Federal Court Blocks New Labour Rule on Salary Minimum Thresholds

On 26th of November 2024, The US Department of Labor (DOL) filed a notice of appeal seeking to overturn the decision of the US District Court for the Eastern District of Texas in Texas v. Department of Labor.

The said decision nullified the 2024 DOL final exemption rule, which sought to increase the white-collar minimum salary threshold for exemption from federal overtime requirements. The State of Texas and a group of business organisations had filed a case challenging the 2024 DOL final rule, “Defining and Delimiting the Exemptions for Executives, Administrative, Professional, Outside Sales, and Computer Employees”. Ruling in their favour, Judge Sean D. Jordan found that the DOL acted outside its statutory authority when passing the rule in contention.

Changes Introduced by the Impugned 2024 DOL’s Final Rule

On April 23rd, 2024, the DOL unveiled a new rule to increase the minimum salary threshold for overtime exemptions under the Fair Labor Standards Act (FLSA). The new rule sought to change which employees are entitled for overtime pay.

According to the 2024 DOL final rule, the annual salary threshold for exemption for highly compensated employees (HCE) was set to raise to $151,164, up from $107,432. The executive, administrative and professional (EAP) employee threshold was set to raise to $1,128 per week or $58,656 per year, which was a more than 50% increase from the 2019 threshold.

The DOL’s April 2024 final rule called for an initial threshold raise to take effect on July 1st, 2024, and a full increase to take effect on January 1st, 2025. Additionally, the final rule provided that the minimum threshold would be updated every three years. 

The Federal Court’s Ruling

In his ruling, Judge Sean D. Jordan vacated the April 2024 DOL final rule in its entirety, including the HCE and EAP threshold increases that came into effect on July 1st, 2024, and the requirement that would have seen a periodic adjustment of salary thresholds after every year based on updated wage data.

Consequently, the federal court’s ruling required that the DOL revert to its 2019 overtime exemption rule, which set the HCE exemption threshold at $107,432 annually, and the EAP exemption threshold at $684 weekly or $35,568 annually. 

How Does this Ruling Impact the Role and Authority of the DOL in Setting Labour Standards?

In determining the case before him, Judge Jordan considered the Court of Appeal’s decision in Mayfield v. United States Department of Labor, where the court held that DOL’s authority to define and delimit the terms of EAP exemptions includes the power to set minimum salary thresholds for exemptions. However, even though the Court of Appeal recognised the DOL’s power to consider salary threshold in defining exemptions, it expressly noted that the DOL’s authority is not without limits.

Judge Jordan also considered the standard set by the US Supreme Court in its June 2024 decision in Loper Bright Enterprises v. Raimondo. In this case, the Supreme Court Justices held that federal courts must exercise judicial independence in deciding whether an administrative agency acted within its statutory authority.

What Does this Ruling Mean for Employers?

With the 2024 DOL overtime rule blocked, employers who had amended their workforce classifications to align them with the 2024 DOL rule might have to reassess them for alignment with the 2019 DOL overtime rule.

However, this will depend on the outcome of the appeal, considering that the DOL filed a notice of appeal on November 26th, 2024. If the 2024 final rules get reinstated by the Court of Appeal, they will likely grow the number of nonexempt employees and potentially expand the types of jobs entitled to overtime pay under the FLSA. 

The DOL’s Legal Challenge is a Repeat of History

In May 2016, the DOL, under Obama’s administration, published a new overtime rule that sought to more than double the minimum salary thresholds for exemptions as an EAP employee. The proposed rule was slated to go into force on December 1st, 2016, and also had a requirement from triennial increases of thresholds from 2020. 

Days before the rule took effect, Judge Amos L. Mazzant of the Eastern District of Texas enjoined the rule on a nationwide basis, and later granted the plaintiffs’ motion for summary judgment declaring the rule invalid in August 2017. 

What’s Next? DOL’s Appeal

The Department of Labor recently filed a notice of appeal seeking to overturn the federal judge’s decision striking down the agency’s 2024 overtime rule on salary threshold. However, it remains unclear whether president-elect Donald Trump’s administration will pursue the appeal. A change in leadership of the DOL under the incoming administration could see a drop of the appeal or a different approach to overtime thresholds.

President-elect Trump nominated US Representative Lori Chavez-DeRemer to serve as the incoming secretary of labour, but her nomination is still subject to confirmation by the US Senate.

That notwithstanding, the DOL has an option to expedite the appeal, but it is unlikely that the 2024 overtime rule will be reinstated and still go into force on January 1st, 2025. As the DOL seeks to exhaust its legal options, the 2019 salary thresholds remain in force.

Conclusion

The nullification of the DOL’s 2024 overtime rule by the federal court has left employers in a state of uncertainty. By reverting to the 2019 salary thresholds, businesses that had prepared for the higher limits may have to overhaul their workforce classifications once again.

The ruling highlights the limitations of the DOL’s authority, emphasising the legal boundaries administrative agencies must operate within when defining policies like salary thresholds.

The DOL’s notice of appeal introduces further unpredictability, particularly in light of the incoming administration led by president-elect Trump. The change in leadership could shift the course of this legal battle. While employers and employees await clarity, the fate of the 2024 rule remains unresolved, with its enforcement being increasingly unlikely in the near future. 

Source: The National Law Review 

References: 

Federal Register 

United States of Appeals for the 5th Circuit 

Supreme Court of the United States 

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