Late on June 28, 2024, Judge Sean D. Jordan of the United States District Court for the Eastern District of Texas, temporarily blocked the United States Department of Labor (DOL) overtime exemption rule set to take effect July 1, 2024 – but only for government employees working for the state of Texas. As a result, the overtime exemption rule for all other FLSA covered employers will take effect as scheduled on July 1, 2024. The Details Background On April 23, 2024, the DOL released a final rule updating the salary threshold required for executive, administrative, and professional employees to be exempt from the FLSA’s minimum wage and overtime requirements. For an employee to be exempt from the FLSA minimum wage and overtime requirements, the following three tests must be met:
1. Salary Basis Test: Employee is paid a predetermined and fixed amount that is not subject to reduction because of variations in the quality of quantity of worked performed.
2. Salary Level Test: The amount of salary paid to the employee must meet a minimum specified amount.
3. Duties Test: The employee must perform executive, administrative, or professional duties.
The final rule did not modify the salary basis test or the duties test provisions but did increase the salary level amounts an employee must be paid to be paid in order to be exempt from the FLSA minimum wage and overtime requirements. Prior to July 1, 2024, an employee must be paid a minimum of $684 per week ($35,568 per year). Beginning July 1, 2024, an employee must be paid a minimum of $844 per week ($43,888 per year). These minimum amounts are set to be increased again on January 1, 2025. For more information on future increases as well as information on alternative salary tests and the use of bonuses and incentive payments to satisfy the salary level test, please review the details here. The Court’s Ruling In finding that the DOL likely exceeded its authority in implementing the final rule, the court indicated: “An examination of the ordinary meaning of the EAP Exemption’s undefined terms shows that the
Exemption turns on an employee’s functions and duties, requiring only that they fit one of the three listed, i.e., ‘executive,’ ‘administrative,’ or ‘professional capacity.’ The exemption does not turn on compensation.” The court also pointed out that the case is “déjà vu all over again,” referencing a Texas district court decision that had enjoined the DOL’s attempt to increase the salary level in 2016. The court’s decision is the first to apply the U.S. Supreme Court’s June 28, 2024 decision in Loper Bright Enterprises v. Raimondo, which overruled the “Chevron doctrine” of deference to federal agencies, to find a federal rule is unlawful. Chevron deference has been a foundational precedent for more than 40 years. In that time, courts have issued thousands of decisions deferring to a broad range of regulations issued by federal agencies including for example, the DOL. The Loper Bright decision will likely make it easier to challenge federal regulations in the future. Next Steps: The injunction temporarily halts the implementation of the DOL final rule for government employees of the state of Texas. All other employers should continue to implement the requirements of the final rule effective July 1, 2024. However, it is important to note that other cases challenging the final rule are pending. Specifically, one brought by Texas businesses and another pending in the Fifth Circuit Court of Appeals that challenges the DOL’s authority to issue any salary requirements. ADP will continue to monitor these and any other challenges and report any new developments.