Salary threshold. . .$35,568.00. . .the Eastern District of Texas. . .not the classic answers you expect to hear from your loved ones around the Thanksgiving table when you ask, “Hey guys, what are you most thankful for?” While family, friends, food, and a roof over your head are all great, the fact that the United States District Court for the Eastern District of Texas shot down the Department of Labor’s (“DOL”) attempt at increasing the overtime salary threshold to $58,656.00 is right up there for employers.

The DOL’s Not-So-Final “Final Rule”

Back on April 23, 2024, the DOL announced their “final rule,” which entailed a multi-phase increase of the “white-collar exemption” (the executive, administrative, and professional employees (“EAP”)) salary threshold from $35,568.00 to $43,888.00, starting on July 1, 2024, and then up to $58,656.00, starting on January 1, 2025 (with increases automatically occurring every three years thereafter). Notably absent were any changes to the DOL’s “duties” test, which must be analyzed in conjunction with a salary when determining whether an EAP employee is exempt from overtime. At the time of its announcement, the DOL projected their final rule would make four million workers newly eligible for overtime payments and cost employers nationwide roughly $1.4 billion in the first year alone. Being thankful for a $35,568.00 threshold is looking more and more understandable now, isn’t it?

The Federal Court’s Decision

With phase one of the DOL’s rule already in place, and less than two months before implementation of the phase-two increase, the Eastern District of Texas struck down the DOL’s salary increases, invalidating the July 1, 2024, increase and effectively banning the January 1, 2025, increase nationwide. The court’s 62-page opinion can be whittled down to one simple takeaway: The DOL exceeded its authority under the Fair Labor Standards Act (“FLSA”) by drastically increasing the salary threshold. Remember that “duties” test I mentioned? According to the court, the DOL’s increase was so high that it effectively rendered the “duties” test irrelevant. Unfortunately for the DOL, the FLSA does not grant them power to make a salary the sole determinative factor of whether EAP employees are exempt from overtime pay. Likewise, the court found the DOL’s automatic salary increase scheme equally unsavory and violative of the “notice and comment” requirements of the Administrative Procedure Act (which the DOL is statutorily required to follow when making changes to the salary threshold).

Next Steps for Employers

While taking some time this holiday season to reflect on how grateful they are, employers should keep a couple of things in mind:

• Some states, such as New York, California, Colorado, and Maine, have salary thresholds that exceed the DOL’s $35,568.00 minimum. We recommend you consult with employment counsel to review state-specific requirements as they relate to hiring new employees, or to evaluate whether making any adjustments to existing salaries in light of this ruling is in your best interest.
• The DOL may appeal the Texas court’s decision to the Fifth Circuit Court of Appeals. While it is unclear whether it will do so (or how viable any such appeal may be), especially given the incoming administration, employers should remain alert—while they clearly have won the battle, there could still be a war to be fought.
• Even if the DOL does not appeal this decision, the judge’s reasoning begs the question of “How high can the salary threshold be without making the ‘duties’ test useless?” Given that, employers should keep their ears perked for potential, smaller increases in the DOL’s salary threshold during the next administration.