Overtime Salary Ruling Shows Effects of Loper Bright in Action

As President Donald Trump begins a second term, the salary level required to exempt an employee from overtime (sometimes called the “overtime rule”) has reverted back to the lower 2019 levels the Department of Labor instituted during Trump’s first term. Still, employers that would have been most affected by the Biden DOL’s now-halted overtime rule should be aware that the “duties tests” for exempt status still apply.

When a judge in the US District Court for the Eastern District of Texas blocked the DOL’s newly issued salary rules for exempt status under the Fair Labor Standards Act last November, it reversed a ruling that increased the minimum salary threshold required for an employee to qualify for overtime-exempt status. This would have increased the number of employees who were eligible for overtime compensation.

The Texas court’s action enjoined the DOL rule nationwide. This means the salary thresholds for exempt status under the FLSA return to the levels in effect as of June 30, 2024: $684 per week for exempt executive, administrative, and professional employees, or $107,432 per year for exempt highly compensated employees.

The Trump administration’s DOL likely won’t seek changes to the salary thresholds for exempt status—and if it does, the changes likely would be much more modest.

In highly competitive markets such as San Francisco or New York, the Biden rule and its demise have little effect because salaries tend to be set by market forces that drive wage rates much higher than the minimums required under federal law. And many states have local laws that set salary thresholds in their jurisdiction higher than that required under the rule. For example, in California, the state labor code sets the salary minimum for exempt status as a factor of the state’s minimum wage. For 2025, the salary minimum in California is $1,320 per week. It will rise in 2026 if the state minimum wage increases.

Employers struggling to meet the federal salary threshold for exempt status will welcome the return to the 2024 level because it will be a cost savings. This is because the cheaper it is to establish exempt status, the more employees will be eligible for exemption, which means fewer employees may be entitled to overtime after working 40 hours in a week.

Still, employers can’t overlook the applicable “duties tests” for exempt status. To qualify as exempt, an employer must prove that individual employees meet both the exempt salary threshold and one of the rigorous duties-based tests set forth in DOL regulations.

Employers must meet the executive employee test, the administrative employee test, or the professional employee test categories. Job titles aren’t determinative; the test is based on a case-by-case evaluation of each individual employee’s job duties.

Besides these three categories of exempt employees, the DOL recognizes another category for exempt status: the highly compensated employees. Because of the high salary requirement, the duties test for the HCE exemption is easier for employers to satisfy, so many employers rely on it to establish exempt status.

Under the now-enjoined rule, the HCE salary threshold was set to increase to $135,964 on July 1, 2024, and to $151,164 as of Jan.1, 2025. The rule’s increase to the HCE salary minimum resulted in significant increased labor costs after it went into effect.

By rendering the ruling ineffective, the court has restored an important status quo salary amount for any employer using it to save on overtime costs.

The Texas decision is significant for another reason: It’s yet another example of how courts are willing to strike down federal agency rules after the Supreme Court overturned the Chevron doctrine.

This new paradigm may benefit employers when they oppose a federal regulation, but it also creates uncertainty in interpreting the laws and rules employers must follow. It’s legally risky not to follow disfavored federal agency guidance hoping that a court will overturn it. And regulations that employers welcome will also be subject to this more searching level of judicial review.

Although the DOL appealed the Texas decision, the appeal is to the US Court of Appeals for the Fifth Circuit, which is unlikely to overturn the lower court’s decision. It’s highly unlikely the Trump administration will follow through on the appeal. At this time, it looks like the restored salary levels will remain in effect.

The case is State Plano Chamber of Com. v. United States DOL, E.D. Tex., 4:24-CV-468-SDJ, 11/15/24.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Lisa S. Charbonneau is partner at Liebert Cassidy Whitmore specializing in employment law and FLSA compliance.

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