U.S. District Court Vacates DOL Final Rule on FLSA Overtime Exemptions

On November 15, 2024, Judge Sean Jordan of the U.S. District Court for the Eastern District of Texas vacated the Biden Department of Labor (DOL) final rule that raised the minimum salary that employers would be required to pay employees to maintain their overtime exempt status under the federal Fair Labor Standards Act (FLSA).¹  This means that, for now, employers nationwide do not need to increase certain exempt employees’ salaries in January 2025, and the exemption levels for executive, administrative, and professional employees, and for highly compensated employees, revert to the levels under the 2019 regulations, which set the minimum salary at $35,568 for exempt employees and $107,972 for highly compensated employees.

Background on the FLSA and the DOL’s Final Rule at Issue

On April 23, 2024, the DOL released a final rule that raised the salary thresholds for certain overtime exemptions under the FLSA.

The FLSA generally requires covered employers to pay employees a minimum wage and, for employees who work more than 40 hours in a week, overtime pay of at least 1.5 times an employee’s regular rate of pay. The FLSA exempts certain employees from its overtime requirements. 

The DOL’s final rule affected those who were employed in positions meeting the requirements for the executive, administrative, professional, and highly compensated employee exemptions. In addition to meeting other requirements as set forth in the FLSA and implementing regulations, the amount employees are paid must meet certain thresholds.

Before the DOL’s final rule, the salary threshold for executive, administrative, and professional employees annualized to $35,568 per year. The threshold for highly compensated employees was $107,432 per year. The effective date for the final rule was July 1, 2024, but certain sections were not set to apply until January 1, 2025:

• Beginning July 1, 2024, the final rule called for an increase in the threshold for bona fide executive, administrative, and professional employees to $43,888 per year. The final rule also raised the annual compensation threshold for highly compensated employees to $132,964 per year.

• Beginning January 1, 2025, the final rule was supposed to raise the threshold for bona fide executive, administrative, and professional employees to $58,656 per year. The final rule was also supposed to raise the annual compensation threshold for highly compensated employees to $151,164 per year. 

• Beginning July 1, 2027, and every three years thereafter, the salary thresholds were supposed to automatically update.

The Court’s Decision in Texas v. U.S. Department of Labor

The State of Texas and a coalition of trade associations and employers challenged the DOL’s final rule on the basis that these changes to the salary thresholds exceeded the DOL’s authority under the FLSA. 

Judge Jordan agreed. The court found that the final rule effectively displaced the FLSA’s duties-based test with a predominant salary-level test, which was inconsistent with the FLSA’s statutory text and congressional intent. Judge Jordan also found that the automatic indexing mechanism improperly evaded various administrative requirements, like the notice-and-comment process.

What the Court’s Decision Means for Employers

Judge Jordan’s decision means that the January 1, 2025 deadline to increase minimum salaries for exempt employees to $58,656 is no longer in effect, and the earlier $43,888 increase effective July 1, 2024, is also eviscerated. 

The salary exemption levels are now governed by the Trump administration’s 2019 regulations, which set the minimum annual salary at $35,568 for exempt employees and $107,432 for highly compensated employees.

Next Steps for Employers

Employers should be aware that Judge Jordan’s decision may not be the end of the story, and employers should continue to monitor this litigation. 

The U.S. Court of Appeals for the Fifth Circuit could overturn Judge Jordan’s order. But doing so would require the current DOL to appeal the ruling despite the impending regime change in January, which may be unlikely. Even if the DOL under the current administration appeals, once President Donald Trump is in office again, the DOL may not continue that appeal. 

We are continuing to monitor the implementation of the final rule. Please do not hesitate to contact us if you have any questions or concerns about the rule.

It is important for employers to note that any state minimum salary threshold requirements are not affected by this decision and may exceed minimums required by federal law.

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 ¹ See Texas v. U.S. Dep’t of Lab., No. 4:24-CV-468-SDJ, 2024 WL 4806268 (E.D. Tex. Nov. 15, 2024).