On Nov. 15, 2024, the U.S. District Court for the Eastern District of Texas vacated the U.S. Department of Labor’s (DOL) final Overtime Rule. The 2024 Rule increased salary levels that employees in “white-collar” occupations must meet to qualify for an overtime exemption under the Fair Labor Standards Act (FLSA). The Texas federal court ruling applies nationwide and overturns the already-implemented July increase as well as the January 2025 increase and future escalations.
Background
In general, under the FLSA, employers must pay employees time-and-half for work exceeding 40-hours/week. The FLSA provides exemptions if an employee satisfies a three-part test: they are paid on a fixed salary (not hourly) basis; they primarily preform certain duties (designated in the FLSA’s duties test); and they must be paid a minimum salary, known as the salary threshold test.
These FLSA “white-color” exemptions to the overtime pay requirements apply to individuals in executive, administrative, professional (EAP), and some outside sales and computer-related occupations. Some highly compensated employees (HCEs) may also qualify for the FLSA white-collar overtime exemption.
For the IT staffing industry, generally the 2024 Rule impacted recruiters, account managers, and administrative staff; the rule did not change the computer professional exemption nor change the “duties” test. TechServe submitted comments urging DOL to include a percentage of commissions in the salary calculations and to require notice and comment for any future increases.
2024 Final Rule
Earlier this year, the DOL published the 2024 Rule that amended current requirements employees in white-collar occupations must satisfy to qualify for an FLSA overtime exemption. The final rule increased the standard salary level, starting July 1, 2024, from:
- $684 to $844 per week ($35,568 to $43,888 per year) for EAPs; and
- $107,432 to $132,964 per year for HCEs.
On Jan. 1, 2025, the standard salary level was set to increase again from:
- $844 to $1,128 per week ($43,888 to $58,656 per year) for EAPs; and
- $132,964 to $151,164 per year for HCEs.
The rule also enabled the DOL to update salary levels automatically every three years starting on July 1, 2027.
Court Case and Impact
The District Court held that the DOL exceeded its statutory authority by increasing the standard salary level too high and broadly and allowing for automatic adjustments every three years. The court noted that the FLSA focused on the duties test for an overtime exemption, and the 64% increase in salary levels made the 2024 Rule a de facto salary-only test. The court also ruled that the automatic increases violate the FLSA provisions for adjusting salary levels, which must comply with the Administrative Procedures Act notice and comment requirement.
As a result, the court vacated the salary increase that went into effect in July, the increase scheduled for January, and future automatic salary level increases. The court ruling applies nationwide. As a result of the decision, the standard salary level for EAPs was restored to $35,568 and $107,432 for HCEs.
The DOL may appeal the District Court’s ruling; however, this is not expected because the incoming Trump administration will likely abandon it. Although the court invalidated the already-implemented July 2024 increases, employers should consult with their own legal counsel about whether to revert to pre-July salary levels and practices.
