The U.S. District Court for the Eastern District of Texas, in State of Texas, et al. v. United States Department of Labor, et al. vacated the latest overtime rule by the Department of Labor (DOL) on November 15, 2024. The rule increased the salary requirement to be exempt in July 2024, set another increase for January 2025 and then automatically index and increase every three years. At this point the rule has been vacated, and the July increase is no longer valid, and no future increases will occur.

            There are certain exemptions to the Fair Labor Standards Act’s overtime law, including for administrative, executive and professional employees. However, along with an analysis of the employee’s job duties, there is a salary component.  The DOL’s latest overtime rule raised the salary minimum to be considered exempt from overtime in July from $684 per week to $844 per week. The salary minimum was scheduled go up again on January 1, 2025, to $1,128 per week, which equates to $58,656 per year.

            The Texas District Court, in vacating the rule, found that the July increase was so large that about a third of employees who would otherwise be exempt would be non-exempt because of the higher salary threshold, which goes against Congress’s purpose in electing to exempt employees from the overtime law in the first place, when the focus was always on job duties. The Court noted that if the additional increase went into effect in January, another three million people could become non-exempt, “displacing” the duties test, which the DOL lacks the authority to do.

            The Court also took issue with the automatic indexing method the rule proscribed, which would trigger an increase minimum salary component of the exemption every three years.  The Court concluded that the automatic indexing also went beyond the DOL’s authority and concluded that an automatic increase every three years violated the notice and comment requirement of the Administrative Procedures Act (APA), which requires that any rule changes be subject to notice and comment by the public before taking effect. The Court pointed out that the notice and comment obligations under the APA must be followed “even when an agency finds them inconvenient” and the DOL cannot circumvent this requirement through a rule that contains an automatic indexing method.

            What is the impact of this decision? For now, the rule is vacated across the country, including the July 2024 increase. This case will likely be appealed to the 5^th Circuit Court of Appeals, which could take years.

            States like New Jersey that follow the federal standard also will be affected by this decision. Employers in other states should review state requirements, which may differ from the federal minimum.