As discussed in our prior post, the U.S. Department of Labor (DOL) issued a final rule earlier this year that increased the salary thresholds required to classify certain employees as exempt from overtime pay requirements under the Fair Labor Standards Act (FLSA).  On November 15, 2024, the federal district court for the Eastern District of Texas blocked the rule nationwide just weeks before the second phase of the salary threshold increases were scheduled to take effect.  The decision reinstates the salary thresholds in effect prior to the DOL’s 2024 rule, which represent a nearly 65% decrease from the thresholds set in the 2024 rule. 

Background

The final rule increased the minimum salary thresholds for the “white-collar” (bona fide executive, administrative, and professional) and “highly compensated” exemptions in two phases—the first on July 1, 2024 (which already took effect), and the second on January 1, 2025.   The final rule also provided for automatic increases in the salary thresholds every three years to align with Census salary data.  The rule did not make any changes to the “duties test”—or the duties an employee must perform to be considered exempt as described in the relevant regulations.  The 2024 rule was estimated to expand overtime eligibility to approximately four million employees.

The Eastern District of Texas Decision

In May and June 2024, a coalition of business groups and the State of Texas filed lawsuits against the DOL in the Eastern District of Texas—the same federal court that invalidated the Obama Administration’s 2016 overtime regulations.  The challengers argued that the 2024 rule was unlawful because the DOL exceeded its authority under the FLSA and Administrative Procedure Act (APA).  On June 28, 2024, U.S. District Judge Sean Jordan of the Eastern District of Texas initially enjoined the enforcement of the 2024 rule against only the State of Texas in its capacity as an employer of state employees. 

After consolidating the lawsuits and hearing oral argument, Judge Jordan has now agreed with the challengers to block the rule nationwide given the rule’s impact on “millions of employees in every facet of the economy.”  Relying on the 2016 decision to overturn the Obama overtime rule, Judge Jordan stated that the DOL “exceeded the authority delegated by Congress” by “effectively displac[ing] the FLSA’s duties test with a predominate—if not exclusive—salary-level test” and “install[ing] a mechanism that automatically updates the minimum salary requirements to even higher levels every three years.” 

Judge Jordan’s decision voids the July 1, 2024 increase and stops the January 1, 2025 increase from going into effect.  The DOL could appeal Judge Jordan’s decision to the Fifth Circuit, although this seems unlikely given the upcoming change in administration. 

Next Steps for Employers

As a result of the new decision, the salary thresholds for exemption immediately revert to the levels in effect before July 1, 2024, which were set in 2019 by the Trump Administration:  the white collar exemption threshold reverts to $35,568 per year ($684 per week) and the highly compensated exemption threshold reverts to $107,432 per year.  However, before taking any action based on the decision, employers are cautioned to wait and see whether the DOL will appeal. 

Employers that already reclassified employees or implemented pay adjustments in reliance on the DOL rule could ultimately decide to revert to their pre-July 1, 2024 compensation models, but should consider the significant impact that reversing course may have on employee morale.  Employers would also need to ensure compliance with any state or local notice requirements that may apply before implementing changes to an employee’s exempt or non-exempt classification or pay.  Also, some states—including California and New York—continue to have higher exempt salary thresholds than the FLSA, and those thresholds are unchanged by the court’s decision.  Finally, all employers should continue to carefully apply the existing FLSA duties test (and any applicable state tests) when deciding whether to classify an employee as exempt.     

Going forward, it’s possible that the new administration will reissue a rule to increase FLSA exempt salary thresholds, but it is unlikely that any such increases would be as significant as the 2024 rule.  We will continue to monitor developments and keep you updated.

Tags: DOL, FLSA, overtime
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Photo of Lindsay Burke Lindsay Burke

Lindsay Burke co-chairs the firm’s Employment Practice Group and regularly advises U.S., international, and multinational employers on employee management and culture issues and international HR compliance. She is a key member of the firm’s Institutional Culture and Social Responsibility practice, working together with…

Lindsay Burke co-chairs the firm’s Employment Practice Group and regularly advises U.S., international, and multinational employers on employee management and culture issues and international HR compliance. She is a key member of the firm’s Institutional Culture and Social Responsibility practice, working together with white collar colleagues to conduct culture assessments, internal investigations of executive misconduct, and civil rights and racial equity audits and assessments. Lindsay has been at the forefront of the changing workplace issues impacting employers in the U.S. in the last decade, including #MeToo, Covid-19, and the renewed focus on diversity, equity, and inclusion. She frequently advises employers in relation to their processes and procedures for investigating complaints of discrimination, harassment, and retaliation and trains executive teams and board members on culture risk and the lawful implementation of DEI programs.

