On November 15, 2024, a district judge for the U.S. District Court for the Eastern District of Texas issued a significant, albeit somewhat unsurprising, opinion in Texas v. Department of Labor, vacating the U.S. Department of Labor’s (“DOL”) 2024 Final Overtime Rule (“Final Rule”), which, as we previously reported (here and here), had raised the minimum salary threshold on July 1, 2024, and was set to further increase the minimum salary threshold on January 1, 2025, for the executive, administrative, and professional (“EAP”) exemptions, and the highly compensated employee (“HCE”) exemption.

As a refresher, the Final Rule featured three components: (1) an increase to $844 per week (or $43,888 per year) for the EAP exemptions and to $132,964 for the HCE exemption that took effect on July 1, 2024; (2) a further increase to $1,128 per week (or $58,656 per year) for the EAP exemptions and to $151,164 for the HCE exemption on January 1, 2025; and (3) automatic increases every three years, beginning July 1, 2027.

The DOL previously issued a similar overtime final rule in 2019 that increased the minimum salary threshold from $455 per week to $684 per week. Unlike the 2024 Final Rule, the 2019 rule withstood legal challenge, and was upheld this past September by the U.S. District Court of Appeals for the Fifth Circuit.

Considering the recent vacatur of the 2024 Final Rule, and the renewed 2019 rule, businesses will no doubt have questions. Among other questions, they will probably want to know…

… about the increase that already took effect on July 1, 2024?

The Court’s decision vacates the Final Rule in its entirety on a nationwide basis, reverting the salary thresholds for the EAP and HCE exemptions back to those of the DOL’s 2019 rule, which set the salary threshold for the EAP exemption at $684 per week ($35,568 per year) and the HCE exemption at $107,432 per year. 

The court determined that all three portions of the Final Rule—including the portion of the rule that had gone into effect on July 1, 2024, the increase set for January 1, 2025, and the automatic increases scheduled for every three years starting in 2027—exceeded the DOL’s statutory authority under the FLSA. In its opinion, the Court found that the Final Rule fundamentally changed the FLSA by effectively eliminating the need for the duties test, which is explicitly prescribed by the statute, unlike the minimum salary thresholds. Notably, the Court applied the new Loper Bright standard for reviewing an agency action and explained that “when there is ambiguity about the scope of an agency’s own power…abdication in favor of the agency is least appropriate.”

… whether the Fifth Circuit had already determined that the DOL has authority to set minimum salary thresholds for the overtime exemptions?

Sort of. Earlier this year, the Fifth Circuit held in Mayfield v. Department of Labor that the DOL’s explicitly delegated authority under the FLSA to “define and delimit” the terms of the EAP and HCE exemptions includes the ability to establish minimum salary thresholds; however, not without limitations.

In Mayfield, a small business owner challenged the DOL’s 2019 rule as well as the DOL’s authority to define the EAP and HCE exemptions in terms of salary level. The Court upheld the 2019 rule finding that the rule set a reasonable minimum salary threshold, and confirming that the DOL has authority to set minimum salary thresholds in the first instance; however, the Fifth Circuit warned that the DOL’s authority is not unbounded and the DOL’s use of salary to define the EAP and HCE exemptions would “raise serious questions” where such use has “no rational relationship to the text and structure of the FLSA.”

In its decision vacating the 2024 Final Rule, the Court cited the Mayfield decision, acknowledging that the DOL “has the authority to define and delimit the operative terms of the exemption,” but not to “effectively eliminate[] consideration of whether an employee performs bona fide executive, administrative, or professional capacity duties.” The Court explained that the Final Rule does not so much define and delimit the original statutory terms as replace them. The Final Rule, according to the court, eliminates the duties test “in favor of what amounts to a salary-only test”—which is far beyond the DOL’s delegated authority. What is more, the automatic increases would circumvent the notice-and-comment rulemaking process in violation of the Administrative Procedure Act.

… whether the DOL will appeal the Court’s decision to strike down the Final Rule? And what about the incoming Trump administration?

Yes, the DOL can, and is likely to, appeal.

The DOL has 60 days (or until January 14, 2025) to appeal the Court’s decision. While, at first glance, it might seem obvious for the DOL to appeal to the Fifth Circuit, such an appeal may be futile in light of the incoming Trump administration, which may take a very different view as to the merits of the appeal. And, even if the DOL appeals (which would occur before Inauguration Day on January 20, 2025), it is likely that the DOL, under the new administration, would withdraw any appeal or ask that it be held in abeyance. It is less clear whether the Trump administration will opt to pursue new rulemaking or rely on the renewed 2019 rule since it was recently upheld in Mayfield.

Of note, the small business owner plaintiff in Mayfield recently filed a motion for rehearing en banc before the Fifth Circuit. Even if the court denies rehearing, the Mayfield plaintiff may seek an appeal to the Supreme Court, in which case the 2019 rule may be subject to further review if the Supreme Court decides to hear the case.

… will this affect compliance obligations under state laws?

In some places, yes. At least six states have salary thresholds for overtime exemptions above the now current federal thresholds, and Maine—which is one of those states—responded to the Court’s vacatur of the Final Rule by reducing the amount in which the state’s minimum salary threshold for the EAP exemptions will increase effective January 1, 2025. The state minimum salary threshold for Maine will now increase to $845.21 per week (which is still higher than the federal threshold of $684 per week), instead of the previously announced $1,128 per week.

While the increase scheduled for January 1, 2025 under the Final Rule will no longer take effect, employers should be aware of the following state minimum salary thresholds that will increase on January 1, 2025 and which exceed the federal thresholds:

…what this means for me now?

Recognizing that the court’s decision nullified the July 1, 2024 increase, employers who raised salaries of exempt employees in order to comply with the July 1 deadline should consult with counsel in determining whether to make further changes to compensation structures for their exempt employee population. If employers planned for—but did not yet implement—compensation changes based on the Final Rule’s prospective threshold adjustments, they will likely want to re-evaluate those plans as well.

* Elizabeth A. Ledkovsky, Staff Attorney for Epstein Becker Green’s Employment, Labor and Workforce Management Practice, contributed to writing this piece.