global Tax Federal Court Puts Brakes on Overtime Expansion: What It Means for Employers January 06, 2025 Attention Employers: A federal court's rejection of the DOL's overtime rule restores previous thresholds, prompting a reassessment of recent salary and classification changes. In November 2024, a federal district court vacated a new final rule from the U.S. Department of Labor (DOL) that was expected to increase the number of employees who qualify for overtime pay by 4 million in its first year (State of Texas v. Department of Labor, No. 24-cv-468-SDJ, E.D. Tex., November 15, 2024). This otherwise welcome development is complicated by the fact that part of the rule has already taken effect. How should your business respond to this recent development? Higher Salary Thresholds Rejected The final rule made it more difficult for workers to fall within the executive, administrative and professional (EAP), and highly compensated employee (HCE) exemptions — also known as white-collar exemptions to the overtime pay requirement. It focused on the salary thresholds for these exemptions, raising them in two steps. The first increase kicked in on July 1, 2024, with the next round scheduled for January 1, 2025. Resulting from the district court ruling on November 15, 2024, the exemption thresholds have returned to their previous levels, which took effect during the first Trump administration. The salary threshold for the EAP exemptions is back to $684 per week or $35,568 per year, while the threshold for the HCE exemption returned to $107,432 per year. Overtime Overreach The court’s opinion explained that the salary-level test is only one component used to determine whether the EAP and HCE exemptions apply. An exempt employee also must satisfy the duties test. In the court’s assessment, the changes in the final rule exceeded the DOL’s authority because the exemptions require that an employee’s status look to duties rather than salary. The changes made salary predominate over duties because it “effectively eliminates” consideration of whether an employee performs the requisite duties “in favor of what amounts to a salary-only test.” Notably, the district court also cited the U.S. Supreme Court’s recent decision in Loper Bright Enterprises v. Raimondo (144 S. Ct. 2444, 2273, 2024). That case overturned the Chevron doctrine, which had been observed for decades. Under the doctrine, federal courts deferred to “permissible” agency interpretations of the laws they’re charged with administering. The Loper Bright ruling empowers courts to reject agency rules more easily, and many observers predict a surge in lawsuits challenging various federal rules and regulations in its wake. It’s possible that the federal agencies in a second Trump administration won’t even contest some of the challenges to their deemed authority. Next Steps The DOL has filed a notice of appeal, but it seems unlikely that the final rule will see new life after President-Elect Trump takes office. As a result, employers who already made adjustments in anticipation of the new salary thresholds may find themselves in a difficult position. If your company raised salaries to retain exemptions or reclassified previously exempt employees as nonexempt, you might consider rolling back such changes. However, it’s also important to anticipate the potential effect a rollback might have on morale. Employees who were expecting higher pay may not respond favorably.
