Texas federal judge Sean D. Jordan recently blocked a new U.S. Department of Labor (DOL) Rule¹  that would have allowed certain workers making less than $58,656 per year to automatically become eligible for overtime premium pay if they worked more than 40 hours per week.²  Judge Jordan ruled that the DOL lacked authority to implement this Rule, which would have changed the overtime eligibility for approximately four million people.³

What Does it Mean to Be A FLSA “Exempt” Employee?

Under the Fair Labor Standards Act (FLSA), an executive, administrative, or professional (EAP) employee is “exempt” from overtime pay.⁴  An “exempt” employee is also exempt from the FLSA’s minimum wage requirements.⁵

Conversely, under the FLSA, “non-exempt” employees are eligible to earn overtime pay at a “time and a half” rate for working more than 40 hours a week.⁶

Who is Considered an Executive, Administrative, or Professional (EAP) Employee?

“Exempt” employees (who do not receive overtime pay) are those employed as bona fide executive, administrative, professional, or outside sales employees; teachers and academic administrative personnel; and employees in certain computer-related occupations.⁷ Titles do not determine whether someone is exempt.⁸  Instead, an employee’s specific job duties and salary must meet DOL regulations, and some professions (like doctors and lawyers) are excluded from the salary tests.⁹ Generally, an “exempt” employee must satisfy the following three requirements:

• Be paid a salary, meaning that they are paid a predetermined and fixed amount that is not subject to reduction because of variations in the quality or quantity of work performed;
• Be paid at least a specified weekly salary level; and
• Primarily perform executive, administrative, or professional duties, as provided in the DOL regulations.¹⁰

What Did the DOL Rule Aim to Accomplish? 

On September 8, 2023, consistent with its statutory authority to delineate the EAP exemption, the DOL published a Notice of Proposed Rulemaking (NPRM) to revise the Rule (the part 541 regulations).¹¹ Specifically, the DOL proposed:

• To increase the standard salary level to the 35th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region, equivalent to $1,059 per week based on earnings data used in the NPRM;
• To apply this updated standard salary level to the four U.S. territories that are subject to the federal minimum wage—Puerto Rico, Guam, the U.S. Virgin Islands, and the CNMI—and to update the special salary levels for American Samoa and the motion picture industry in relation to the new standard salary level;
• To raise the Highly Compensated Employee (HCE) test's total annual compensation requirement to the annual equivalent of the 85th percentile of weekly earnings of full-time salaried workers nationally, equivalent to $143,988 per year based on earnings data used in the NPRM; and
• To add a new mechanism to update the standard salary level and the HCE total annual compensation threshold every three years to ensure that they remain effective tests for exemption.¹²

Those supporting the Rule believed the rule would put more money in workers’ pockets, while those who opposed it argued it would drive up personnel costs for small businesses.

Why Did the Texas Federal Court Strike Down the DOL Rule?

Judge Jordan wrote that the “minimum salary level imposed by the 2024 Rule ‘effectively eliminates’ consideration of whether an employee performs ‘bona fide executive, administrative, or professional capacity’ duties in favor of what amounts to a salary-only test.”¹³ Judge Jordan concluded that “[u]nlike at the preliminary-injunction stage when the Court had broad discretion to fashion appropriate preliminary relief[,] the Fifth Circuit has made clear that district courts should generally ‘nullify and revoke’ illegal agency action."¹⁴ In other words, Judge Jordan found that the DOL lacked the authority to raise the salary threshold for an FLSA overtime exemption.  

The Rule had been in effect since July 2024.  Judge Jordan issued his opinion striking down the Rule before the second and largest phase of the Rule was due to take effect on January 1, 2025.

This Decision May Presage Shift in Employment Laws

Following this decision, employment laws may continue to shift under the new presidential administration.  For guidance concerning compliance with federal and state employment laws, please contact a member of Nelson Mullins Labor and Employment team.

¹ U.S. Department of Labor, Wage and Hour Division (2024) The Federal Register: Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees (A Rule by the Wage and Hour Division on 04/26/2024), FEDERAL REGISTER: THE DAILY JOURNAL OF THE UNITED STATES GOVERNMENT. Available at: https://www.federalregister.gov/d/2024-08038 (Accessed: 26 November 2024).

