DOL Overtime Rule Blocked Nationally by Federal Judge

At A Glance

• A federal judge in Texas blocked a Department of Labor (DOL) rule that increased salary thresholds  for certain exemptions from the Fair Labor Standards Act (FLSA).
• The provisions of the rule, including the compensation thresholds increase from July 1, 2024, and the planned increase on January 1, 2025, are no longer enforceable.
• The Department of Labor could appeal this ruling.

Background

In April 2024, the Department of Labor issued a final rule  that required two increases to compensation thresholds for certain exemptions from Fair Labor Standards Act (FLSA) overtime requirements.

The Executive, Administrative, and Professional exemptions’ minimum salary threshold increased on July 1, 2024, from $684 per week to $844 per week, with a further increase to $1,128 per week planned for January 1, 2025.

The DOL’s final rule also included increases for the Highly Compensated Employees (HCEs) exemption total annual compensation threshold (to $132,964 on July 1, 2024, and $151,164 on January 1, 2025) and a mechanism to update these levels every three years moving forward. The other elements of the EAP and HCE exemption tests remained unchanged.

Legal challenges to the final rule were brought in multiple federal courts, including a challenge by the state of Texas as an employer. On June 28, 2024, a U.S. District Court Judge for the Eastern District of Texas issued a preliminary injunction that prevented the final rule from being enforceable. This preliminary injunction applied only to the state of Texas as an employer. On November 8, 2024, in this same court, a hearing was held to determine whether summary judgment should be granted, along with the scope of any judgment rendered.

Recent Court Ruling Blocks All Provisions Nationwide

Providing resolution of the lawsuit, the Eastern District Court of Texas held that the DOL exceeded the scope of their rulemaking authority by making the EAP exemption’s salary threshold so high that the job duties element of the test is essentially irrelevant. The court also relied on the U.S. Supreme Court’s landmark ruling in Loper Bright Enterprises V. Raimundo that reintroduced an element of judicial interpretation for administrative rulemaking.

As a result of this ruling, none of the DOL’s final rule provisions mentioned above are enforceable against any employer. This ruling expands on the June 2024 injunction as the result of other parties joining the lawsuit against the DOL, including state and national trade organizations.

Next Steps

This court decision leaves the future of the DOL’s final rule uncertain. If the court's decision is challenged by the DOL, an appeals court could overturn the lower court’s decision, but it’s unclear whether the new administration will pursue such an appeal if one isn’t successfully ruled on before inauguration day on January 20, 2025. 

If you’re considering adjusting employee compensation as a result of this ruling, consider working with an attorney to ensure compliance with existing federal, state, and local law.

Employee compensation may have already been affected by the July 1, 2024, increase. Since that increase is currently unenforceable, along with the planned increases for January 1, 2025, employers may consider revisiting strategies developed earlier this year to prepare for the new final rule requirements. Employers can determine whether to maintain the salary increases or move forward with future increases but must meet the existing regulatory requirements. 

A successful appeal by the DOL could reinstate the requirements of the final rule, so uncertainty will continue to exist. Paylocity will monitor developments from the DOL and provide updated information if needed.

Thank you for choosing Paylocity as your Payroll Tax and HCM partner. This information is provided as a courtesy, may change, and is not intended as legal or tax guidance. Employers with questions or concerns outside the scope of a Payroll Service Provider are encouraged to seek the advice of a qualified CPA, Tax Attorney, or Advisor.