Background

On November 15, the U.S. District Court for the Eastern District of Texas ruled that the Department of Labor (DOL) exceeded its authority by raising the minimum salary threshold for overtime pay under the Fair Labor Standards Act (FLSA). Previously, the court had only halted the rule for Texas employees, but this decision applies nationwide.

The rule, published in April 2024, aimed to increase the minimum salary threshold for overtime pay in two phases:

  • Phase One: Effective July 1, 2024, raising the threshold to $43,888 annually ($844 per week).
  • Phase Two: Scheduled for January 1, 2025, to further increase the threshold to $58,656 annually ($1,128 per week).

Many employers had already adjusted salaries to comply with Phase One. However, the court’s ruling has now halted these increases. If you had implemented Phase One and were preparing to implement Phase Two on January 1, 2025, you might be in luck—Phase Two has been paused, so no additional increases are currently required.

If you have not committed to a raise, it may be wise to hold off on making any announcements for now. If you have already promised a raise, consider communicating with your employees to explain the situation and outline your next steps based on this new development.

Of course, as a business, you are always free to proceed with the planned raises, even though they are no longer mandated by the Department of Labor (DOL).

It’s important to note that the DOL is expected to appeal the court’s decision to reinstate the 2024 thresholds. However, with the incoming Trump administration unlikely to support such efforts, the timeline for any resolution remains uncertain.

Why Did the Court Block the Rule?

This ruling echoed a similar decision from 2017. The FLSA of 1938 authorizes the DOL to define the terms “executive, administrative, or professional” (EAP) employees, exempting them from federal minimum wage and overtime requirements.

Historically, Democrats have pushed to raise the salary threshold for EAP exemptions, expanding the pool of employees eligible for overtime. A notable example was the Obama administration’s 2016 rule, which nearly doubled the minimum salary for EAP exemptions.

That rule, like the 2024 update, was struck down by the Eastern District of Texas on the grounds that focusing on salary rather than job duties to define EAP employees exceeds the DOL’s authority.

What Does This Mean for Employers?

If your business hasn’t implemented raises tied to the now-halted rule, you may revert to the 2019 salary threshold of $35,568 annually ($683 per week). However, consider the following:

  • State Requirements: Some states, including Alaska, California, Colorado, New York, and Washington, have higher overtime salary thresholds than the federal standard. Be sure to comply with these.
  • Reversing Raises: Technically, businesses can rescind raises given to comply with the 2024 thresholds. However, legal experts advise caution. Reducing salaries may have significant implications, including morale issues, legal challenges, and potential reputational harm. Additionally, wages already paid cannot be reclaimed.

Conclusion

This court ruling introduces uncertainty for employers who adjusted to the 2024 thresholds. Before reverting to 2019 standards, businesses should carefully evaluate the legal, operational, and employee relations implications. Staying updated on federal appeals and state-specific regulations will be crucial as the situation evolves.

If you have questions or need further clarification, please contact Poul Lemasters, Esq., General Counsel of ICCFA, at poul@iccfa.com.