DOL’s Overtime Rule Thrown Out by Texas Judge

December 11, 2024

Last month, a federal judge struck down the U.S. Department of Labor’s recently enacted overtime rule. The judge found that the rule exceeded the Department’s statutory authority and vacated the rule and remanded it back to the Department for further consideration in light of the judge’s ruling.

Overtime Exemption Under the Fair Labor Standards Act

Under the Fair Labor Standards Act, covered employers must pay their employees at least the federal minimum wage and overtime pay for any hours worked in excess of 40 in a week. There are several exemptions to this general requirement, the most prominent being the “executive, administrative, and professional” exemption. For this exemption to apply, an employee must (1) be paid a salary that (2) meets or exceeds a set threshold and (3) perform work that primarily involves executive, administrative, or professional job duties. The salary threshold for this exemption before this rule was enacted was $35,568. This means that, in order to be exempt from overtime pay, an employee would have to at least make $35,568 a year.

There is another exemption called the “Highly Compensated Employee” exemption which applies in certain circumstances when an employee’s salary was so high that the DOL determined there is no need to analyze whether the employee performed work that involved executive, administrative, or professional job duties. The salary threshold for this exemption, prior to the new rule, was $107,432 per year.

The 2024 Rule and Judge’s Ruling

Under the new rule, the DOL sought to increase the salary thresholds in order to provide more employees with overtime eligibility. On July 1, 2024, the salary thresholds increased to $43,888 and $132,964, respectively. They were set to increase again on January 1, 2025, to $58,656 and $151,164. Finally, the rule provided for automatic increases to these salary levels every three years.

The judge found this rule was beyond the Department’s authority, as it essentially nullified the duties analysis of the “executive, administrative, and professional” exemption. The judge reasoned that it eliminated consideration of whether an employee performs bona fide executive, administrative, or professional capacity duties and shifted the analysis to a salary-only test. Because of this, the judge granted the State of Texas’ and joint business groups’ motion for summary judgement and struck down the rule nationwide.

What It Means for Employers

This ruling can be seen as a major win for employers, as it was estimated that over 4 million employees would have become eligible for overtime after the rule fully went into effect January 1, 2025. It was anticipated the rule would have imposed billions in payroll costs to employers nationwide and resulted in fewer jobs and fewer shifts for workers. The judge vacated the rule and remanded it back to the Department for further consideration in light of his opinion. As such, if the DOL seeks to further revise the rule to increase the salary threshold and expand overtime eligibility, it must do so in a way that does not diminish the duties analysis of the exemption. Even after the court’s ruling, it remains crucial that employers familiarize themselves with the law as it currently stands, analyze the exemption and its duties test, and avoid misclassifying employees.

If you have any questions regarding this decision or the current overtime exemption as it applies to your workforce, please contact Gaetano Urgo at gurgo@dcamplaw.com or by telephone at (312) 995-7128.