DOL Overtime Rule Enjoined from Taking Effect on July 1 – But Only as to the State of Texas Government

By Fiona Ong - Shawe Rosenthal LLP

July 1, 2024

Just days before it was scheduled to take effect, a Texas federal court issued a preliminary injunction that prevents the U.S. Department of Labor’s (DOL) revised overtime exemption rule from taking effect as scheduled on July 1, 2024, but only as to the State of Texas as an employer. As for all other employers covered by the Fair Labor Standards Act, the rule is taking effect as scheduled today, on July 1, 2024. The DOL’s rule seeks to significantly raise the salary level required for overtime-exempt workers and institute an automatic increase every three years.

Fair Labor Standards Act: The FLSA provides that covered employers must pay employees time-and-a-half of the employee’s regular rate for hours worked over 40 hours in a week.  Section 13(a)(1) of the FLSA provides that bona fide executive, administrative, or professional (“EAP”) employees are exempt from minimum wage and overtime provisions of the FLSA. This exemption is commonly referred to as the “white-collar” exemption.  The FLSA also provides a separate exemption for highly-compensated employees (“HCE”).

The Current Test for Overtime-Exempt Status: In order to be exempt from overtime, a white-collar employee must meet three tests: (1) the employee must be paid on a salary basis; (2) the employee’s salary must be at least $684 per week (equaling $35,568 per year); and (3) the employee’s primary duties must meet requirements specific to the EAP exemption in question.  Under the HCE exemption, an employee is required to earn at least $107,432 per year (in addition to being paid at least the standard salary level per week on a salary or fee basis) and perform at least one exempt duty.

What the Revised Rule Will Change: As discussed in our April 24, 2024 E-lert, the DOL’s revised rule significantly increases the salary requirement for white collar employees to $844 per week (or $43,888 annually), effective July 1, 2024, with a further increase on January 1, 2025 to $1,128 per week (or $58,656 annually). The required minimum salary for the highly compensated employees’ exemption is raised from $107,432 to $134,004, and then to $151,164 on January 1, 2025. These salary levels will be subject to automatic adjustments every three years. The new rule did not change the duties test for any of the exemptions.

Challenges to the Revised Rule: As discussed in our June 5, 2024 blog post, Three Overtime Rule Lawsuits, Three Judges – What Now?, the new rule was challenged by three separate lawsuits, including one filed by the State of Texas, all filed in Texas federal court and all arguing that such change was unlawful. Judge Sean Jordan held a hearing on the State’s request for a nationwide preliminary injunction on June 24, 2024. On Friday, June 28, he consolidated the State’s case with another case filed by a number of business groups, and granted a limited preliminary injunction, preventing the regulations from taking effect only as to the State as an employer, since it was the only party seeking relief and had established potential harm only as to itself. He allowed the regulations to take effect as to all other FLSA-covered employers.

In issuing the limited preliminary injunction, the judge found that the State was likely to succeed on the merits of its challenge. Similar to Judge Mazzant, who enjoined the 2016 attempt to increase the salary level and institute an automatic three year increase on the basis that the rule change “creates essentially a de facto salary-only test,” which Congress had not intended, Judge Jordan found, “In sum, since the EAP Exemption requires that exemption status turn on duties—not salary—and the 2024 Rule’s changes make salary predominate over duties for millions of employees, the changes exceed the authority delegated by Congress to define and delimit the relevant terms.” Notably, in his holding, Judge Jordan cited the U.S. Supreme Court’s decision earlier that day that overturned the long-standing principle requiring courts’ deference to an agency’s reasonable interpretation of the laws that it enforces, which we discussed in our June 24, 2024 E-lert.

Notably, there is another case before a different Texas judge in which the plaintiff – a private company – is also seeking a nationwide injunction. There is a possibility that the judge in that case could issue an order that could pause the rule – but not before it has already taken effect for everyone else.

What This Means for Employers: Unless and until there is further action in one of the lawsuits, effective today, July 1, 2024, and again January 1, 2025, employees paid less than the increased salary requirement must either be paid overtime or have their salaries raised to the required level. Raising wages may, of course, have a ripple effect to avoid wage compression.

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