Unless You Are the State of Texas As An Employer, Salary Changes to the Department of Labor’s (DOL) Overtime Rule Took Effect Today

07/01/2024|4 minute read

Key Takeaways

• On July 1, employees exempt from the Fair Labor Standards Act's (FLSA) minimum wage and overtime protections under the bona fide executive, administrative, and professional (EAP) exemption must be paid at least $844 per week (equivalent to $43,888 per year).
• On January 1, 2025, this minimum salary threshold will increase to $1,128 per week (equivalent to $58,656 per year).
• The duties tests for EAP exempt employees remain unchanged.

As previously reported, on April 23, the DOL issued a final rule updating and revising the regulations implementing the FLSA's EAP exemption. The final rule makes three core changes:

1. On July 1, the minimum salary threshold for EAP exempt employees will increase from $684 per week (equivalent to $35,568 per year) to $844 per week (equivalent to $43,888 per year). Also, the highly compensated employee total annual compensation threshold will increase from $107,432 per year to $132,964 per year.
2. Additional increases will take place on January 1, 2025, with the minimum salary threshold for EAP exempt employees increasing to $1,128 per week (equivalent to $58,656 per year), and the highly compensated employee total annual compensation threshold increasing to $151,164.
3. Further increases to the minimum salary thresholds for both EAP exempt employees and highly compensated employees will take place on July 1, 2027, and again every three years thereafter.

In the brief time since its announcement, the DOL's final rule has faced a number of legal challenges. Some of these challenges came to a head on Friday, June 28, which was an eventful day as far as court opinions go. Early in the day, the Supreme Court of the United States released its opinion in Loper Bright Enterprises, et al. v. Raimondo, Secretary of Commerce, et al., in which it overruled the "Chevron doctrine" implemented in the 1984 case of Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc. This Supreme Court ruling appears to have played an instrumental role in the Eastern District of Texas' decision in State of Texas v. United States Department of Labor, et al. (Texas v. DOL), as it stated, "In the analysis that follows, the Court carefully follows Loper Bright's controlling guidance and the [Administrative Procedure Act]."

In Texas v. DOL, the state of Texas (in its capacity as an employer) sued the DOL, arguing that the agency exceeded its authority in issuing the final rule. Texas also requested a preliminary injunction to prevent the new rule from becoming effective while the court determined whether or not the agency's action was lawful. The court granted the preliminary injunction on June 28. In doing so, the Court found that the state of Texas presented sufficient evidence that it was likely to succeed on its claim that the DOL exceeded its authority in issuing the final rule, and granted the state of Texas' request for injunctive relief.

Critically, however, the preliminary injunction only prevents the final rule from being implemented or enforced against the state of Texas in its capacity as an employer. The injunction does not protect private employers inside of Texas or any employer - public or private - outside the borders of the Lone Star State.

The other legal challenges to the DOL's final rule, two of which are pending in Texas federal courts, have thus far failed to prevent the rule from going into effect on July 1. The first challenge, Plano Chamber of Commerce, et al., v. U.S. Department of Labor, et al., was also filed in the Eastern District of Texas, and was consolidated into the Texas v. DOL case after the preliminary injunction was issued. This consolidation had no impact on the scope of the preliminary injunction, and it still applies only to the state of Texas in its capacity as an employer.

The second challenge to the validity of the DOL's final rule is Flint Avenue LLC v. United States Department of Labor, et al., which was filed in the Northern District of Texas. Similar to the situation in the Texas v. DOL case, the Flint Avenue plaintiff moved for a preliminary injunction to prevent the new rule from becoming effective while the court determined whether or not the agency's action was lawful. Earlier today, however, the Flint Avenue court denied the request for an injunction, finding that the plaintiff failed to show that it would be irreparably harmed as a result of the July 1 salary threshold increase. Additionally, the court held that it had sufficient time to address the merits of the substantive claim before the January 1, 2025, increase goes into effect.

While the court's decision in Texas v. DOL bodes well for the other lawsuits challenging the DOL's actions, to date, no other court has prevented implementation or enforcement of the final rule.

What does all this mean for employers?

• If they have not done so already, employers should immediately review the salaries of their EAP exempt employees to ensure they comply with the required changes. In doing so, employers should also review the impacted employees' duties to ensure they qualify for the EAP exemption.
• Beginning today, all employers (aside from the Texas state government) subject to the FLSA's requirements must raise the salaries of their EAP exempt employees to at least $844 per week to retain the exemption.
• Additionally, all employers subject to the FLSA's requirements should prepare for a second mandatory increase on January 1, 2025, when the minimum salary threshold for EAP exempt employees will increase to $1,128 per week.

What is on the horizon?

• A potential higher court review of the injunctive relief issued by the Eastern District of Texas in favor of the state of Texas.
• A potential ruling on whether the DOL's final rule exceeds the agency's authority as alleged by the state of Texas, and within other cases.

Businesses have a number of options to ensure compliance with the DOL's final rule, including increasing salaries, reclassifying employees, and reducing overtime. BakerHostetler's Labor and Employment team is comprised of dozens of experienced individuals prepared to assist and advise businesses as they adjust to the requirements of the DOL's final rule, and as they work to stay in compliance with the ever-evolving regulatory landscape. If you have any questions about this alert, please feel free to contact any one of our experienced professionals.

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