Rule goes into effect today, for most.

A Win for The State of Texas as an Employer

According to Fisher & Phillips LLP, the state of Texas, as an employer, is exempt from complying with today’s new exempt salary threshold due to a Friday court order. This exemption applies solely to the state itself; private employers in Texas and nationwide must still adhere to the Overtime Rule.

The district court’s temporary halt specifically addresses Texas as an employer, pending further legal proceedings. The court indicated Texas is likely to prevail in its argument against the Department of Labor’s (DOL) authority to set such high salary thresholds with automatic adjustments. Consequently, Texas is not required to increase wages for its state employees for now.

The court found that the state proved the rule exceeds the DOL’s authority under the Administrative Procedure Act (APA) because the Fair Labor Standards Act’s (FLSA) executive, administrative, or professional (EAP) exemption is based on employees’ salary and not their job duties.

The question for the court was whether the EAP exemptions—codified in the FLSA regulations at 29 C.F.R. Part 541 and which permits the Secretary of Labor to “define” and “delimit” the terms “executive,” “administrative,” and “professional”—authorizes the Secretary to increase the minimum salary level to that degree. The court noted that “[t]he plain meaning of these terms makes clear that the proper inquiry into whether someone works in an executive, administrative, or professional capacity must turn on that person’s function and duties”—and not their compensation. As such, “any rule implementing the EAP Exemption—including the 2024 Rule—must likewise center on duties.”

Phase 1 New Salary Threshold

Until July 1, the minimum salary for white-collar exemptions was $684 per week ($35,568 per year). Under Phase 1 of the new rule, this salary requirement has gone up to $844 per week ($43,888 per year) starting July 1, and it will increase again to $1,128 per week ($58,656 per year) on January 1, 2025.

SCOTUS Landmark Ruling Applies

The Supreme Court changed how courts handle agency interpretations of laws by overruling the Chevron regulation also on Friday, June 28th.  This rule held that held that “[c]ourts must exercise their independent judgment in deciding whether an agency has acted within its statutory authority.” Before, courts often deferred to how government agencies interpreted laws, even if the courts disagreed. Now, the Supreme Court says courts can interpret laws more independently. This means courts can more easily reject rules made by agencies, which gives employers a stronger way to push back against government rules they think go too far.

Recap of the New Overtime Rule

Employers must follow the new salary rules unless a court decides otherwise. According to the federal Fair Labor Standards Act (FLSA), employees generally must be paid overtime if they work more than 40 hours a week, unless they’re exempt. To qualify for exemptions like executive or administrative roles, employees must meet three conditions:

  • They must be paid a salary,
  • They must earn at least the designated minimum amount each week, and
  • They must perform specific job duties.

The new rule also includes these important changes:

  • The salary thresholds will be automatically adjusted every three years starting July 1, 2027, unless the rule is stopped.
  • For employees classified as “highly compensated,” the salary threshold increases to $132,964 on July 1 and then to $151,164 on January 1, 2025, up significantly from the current $107,432. This threshold will also be updated every three years.

What Should Employers Do Now?

Make sure you understand the rules in different states like California, New York, and New Jersey, where wage and hour laws are strong. In some cases, state exemption salary thresholds differ from Federal rules, may have higher salaries, or duty tests that are more difficult to satisfy.

Remember to Review Your Compensation Practices

To be proactive during this period, make sure to:

  • Think through your options, costs, and budgets carefully.
  • Review your job classifications with legal advice.
  • Consider reclassifying employees if their job duties don’t meet the standards.
  • Check your HR, payroll, and timekeeping systems to accurately track work hours and overtime.
  • Prepare clear messages for employees and supervisors about any changes and give written notice if required by state law.
  • Review compensation annually to assess pay practices.

More Lawsuits Against the Ruling Are Underway

Although there are other lawsuits pending throughout the country, all other employers, including Texas private employers, must continue preparing to comply with the rule unless otherwise directed by the court.

If a nationwide injunction of the 2024 Rule is to issue, it will be in another lawsuit. One such lawsuit seeking a nationwide injunction is Flint Avenue LLC v. U.S. Dep’t of Labor, No. 5:24-CV-130-C (N.D. Tex.).

The fight isn’t finished yet. Since the new overtime rule applies to a limited area, it is expected that many lawsuits will challenge it. There’s also a chance that the overtime rule may be canceled prior to January 1, 2025 for Phase II. It’ll be critical to keep an eye on these legal challenges and be ready to adjust your compensation plans if necessary.