Employment Law Report
Texas Federal Court Strikes Down DOL’s Expansion of Overtime Pay Eligibility
By: Lillie Stivers
A federal court in Texas recently struck down a U.S. Department of Labor (DOL) rule designed to expand employees’ eligibility for overtime pay. The court’s order invalidates the rule for employees nationwide.
Under federal law, an employer must pay an employee time-and-a-half if the employee works more than 40 hours in a week. However, certain employees are exempt from this requirement if they meet a three-pronged test: (1) they are paid on a salary basis, (2) they perform administrative, executive, or professional duties, and (3) their salary exceeds a specified threshold.
The DOL’s rule sought to raise the salary threshold portion of the test in two phases. First, on July 1, 2024, it would raise from $684 per week ($35,558 annually) to $844 per week ($43,888 annually). The second increase would take effect in January 2025, raising the threshold further to $1,128 per week ($58,656 annually). After that, the salary threshold would be adjusted automatically every three years. The rule also increased the “highly compensated employee” (HCE) thresholds from $107,432 to $132,964 in July 2024, and to $151,164 in January 2025, with automatic increases every three years thereafter.
The Texas court ruled that the DOL’s significant increases to the salary threshold effectively displaced the duties portion of the test, thus exceeding the authority Congress granted the DOL in setting exemption requirements. The court applied the same reasoning to the HCE increases and held that the DOL lacked the authority to impose automatic future increases.
As a result of the court’s ruling, the January 2025 increase will not go into effect, and the July 2024 increase will be rescinded. While the DOL may appeal the decision, it is unlikely to do so given the new presidential administration. Employers who have already adjusted the status of employees based on the July 2024 salary threshold increase should consult with legal counsel before making any changes going forward.
