On November 15, 2024, U.S. District Judge Sean Jordan of the U.S. District Court for the Eastern District of Texas vacated the Department of Labor’s 2024 regulations for executive, administrative, and professional (EAP) employees, which raised the minimum salary employers would be required to pay EAP employees to maintain their overtime exempt status under the Fair Labor Standards Act.[1] Absent extraordinary relief from the Fifth Circuit in the near term, the January 1, 2025, deadline to increase minimum salaries for exempt EAP employees to $58,656 is no longer in effect, and the previous $43,888 increase mandate effective July 1, 2024, was likewise deemed invalid. Employers are therefore not required to adjust the pay of current employees who otherwise meet the EAP exemption but have salaries below these thresholds. The order also vacates the regulation’s increase to $151,164 for the “highly compensated employee” salary threshold.
The 62-page opinion, issued on the heels of an election heralding a change in administration and control of both houses of Congress, is reminiscent of a 2016 injunction issued by the Eastern District of Texas that halted the Obama administration’s 2016 rule increasing the salary level under the same EAP regulations, a mere 10 days before its effective date.[2]
With the 2024 regulations vacated, the EAP salary level is now governed by the Trump administration’s 2019 EAP regulations, which the 2024 rule attempted to supplant. The former (now current) 2019 regulation sets the respective minimum annual salaries at $35,568 and $107,432.
Employers Caught in the Crossfire of the Whims of Changing Administrations
Confused? Feeling a bit of whiplash? It isn’t surprising. Since 1940, an employee has been deemed overtime exempt if the employee meets a three-part test: (1) the employee’s primary job duties involved executive, administrative, or professional duties (“duties test”); (2) the employee was paid a predetermined salary (“salary-basis test”); and (3) the salary exceeded a minimum threshold set by the DOL (“salary-level test”).
Prior to the 2024 rule, the salary-level test went through nine previous revisions since 1938. Traditionally, the DOL recognized that the duties test was the most pertinent one for determining whether an emplyee meets the EAP exemptions and that the salary-level test should not displace the duties test. Therefore, salary levels were set low enough throughout the years to screen out only obviously non-exempt employees.
That appeared to change in the Obama administration’s 2016 rule, when the DOL attempted to increase the salary level from $23,660 to $47,476 annually, doubling the minimum weekly salary required to meet the exemption that had been set in 2004.[3] For the first time in its EAP rulemaking history, the DOL also included an automatic indexing mechanism to make additional increases in the salary level at intervals, bypassing the formal rulemaking process for future increases. A multitude of states and business organizations challenged the 2016 rule as exceeding the DOL’s authority. After a temporary injunction halted implementation of that rule in Nevada I, the Texas district court later granted summary judgment to the challengers, finding that the 2016 rule effectively supplanted the analysis of an employee’s job duties, replacing duties with income, for which the DOL did not have authority.[4]
Although the DOL under the Trump administration appealed the Nevada II decision, the DOL eventually sought a stay of the appeal to begin the rulemaking process anew. That process resulted in a new 2019 EAP rule, with the DOL again emphasizing that salary level was not a substitute for the duties test and returning to the methodology it had employed in its 2004 rule (20th percentile of full-time salaried workers in the South) to calculate the appropriate salary level. The 2019 rule also abandoned any automatic indexing mechanism, leaving future increases to additional rulemaking consistent with the Administrative Procedure Act (APA). Once the 2019 rule was finalized, the DOL dismissed its appeal of Nevada II.
Not to be left out, the 2019 rule was also challenged, although this time the complaint was not over the salary level set, but over the DOL’s authority to define the EAP exemptions in terms of salary level in the first place. Earlier this fall, in Mayfield v. DOL, the Fifth Circuit denied that challenge, finding that the use of a salary level as a criterion for EAP status was a permissible exercise of the DOL’s authority to “define[ ] and delimit[ ]” the exemptions through regulation, although the Fifth Circuit cautioned that such authority was “not unbounded.”[5]
While the challenge to the Trump administration’s 2019 rule was still working its way through the courts, the Biden administration took its turn at evaluating the salary-level test through yet another formal rulemaking process. Not appearing to learn from the past, the 2024 rule adopted by the Biden administration’s DOL was in large part based on the methodology previously invalidated in the 2016 rule.
