Real World Implications of Challenges to the Rule: A federal district court in Texas has enjoined the DOL’s 2024 Salary Rule (which takes effect today, July 1, 2024) for employees of the state of Texas, and we anticipate a nationwide injunction applicable to private employers sometime this week, possibly even today. In light of the litigation challenging the rule, we recommend employers make no changes to the exempt status of employees at this time and wait to see if the court issues a nationwide injunction. Employers should also ensure that any employees whose exempt status could be impacted by the July 1 salary increase do not work more than 40 hours in a workweek, and employers should track the hours of any such employees until we have a decision regarding a nationwide injunction. In the event that it is impossible to restrict affected workers from working more than 40 hours, employers should pay those workers overtime for any hours worked over 40 in a workweek on a going-forward basis until the requests for injunctive relief are resolved. Depending on when, and how, the court rules, employers likely can make any needed overtime payments as a one-time adjustment to payroll for the week, if necessary.

Background: The Department of Labor’s (DOL’s) 2024 salary rule increases the salary level for employees to be considered exempt from overtime under the Fair Labor Standards Act from the current rate of $684 per week ($35,568 annually) to $844 per week ($43,888 annually), with a subsequent increase to $1,128 per week ($58,656 annually) to take effect on January 1, 2025. The rule then includes automatic increases every three years thereafter.

On Friday, June 28, 2024, a federal court in the Eastern District of Texas issued a decision enjoining the rule for state of Texas employees only. See Texas v. United States Department of Labor, Case 4:24-CV-499-SDJ (June 28, 2024). The court relied, in part, on the U.S. Supreme Court decision in Loper Bright Ent. v. Raimondo (June 28, 2024), which overruled the Chevron deference standard, and held that the state of Texas established it is likely to succeed on its claims that the DOL’s changes to the minimum salary level contravene the plain text of the exemption and therefore impermissibly exceed the DOL’s authority, making injunctive relief appropriate. The court also relied on its previous injunction of the DOL’s 2016 Rule which attempted to raise salary levels and included automatic increases, in Nevada v. U.S. Department of Labor, 2018 F.Supp.3d 520 (E.D. Tex. 2016), and further noted that the DOL’s 2019 Rule, which also raised salary levels but was allowed to go into effect, is currently being challenged on appeal as an unlawful exercise of the DOL’s administrative power.

While Friday’s injunction applies only to the state of Texas as an employer, a second case brought by a coalition of Texas and national trade associations and businesses has been filed and consolidated with this case, although those plaintiffs have not yet requested a preliminary injunction. We anticipate they will do so soon, and once they do, the court is likely to rule in their favor. Additionally, a third case is pending in the Northern District of Texas, Flint Avenue, LLC v. U.S. Department of Labor, where the plaintiff has sought injunctive relief on behalf of private employers nationwide, and although the briefing on the request for injunction appears to now be complete, the court has not yet issued a decision on that request.

The Bottom Line

The limited injunction issued thus far and pending litigation over the 2024 Salary Rule place employers in a quandary with regard to employees whose salary levels will need to be increased to ensure they remain exempt (or who will need to be reclassified as nonexempt and paid overtime). As noted above, a potential strategy for employers is to refrain from making any changes to employee classification or salaries, but to instead ensure that these employees do not work more than 40 hours in a workweek until the pending requests for injunctive relief are resolved, to avoid any potential overtime liability, as the 2024 rule is now in effect. We will keep you informed of the status of this litigation and the 2024 rule.