Texas Court to Weigh Overtime Rule With Trump Rescission Looming

The state of Texas and businesses will try to convice a federal district court that the US Labor Department went beyond its authority with a rule expanding overtime protections, a case that could determine how much compliance whiplash employers face ahead of Donald Trump’s new administration.

While parts of the Biden DOL’s overtime rule went into effect earlier this year, the Lone Star state and industry groups are asserting during oral arguments Friday to get the largest phase of the rule blocked before it goes into place on Jan. 1.

Despite what the Eastern District of Texas decides, the fate of the rule has already been sealed by the election of Trump, who is expected to repeal the policy at least in part when taking office next year.

The rule would expand overtime pay eligibility to salaried workers earning less than $58,656 a year, making an estimated 4 million people eligible for time-and-a-half pay any time they work more than 40 hours a week.

Attorneys say a decision from the court will determine how quickly the rule is stopped, and whether employers will be dealing with a potential compliance headache before the transition between administrations.

If the rule isn’t blocked, “employers are gonna have a choice of what to do on January 1,” said James Paretti Jr., a management-side attorney at Littler Mendelson P.C. and former senior counsel at the Equal Employment Opportunity Commission,

If employers continue operating business as usual, they “would be doing that at their own risk,” Paretti warned. “Because for at least some period of time, if you have employees who fall below that threshold, you’d be potentially on the hook for overtime and time keeping violations.”

Legal Fight

There are three pending lawsuits challenging the legality of the Biden administration’s overtime rule in Texas and District of Columbia federal courts that could potentially kneecap the rule ahead of its next Jan. 1 effective date.

The businesses and Texas argued that the rule is arbitrary and capricious, and that the DOL went beyond its authority under the Fair Labor Standards Act and violated the Administrative Procedure Act when issuing the policy.

The FLSA includes an exemption from overtime pay requirements for certain “white-collar” workers if they meet three criteria: they are salaried, make more than a certain amount each year, and work in a “bona fide executive, administrative, or professional capacity.” The law includes language explicitly granting the Secretary of Labor the authority to “define and delimit” the exemption.

The new rule, released in April, would raise the salary piece of the test to $58,656 a year on Jan. 1. The rule went into effect partially in July, with the first phase of the rule boosting the salary threshold to $43,888, up from the $35,568 level enacted during Trump’s first term.

Opponents of the policy change have argued that the rule sets the salary threshold too high, displacing other parts of the overtime eligibility analysis, like a worker’s job duties.

US District Judge Sean Jordan, who will preside over the hearing Friday, was already convinced by Texas that the rule was likely an “unlawful exercise of power.” In June, he granted a preliminary injunction to freeze the implementation of the rule for the state of Texas as an employer while the litigation played out.

Since then, the US Court of Appeals for the Fifth Circuit has partially weighed in on the issue, ruling in a separate lawsuit that the DOL does have the authority to use salary as a factor when determining overtime pay eligibility. However, Judge Jennifer Walker Elrod cautioned in the appellate court’s Sept. 11 decision that the agency’s power was not “unbounded.”

Compliance Confusion

Absent action from the federal courts overseeing these lawsuits, labor observers predict that the overtime policy will be dismantled by the Trump administration in some form.

It’s unclear whether a Trump DOL would cancel the rule in its entirety or fully drop the litigation given that the rule’s first July increase relied on the same methodology as the overtime regulation issued during Trump’s last term, said Judy Conti, director of government affairs at the left-leaning National Employment Law Project.

When a similar Obama-era overtime rule was struck down in 2016, the Trump-led DOL continued the litigation for some time until it decided to issue a weaker version of the rule.

The Trump administration “did take up and continue the appeal eight years ago and ultimately re-regulated with a lower level to preserve the department’s authority to regulate in this space,” Conti said.

The case is State of Texas v. DOL, E.D. Tex., No. 24-00499, oral arguments held 11/8/24.