A federal court in Texas last week struck down a U.S. Department of Labor rule that went into effect in July making millions of salaried workers eligible for overtime pay.
The initial injunction in late June by the U.S. District Court for the Eastern District of Texas was limited in scope and applied only to the Texas state government as an employer in response to a lawsuit by the state’s attorney general. For other states and other businesses, including in Florida, the new overtime rule went into effect July 1, with a six-month grace period before employers were required to comply.
Last week’s ruling to vacate the regulation that would have formally gone into effect in January 2025 applies nationwide and was effective immediately.
Under the DOL rule, salaried employees earning less than $844 per week ($43,888 per year) would be eligible for overtime pay, and in January 2025 most salaried employees who make less than $1,128 per week ($58,656 per year) would become eligible for overtime pay. The salary threshold would then update every three years.
Scott Atwood, chair of the labor and employment practice at Fort Myers law firm Henderson, Franklin, Starnes & Holt, said the federal court vacated the rule based on a two-part analysis.
“The first part was whether or not the Department of Labor’s analysis with the final rule went beyond a fair reading of the text of the Fair Labor Standards Act,” Atwood said. “The second was whether they exceeded their authority as an agency to issue the rule on both cases, and they found against the DOL.”
Atwood said the court’s decision in late June pertaining solely to the state of Texas as an employer laid the groundwork for last week’s ruling to vacate.
“He did not make it a nationwide injunction [in June],” Atwood said. “Instead, he applied it to Texas in a limited scope but indicated that he would rule on the merits of the case before the January rollout.”
Atwood said in a July it was likely the DOL rule would be invalidated based on the U.S. Supreme Court ruling in June that overturned a landmark 1984 decision, Chevron vs. Natural Resources Defense Council, saying it was possible that the judge was “tweaking the ruling to incorporate that he’s not bound to defer to the DOL rule as correct.”
As for last week’s ruling by the judge, Atwood said that the timing is also tied to the pending change in administration in Washington, and that even if the Biden administration decides to appeal, he “can’t see a situation where the Trump administration would not withdraw the appeal.”
Atwood said he had advised his clients to wait and see before complying with the rule because of the grace period and the November election.
“It’s always the difficult decision that an employer has to make when you have a regulation that’s being contested in court as to whether or not you’re going to comply with it while it’s being contested,” Atwood said following the court’s ruling. “It’s one of the reasons that I suggest with most employers that until the day it goes into effect, and you have to comply with it, that you should be careful about rolling out something that’s going to change your business model. In this case, it wouldn’t be illegal as much as a business decision as to whether or not an employer is going to roll back any kind of salary increase that they’ve given people, or any changes to the overtime status of certain employees.
“If you’ve increased the salary, it’s going to be very hard for you to roll it back and will not be taken well by employees.”
Asked if the Department of Labor plans to appeal, spokesperson Jacob Andrejat said in a written response that the Labor Department is “evaluating the decision in conjunction with the Department of Justice and will determine next steps in this litigation.”
“Under the Biden-Harris Administration, the Department of Labor has been steadfast in using the authority delegated by Congress responsibly on behalf of America’s workers,” Andrejat said in the statement. “The court’s decision to vacate this rule immediately reverses overtime protections for 1 million workers and stops a provision from going into effect in January that would have guaranteed another 3 million workers overtime when they worked it. As long as this decision stands, workers earning as little as $36,000 are no longer guaranteed overtime pay.”
