Overtime Rule Blocked by the Eastern District Court : What employers need to know

A federal court ruling on November 15, 2024, blocked the U.S. Department of Labor’s planned increases to the salary threshold for white-collar overtime exemptions. The salary threshold, which had been set to rise to $58,656 annually on January 1, 2025, will not take effect. The July 1, 2024, increase of the salary threshold from $35,568 to $43,880 per year was also halted.

As a result of the court’s decision, the salary threshold for white-collar exemptions remains at the 2019 level of $35,568 annually ($684 per week).

Nationwide Impact of the Ruling

The decision from the U.S. District Court for the Eastern District of Texas applies nationwide. The court found that the proposed increases in the salary threshold were too steep and may have undermined the duties test used to determine whether employees qualify for the white-collar exemptions. The court also ruled that the planned automatic increases every three years violated procedural requirements of the Administrative Procedure Act.

As a result, employers are not required to implement the higher salary thresholds that had been planned for 2024 and 2025.

What Should Employers Do Next?

Employers who had already raised some employees’ salaries to meet the 2024 thresholds may decide to maintain these salary levels, as lowering salaries could affect employee relations.

For employees who had been reclassified from exempt to nonexempt due to the expected increase, employers may consider reversing those changes, provided the employees still meet the duties test for exemption. It is important for employers to regularly assess employee job functions, particularly as automation changes the scope of some roles.

Employers should also be aware that in some states, prior notice is required before reclassifying an employee from nonexempt to exempt status.

Focus on the Duties Test

The court’s decision reinforces the importance of the duties test in determining white-collar exemptions. The salary threshold is just one factor; employees must also meet the requirements of the duties test, which evaluates the nature of their work, not just their salary level.

Here’s an overview of the duties tests for white-collar exemptions:

• Executive exemption, employees must have a primary duty of managing the enterprise or a department or subdivision of the enterprise; must customarily and regularly direct the work of at least two employees; and must have the authority to hire or fire, or their suggestions and recommendations as to the hiring, firing, or changing the status of other employees must be given particular weight.

• Administrative exemption, employees must have a primary duty of performing office or nonmanual work directly related to the management or general business operations of the employer or the employer’s customers, and their primary duty must include the exercise of discretion and independent judgment with respect to matters of significance.

• Professional exemption, employees must have a primary duty of work requiring knowledge of an advanced type in a field of science or learning customarily acquired by prolonged, specialized, intellectual instruction and study, or must specialize in a few other similarly, highly specialized fields, such as teaching, computer analytics, and engineering.

In California, an exempt employee must spend more than 50% of their time on exempt duties to qualify for exemption.

Looking Ahead

Employers should stay informed about further developments, as the Trump administration might formally repeal the Biden administration’s overtime rule or revisit parts of it. In the meantime, businesses should review their employee classifications to ensure compliance with the current regulations, particularly with regard to job duties and salary levels.

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