U.S. Department of Labor 2024 Overtime Rule Struck Down by Texas Court

December 20, 2024  |  By ,

On November 15, 2024, a Texas Federal Court ruled that the Department of Labor (DOL) exceeded its authority in raising the salary thresholds required for certain employees to qualify as exempt from overtime. The Court’s decision nullifies the 2024 Final Rule, effectively resetting salary thresholds to their pre-2024 levels.

Background

Under the Fair Labor Standards Act (FLSA), Federal Law mandates that employers pay overtime to employees who work more than 40 hours in a workweek unless the employee qualifies for an exemption, such as the Executive, Administrative, and Professional (“EAP”) exemption or the Highly Compensated Employee (“HCE”) exemption.

To qualify for these exemptions, employees must meet specific job duties tests and earn at least the following annual salaries:

  • EAP Exemption: $35,568 (as of January 1, 2024)
  • HCE Exemption: $107,732 (as of January 1, 2024)

In its 2024 Final Rule, the DOL increased these thresholds for the first time since 2020. Effective July 1, 2024, the EAP threshold rose to $43,888 annually, with a further increase to $63,336 scheduled for January 1, 2025. Similarly, the HCE threshold rose to $132,964 as of July 1, 2024, with an increase to $151,164 set for January 1, 2025. The Rule also introduced automatic threshold updates every three years starting in July 2027.

Texas Ruling

The Court found that the DOL exceeded its authority, arguing that the increased salary thresholds improperly prioritized salary over job duties in determining exemption status—contrary to legislative intent.

As a result of the Court’s ruling, the 2024 Final Rule is void, and all thresholds revert to their January 1, 2024 levels:

  • EAP Exemption: $35,568 annually
  • HCE Exemption: $107,732 annually

This decision voids the salary increases that took effect in July 2024 and cancels any future increases, including those scheduled for January 2025 and beyond.

Next Steps For Employers

Employers should take the following actions:

  • Revert to Pre-2024 Final Rule Thresholds: Ensure that exempt employees meet the January 1, 2024 salary thresholds of $35,568 for the EAP exemption and $107,732 for the HCE exemption.
  • Reevaluate Employee Classifications: If you reclassified employees as non-exempt under the 2024 Final Rule due to higher salary thresholds, you may now return them to exempt status as early as the next pay period.

Looking Ahead

While the DOL may appeal this decision to the Fifth Circuit, the timeline and likelihood of an appeal remain uncertain, especially as the agency transitions under President-elect Trump. Employers should treat the Court’s ruling as final and ensure compliance with the pre-2024 salary thresholds.

Key Takeaway

This decision underscores the importance of evaluating both salary and job duties when determining exempt status. Additionally, each state has its own overtime laws and exemptions, which may differ from federal standards. We encourage you to contact VW for guidance on state-specific requirements or assistance in analyzing an employee’s exemption status.

We will continue to monitor developments and provide updates as they arise.

Please Note: This information is being provided for educational purposes and should not be treated as legal advice or as creating an attorney-client relationship. You should consult with your attorney before making any decision based on the information contained herein.

Posted in: Employment

About the Author(s)

Jenny Young

Jenny is a partner at Vela Wood. She focuses her practice in employment law and general corporate representation.

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Ashley Sykora

Alexus Esquibel is an attorney at Vela Wood. She represents clients in general business matters, with a focus on venture capital financing and mergers & acquisitions.

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