Employment Law Report
DOL’s New Overtime Rule: Impact of Texas Federal Court Decision
On April 23, 2024, the United States Department of Labor (“DOL”) issued its final rule raising the salary threshold for exempt employees under the Fair Labor Standards Act (“FLSA”). FLSA generally requires employers to pay time-and-a-half to employees who work more than 40 hours-per-week. The law, however, exempts some employees from this overtime pay requirement. Among the exempted are executive, administrative, and professional (“EAP”) as well as highly compensated employees (“HCE”). When it took effect on July 1, 2024, the DOL’s new “Overtime Rule” significantly raised the minimum salary threshold for these employees.
As of July 1, 2024, the new rule increased the salary threshold from $684 per week ($35,568 per year) to $844 per week ($43,888 per year). On January 1, 2025, the salary threshold is set to increase again to $1,128 per week ($58,656 per year). Further, the salary threshold will automatically increase again on July 1, 2027, and every three years thereafter based on updated wage data. The final rule also raised the minimum salary for highly compensated employees from $107,432 to $132,964 per year. The minimum salary for highly compensated employees will rise again on January 1, 2025 to $151,164 per year. Like the salary threshold for “white collar” employees, it will also be automatically updated every three years.
In Texas, three lawsuits were brought in federal court shortly after the DOL’s final rule was issued seeking to enjoin it. In one action, the State of Texas sought a preliminary injunction, claiming the change set to take place on July 1, 2024 would drive up its payroll costs and deplete its budget.[1] On June 28, 2024, Judge Sean Jordan granted the State of Texas’s motion for injunctive relief, concluding that the DOL’s overtime rule is “likely unlawful” because the rule attempts to substitute the FLSA’s duties test with a salary test.[2] The court also noted that the rule changes likely fall outside of Congress’s grant of authority to the DOL.
The Texas court had previously enjoined enforcement of a similar rule in 2016, concluding that the rule made salary rather than an employee’s duties the determinative factor for the EAP Exemption.[3] Similarly, the current court granted an injunction based upon its reasoning that the State of Texas would likely succeed on the merits of its claim that the 2024 rule interferes with the duties test in an unlawful manner. The granted injunction, however, only benefits the State of Texas in its capacity as an employer of state employees. At this time, the rule is still effective for all other employers, whether inside or outside of Texas.
Since the “Overtime Rule” is still being challenged in several actions, it is quite possible it may ultimately be enjoined on a nationwide basis. However, as the rule is in effect for the time being, compliance is crucial. Employers should review their exempt employee classifications and compare them against the new salary thresholds. If the pay of previously exempt employees does not meet the new salary threshold, employers should determine whether the employees should be reclassified as non-exempt employees or whether their salaries should be increased.[4] Reclassifying employees may create rippling effects employers must plan for and manage. For employees who are reclassified, employers should review timekeeping protocol and ensure that non-exempt employees adhere to the proper overtime procedures. Wyatt attorneys are here to help navigate the changes brought by this rule.
[1] The case discussed is State of Texas v. U.S. Dep’t of Labor, No. 4:24-CV-499-SDJ (E.D. Tex.), which was since consolidated with Plano Chamber of Commerce, et al. v. Su, 4:24-CV-468 (E.D. Tex.).
[2] The duties test refers to the determination of whether an employee is exempt from overtime pay being made largely on the basis of the employee’s functions and duties. The salary test refers to this same determination being made based on an employee’s salary instead.
[3] The 2016 case discussed is Nevada v. U.S. Dep’t of Lab., 275 F.Supp.3d 795, 806-07 (E.D. Tex. 2017).
[4] If an employer reclassifies formerly exempt employees as non-exempt employees, the employer would likely be required to begin paying these employees for any overtime hours worked (hours worked over 40-per-week).
