Labor Department’s overtime exemption rule struck down by federal court

A Texas federal court last week struck down a U.S. Department of Labor rule that took effect in July, making millions of workers eligible for overtime pay.

The initial injunction issued in late June by the U.S. District Court for the Eastern District of Texas was limited in scope and applied only to the Texas state government as an employer in response to a suit lawsuit brought by the state attorney general. For other states and other businesses, including Florida, the new overtime rule took effect July 1, with a six-month grace period before employers are required to comply. conform.

Last week’s decision to roll back regulations that would have officially taken effect in January 2025 applies nationwide and took effect immediately.

Under the DOL rule, employees earning less than $844 per week ($43,888 per year) would be eligible for overtime pay, and by January 2025, most employees who earn less than $1,128 per week ($58,656 per year) would become eligible for overtime pay. . The salary threshold would then be updated every three years.

Scott Atwood, chair of the labor and employment law department at the Fort Myers law firm of Henderson, Franklin, Starnes & Holt, said the federal court struck down the rule based on a two-part analysis .

“The first part was whether the Department of Labor’s analysis with the final rule went beyond a fair reading of the text of the Fair Labor Standards Act,” Atwood said. “The second was whether they exceeded their authority as an agency to issue rules in both cases, and they ruled against the DOL.”

Atwood said the court’s ruling in late June regarding only the state of Texas as an employer laid the groundwork for last week’s reversal decision.

“He didn’t make it a nationwide injunction (in June),” Atwood said. “Instead, he applied it to Texas in a limited scope, but indicated he would rule on the merits of the case before the January rollout.”

Atwood said in July that it was likely the DOL rule would be struck down based on the U.S. Supreme Court’s June ruling that overturned a landmark 1984 ruling, Chevron v. Natural Resources Defense Council , saying it was possible the judge would “tweak the decision.” to incorporate that it is not required to rely on the DOL’s rule as correct.

As for the judge’s ruling issued last week, Atwood said the timing also had to do with the impending change of administration in Washington and that even if the Biden administration decided to appeal, he “doesn’t see a situation in which the Trump administration does not withdraw its appeal. »

“I think that rule is respected,” Atwood said. “This rule is dead. And one thing to note is that there was a different rule proposed by the (previous) Trump administration (in 2019) that was supposed to go into effect, and just before it took effect, the Biden administration l ‘withdrew and put an end to it. replacing it with this one.

Atwood said he advised his clients to wait and see before complying with the rule because of the grace period and the November election.

“It’s always a difficult decision that an employer has to make when a regulation is challenged in court, whether or not they’re going to comply with it while it’s being challenged,” Atwood said afterward. of the court’s decision. “That’s one of the reasons why I suggest to most employers that until the day this comes into effect, and you have to comply with it, you need to be careful before you roll out something that’s going to change your business model. In this case, it wouldn’t be illegal so much as a business decision whether or not an employer is going to reverse any type of pay raise it has given people, or any change in the overtime status of some employees. .

“If you have increased the salary, it will be very difficult to bring it down and this will not be well received by employees.”

When asked whether the Department of Labor planned to appeal, spokesman Jacob Andrejat said in a written response that the Department of Labor was “evaluating the decision in conjunction with the Department of Justice and will determine next steps of this dispute”.

“Under the Biden-Harris Administration, the Department of Labor has been committed to responsibly using the authority delegated by Congress on behalf of American workers,” Andrejat said in the statement. “The court’s decision to strike down this rule immediately voids overtime protections for 1 million workers and prevents a provision from taking effect in January that would have guaranteed 3 million additional workers overtime when they worked there. As long as this decision stands, workers earning as little as $36,000 are no longer guaranteed overtime pay.