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Federal Judge Strikes Down Biden Administration’s Overtime Rule
By In a recent legal development, a federal judge in Texas invalidated a Biden administration rule that aimed to expand overtime pay eligibility for certain salaried employees. U.S. District Judge Sean Jordan ruled that the Department of Labor (DOL) exceeded its authority in proposing changes to the overtime pay thresholds under the Fair Labor Standards Act (FLSA). The decision has important implications for employers across industries.
What Was Proposed?
The Biden administration’s rule sought to raise the minimum salary threshold for overtime exemptions from $35,568 to $43,888 in 2024 and $58,656 in 2025. It also included an automatic indexing mechanism to adjust these thresholds every three years. The DOL estimated that these changes would make approximately four million additional salaried employees eligible for overtime, affecting executive, administrative, or professional positions under the FLSA.
The Court’s Reasoning
Judge Jordan determined that the DOL improperly prioritized salary thresholds over job duties in assessing eligibility for overtime exemptions. Historically, the FLSA uses a combination of salary thresholds and duties tests to determine whether employees qualify for exemptions. The ruling emphasized that shifting focus to salary alone could undermine the intent of the FLSA, which aims to classify employees based on the nature of their work rather than solely their compensation.
Implications for Employers
This decision preserves the current salary threshold for exempt employees at $35,568 annually ($684 per week) and for highly compensated employees at $107,432 annually. The ruling blocks the proposed increases and automatic adjustments, maintaining the status quo for overtime eligibility.
This ruling is particularly significant for employers in retail, hospitality, and small to midsize businesses, where payroll costs are a significant operational concern. Many employers had voiced concerns that the proposed increases could lead to higher labor costs, reduced employee hours, and restructuring of exempt roles.
Limited Impact in Certain States
It is worth noting that this decision has less impact in states like California, Colorado, and New York, which already mandate higher salary thresholds for exempt employees. Employers in these states remain subject to state-specific requirements that exceed federal levels.
What’s Next?
The DOL has yet to indicate whether it will appeal the decision. For now, employers can rely on existing FLSA standards when determining exempt classifications. However, ongoing advocacy for updated overtime regulations means future changes remain a possibility.
Key Takeaways for Employers
This ruling underscores the importance of understanding and complying with labor regulations. Employers should evaluate their classification practices to ensure that employees classified as exempt meet both the current salary thresholds and duties tests under the FLSA. Staying informed about federal and state laws is crucial, as is planning for changes that could affect labor costs and operational strategies.
If you have questions about how this ruling affects your business, I may be reached at scott.atwood@henlaw.com.