Texas Federal Court Judge Blocks Major Overtime Salary Threshold Increase, Leaving Employers in Limbo

In a recent federal court decision, State of Texas v. United States Department of Labor, a federal district court judge halted—and even reversed—a controversial United States Department of Labor (DOL) rule aimed at raising the salary threshold for “white-collar” overtime exemptions to the minimum wage and overtime requirements under the Fair Labor Standards Act (FLSA). The rule, which was poised to expand overtime eligibility for millions of workers, has now been struck down by U.S. District Judge Sean Jordan. The ruling effectively reverses the phased increases to the salary threshold which had increased from $35,568 to $43,880 in July 2024 and was set to increase again to nearly $59,000 on January 1, 2025. The ruling also reversed the portion of the new DOL rule providing that the minimum thresholds would update every three years based on up-to-date wage data. Since the DOL announcement of the rule, many have filed lawsuits arguing that, for one reason or another, the rule should be struck down. Judge Jordan agreed, finding that the DOL significantly overstepped its authority in issuing the rule.

The Rationale Behind the Decision

Judge Jordan’s decision echoes concerns raised during the Obama administration’s attempt to enact a similar rule in 2016. In both instances, courts expressed concern that the DOL’s approach would result in a “salary-level test” overtaking the original duties test, which ultimately altered the regulatory framework in a way that exceeded the DOL’s authority. Notably, however, unlike in 2016, Judge Jordan’s recent ruling was influenced (and is supported) by a decision in June 2024 by the United States Supreme Court, Loper Bright Enterprises v. Raimondo, overruling a doctrine that had instructed courts to defer to federal agencies’ interpretations of ambiguous statutes (known as “the Chevron doctrine”). The Supreme Court’s Loper decision gave courts more discretion to strike down agency regulations. Judge Jordan’s opinion in State of Texas v. DOL is one example of a court exercising that discretion.

What Does This Mean for Employers?

Although the Biden administration has the right to appeal the decision, the timing of any appeal adds an extra layer of uncertainty. With a transition to a new presidential administration set to occur in January 2025, the incoming Trump administration may decide not to pursue the case further, especially given the previous administration’s stance on this issue.

In 2017, the Trump administration effectively abandoned the Obama-era overtime rule and later issued its own, less aggressive updates to overtime pay thresholds. If the Biden administration were to appeal but be unable to prevail on that appeal in short order, it is likely that the Trump administration’s DOL could either abandon the new rule entirely or scale it back significantly.

Not only does the foregoing uncertainty leave employers in a challenging position, but so does the fact that some employers already may have raised some of their employees’ salaries to comply with the increase in June 2024. Also, countless employers have been preparing to adjust salaries and reclassify employees based on the upcoming increase. Now, those employers may need to reevaluate their prior actions and their future plans in light of Judge Jordan’s ruling. Businesses that have already made changes to compensation may now need to decide whether to reverse course or wait for further legal developments. Several key issues employers must consider are as follows:

Key Considerations Moving Forward

1. Evaluate Compensation Plans

Employers who had already adjusted salaries or reclassified employees in anticipation of the new overtime rule may want to reassess those changes, given that, with the State of Texas v. DOL ruling, the salary threshold is back to the prior amount ($35,568) for now. Before making the decision to revert back to prior salary compensation plans, however, employers should consider that an appeal by the Biden administration is still possible and that reducing employees’ salaries undoubtedly would adversely impact employee morale, especially with the holiday season around the corner. Further, employers that decided to begin treating a formerly exempt employee as nonexempt may wish to reverse course. Doing so, though, could impose notice requirements on the employer. In short, employers should consult with legal counsel prior to making any changes based on the State of Texas v. DOL decision.

2. Monitor Legal Developments

As stated above, the DOL could appeal the decision and/or the Trump administration could significantly influence the future of overtime regulations. Employers must stay informed about any further legal challenges or changes to ensure they are prepared for any future developments. Klehr Harrison’s Labor and Employment Practice Group will continue to monitor and report on such matters.

3. Remember, State Laws Still Apply

Employers must keep in mind that some states have their own overtime regulations which could be more generous than federal law. For example, several states, including Alaska, California, Colorado, Maine, New York and Washington, have salary thresholds that exceed the FLSA threshold. Accordingly, employers must ensure that compensation strategies align with both federal and state requirements to avoid compliance issues.

Co-authors Lee Moylan, chair, and Monica Matias Quiñones, associate, are members of the labor & employment practice group at Klehr Harrison.