² State of Texas v. United States Department of Labor et. al., Docket No. 4:24-cv-00499 (E.D. Tex. Nov. 15, 2024),
https://www.texasattorneygeneral.gov/sites/default/files/images/press/DOL
%20Overtime%20Mem%20Op%20and%20Order.pdf (Accessed: 26 November 2024). 

³ Id.

⁴ 29 U.S.C. § 213(a)(1).

⁵ 29 U.S.C. § 213(a)(1). The U.S. federal minimum wage is currently $7.25 per hour. See supra, The Federal Register: Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees (A Rule by the Wage and Hour Division on 04/26/2024). Available at: https://www.federalregister.gov/d/2024-08038 (Accessed: 26 November 2024). While this is the “floor” (or the minimum that any state may establish), states can set a higher minimum wage.

⁶ See Donovan, S. et.al., (2024) The Fair Labor Standards Act (FLSA) Exemption for Executive, Administrative, and Professional (EAP) Employees, CONGRESSIONAL RESEARCH SERVICE IF12480 VERSION 7, UPDATED. Available at: https://crsreports.congress.gov/product/pdf/IF/IF12480#:~:text=The%20Fair%20Labor
%20Standards%20Act%20(FLSA)%20establishes%20a%20federal%20minimum,test%
20and%20a%20duties%20test (Accessed: 26 November 2024); see also, U.S. Department of Labor, Wage and Hour Division (2024) Fact Sheet #17C: Exemption for Administrative Employees Under the Fair Labor Standards Act (FLSA), WHD FACT SHEETS. Available at: https://www.dol.gov/agencies/whd/fact-sheets/17c-overtime-administrative#:~:text=Discretion%20and%20Independent%20Judgment,-In%20general%2C%20the&text=The%20term%20must%20be%20applied,
in%20manuals%20or%20other%20sources (Accessed: 26 November 2024).

⁷ Id. 

⁸ Id.

⁹ The standard salary level can be found in 29 CFR 541.600 and listed at https://www.dol.gov/agencies/whd/overtime/salary-levels (Accessed: 26 November 2024). For a more detailed explanation, see supra, Fact Sheet #17C: Exemption for Administrative Employees Under the Fair Labor Standards Act (FLSA). Available at: https://www.dol.gov/agencies/whd/fact-sheets/17c-overtime-administrative#:~:text=Discretion%20and%20Independent%20Judgment,-In%20general%2C%20the&text=The%20term%20must%20be%20applied,in%20manuals
%20or%20other%20sources and The Federal Register: Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees (A Rule by the Wage and Hour Division on 04/26/2024). Available at: https://www.federalregister.gov/documents/2024/04/26/2024-08038/defining-and-delimiting-the-exemptions-for-executive-administrative-professional-outside-sales-and#citation-21-p32844 (Accessed: 26 November 2024).

¹⁰ See supra, The Federal Register: Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees. Available at: https://www.federalregister.gov/documents/2024/04/26/2024-08038/defining-and-delimiting-the-exemptions-for-executive-administrative-professional-outside-sales-and#citation-21-p32844; see also U.S. Department of Labor, Wage and Hour Division (2024) Final Rule: Restoring and Extending Overtime Protections, U.S. DEPARTMENT OF LABOR. Available at: https://www.dol.gov/agencies/whd/overtime/rulemaking (Accessed: 26 November 2024).

¹¹ See supra, The Federal Register: Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees. Available at: https://www.federalregister.gov/documents/2024/04/26/2024-08038/defining-and-delimiting-the-exemptions-for-executive-administrative-professional-outside-sales-and#citation-88-p32847 (Accessed: 26 November 2024). 

¹² See supra, The Federal Register: Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees. Available at: https://www.federalregister.gov/documents/2024/04/26/2024-08038/defining-and-delimiting-the-exemptions-for-executive-administrative-professional-outside-sales-and#citation-90-p32847 (Accessed: 26 November 2024). 

¹³ State of Texas v. United States Department of Labor et. al., Docket No. 4:24-cv-00499 (E.D. Tex. Nov. 15, 2024), https://www.texasattorneygeneral.gov/sites/default/files/images/press/DOL%20Overtime%
20Mem%20Op%20and%20Order.pdf (Accessed: 26 November 2024). 

¹⁴ Id.