Court Vacates Rule Raising Salary Threshold for White Collar Overtime Exemption

In April, the Biden administration announced a final rule updating overtime exemption thresholds under the Fair Labor Standards Act (FLSA).

The new rule expanded overtime protections for millions of the nation’s lower-paid salaried workers, increasing the salary thresholds required to exempt a salaried bona fide executive, administrative or professional employee from federal overtime pay requirements. Effective July 1, 2024, that salary threshold increased to the equivalent of an annual salary of $43,888, and was scheduled to jump to $58,656 on Jan. 1, 2025.

On Nov. 15, the U.S. District Court for the Eastern District of Texas struck down that final rule, vacating the rule for all employers across the United States.

According to labor and employment law firm Littler Mendelson, the court held that each of the rule’s three components exceeded the U.S. Department of Labor’s statutory authority under the FLSA, concluding that the rule’s national scope meant that it would be invalidated on a nationwide basis.

Essentially, the ruling means that the increase in the overtime threshold scheduled to go into effect on Jan. 1, 2025 will not go into effect, according to Littler. The firm noted that the court also struck down the increase that had gone into effect on July 1, 2024, “although this may have limited practical effect for many employers that may have already adjusted their payroll to comply with that increase.”

The court also held that the final rule’s automatic provision that would have increased the threshold every three years going forward was also unlawful, Littler pointed out.

“It is clear now that the Jan. 1, 2025 increase will not go into effect as scheduled, and as a matter of law, the July 1, 2024 increase is nullified,” Littler attorneys wrote, urging organizations to be aware that some states—Alaska, California, Colorado, Maine and New York, for instance—have salary thresholds exceeding that of the FLSA.

The firm also advised employers that previously adjusted the salaries or exemption status of employees who earned less than the salary threshold set by the now-invalidated July 1 increase to “consult with counsel before considering whether to rescind those changes on a going-forward basis.”