The Biden administration’s Department of Labor (DOL) overtime rule, enacted on April 23, 2024, and set to increase salary thresholds for overtime exemptions, has been struck down. A Texas federal court’s ruling on Nov. 17, 2024, leaves employers facing uncertainty and difficult choices.

What Was the Overtime Rule?

The rule increased the salary threshold for overtime exemptions under the Fair Labor Standards Act (FLSA) from $35,568 to $43,888 in July 2024, with a second increase to $58,656 planned for January 2025. These changes aimed to expand overtime protections for more workers.

However, U.S. District Judge Sean Jordan found that the DOL overstepped its authority. His decision nullifies the rule, reverting the salary threshold to $35,568, as set during the Trump administration. In his ruling, Judge Jordan emphasized the importance of ensuring consistent relief:

“Unlike at the preliminary-injunction stage when the Court had broad discretion to fashion appropriate preliminary relief, the Fifth Circuit has made clear that district courts should generally ‘nullify and revoke’ illegal agency action.”

Implications for Employers

With the rule struck down, employers must reassess payroll and operational policies developed in response to the changes. Here’s what the decision means:

1. Reverting Salary Adjustments: Employers who increased employee salaries to comply with the $43,888 threshold may consider reverting to previous pay levels. However, these decisions must account for state laws and any contractual obligations.
2. Reevaluating Scheduling and Overtime Policies: Some employers may need to modify scheduling or overtime policies introduced under the rule, potentially returning to pre-rule practices.

Risks of Rolling Back Changes

Reverting salary increases or adjusting policies carries significant risks:

• Employee Morale and Retention: Pay reductions may harm morale and lead to turnover.
• Legal Exposure: Employers could face lawsuits if salary adjustments violate contracts or state-specific wage laws.

A Complex Regulatory Landscape

The ruling effectively reduces overtime eligibility, rolling back protections for many workers. Advocacy groups warn this may lead to longer work hours without additional compensation for low-income employees. Employers are advised to proceed cautiously, keeping the following considerations in mind:

• Compliance: Ensure adjustments align with federal, state, and local laws.
• Employee Relations: Weigh the cultural and retention impacts of salary or policy changes.
• Legal Guidance: Consult with legal counsel to navigate this complex landscape and minimize risks.

Key Takeaways for Employers

1. The salary threshold for overtime reverts to $35,568, undoing the July increase to $43,888 and halting the planned January 2025 increase to $58,656.
2. Employers considering salary adjustments must weigh operational and legal risks, including employee morale and retention concerns.
3. Legal consultation is critical to ensure compliance and avoid pitfalls.

Navigating the fallout may include difficult choices for employers.