The Department of Labor’s Overtime Rule: Enforcement Begins…For All Except Texas State Employees

DOL’s Overtime Rule

On July 1, 2024, the Department of Labor (“DOL”) began enforcing the first phase of a new overtime rule (the “Rule”) which raises the salary thresholds for certain overtime exemptions under the Fair Labor Standards Act (“FLSA”). Baird Holm previously reported on the Rule’s announcement and finalization as employers approached this month’s July 1 effective date.

The FLSA has long since required employers to provide employees with overtime pay at the rate of 1.5 times the employee’s regular rate of pay for any hours worked beyond 40 hours in one week. Now that the new Rule has gone into effect, the minimum salary levels for executive, administrative, and professional (“EAP”) employees and highly compensated employees have increased so that fewer employees are now eligible for exemption unless they receive a substantial salary increase. To qualify for an exemption, employees must be paid at least the new minimum salary level by each of the following deadlines:

• By July 1, 2024: $844 per week ($43,888 annually) for standard salary level of EAP exempt employees, or $132,964 annually for the highly compensated employee exemption.
• By January 1, 2025: $1,128 per week ($58,656 annually) for standard salary level of EAP exempt employees, or $151,164 annually for the highly compensated employee exemption.

After the completion of those phases, beginning July 1, 2027 additional salary increases are scheduled to automatically occur every three years.

To note, employers who do not comply with the new DOL requirements and fail to pay non-exempt employees at the applicable overtime rate will be liable to the affected employees in the amount of their unpaid overtime compensation, plus liquidated damages. Additionally, non-compliant employers will be subject to a maximum civil penalty of $1,100 for each violation of the DOL Rule.

Recent Challenges to the DOL’s Rule

The DOL’s Rule has been—and likely will continue to be—challenged in federal courts.? For instance, on June 28, 2024, the federal district court for the Eastern District of Texas granted the State’s motion for a preliminary injunction postponing the Rule’s implementation. ?This current injunction, however, applies only to the State of Texas in its capacity as an employer[1] because the Texas court found the State would likely succeed in challenging the DOL Rule as unlawful and issued the injunction accordingly. The court was persuaded by the State’s argument that the significantly increased salary threshold exceeded the DOL’s authority under the FLSA. In doing so, the Texas court relied upon the United States Supreme Court’s same-day decision in Loper Bright Enters. V. Raimondo, which overruled Chevron USA Inc. v. Natural Resources Defense Council, Inc., finding that courts must “exercise independent judgment” when deciding if an agency has acted beyond their authority.[2] Particularly, the court here reasoned the language of the FLSA statute only permitted overtime exemptions based on job duties, and not simply a minimum salary, thus constituting an overreach in the DOL’s authority.

Repeating History – Is There More to Come?

This new DOL overtime Rule under the Biden Administration bears strong resemblance to an Obama Administration rule that was almost implemented in 2016, but was ultimately blocked by a Texas court only eight days before it was scheduled to take effect. Twenty-one states challenged the DOL’s previous 2016 Obama Administration rule on similar grounds, so one can expect to see more challenges to this new Rule in the coming months especially in the wake of the Supreme Court’s Loper Bright case.

Outside of Texas, however, the new Rule is currently enforceable and employers should analyze the new FLSA classifications to ensure compliance. ?Anticipated future challenges to the Rule may impact a growing number of employers and employees. Baird Holm attorneys are equipped and prepared to help employers navigate these and other changes to overtime and other FLSA provisions.?

[1] In a separate case out of the Northern District of Texas, the court ruled differently and did not enjoin the DOL from enforcing the Rule on a small, private employer.? In that case, the court found the plaintiff company did not adequately show that it would suffer irreparable harm under the July 1, 2024 threshold change because its exempt employees were not affected.? The court left open the question of whether to enjoin the DOL from enforcing the January 1, 2025 threshold increase and is expected to hear arguments on the merits soon.? As a result, private employers in Texas are still currently subject to the DOL’s new overtime Rule.

[2] A forthcoming article will address broader implications of the Court’s holding in Loper Bright.

Article by Sapphire Andersen , Connor Oldenburg , Summer Associate and Christopher Thorpe, Summer Associate

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