State of Texas v. Dep’t of Labor and the effect of a national vacatur

November 25, 2024 | Insights

On November 15, 2024, a federal district court in Texas vacated a Department of Labor (“DOL”) rule that raised the minimum salary at which executive, administrative, and professional (“EAP”) and “highly compensated” employees are exempt from minimum wage and overtime pay under the Fair Labor Standards Act (“FLSA”) (the “2024 Rule”).

The 2024 Rule increased the minimum salary threshold for exempt employees as follows:

EAP employees: $684 per week to $844 per week ($43,888 annually) on July 1 and a second increase to $1,128 per week ($58,656 annually) on January 1, 2025.
Highly compensated employees: $107,432 to $132,964 annually on July 1 and a second increase to $151,164 per year on Jan. 1, 2025.

The 2024 Rule also includes an automatic index mechanism, set to update every three years to account for inflation beginning July 1, 2027.

The State of Texas and a coalition of business groups sued, arguing that the DOL exceeded its authority in issuing the 2024 Rule. The District Court agreed. In its order, the Court explained that the salary increases in the 2024 Rule are so steep that they effectively displace the FLSA’s duties test with a predominant salary test. The Court further explained that the 2024 Rule’s automatic indexing mechanism effectively abdicates the DOL’s role of defining and delimiting the exemptions by formal, periodic rulemaking.

Mindful of the Fifth Circuit’s recent decision in Mayfield v. United States Dep’t of Labor, which held that the DOL’s authority to “define” and “delimit” the terms of the EAP exemptions includes the authority to set a minimum salary for exemption, the District Court emphasized Mayfield’s limiting language—that such authority “is not unbounded.”

What’s Next?

The district court’s order vacated the 2024 Rule in its entirety, completely invalidating the 2024 Rule nationwide, including the portion on the Rule that went into effect on July 1. This means that the pre-July 1, 2024, minimum salary threshold, $684 per week ($35,568 annually), is the operative threshold.

The DOL has 60 days to appeal the District Court’s order (January 14, 2025 deadline). It is unclear whether the current Administration will appeal the decision before Inauguration Day (January 20, 2025). If so, then the Trump Administration must determine whether to withdraw or defend the appeal.

¹ Although the State of Texas and business organizations sued separately, the cases were consolidated. State of Texas v. U.S. Dep’t of Labor, No. 4:24-cv-499 (S.D. Tex. 2024), Plano Chamber of Commerce, et al. v. U.S. Dep’t of Labor, No. 4:24-cv-468 (S.D. Tex. 2024).

² The plaintiff in Mayfield challenged the DOL’s 2019 rule raising the minimum salary from $455 per week to $684 per week.

On appeal, the Fifth Circuit could affirm, reverse in part, or reverse the District Court’s order in its entirety, and each outcome could have different ramifications for employers. Notably, if the vacatur is dissolved, in whole or in part, employers could owe retroactive payments of the 2024 Rule’s increased minimum salary. Contact Balch & Bingham’s Labor & Employment attorneys to assess your potential exposure and develop a plan of action.