Last week, the U.S. District Court for the Eastern District of Texas, a federal court, invalidated the U.S. Department of Labor's 2024 overtime final rule. This decision has wide-reaching implications for both employers and employees across the country because it alters the criteria for determining overtime eligibility under the Fair Labor Standards Act (FLSA).

Among other things, the rule included a two-tiered increase to the minimum salary threshold and threshold for highly compensated employees (HCEs), the first of which went into effect on July 1 with another update scheduled to take effect on Jan. 1, 2025.

As a result of the court's decision, the minimum salary threshold for exempt employees is now set back to the previous level of $35,568. For HCEs, the threshold has reverted to $107,432. These figures represent the salary requirements for employees to qualify for exemption from overtime pay under the FLSA's "white-collar" exemptions.

For employers, this ruling provides some relief from the impending increases in salary thresholds that would have required a reevaluation of employee classifications and possible salary adjustments. However, businesses will still need to be cautious in determining whether their employees meet the required duties tests for exemption. The ruling doesn't change the underlying duties test, which remains the primary criteria for overtime exemption.

In his decision, U.S. District Judge Sean D. Jordan acknowledged that, while the DOL has the authority to define and delimit the terms of the overtime exemption, this authority isn't unlimited. Specifically, the court found that the DOL's approach under the 2024 rule “effectively eliminates" the evaluation of an employee's job duties in favor of a salary-only test.

Judge Jordan's ruling criticized the DOL for using a fixed salary threshold as a determinant for exemption eligibility, stating that it disregarded whether employees were actually performing executive, administrative or professional duties—key components of the exemption under the FLSA. This "salary-only test," the judge noted, effectively undermines the law's intent to focus on the nature of an employee's work.

The ruling also addressed another contentious aspect of the 2024 rule: automatic updates to the minimum salary threshold every three years. According to the court, this mechanism violates the notice-and-comment rulemaking requirements set forth by the Administrative Procedure Act (APA). This procedural oversight renders the automatic updates invalid, adding another layer of complexity to the DOL's approach.

While the current DOL could appeal the ruling to the 5th Circuit, it is widely anticipated that it will not defend the 2024 rule under the incoming Trump administration.

In the coming years, employers may see new rulemaking from the DOL that could propose updated salary thresholds or alternative methods for determining overtime eligibility. However, any such changes would likely involve a lengthier rulemaking process, which would include public input and a more thorough examination of the policy's impact on businesses and workers alike.

Nathan Riedel is Big “I" senior vice president of federal affairs.