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E.D.Tex.: Texas Court Strikes Down DOL Overtime Rule
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.
DOL Issues Final Rule Raising Salary Threshold for Exempt “White Collar” Employees
After a lengthy comment period, the U.S. Department of Labor (DOL) issued its final rule on April 23, 2024, and raised the salary threshold for “white collar” employees to be exempt from federal overtime requirements under the Fair Labor Standards Act (FLSA). The new rule significantly increases the minimum salary requirement for executive, professional, and administrative employees, effective July 1, 2024. In other words, once the new rule goes into effect, an employer will have to pay such employees a significantly higher minimum weekly salary in order to legally classify them as exempt from overtime under the FLSA.
Currently, to be exempt from federal overtime requirements under the FLSA, a white-collar worker must receive a guaranteed base salary of at least $684 per week ($35,568 per year), in addition to satisfying the applicable “duties” test. The newly propagated rule increases this minimum salary threshold, initially to $844 per week ($43,888 per year) as of July 1, 2024, and then to $1,128 per week ($58,656 per year) as of January 1, 2025. Thereafter, the rule provides for an automatic update to the threshold every three years levered to statistical wage data.
The rule also raises the annualized salary threshold for white-collar workers to qualify under the “highly compensated employee” overtime exemption. As of July 1, 2024, this threshold would increase from $107,432 to $132,964, then on January 1, 2025, it would increase to $151,164, and thereafter the threshold would be updated every three years based on wage data.
The new rule does not modify the duties test for either the white-collar or highly compensated employee exemption, which also must be satisfied for an employee to properly be classified as exempt from federal overtime pay requirements. Likewise, the new rule does not impact employees subject to other overtime exemptions, for which the salary-basis test is not an element of the exemption (e.g. truck drivers or seasonal employees).
Click FINAL RULE to read the rule in its entirety. Click summary chart to see a chart of the applicable dates and thresholds.
10th Cir.: Employee Who Performed Work Afterhours for Employer Through His Separate Company Held to be Independent Contractor for Afterhours Work
Barlow v. C.R. England, Inc.
Following an order granting the defendant summary judgment, the plaintiff appealed. As discussed here, the issue before the Tenth Circuit regarding the plaintiff’s FLSA claim, was whether he was properly deemed to be an independent contractor for janitorial work her performed for his employer afterhours, while the same employer deemed him to be an employee for security work he performed during the day. In a decision lacking much by way of reasoning, the Tenth Circuit affirmed the decision of the court below and held that the defendant’s dual classification for the two different types of duties performed was valid.
The Tenth Circuit laid out the pertinent facts as follows:
In February 2005, Barlow began working as a part-time security guard at a Denver maintenance yard operated by England, a large trucking company. Barlow patrolled England’s grounds for about thirty hours a week, from 6:30 P.M. to 5:00 or 6:00 A.M. Friday through Sunday nights. Most of the yard was fenced in, accessible through an automatic overhead gate. Barlow also performed maintenance and ground work to try to reach 40 hours of work per week.
After Barlow had been at England for about a year and a half, he asked the facility’s site manager, John Smith, for extra work. Smith, who had initially hired Barlow, was not satisfied with England’s janitorial contractor at that time, so he asked England’s personnel department about having Barlow take over. Smith was told he could not allow Barlow to work any more hours because the company would have to pay overtime.
To get around this, Smith suggested Barlow create a company England could contract with. Barlow formed E & W Janitorial & Maintenance Services, LLC. Beginning in February 2007, Barlow cleaned for England on Mondays, Wednesdays, and Saturdays, pursuant to an oral agreement with Smith. On a few occasions, his girlfriend, a co-owner of E & W, filled in. England provided his cleaning supplies, but did not require Barlow clean in any particular order. England, the only company for which E & W worked, paid $400 a month for E & W’s services.
Without much reasoning regarding this portion of the plaintiff’s claim, the court held:
We also agree with the district court’s decision to grant summary judgment against Barlow regarding his FLSA claims. Barlow argues that he performed his janitorial work as an employee under the FLSA, and that he was therefore entitled to overtime pay. But applying the “economic realities” test of employee status, we conclude that Barlow was not a statutory employee for purposes of the FLSA.
The “economic realities” test seeks to look past technical, common-law concepts of the master and servant relationship to determine whether, as a matter of economic reality, a worker is dependent on a given employer. Baker v. Flint Engineering & Const . Co., 137 F.3d 1436, 1440 (10th Cir.1998). “The focal point in deciding whether an individual is an employee is whether the individual is economically dependent on the business to which he renders service, or is, as a matter of economic fact, in business for himself.” Doty v. Elias, 733 F.2d 720, 722–23 (10th Cir.1984) (emphasis added) (citations omitted). “In applying the economic reality test, courts generally look at (1) the degree of control exerted by the alleged employer over the worker; (2) the worker’s opportunity for profit or loss; (3) the worker’s investment in the business; (4) the permanence of the working relationship; (5) the degree of skill required to perform the work; and (6) the extent to which the work is an integral part of the alleged employer’s business.” Baker, 137 F.3d at 1440. It also “includes inquiries into whether the alleged employer has the power to hire and fire employees, supervises and controls employee work schedules or conditions of employment, determines the rate and method of payment, and maintains employment records.” Id. “None of the factors alone is dispositive; instead, the court must employ a totality-of-the-circumstances approach.” Id.
Some factors favor Barlow, while other factors favor C.R. England, but, ultimately, we agree with the district court that Barlow was an independent contractor. Barlow and his partner created a licensed, limited liability company in order to provide janitorial services. Cf. Rutherford Food Corp. v. McComb, 331 U .S. 722, 730 (1947) (classifying as employees speciality group of production line workers in part because “[t]he group had no business organization that could or did shift as a unit from one slaughter-house to another”). Barlow kept records for the company, opened a separate bank account, and filed a corporate tax return. The district court also noted Barlow had the “freedom to decide how to accomplish” his tasks, even if the company reviewed the ultimate work product. 816 F.Supp.2d at 1107. Indeed, little in the case indicates the relationship between Barlow and C.R. England materially differed from one the company would have with any other cleaning service except for the fact Barlow also happened to otherwise be an employee. This suggests Barlow was in business for himself as a janitor, and we therefore affirm the district court’s decision to grant summary judgment.
Click Barlow v. C.R. England, Inc. to read the entire decision.
Overtime Law Blog 