Lindsay also guides employers through the process of hiring and terminating employees and managing their performance, including the drafting and review of employment agreements, restrictive covenant agreements, separation agreements, performance plans, and key employee policies and handbooks. She provides practical advice against the backdrop of the web of state and federal employment laws, such as Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, the Equal Pay Act, the Family and Medical Leave Act, the Fair Labor Standards Act, and the False Claims Act, with the objective of minimizing the risk of employee litigation. When litigation looms, Lindsay relies on her experience as an employment litigator to offer employers strategic advice and assistance in responding to demand letters and agency charges.

Lindsay works frequently with the firm’s privacy, employee benefits and executive compensation, corporate, government contracts, and cybersecurity practice groups to ensure that all potential employment issues are addressed in matters handled by these groups. She also regularly provides U.S. employment law training, support, and assistance to start-ups, non-profits, and foreign parent companies opening affiliates in the U.S.

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Photo of Evan Parness Evan Parness

Evan represents employers and senior executives in non-compete, harassment, discrimination, retaliation, ERISA, and business tort litigation in state and federal courts, administrative agencies, and alternative dispute resolution bodies. He has secured significant trial and appellate victories for clients, including complete dismissals of discrimination…

Evan represents employers and senior executives in non-compete, harassment, discrimination, retaliation, ERISA, and business tort litigation in state and federal courts, administrative agencies, and alternative dispute resolution bodies. He has secured significant trial and appellate victories for clients, including complete dismissals of discrimination and retaliation lawsuits, successful verdicts following trial, and injunctive relief on behalf of clients enforcing restrictive covenants.

Evan also counsels established and emerging companies on compliance with federal, state, and local employment laws and regulations, and litigation avoidance measures in connection with all aspects of workplace employment issues. He conducts sensitive internal investigations of alleged discrimination and harassment, and assists employers in shaping workplace policies to comply with law and promote a productive working environment.

Evan advises leading companies on the labor and employment aspects of significant business transactions and acquisitions. He negotiates employment-related provisions in business transaction documents and oversees due diligence of a potential target’s employment practices. He also counsels clients on executive employment and restrictive covenants agreements.

Chambers USA notes “Evan is an exceptional and talented lawyer. He possesses a deep understanding of the law and an unwavering commitment to his clients. He has a keen eye for detail and can dissect complex legal issues with remarkable efficiency. His thorough and methodical approach to each case ensures that no stone is left unturned, providing his clients with the best possible legal representation.”

The Legal 500 US notes that clients have commented that “Evan Parness is an amazing attorney. Always attentive and will take instructions outside of business hours, he is always there when we need him and looks for the best outcome for clients.”

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Photo of Carolyn Rashby Carolyn Rashby

Carolyn Rashby provides business-focused advice and counsel to companies navigating the constantly evolving and overlapping maze of federal, state, and local employment requirements. Carolyn’s approach is preventive, while recognizing the need to set clients up for the best possible defense should disputes arise.…

Carolyn Rashby provides business-focused advice and counsel to companies navigating the constantly evolving and overlapping maze of federal, state, and local employment requirements. Carolyn’s approach is preventive, while recognizing the need to set clients up for the best possible defense should disputes arise.

As a senior member of Covington’s Institutional Culture and Social Responsibility Practice Group, Carolyn has co-led significant investigations into workplace culture, DEI issues, and reports of sexual misconduct and workplace harassment.

As an employment lawyer with over two decades of experience, Carolyn focuses on a wide range of compliance and regulatory matters for employers, including:

  • Conducting audits regarding employee classification and pay equity
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Carolyn also works frequently with the firm’s white collar, privacy, employee benefits and executive compensation, corporate, government contracts, and cybersecurity practice groups to ensure that all potential employment issues are addressed in matters handled by these groups.

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Photo of Abby Rickeman Abby Rickeman

Abby Rickeman is an associate in the firm’s Washington, DC office. She practices in the employment, institutional culture and social responsibility, and public policy groups. She also maintains an active pro bono practice.

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