Indeed, the 2024 rule significantly increased the number of overtime-eligible employees, with the 2024 rule calling for staged increases of the salary-level threshold over time. The first increase — which already occurred on July 1, 2024 — was $43,888. Effective January 1, 2025, the salary level was set to increase to $58,656, a number now at the 35th percentile of all salaried workers in the lowest-wage census region and/or retail industry nationally — not the 20th percentile used in the 2004 rule. The DOL estimated approximately 4 million previously exempt workers who otherwise met the duties test would now become non-exempt once these first two increases became effective. Finally, the automatic indexing provisions beginning in 2027 and recurring in three-year intervals would impact tens of millions of workers over an extended period.
The Texas Court Ruling
In consolidated cases brought by the state of Texas, a coalition of trade associations and private employers, Judge Jordan granted the challengers’ motions for summary judgment and held that the rule’s “sweeping changes” to the salary threshold “effectively displace[d] the FLSA’s duties test with a predominate — if not exclusive — salary-level test.”[6] Mindful of the Mayfield court’s admonition that the DOL’s authority to define the EAP exemptions in part through a minimum salary was not unbounded, Judge Jordan made the following observations:
- The terms “capacity,” “executive,” “administrative,” and “professional” all relate to the functions and duties an employee performs, and the meaning of those terms, which serves as a limitation on the DOL’s ability to define them, and restricts the DOL from enacting rules that effectively replace or swallow those meanings.
- The DOL’s ability to use a minimum salary level to define the EAP exemptions is only permitted if that salary serves as a reasonable proxy for an employee’s exemption status.
- The DOL must define and delimit the EAP exemptions through active rulemaking in compliance with the APA, meaning that the DOL’s automatic, formulaic increases to the salary-level floor would run afoul of its delegated authority.
Noting that the DOL does not have the power “to make salary rather than an employee’s duties determinative of whether a ‘bona fide executive, administrative, or professional capacity’ employee should be exempt from overtime pay,” the court found that the 2024 rule violated these tenets, as the minimum salary level imposed by the rule effectively eliminated consideration of whether an employee performed any of the EAP duties by screening out a substantial percentage of employees who already meet the duties test. Nor did the DOL have the authority to implement future salary-level increases outside the APA’s formal rulemaking process.
Having concluded that the DOL exceeded its authority, the court vacated and set aside the 2024 rule, which is effective nationwide.
What’s Next?
The Biden administration DOL may very well appeal the court’s ruling to the Fifth Circuit in advance of the January inauguration, and potentially seek a stay of Judge Jordan’s mandate. Given the burden on employers who already had to implement interim salary increases mandated by the now-defunct rule, however, it seems unlikely a court would impose any additional burdens while waiting out the appellate process. And while a change in administration in January does not mean the DOL will automatically abandon any filed appeal, barring reversal by an en banc Fifth Circuit, the Mayfield decision upholding the prior Trump administration’s 2019 rule suggests that there will be little incentive for the new administration to continue the battle for the 2024 rule.
The timing of Judge Jordan’s decision is little consolation for compliant employers who implemented the July 1 salary increases, but the guidance provided in advance of the January 1 increase deadline brings a welcome reprieve. While the salary level uncertainty is now decided, Judge Jordan’s recognition that the duties test is the ultimate determiner of exempt status is a good reminder that companies should always make EAP exemption decisions utilizing the EAP duties test. Salary should only be factored into confirming that the salary level for the position meets the minimum established in the EAP salary-level regulations in effect at the time, rather than allowing an employee’s salary level to substitute for an adequate duties test analysis.
[1] Texas v. DOL, No. 4:24-cv-00499 (E.D. Tex. Nov. 15, 2024).
[2]Nevada v. DOL, 218 F.Supp.3d 520 (E.D. Tex. 2016) (Mazzant, J.) (“Nevada I”) (granting temporary injunction).
[3] Prior to the 2016 rule, the salary level had not been revised since 2004. The 2016 salary level jumped to the 40th percentile of weekly earnings of full-time salaried workers in the South, as opposed to the 20th percentile for all full-time salaried employees in the South and the retail industry used to set the salary level in the 2004 rule.
[4] Nevada v. DOL, 275 F. Supp. 3d 795 (E.D. Tex. 2017) (Mazzant, J.) (“Nevada II”).
[5] See Mayfield v. DOL, 117 F.4th 611 (5th Cir. 2024). A petition for rehearing en banc is currently pending in Mayfield.
[6] Judge Jordan previously granted a preliminary injunction halting the implementation of the 2024 rule in its entirety with respect to the state of Texas only. See Texas v. DOL, 2024 WL 3240618 (E.D. Tex. June 28, 2024). All other employers were obligated to comply with the July 1 increase on that date.
