Federal Court Halts DOL’s Overtime Rule Regarding the Minimum Wage Exempt Employees Must Make

A sweeping rule designed to increase the salary thresholds for “white-collar” overtime exemptions was stopped in its tracks by a federal judge, just weeks before its next phase was set to take effect. On November 15, 2024, the U.S. District Court for the Eastern District of Texas overturned the Department of Labor's (DOL) final rule.   

This ruling reinstates the previous salary thresholds to $684 per week ($35,568 annually) for white-collar exemptions and $107,432 for highly compensated employees.  

While the DOL may appeal the decision, the incoming Trump administration is unlikely to champion the legal battle. Employers now face critical decisions about their compensation strategies.  

Background on the Rule  

The DOL’s latest final rule, published on April 23, 2024, aimed once again to increase the minimum salary requirement for white-collar exemptions under the Fair Labor Standards Act (FLSA).   

In June of 2024, a federal district court temporarily halted the rule while it considered a legal challenge. As Texas was the only party challenging the rule at the time, the new levels of $43,888 for white-collar exemptions and $132,964 for highly compensated employees became effective nationwide on July 1, 2024, with the exception of public employees in Texas.  

A second phase of increases was scheduled for January 1, 2025, raising thresholds to $58,656 and $151,164, with automatic adjustments every three years thereafter.  

Legal Challenge  

At a hearing on November 8, 2024, several business groups and the state of Texas argued that the rule constituted a significant overreach of DOL’s authority. The judge heard arguments as to why the rule should be blocked nationwide for all employers. 

The Decision  

In a 62-page ruling, Judge Sean Jordan of the U.S. District Court for the Eastern District of Texas invalidated the 2024 rule, stating that the dramatic threshold increases effectively replaced the duties test with a “salary-only” approach, exceeding the DOL’s authority under the FLSA.  

This decision not only cancels the planned January 2025 increase of $58,656 ($151,164 for highly compensated individuals), but also nullifies the July 2024 thresholds of $43,888 ($132,964 for highly compensated employees) and the automatic adjustments, restoring the pre-July 2024 limits of $35,568 per year ($107,432 for highly compensated employees).  

Implications for Employers and Next Steps  

With the new thresholds overturned, you, as an employer, must now navigate the consequences and how to move forward, per this ruling. 

1. Immediate Relief from January Increases 

While you are no longer obligated to implement the scheduled January 2025 threshold hikes, how you proceed should be based on communications already presented to employees.   

If you were holding off until January 1 to implement salary changes for the new minimum salary threshold and have not yet mentioned the potential increase, there is no need to make any adjustments. However, if employees are expecting a wage increase, carefully craft your message to maintain compliance and morale while providing transparency about the situation.    

In the event you have already budgeted for higher thresholds in 2025, you can still proceed with those increases. Employers are free to pay more than the minimum salary threshold. 

2. Reevaluation of July Changes 

If you raised salaries or reclassified employees under the July 2024 threshold to maintain employee exemption status, you must now decide whether to maintain those changes. On the other hand, employees who did not receive wage increases in July to maintain their exemption status per the July 2024 increase may now return to being exempt from overtime pay requirements.  

While you may have the legal right to revert employee wages that were increased for compliance purposes back to their former wages, think twice before doing so. Reductions in pay or reclassification to nonexempt status could harm employee morale and create workplace tension. Your company may also be subject to state laws that require advance notice for wage changes. Contact your certified HR expert for more information. 

3. Renewed Excitement Regarding Exemption Status 

The heightened scrutiny following this ruling provides an opportunity to audit employee classifications. Pay special attention to executive, administrative, and professional positions to ensure they meet the duties tests required for exemption under the FLSA.  

As a reminder, an exempt employee must meet at least one of the following exemptions in addition to the minimum salary requirements (see more details in Exempt v. Nonexempt):  

Executive exemption  

Performs management job duties and can hire, fire and promote staff.  

Administrative exemption

Primary duty for exempt administrative employees is the “exercise of discretion and independent judgment with respect to matters of significance.”   

Professional exemption

Performs a job requiring advanced knowledge in a field of science, learning (typically a college degree is required), or a creative field.  

Computer employee exemption 

Serves in a role that is highly skilled at computers. This fact sheet from the Department of Labor has more information about exempt computer employees.  

Highly compensated employee exemption

Receives annual compensation of at least $107,432 annually and performs office or non-manual work.  

Outside sales exemption  

Primary job responsibility is to make sales away from the employer’s place of business.  

What Are the Chances This Ruling Will be Appealed?  

While the DOL may appeal the ruling, it is anticipated that the Trump administration will likely revise or abandon the rule altogether. Why? Because history repeats itself.  

In 2016, a rule had been passed to dramatically increase the salary threshold and was stopped immediately prior to it taking effect (and then permanently blocked later) because it “essentially makes an employee’s duties, functions, or tasks irrelevant if the employee’s salary falls below the new minimum salary level.”  This new 2024 ruling has essentially been the same argument with (so far) the same outcome.  

Looking Ahead  

The court’s decision has once again shifted the regulatory landscape for overtime exemptions. The best course of action is to stay informed about potential appeals, legislative changes, and state-specific requirements to adapt your compensation strategies effectively.   

For tailored guidance, reach out to your certified HR expert or legal advisor. Not a Stratus HR client? Book a free consultation and our team will contact you shortly.