On Friday, the United States District Court for the Eastern District of Texas issued a controversial decision to vacate the Department of Labor’s (DOL) 2024 overtime rule, months after it went into effect. The decision will generate considerable confusion regarding the white collar exemption because the court’s decision (as of now) bars the application of the rule on a nationwide basis.
While the court’s decision may appear to be a “win” for employers in the short term (though query what that really means), it raises several troubling issues that could lead to prolonged uncertainty and potential future litigation. This is particularly so because the Fifth Circuit appeared to uphold the rule just a few months ago.
By way of background, and as employers know, the rules regarding who is an exempt employee rely on two parts — a “salary” test and a “duties” test. The US Department of Labor significantly raised the minimum salary for this test and added a system to automatically increase it.
Texas and some businesses argued that this change was too drastic and went against existing law, which prioritizes an employee’s job duties, not just their salary, in determining if they’re exempt from overtime. The court agreed with Texas and the businesses saying the new rule focused too much on salary and not enough on job duties when deciding who is exempt from overtime, effectively making the salary the main factor, which was not what the law intends.
However, this reasoning arguably ignores decades of DOL rulemaking history and precedent, which have consistently recognized the role of a salary level test in defining and delimiting the exemption.
Here’s why this decision is going to be challenged:
Ignoring Decades of Precedent: The court’s assertion that salary level cannot play a significant role in the white collar exemption seemingly contradicts the DOL’s historical practice since the FLSA was enacted in 1938. The sources provided show that the DOL has consistently used a salary level test in conjunction with the duties test. In fact, the DOL has raised the salary level nine times before the 2024 rule. The court’s decision to discount this long-standing practice is perplexing.
Misunderstanding the “Define and Delimit” Authority: The court seems to have narrowly interpreted the DOL’s authority to “define and delimit” the terms of the white collar exemption. While it’s true that the FLSA’s text does not mention a salary component, the law explicitly grants the DOL the authority to define and delimit the terms “executive, administrative, or professional capacity”.20 The Fifth Circuit, in the Mayfield case, confirmed that the DOL’s authority includes the power to impose a salary level test.2122 The court’s decision to disregard the Fifth Circuit’s precedent on this point is concerning and creates uncertainty about the scope of the DOL’s rulemaking authority.2223242526
Undermining Predictability and Stability: By vacating the 2024 rule, the court has left employers in a state of uncertainty with many having already implemented the changes several months ago (and many more planning to do so in January 2025). The court’s decision is likely to be appealed, and it’s possible that a higher court could reach a different conclusion. This uncertainty makes it difficult for employers to plan for the future and could lead to increased compliance costs and litigation.
While the court’s decision may seem like a temporary reprieve from potentially increased compliance costs, it’s important to remember that this issue is far from settled. The DOL is likely to appeal the decision though with a new administration coming in, things are even more up in the air than usual.