[US] Rinse and Repeat: Texas Court Vacates Controversial Federal Overtime Rule

A Texas judge invalidated the latest attempt by a Democratic-run administration to raise the salary threshold for determining who can be exempted from overtime pay under the Fair Labor Standards Act (Texas v. U.S. Department of Labor, No. 4:24-cv-499 (E.D. Texas, 11-15-24)).  

The now vacated final rule, effective since July 1, 2024, had a first round of salary increases in place. It said employers must pay at least $43,888 a year ($844 a week) in order to exclude certain employees who also met duties tests from the requirement to provide 1.5 times their regular hourly rate of pay for hours worked in excess of 40 in a work week. The amounts under the rule would have increased again on January 1, 2025. 

Exceeding the Department’s Authority 

In the ruling, the judge found the Labor Department does not have “unbounded” authority to define and delimit the law governing the overtime exemption and exceeded its authority in justifying and applying the increased amounts. 

Similarities were noted with an Obama Administration 2016 final rule that also sought to increase the salary threshold amounts for the exemption. That rule was stopped, also by a Texas court, just days before becoming effective that year, when many employers had already put in place the higher amounts within their policies. 

In 2024, the Labor Department attempted to craft the rule so that it would hold up under the legal scrutiny it already knew would be applied. The Texas court this time referred to the same reasoning the 2016 rule was invalidated. According to the court, it “ ‘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.” 

With the rule already in place and effective, U.S. employers were in a quandary as July 1 approached.  

If they do not implement any changes, they face the chance of penalties should the final rule be upheld after court challenges (other 2024 court cases were upheld in favor of the Labor Department). Or, they could implement the new amounts in policy, only to find out later, like in 2016, that such a move was unnecessary. 

Looking at the experience from 2016, there is a good chance that many employers held back in making changes due to the controversy surrounding the 2024 rule. They may have been out of compliance for a few months, but enforcement of that rule is no longer necessary.  

The Labor Department has not announced whether it would appeal this latest decision. 

Author: Michael Baer

Michael Baer is president of Baer Unlimited, an independent research, analysis, and communications provider that helps Payroll modernize operations, stay compliant, and improve the use and security of their data. For more on these issues discussed above, contact him directly at mike.baer@baerunlimited.com, or book Michael as a mentor through the GPA Mentor page. 

A Texas judge invalidated the latest attempt by a Democratic-run administration to raise the salary threshold for determining who can be exempted from overtime pay under the Fair Labor Standards Act (Texas v. U.S. Department of Labor, No. 4:24-cv-499 (E.D. Texas, 11-15-24)).  

The now vacated final rule, effective since July 1, 2024, had a first round of salary increases in place. It said employers must pay at least $43,888 a year ($844 a week) in order to exclude certain employees who also met duties tests from the requirement to provide 1.5 times their regular hourly rate of pay for hours worked in excess of 40 in a work week. The amounts under the rule would have increased again on January 1, 2025. 

Exceeding the Department’s Authority 

In the ruling, the judge found the Labor Department does not have “unbounded” authority to define and delimit the law governing the overtime exemption and exceeded its authority in justifying and applying the increased amounts. 

Similarities were noted with an Obama Administration 2016 final rule that also sought to increase the salary threshold amounts for the exemption. That rule was stopped, also by a Texas court, just days before becoming effective that year, when many employers had already put in place the higher amounts within their policies. 

In 2024, the Labor Department attempted to craft the rule so that it would hold up under the legal scrutiny it already knew would be applied. The Texas court this time referred to the same reasoning the 2016 rule was invalidated. According to the court, it “ ‘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.” 

With the rule already in place and effective, U.S. employers were in a quandary as July 1 approached.  

If they do not implement any changes, they face the chance of penalties should the final rule be upheld after court challenges (other 2024 court cases were upheld in favor of the Labor Department). Or, they could implement the new amounts in policy, only to find out later, like in 2016, that such a move was unnecessary. 

Looking at the experience from 2016, there is a good chance that many employers held back in making changes due to the controversy surrounding the 2024 rule. They may have been out of compliance for a few months, but enforcement of that rule is no longer necessary.  

The Labor Department has not announced whether it would appeal this latest decision. 

Author: Michael Baer

Michael Baer is president of Baer Unlimited, an independent research, analysis, and communications provider that helps Payroll modernize operations, stay compliant, and improve the use and security of their data. For more on these issues discussed above, contact him directly at mike.baer@baerunlimited.com, or book Michael as a mentor through the GPA Mentor page.