Game Over for Expanded Overtime Rule? Recent Ruling Is Likely the End of Higher Exemption Thresholds for Now

For the better part of 2024, American employers had been preparing for a major change to the law that would have required them to pay overtime to approximately 4.3 million more salaried workers. The Final Rule published by the Department of Labor in April 2024 dramatically expanded the pool of salaried workers entitled to overtime pay under the Fair Labor Standards Act (FLSA) by raising the minimum salaries required to qualify for exemptions for bona fide executive, administrative, or professional (EAP) roles, or as exempt “highly compensated employees.”

Those employer preparations are no longer necessary. Even though the first of several graduated increases to the salary thresholds went into effect on July 1, 2024, a federal judge vacated that increase and the Final Rule in its entirety when he ruled on Nov. 15, 2024, that the DOL exceeded its rulemaking authority when issuing the rule.

The decision by Trump-appointed Judge Sean D. Jordan of the United States District Court for the Eastern District of Texas likely represents the death knell of this change to overtime rules. Given that the increase in salary thresholds was generally seen as employee-friendly, and the incoming administration is usually seen as the opposite, it is unlikely that a Department of Justice under new management will appeal the ruling, instead contenting itself with letting it die.

Changes the Final Rule Would Have Brought

The DOL estimated that employers would need to pay approximately 4.3 million more U.S. workers time-and-half for all hours worked above 40 per week once the new salary thresholds took effect.

To qualify for “white collar” or EAP exemptions from overtime pay, most EAP employees must be paid at a rate that is no less than a specific salary on an annual basis and satisfy at least one of the EAP job duties tests. While the Final Rule raised the salary thresholds, it did not modify the job duties tests for determining EAP status.

In addition to raising the threshold for EAP exemptions, the rule also raised the salary threshold to qualify for the FLSA’s “highly compensated employee” exemption. That exemption applies to employees who earn more than the designated amounts, whose primary duty includes performing office or non-manual work, and who customarily and regularly perform at least one of the exempt duties or responsibilities of an exempt executive, administrative, or professional employee as detailed in the EAP job duties tests.

Judge Jordan’s Decision Striking Down the Final Rule

Judge Jordan struck down the Final Rule after concluding that the DOL exceeded its rulemaking authority to “define” and “delimit” EAP exemptions by improperly elevating salary thresholds over the job duties test in determining who qualified for the exemptions. He wrote that:

“…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. 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.”

A significant aspect of the ruling was its reliance on the U.S. Supreme Court’s 2024 decision in Loper Bright Enterprises v. Raimondo, which overturned long-established “Chevron deference,” under which courts were to defer to an administrative agency’s expertise when interpreting a statute. This ruling is just one of many ways the end of “Chevron deference” will likely manifest in the years to come when courts face challenges to federal employment-related regulations.

Return to the Overtime Status Quo, at Least for Now

Since Judge Jordan vacated the entire Final Rule, including the July 2024 increases, employers that raised salaries for some employees to keep them above the overtime thresholds could legally claw those raises back. However, the employee relations consequences of doing so may make it an unappealing strategy. While the 2024 Final Rule is effectively dead, it remains possible that the incoming administration may nevertheless raise salary thresholds more modestly under a new rule since it did so in its previous iteration in 2019.

If you have questions about the Final Rule’s impact on your business or would like assistance with a workforce audit to determine the best course of action, please contact Jordan Held at Kreis Enderle.