A federal judge in Texas recently ruled that the Department of Labor (DOL) did not have the authority to increase the salary basis threshold for the so-called “white-collar” exemptions from overtime.  This ruling means that the new rule has been vacated nationwide, will not go into effect, and the previous increase has been rescinded. 

Details of the Ruling

The November 15 ruling came just six short weeks before the next and largest increase in the salary threshold was set to occur. U.S. District Judge Sean Jordan of the Eastern District of Texas ordered the DOL’s 2024 Fair Labor Standards Act Salary Basis Rule (Rule) be vacated. 

The State of Texas and several business organizations were challenging whether the DOL had statutory authority to adopt the Rule, which would have raised the salary thresholds for executive, administrative, and professional employee overtime exemptions and implemented automatic adjustments every three years.  The district judge found that the Rule exceeded the statutory jurisdiction of the DOL’s authority.

Background on the Fair Labor Standards Act (FLSA)

Under the FLSA, certain “white-collar” workers can be classified as exempt from the overtime pay requirements if their work duties meet certain requirements and if they are paid a guaranteed salary over a certain statutory threshold. The new Rule did not change the work duties requirement but did increase the salary threshold to $58,656 a year.  Any employees being paid less than that amount would be disqualified from the exemption and be eligible for overtime pay in any week in which they worked over 40 hours. The Rule included an automatic escalator, by which the salary threshold would be updated (likely increased) every three years.

Phased Implementation of the Rule

The Rule’s first phase went into effect July 1, 2024, and that phase increased the salary threshold for overtime eligibility from $35,568 to $43,888. The Rule’s next phase was scheduled for January 1, 2025, and would have increased the salary threshold to $58,656. 

However, since the entire Rule has been vacated (not just its second phase and the escalator), the salary threshold will return to the level of $35,568, the salary level before the Rule’s first phase and the level in place before the Rule was adopted. 

Future Implications

It is not clear whether the DOL will appeal the decision of the district judge, but given the political realities currently, this Rule is likely dead.  It is expected that upon taking office, President Trump will either have his DOL withdraw the Rule or instruct his Department of Justice not to defend the Rule in court. But, it is also possible that the Trump administration will have his DOL conduct a “fresh look” at the salary threshold.  In either event, the Rule in its current form will not likely ever take effect, keeping at least for now, the salary threshold of $35,568. 

Please contact the authors if you have any questions about the Rule.