Navigating the DOL’s New Overtime Exemption Rule
Jul 25, 2024DOL’s Overtime Exemption Rule Took Effect on July 1
The initial challenge in federal court provides a limited injunction for the State of Texas
The final “white collar” overtime exemption rule (the rule), published by the United States Department of Labor (DOL) on April 23, 2024, has survived, for the most part, its first federal court challenge. Nationally, the new rule took effect on July 1, 2024, raising the minimum salary level requirements for executive, administrative, and professional (EAP) exemptions to the minimum
wage and overtime requirements of the Fair Labor Standards Act (FLSA).
Under the rule, each employee category for a white collar exemption — administrative, executive, professional, computer, and outside sales — has a “duties” and “salary” component that must be scrutinized. To be “salaried” and exempt from the overtime rule, an employee must “customarily and regularly” perform specific duties and be paid a fixed amount each workweek — and that fixed amount must be at or above a certain salary threshold.
A Limited Injunction
In the court challenge argued on June 24, 2024 — State of Texas v. U.S. Department of Labor, No. 4:24-CV-499-SDJ (E.D. Tex.) — a federal district judge has granted the motion by the State of Texas for a preliminary injunction to postpone the effective date of the rule — but the judge’s ruling was not national in scope. The injunction impacts only one employer: the State of Texas.
The State of Texas focused its complaint on how the rule would harm the state as an employer, and District Judge Sean Jordan said that the state “will likely be unable to recover any of the costs that it should not have incurred in the first place. This includes both the increased wages it would be forced to pay to newly nonexempt employees and the administrative costs of implementing the
rule statewide.”
Citing the United States Supreme Court’s recent decision in Loper Bright Enterprises v. Raimondo, which overturned Chevron USA Inc. v. Natural Resources Defense Council Inc., District Judge Sean Jordan said that “courts must exercise their independent judgment in deciding whether an agency has acted within their statutory authority.”
Foreshadowing of Things to Come
More rulings are in the pipeline. In the State of Texas v. U.S. Department of Labor — and all pending lawsuits — the plaintiffs argue that the DOL lacks the statutory authority to raise the minimum salary level for the exemptions to apply and that the FLSA defines the EAP exemptions based upon the duties that an employee “customarily and regularly” performs.
While Judge Jordan granted immediate injunctive relief for the State of Texas, he also said that the state was “likely to succeed on the merits of its claim” that the DOL isn’t authorized to impose a salary minimum for application of the EAP exemption. He said he expects to resolve the case on the merits “in a matter of months.”
Judge Jordan concluded that the overtime exemption rule “is likely unlawful” and that “the application of a salary threshold for the EAP Exemption only comports with the Department’s authority under the FLSA, if at all, to the extent such a threshold serves as a plausible proxy for the categories of employees otherwise exempted by the duties test.” In other words, the salary requirements will only withstand scrutiny if the employee satisfies the duties requirement.
Just Comply (at least for now)
If a nationwide injunction overturning or limiting the rule is going to happen, it will be in another lawsuit — and it is quite possible this could happen before the next round of overtime exemption increases are set to take effect in January 2025.
For now, except for the State of Texas, employers must comply with the new minimum salary thresholds articulated in the new rule. This will require raising the salaries of exempt employees who are paid below the new salary floor, reclassifying those employees as nonexempt, or limiting employee hours so they don’t work overtime.
If you have any questions or concerns about compliance with the DOL’s final overtime exemption rule and its impact on your business, don’t hesitate to contact Orr & Reno for assistance.
