Quick Hits

• A federal judge in the U.S. District Court for the Eastern District of Texas held oral arguments on cross motions for summary judgment in a challenge to the DOL’s rule that raised the minimum salary to be exempt from the FLSA’s overtime pay requirements.
• The state of Texas and a group of business organizations are seeking to expand a preliminary injunction to block the DOL’s overtime rule on a nationwide basis.
• Among other things, the rule will increase the minimum salary to be exempt to the equivalent of an annual salary of $58,656 on January 1, 2025.

On November 8, 2024, U.S. District Judge Sean Jordan for the Eastern District of Texas held a summary judgment hearing in a consolidated challenge by the state of Texas and more than a dozen business organizations seeking to strike down the DOL’s new rule, which raised the salary thresholds for the executive, administrative, and professional (EAP) employee overtime exemptions and implemented automatic triennial adjustments.

During the nearly two hours of oral arguments, Judge Jordan homed in on the DOL’s justification for raising the salary thresholds, which will make 4.8 million white collar workers (or nearly 38 percent of the 12.7 million white collar workers in the United States) nonexempt regardless of whether they perform duties that would otherwise qualify them as exempt.

When is “salary crossing the line and becoming predominant and what are the metrics the [DOL] is using” to set those salary thresholds, Judge Jordan questioned counsel for the DOL.

Background

Judge Jordan is considering whether to expand a preliminary injunction ruling issued on June 28, 2024, that blocked the enforcement of the DOL’s 2024 rule against the state of Texas as an employer. The judge further consolidated the state’s challenge with a separate case involving a coalition of more than a dozen Texas and national trade associations.

The DOL’s new overtime rule adopted in April 2024 makes three key changes: (1) it raised the minimum weekly salary to qualify for the EAP exemption from $684 per week to $844 per week or the equivalent salary of $43,888 per year, on July 1, 2024; (2) the rule will further increase that threshold to $1,128 per week, the equivalent of a $58,656 annual salary on January 1, 2025; and (3) it establishes a mechanism to increase the salary thresholds every three years based on up-to-date wage data.

Salary Basis

During the latest arguments, counsel for the DOL argued that it has consistently used both a salary test and a duties test for more than eighty-five years in setting the EAP exemption and that the two tests “work in tandem.” The exemption recognizes that workers who work in a bona fide EAP capacity represent a certain status, which the worker’s salary may represent, DOL counsel argued.

Further, the salary basis is part of the DOL’s statutory authority to define and delimit the EAP exemption, DOL counsel argued. Counsel referred to the September 2024 Fifth Circuit Court of Appeals decision in Mayfield v. U.S. Department of Labor, which in examining the DOL’s prior threshold increase in 2019 held that a salary basis test is within the DOL’s “explicitly delegated authority to define and delimit the terms of the [e]xemption.”

However, Judge Jordan questioned whether it was still not the court’s job to police the boundaries, suggesting that it would be “problematic” if the DOL’s salary basis effectively replaces or swallows the duties test.

Judge Jordan further questioned whether the DOL’s most recent rule perhaps is a “bit out of whack” historically in its effect on workers, noting that the 2019 rule impacted approximately one million additional white-collar workers, while the increase from only July 1 to January 1, 2025, will impact three million workers. The judge also questioned whether there are concerns with the “spiraling” of the salary threshold increases with the triennial increases built into the 2024 rule.

Agency Deference

The case comes in the context of and could provide insights into the Supreme Court of the United States’ June 2024 decision in Loper Bright Enterprises v. Raimondo, in which the Court held that federal courts must exercise independent judgment in deciding whether an agency acted within its statutory authority and may not simply defer to the agency’s interpretation of ambiguities in the law. Judge Jordan cited the Loper Bright decision in his preliminary injunction ruling, which was issued just hours after the release of the Supreme Court’s decision.

However, counsel for the DOL argued that the Fifth Circuit in Mayfield took the right approach when it found that Loper Bright was not implicated since the case over the 2019 DOL rule centered on statutory interpretation without reliance on any deference. The DOL argued that the U.S. Congress has delegated specific authority and discretion to the DOL to define and delimit the exemptions.

Remedies and Severability

Finally, the state of Texas and the business organizations argued that the provisions of the DOL rule are inseverable and urged the judge to vacate the DOL rule in its entirety on a nationwide basis. However, counsel for the DOL argued that the rule’s three parts are severable as each new threshold replaces the prior one. Further, the DOL argues that any relief should be limited to only those participating parties impacted by whatever provision(s) might be invalidated.

Next Steps

The DOL rule, which raised the EAP exemption salary threshold to $844 per week on July 1, 2024, remains largely in effect for now outside of its application against the state of Texas, which Judge Jordan enjoined in June 2024. Judge Jordan did not indicate when a decision regarding the ongoing viability of the overtime rule will be made, but it is anticipated that a decision will be released before the next threshold increase on January 1, 2025.