Texas v. United States Department of Labor

Last week, in a long-awaited decision, the U.S. District Court for the Eastern District of Texas struck down the 2024 Rule issued by the U.S. Department of Labor (DOL), which aimed to increase the salary threshold for the executive, administrative, and professional (EAP) exemptions under the Fair Labor Standards Act (FLSA). The rule which would have provided overtime for approximately 4,000,000 workers who do not currently receive it.

The case continued a back and forth in which Democrat administrations have sought to expand workers’ rights by increasing the salary thresholds required to maintain overtime exemptions, and Republican appointed judges have invalidated the rules, stripping workers of enhanced rights provided by DOL promulgated regulations.

Background of the Case

The FLSA mandates that most employees must receive at least the federal minimum wage and overtime pay for hours worked beyond 40 in a workweek. However, certain employees are exempt from these requirements, particularly those classified under the EAP exemptions. Historically, the DOL has set a minimum salary level to qualify for these exemptions.

In April 2024, the DOL announced the 2024 Rule, which significantly raised the minimum salary threshold for EAP employees—from $684 to $844 per week starting July 1, 2024, and further to $1,128 per week by January 1, 2025. Additionally, the rule included an automatic indexing mechanism for future salary increases based on contemporary earnings data every three years.

The Legal Challenge

Texas, along with a coalition of business organizations, argued that the DOL overstepped its statutory authority by effectively prioritizing salary over the actual duties performed by employees. They contended that the changes would displace the duties-based test required by the FLSA and improperly classify millions of employees as nonexempt from overtime pay, despite no changes to their job responsibilities.

The court’s analysis began with the text of the FLSA, which does not explicitly specify a minimum salary for the EAP exemption. The DOL has historically exercised its authority to define and delimit this exemption, but the court emphasized that such authority has limits—primarily that the focus should remain on the duties performed by employees rather than solely their salary.

The Court’s Ruling

Judge Sean D. Jordan ruled in favor of Texas and the business organizations, stating that the DOL’s 2024 Rule was an unlawful exercise of agency power. The court held that the rule’s changes effectively eliminated the consideration of job duties in favor of a predominately salary-based exemption test, contravening the FLSA’s intent.

The ruling detailed that the DOL’s increase in salary thresholds and the implementation of automatic indexing would improperly classify millions of employees as nonexempt, thereby violating the fundamental purpose of the EAP exemption, which is to protect workers who perform executive, administrative, or professional duties.

Implications of the Decision

This ruling has far-reaching implications for employers and employees alike. By vacating the 2024 Rule, the court has reinstated the previous salary thresholds and reaffirmed the importance of the duties test in determining exemption status.

This order effectively reverts the minimum weekly salary requirement back to the 2019 number, $684 per week (except in jurisdictions, such as California and New York, which have higher minimum requirements under state law). In the months leading up to the July 1 increase, many employers reclassified workers as nonexempt. In theory, employees who were converted to nonexempt due to the July 1 increase may now be reclassified to exempt, if desired.

It is anticipated that the DOL will appeal this decision to the Fifth Circuit. However, any appeal most certainly will not be resolved by the Jan. 1 effective date of the next planned increase, and the new administration may ultimately abandon the appeal at a later date if it is still pending. The 2019 rule, which is now once again in effect, was issued under the previous Trump administration.

Key takeaways at this time are:

• The minimum salary for exempt status under federal law is once again $684 per week, with limited exceptions.
• Employees who earned between $684 and $844 per week and were reclassified as nonexempt as a result may be reclassified as exempt, provided they continue to meet one of the applicable job duties tests.
• The anticipated increase to $1,128 per week on Jan. 1, 2025, will not occur.
• Any future revisions to the minimum salary will not face an uphill battle, ostensibly freezing wages for millions of Americans paid relatively moderate salaries.

Click Texas v. United States Department of Labor to read the entire decision.