from $43,888 annually. Moreover, the required amount to be paid to highly compensated employees to meet that exemption returns to $107,432 annually (including at least $684 per week on a salary or fee basis), down from $132,964 annually.

This decision is noteworthy for both employers of all sizes and the millions of salaried white-collar employees who would have been rendered eligible for overtime effective January 1, 2025. Employers that have raised the minimum salaries of their employees to comply with the Rule effective July 1 might now consider whether to decrease salaries, and employers who transitioned employees to hourly status might wish to convert such employees back to salaried classification. Employers that have communicated that they would raise salaries effective January 1, 2025 might now change their plans.

Employers should consult with counsel regarding the best way to communicate any potential salary changes to employees. Salary changes should be communicated to employees in advance and in writing. Employers will also need to comply with state law and local requirements regarding the timing and required notice of pay changes, especially if decreases in pay are considered.

Up next, the Department of Labor may decide to appeal the District Court’s ruling, in which case the issue would be decided by the Fifth Circuit Court of Appeals and could ultimately be appealed to and decided by the United States Supreme Court. If such appeal is still pending when President-Elect Trump is inaugurated on January 20, 2025, it is likely the Department of Labor under the Trump Administration would voluntarily withdraw any appeal and could issue a new rule.

View the opinion here: gov.uscourts.txed.230562.76.0_2

Mark A. McNitzky

Mark McNitzky has significant experience providing both public and private clients with general advice, counsel, litigation representation in a broad range of employment and labor matters. Mark assists employers in all forms of compliance with local, state, and federal employment laws, including ...