Not So Fast - Texas Court Derails DOL Rule Expanding Eligibility for Overtime Pay

On November 15, a U.S. District Court in Texas put the brakes on the Department of Labor’s April 2024 Rule designed to make more employees eligible for overtime pay under the Fair Labor Standards Act. State of Texas v. United States Department of Labor; Plano Chamber of Commerce v. United States Department of Labor.

The DOL determines by regulation which employees are eligible and which are ineligible for overtime pay. Employees in executive, administrative, or professional classifications (EAP) who perform certain exempt duties (called the duties test) and are paid by salary rather than hourly wages (called the salary basis test) are exempt from overtime. Since the inception of the FLSA in 1938, the DOL has prescribed a minimum salary as one criterion for an overtime exemption (the salary level test) – i.e., an employee earning less than the minimum salary is eligible for overtime pay regardless of the duties test.

In September 2024 the Fifth Circuit Court of Appeals upheld this salary level factor and the DOL’s increase of the salary level in 2019, as “within the [DOL’s] explicitly delegated authority to define and delimit the terms of the [EAP] Exemption.” Mayfield v. U.S. Department of Labor. However, the DOL’s April 2024 Rule significantly changed the salary level test and required the salary level to rise each year beginning July 2024. Specifically, the Rule increased the minimum annual salary to $43,892 effective July 2024, and to $58,667 effective January 2025. The Rule further provided that on July 1, 2027, and every three years afterwards, the salary levels would be updated. To illustrate, under the Rule, effective January 1, 2025 an employee earning a salary of less than $58,656 a year would have been automatically eligible for overtime pay for all hours worked in excess of 40 hours in a week.

The Texas District Court set aside the Rule as an “unlawful exercise of power” inconsistent with the FLSA. Invoking SCOTUS’s new non-deferential standard of review of federal agency action in Loper Bright v. Raimondo, Judge Sean Jordan held that the DOL’s power is not “unbounded” to expand the FLSA. Judge Jordan explained that the salary level test cannot “displace” or “swallow” the duties test of the FLSA. Using Loper Bright’s command that a court independently interpret the statute, Judge Jordan compared the proposed 2024 salary threshold increases with prior salary adjustments and noted that the 2024 salary increase was to take effect just five years after the DOL’s 2019 increase to the salary levels, as compared to the historical average of increases every nine years. The accelerated increases were beyond what the FLSA allowed.

Interestingly, the Fifth Circuit in its Mayfield decision upheld DOL’s 2019 expansion of the salary level despite the Loper Bright decision. Nevertheless, the 2024 salary level change was too much, too fast for Judge Jordan. The Texas court previously blocked the Rule from taking effect while the court deliberated. With this decision, the DOL effort to expand overtime pay eligibility by increasing salary thresholds is derailed pending any appeal by the DOL. This decision leaves the door open for the DOL to increase salary levels in 2028, but for now the Rule is nullified and revoked.

Should you have any questions, please contact Counsel Edward J. Bonett, Jr., Esq. at 908.546.6991 or via email here, Partner Patrick W. McGovern, Esq. at 973.535.7129 or via email here, or any Partner in our firm’s Labor Law Practice Group.