AUSTIN, Texas — In a significant ruling issued late Friday, the State of Texas has been temporarily exempted from adhering to a new federal overtime regulation that raises the salary threshold for so-called “white-collar” exemptions. The district court’s decision solely affects state employees, leaving private employers in Texas and nationwide required to comply with the scheduled changes.
The legal challenge mounted by Texas against the Department of Labor (DOL) centers on the argument that the DOL overstepped its authority with the substantial increase in salary thresholds and the mandate for automatic adjustments every three years. The court, presided over by Judge Sean Jordan of the U.S. District Court for the Eastern District of Texas, sided with the state, suggesting that its case against the DOL’s changes is likely to succeed as the lawsuit progresses.
This ruling arrives amidst a host that follows a historical pattern, notably mirroring a previous challenge to a similar DOL rule under the Obama administration in 2016. That earlier case, also heard in a Texan court, concluded with a blocking of the rule just days before its implementation — an action that permanently halted the planned changes following a 2017 order.
The core of the dispute lies in the balance between an employee’s salary and their job duties. The court contended that by significantly lifting the salary threshold from $684 weekly ($35,568 annually) to $844 weekly ($43,888 annually) effective July 1, and further to $1,128 weekly ($58,656 annually) by January 2025, the rule unduly prioritizes earnings over the specific responsibilities that traditionally define exempt status under the Fair Labor Standards Act (FLSA). This includes positions categorized under executive, administrative, and professional exemptions, which necessitate a combination of a salary basis, minimum weekly salary, and specific job duties.
In addition to these adjustments, the regulation sets forth scheduled updates to the salary thresholds every three years, starting July 1, 2027, and adjusts the threshold for the “highly compensated employee” (HCE) exemption, which will see an increase to $132,964 on July 1, and eventually to $151,164 on January 1, 2025.
The recent Supreme Court decision that overturned Chevron deference — a doctrine that compelled courts to defer to agency interpretations of statutes — was cited by Judge Jordan in his ruling. This landmark decision markedly shifts how courts can approach and potentially invalidate agency rules, thereby influencing the trajectory of regulatory governance and the enforcement of such standards.
For employers outside Texas, the ruling means compliance with the new thresholds is still mandatory unless further judicial decisions dictate otherwise. Employers must now prepare for the implementation of the new regulations, which could include reclassifying employees, adjusting budgets, and updating payroll systems to ensure full compliance.
Given the narrow scope of the current injunction, further litigation challenging the Overtime Rule on broader grounds is anticipated. Employers must remain vigilant, tracking legal developments closely as they unfold. This period of regulatory and legal uncertainty necessitates proactive measures from businesses to adapt to potential outcomes, which may involve reevaluating employment classifications, conducting pay equity audits, and staying informed about state-specific labor laws that could affect compliance strategies.
This case underscores the ongoing debate over federal authority in labor regulations and points to a potentially contentious legal landscape ahead, as businesses and state governments navigate the complexities of federal mandates and their practical implications on the ground.