**Court Overturns DOL’s Overtime Pay Rule Increase Nationwide**

In a landmark decision handed down on November 15, 2024, the U.S. District Court for the Eastern District of Texas invalidated the Department of Labor’s (DOL) regulation increasing the salary threshold for the "white collar" overtime exemption under the Fair Labor Standards Act (FLSA). The court ruled that each component of the new regulation exceeded the DOL's authority under the statute. With the nationwide implications of the rule, the court concluded that striking it down broadly was necessary.

Previously, the court had only temporarily halted the enforcement of the rule against Texas as a state employer. However, this recent final decision nullifies the rule for all employers nationwide. This key ruling means that the pending increase in the overtime threshold, scheduled to take effect on January 1, 2025, will not be implemented. Additionally, the court also eradicated the July 1, 2024 increase that had already gone into effect, although many employers might have already modified their payrolls to comply with this change.

The court identified that the final rule’s provision for automatically escalating the salary threshold every three years also overstepped the DOL's statutory authority. The FLSA generally mandates that employers pay overtime to employees working over 40 hours per week, with some exceptions for executive, administrative, and professional (EAP) workers under the white-collar exemption. Employees must meet three criteria to qualify for this exemption: they must be salaried ("salary basis" test), perform exempt EAP duties ("duties test"), and earn a minimum salary ("salary threshold test").

In April 2024, the DOL issued regulations raising the white-collar exemption salary threshold, last updated in 2019 to $684 per week ($35,568 annually). The updated rule aimed to increase the salary threshold in two steps. Effective July 1, 2024, it raised the threshold to $844 per week ($43,888 annually). A second increase to $1,128 per week ($58,656 annually) was scheduled for January 2025, marking nearly a 65% increase over the 2019 threshold. The rule also set to raise the "highly compensated employee" (HCE) threshold from $107,432 to $132,964 on July 1, 2024, and to $151,164 on January 1, 2025, with future automatic updates every three years.

However, in its 62-page decision, the court underscored that the DOL’s adjustments effectively created a "salary only" test for the EAP exemption, disregarding the statutory focus on duties. The court flagged that the FLSA's text specifies that salary threshold increases must follow the Administrative Procedure Act, invalidating the DOL's automatic updates provision. With the extensive impact on hundreds of thousands of employers and millions of employees, the court found a nationwide invalidation justified.

Following this ruling, the January 1, 2025, increase will not proceed, and the July 1, 2024, increase is rendered void. Employers who made payroll changes in response to the invalidated increase should seek legal advice before altering employees' salaries or exemption statuses. It is also important for employers to note that several states, such as California, New York, and Washington, have salary thresholds exceeding the FLSA standards.

There remains the possibility that the DOL may appeal the decision to the Fifth Circuit Court of Appeals. However, with an upcoming presidential administration change, it is projected that the new DOL leadership might opt against pursuing an appeal, allowing the decision to take effect. Future actions by the Trump administration regarding the rule remain uncertain, but stakeholders will be informed of any developments by Littler's Workplace Policy Institute.