On Friday, November 15, 2024, the Eastern District of Texas struck down the Department of Labor’s (“DOL”) 2024 Overtime Rule that increased the minimum salary thresholds required for employees to meet the executive, administrative, and professional exemptions (“EAP Exemptions”) from the overtime requirements of the Fair Labor Standards Act (“FLSA”). The decision’s impact is nationwide. Finding in favor of the State of Texas and a coalition of trade associations and employers, the Court held that the DOL exceeded its authority with the Overtime Rule, which effectively displaces the FLSA’s duties test. The Court found that “[i]t’s [the employees’] duties and not their dollars that really matter.”

The 2024 Overtime Rule increased the EAP Exemption minimum salary threshold from $684 to $844 per week (or $35,568 to $43,888 annually) as of July 1, 2024, raised the salary level to $1,128 per week ($58,656 annually) starting on January 1, 2025, and implemented a mechanism to automatically increase the salary level every three years to even higher levels based on contemporary earnings data. As a reminder, the salary threshold is one part of the test for an employee to meet an EAP Exemption. An employee also must meet several requirements that reflect their primary duty is that of an executive, administrative, or professional employee – the “duties” test.

The Court found that the 2024 Overtime Rule exceeded the DOL’s authority. The DOL has the authority to “define and delimit” the EAP Exemption under the FLSA, including the authority, within limits, to impose a salary-level test to qualify for an EAP Exemption. However, the Court stated that while the salary test can be used as criterion, such as to screen out obviously non-exempt employees, it cannot displace the duties test. While salary can be a “helpful indicator,” it cannot be a substitute. In this case, the 2024 Overtime Rule’s changes would make salary predominate over duties for millions of employees who would otherwise meet the duties test. The Court found that this result could not be reconciled with the text of the FLSA.

The Court also struck down the automatic triennial increases, finding that such increases also cannot be reconciled with the text of the FLSA, and that the automatic escalator violated notice and rulemaking requirements of the Administrative Procedures Act because the increases would go into effect without a notice and comment period.

If this decision sounds familiar, it is because the same federal court—the Eastern District of Texas—struck down the DOL’s 2016 Overtime Rule, which had increased the EAP Exemption salary threshold from $455 to $913 per week ($23,660 to $47,476 annually) and similarly had an automatic indexing mechanism. Indeed, in its decision on the 2024 Overtime Rule, the Court referenced how the DOL had “returned to its 2016 Rule playbook.” The Court, in turn, returned to the reasoning in its 2016 decision when it permanently enjoined the DOL’s 2016 Overtime Rule.

Here, the Court found that the appropriate remedy was to vacate the 2024 Overtime Rule entirely and send the DOL back to the drawing board. After the Court struck down the 2016 Overtime Rule, the DOL did just that, and, with a 2019 Overtime Rule, implemented less dramatic changes to the salary level (the increase was from $455 to $684 per week, instead of $913), not including an automatic mechanism to increase the minimum salary level either. The 2019 Rule did go into effect. We may see a similar approach from the DOL here, who may now look to a less dramatic increase and without an automatic escalator.

If you have any questions about the Court’s decision and its impact, please contact Kayla Ernst or any member of the Ice Miller Workplace Solutions Practice Group.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.