Texas Federal District Court Stops DOL’s Overtime Rule Raising Salary Thresholds for Exemptions

On November 15, 2024, the U.S. District Court for the Eastern District of Texas struck down the Department of Labor’s 2024 overtime rule raising salary thresholds for executive, administrative, and professional employees (under what is known as the “EAP Exemption”) and for highly compensated employees.  As Baird Holm previously reported, this rule raised minimum weekly salary levels for qualification under these Fair Labor Standards Act (“FLSA”) exemptions in two phases—once on July 1, 2024 and then again on January 1, 2025. 

In this sweeping 62-page decision, the Texas District Court found the DOL’s 2024 overtime rule to be an unlawful exercise of agency power.  Namely, the DOL’s changes to the salary-level test were considered to “exceed the Department’s authority to ‘define and delimit’ the terms of the EAP Exemption.”  In other words, the court interpreted DOL’s rule to exceed the statutory authority granted to the agency by Congress.

The FLSA exempts “any employee employed in a bona fide executive administrative or professional capacity” from the Act’s minimum-wage and overtime requirements.  The court scrutinized “the Department’s authority to define and delimit the EAP Exemption’s terms through the addition of a proxy characteristic like salary, which is not included in the statutory text.”  The FLSA’s text does not specify any minimum salary for an employee to qualify for this EAP Exemption, nor does the FLSA include language about compensation levels associated with exemption.  DOL regulations dating back to 1938 set the salary levels that we know and comply with today.  The court stated the “proxy characteristic [of salary thresholds] has effectively displaced the duties test for a significant percentage of otherwise EAP exempt employees” in the 2024 overtime rule.

As such, the Court vacated the 2024 overtime rule and remanded back to the DOL for further consideration.  Employers have already complied with the salary level increase effective on July 1, 2024.  The court’s opinion halting the rule will impact, going forward, “the centerpiece” of the rule scheduled to go into effect on January 1, 2025 and the planned automatic indexing mechanism the DOL had planned to use triennially to follow.