Federal Judge Strikes Down OT Final Rule, Salary Threshold Increases

Editor’s Note: This is a developing story. Check back to Workspan Daily for updates and additional information. Last updated: 1:30 p.m. Central on Tuesday, Nov. 19.

On Friday afternoon, Nov. 15, a federal judge in Texas blocked the U.S. Department of Labor’s nationwide final rule that would have:

Raised the minimum salary for exemption as an executive, administrative or professional (EAP) employee under the Fair Labor Standards Act (FLSA) and, in doing so, expanded access to overtime pay to an estimated 5 million American workers who had been classified as salaried (or exempt) by their employer.
Increased the total annual compensation level for exemption as a “highly compensated employee” (HCE) under the FLSA.

Judge Sean D. Jordan, presiding in the case of State of Texas v. United States Department of Labor in the U.S. District Court for the Eastern District of Texas, said the government agency went beyond its authority when implementing the April 23 final rule. His decision came one week after hearing oral arguments in the case.

The same district court and judge on June 28 had blocked the rule from being implemented in the state of Texas.

The Department of Labor (DOL) final rule had been grounded in a salary basis test that stipulated, in most cases, that employees classified as exempt from overtime by their employer make at least:

$43,888 in base salary beginning on July 1 (up from the previous $35,568 annual standard outlined in the DOL’s 2019 final rule), and
$58,656 in base salary beginning on Jan. 1, 2025.

Such thresholds were to be implemented regardless of whether employees in question otherwise perform duties qualifying them for the EAP exemption.

Toward the HCE exemption, the DOL’s 2024 rule stipulated that classified workers make at least:

$132,964 in total annual compensation on July 1 (up from the previous $107,432 outlined in the 2019 final rule), and
$151,164 on Jan. 1, 2025.

In effect, the Nov. 15 court decision:

Nullified the Jan. 1 threshold increases;
Rescinded the July 1 increases;
Eliminated another increase slated for July 1, 2027; and,
Nixed the DOL rule’s automatic “escalator” provision, which would have increased the thresholds every three years going forward, starting with the July 1, 2027, compliance date.

The 2019 thresholds of $35,568 for the EAP exemption and $107,432 for the HCE exemption — both set by the DOL under the first Trump administration — are poised to go back into effect, according to reports.

Judge Points to Agency, Rulemaking Boundaries

In making his decision, Judge Jordan lent credence to the Court of Appeals’ recent decision in the case Mayfield v. Department of Labor, which held the DOL’s authority to “define” and “delimit” the terms of the EAP exemptions includes the power to set a minimum salary for exemption.

While recognizing the agency’s authority to consider salary level in defining the exemptions, Jordan noted such authority was not without boundaries, writing in his decision, “Using salary as a proxy for EAP status is a permissible choice because … the link between the job duties identified and salary is strong. That does not mean, however, that use of a proxy characteristic will always be a permissible exercise of the power to define and delimit. If the proxy characteristic frequently yields different results than the characteristic Congress initially chose, then use of the proxy is not so much defining and delimiting the original statutory terms as replacing them.”

Jordan called out specific language from Mayfield in distinguishing between the 2019 and 2024 threshold rules.

“As Mayfield makes clear, the [DOL] cannot use a proxy characteristic (salary) to measure eligibility for the EAP exemption[s] when it will ‘frequently yield different results than the characteristic Congress initially chose,’ i.e., duties,” he wrote. “The [DOL’s] attempt to do so in the 2024 rule demonstrates that its use of the salary proxy is not so much defining and delimiting the original statutory terms as replacing them.”

Jordan also called out the end result of the DOL’s plan, which some experts stated would have impacted 38% of the 12.7 million salaried white-collar workers in the U.S.

“When a third of otherwise exempt employees who the [DOL] acknowledges meet the duties test are nonetheless rendered nonexempt because of an atextual proxy characteristic — the increased salary level — something has gone seriously awry,” he wrote.

In regard to the automatic escalator provision, Jordan referred to it as “rulemaking on autopilot.”

While Jordan’s decision did not directly analyze the HCE exemption, he did write in a footnote that the court’s “analysis regarding the legality of the changes to the standard salary level applies equally to the Department’s changes to the HCE level.”

Commentary and Guidance

Several law firms provided commentary, insights and guidance in the wake of Friday’s court ruling.

Proskauer Rose LLP wrote, “If this were a year ago, we’d see an immediate appeal from the DOL to the Fifth Circuit arguing that the 2024 rule is consistent with Mayfield and should be resuscitated. But with the change in administration coming in January, there’s no way the DOL would continue to pursue an appeal after Inauguration Day. So, it’s safe to consider the 2024 rule gone for good.”

In addressing employers that made salary changes to coincide with the July 1 compliance date, Fisher & Phillips LLP, wrote: “Can you reduce salary back to the $35K range [for certain EAP workers]? ... It might be unpopular to reverse course now. Although you may have the legal right to revert to the status quo depending on your circumstances, rolling back the changes now could result in a blow to employee morale.” In addition, the firm advised, “If you are changing course, you should note that some states require advance notice of wage changes, so you should check your local requirements. Regardless of the state law, however, you should clearly communicate changes before they take effect.”

Attorneys at Littler added employers should consult with counsel before rescinding any changes made by the now-invalidated July 1 increase. They also reminded employers to be aware that five states (Alaska, California, Colorado, New York and Washington), three New York counties as well as New York City have their own salary thresholds.

For instance:

The minimum salary for executive or administrative employees in New York City is currently $1,200 per week ($62,400 annually) and is increasing to $1,237.50 per week ($64,350 annually) on Jan. 1, 2025.
In California, exempt employees must earn no less than two times the state’s minimum wage for full-time work — which currently equates to $66,560 a year — to meet the state’s EAP employee exemption test.

Several trade associations also commented on the court decision.

“This decision is the correct one, and an important win for ABC members and the rest of the regulated community,” said Ben Brubeck, the vice president of regulatory, labor and state affairs at Associated Builders and Contractors. “[The DOL final rule] would have disrupted the construction industry, specifically harming small businesses, restricting employee workplace flexibility in setting schedules and hours, and hurting career advancement opportunities.”

Michael Layman, the chief advocacy officer with the International Franchise Association, stated, “Small businesses can breathe a sigh of relief that this unworkable rule has been overturned. We applaud the court’s action, which will have the effect of protecting jobs and providing more certainty for franchise owners to operate. The rule would have forced employers to reduce hours, demote many salaried workers to hourly, and cut jobs to manage costs.”

David French, the executive vice president of government relations for the National Retail Foundation, applauded the outcome, stating, “The [DOL] rules, if finalized, would have curtailed retailers’ ability to offer the most flexible, generous and tailored benefits packages to lower-level exempt employees across the industry. NRF opposed these rules from the outset. They would have forced employers to reexamine compensation packages for millions of workers nationwide. Had the rule taken effect, some workers would have lost the status of a managerial position, valuable educational and training experiences, the capability to travel on the employer’s behalf and/or flexibility as to when, how and where they work.”

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