A Texas federal judge has struck down in its entirety a U.S. Department of Labor (DOL) rule (the “2024 Overtime Rule”) that would have expanded overtime eligibility for about 4 million more salaried U.S. workers.
On November 15, 2024, the U.S. District Court for the Eastern District of Texas struck down a Biden administration rule that took effect July 1, 2024, ruling that the DOL lacked the authority to raise the minimum salary threshold for overtime eligibility under the executive, administrative, and professional (EAP) exemptions. Because of this decision, the previous salary threshold for overtime goes back into effect, meaning employers must pay their salaried workers overtime if they earn less than the minimum threshold in effect prior to July 1 ($35,568 per year, or $684 per week).
The State of Texas and a coalition of business groups filed suit challenging the validity of the 2024 Overtime Rule, arguing that it would drastically increase payroll costs for employers, resulting in fewer jobs. The business groups that sued over the rule said it would force employers to reexamine compensation packages for lower-level salaried workers nationwide.
Under the Fair Labor Standards Act, certain workers can be exempt from overtime pay if they are salaried, make more than a certain amount each year, and meet certain other criteria contained in the EAP exemptions.
The 2024 Overtime Rule would have required employers to pay overtime to salaried workers who earn less than $1,128 per week, or about $58,656 per year, when they work more than 40 hours in a week, beginning January 1, 2025, and it had temporarily raised the salary threshold to about $43,888 per year beginning on July 1, 2024. It would also update the minimum salary threshold for the EAP exemptions every three years.
The 2024 Overtime Rule also increased the total annual compensation level for application of the “highly compensated employee” exemption from $107,432 to $132,964 per year on July 1, 2024. That threshold was slated to increase to $151,164 per year on January 1, 2025.
In his summary judgment decision striking down the 2024 Overtime Rule, the Texas federal judge found that the 2024 Overtime Rule improperly based eligibility for overtime pay on workers’ wages rather than their job duties. The Court held that “[t]he minimum salary level imposed by the 2024 [Overtime] Rule ‘effectively eliminates’ consideration of whether an employee performs ‘bona fide executive, administrative, or professional capacity’ duties, . . .in favor of what amounts to a salary-only test.”
As a result of this decision, the previous salary threshold of about $35,500 will now be back in effect. The pre-July 1 salary level for the highly compensated employee exemption, $107,432 per year, is also reinstated.
The Texas district court’s order striking down the 2024 Overtime Rule applies nationwide.
Although the DOL can appeal the district court’s decision to the U.S. Court of Appeals for the Fifth Circuit, the incoming Trump administration could abandon any attempt to appeal this ruling or revive the rule.
The case is State of Texas v. U.S. Department of Labor, E.D. Tex., No. 24-00499, summary judgment granted on November 15, 2024.
