Overtime Draft

The U.S. Department of Labor (DOL) recently faced a significant legal setback as a federal judge in the US District Court for the Eastern District of Texas overturned its proposed changes to the overtime rule.

What is the Overtime Rule?

The overtime rule, governed by the Fair Labor Standards Act (FLSA) ensures that employees who work more than 40 hours in a workweek are entitled to overtime pay – which is 1.5 times their regular hourly rate.  However, certain employees are exempt from overtime pay based on their job duties and salary level.  See here for the list of exemptions: https://www.dol.gov/agencies/whd/fact-sheets/17a-overtime.

The DOL periodically updates the salary threshold for exemption, as certain exemptions depend on the amount of salary an employer pays an employee, to ensure it reflects changes in the economy and workforce.

What was the DOL’s Proposed Change?

The DOL’s new overtime rule sought to raise the salary threshold for overtime exemption for “executive, administrative and professional employees” from $35,568 to $43,888 annually. Additionally, the DOL increased the minimum salary requirement for “highly compensated” employees to $134,964 annually, and scheduled further increases to take place on January 1, 2025 to $1,128 per week for white-collar employees and $151,164 for highly-compensated employees. The DOL also mandated that these amounts would further increase on July 1, 2017, and every three years thereafter.

The Federal Court Decision

On June 3, 2024, the State of Texas and multiple business groups led by the Plano Chambers of Commerce filed an action against the DOL alleging that the DOL exceeded its statutory authority under the FLSA and the Administrative Procedure Act (“APA”).  On November 15, 2024, The U.S. District Court for the Eastern District of Texas invalidated the DOL’s April 2024 overtime rule, stating that it exceeded the DOL’s authority on the following issues:

• The court found that the DOL’s salary increase was too high and went beyond DOL’s standard principle and the historically accepted 10% of employees who meet the duties test for overtime exemptions.
• The court rejected the DOL’s plan to automatically increase the salary threshold every three years, stating that it is a violation of the APA.

This ruling applies nationwide and is effective immediately.

What this Means for Employers?

Employers can continue to use the current salary threshold of $35,568 for exempt employees, but keep in mind that individual states are allowed to set a higher minimum salary for exemption than the ones set by federal law.  The DOL is also likely to appeal the ruling so employers should continue to follow the key developments should an increase ensue.  The case is State of Texas, et al. v. United States Dept. of Labor, et al., No. 4:24-CV-499-SDJ and can be viewed here: https://www.texasattorneygeneral.gov/sites/default/files/images/press/DOL%20Overtime%20Mem%20Op%20and%20Order.pdf?utm_content=&utm_medium=email&utm_name=&utm_source=govdelivery&utm_term=.

If you are concerned about how these potential changes affect your job or your rights as an employee, speaking with an employment attorney is a good first step.  They can help you navigate your rights under current laws and ensure that your employer is compliant with the new regulations.  For more information or to discuss with a legal professional, contact Borrelli & Associates.