History Repeats Itself: Texas Court Enjoins DOL Salary Basis Hikes for a Second Time

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On Friday November 15, a federal judge in Texas issued a nationwide injunction barring the U.S. Department of Labor (DOL) from enforcing new regulations raising the salary level required for the so-called white-collar exemptions to the federal Fair Labor Standards Act (FLSA).

The regulations would have raised the minimum salary level for overtime exemptions of executive, administrative, and professional employees to $1,128 per week ($58,656 per year) as of January 1, 2025. With elimination of the new regulations, the salary levels will revert to where they stood before July 1, when the first increase under the new rules kicked in. Accordingly, the salary level will fall back to $684 per week ($35,568 per year).

The new rules contained an indexing mechanism that would have automatically increased the salary level every three years. The indexing would have occurred without any further rulemaking by the DOL or comments from stakeholders. The court ruled that the automatic indexing provision violated the requirements of the Administrative Procedure Act (APA), the law that governs agency rulemaking.

If all of this gives you a distinct feeling of déjà vu, it’s no wonder. If you were in business in 2016, you probably were spending a substantial part of your time gearing up to comply with dramatic changes to the salary level rules. New DOL regulations were set to become effective on December 1, 2016, during the waning days of the Obama administration, and would have raised the minimum salary level for overtime-exempt employees substantially. The rules were expected to disqualify millions of workers from exempt status.

But on the eve of the new rules’ effective date, just a few days after Donald Trump won the presidency, a federal judge in Texas barred their enforcement, holding that the DOL had “ignored Congress’s intent by raising the minimum salary level such that it supplants the [FLSA’s job] duties test.” The Texas federal court ultimately issued a permanent nationwide injunction, which turned out to be the end of the line for the 2016 rules.

The parallels between our current posture and where we stood in 2016 are striking. In last Friday’s 62-page decision, Judge Sean D. Jordan of the U.S. District Court for the Eastern District of Texas — the same court (but not the same judge) that struck down the 2016 regulations — held that the DOL’s regulations were an unlawful exercise of agency power.

Jordan held that the DOL lacks the power to enact rules that “replace or swallow” the meaning of the statutory terms “executive, administrative, and professional.” He held that the bottom-line result of the DOL’s rules was to effectively displace the job duties tests applicable to the white-collar exemptions with a predominant salary level test. “In short, the plain meaning of these terms makes clear that what matters is the functions or duties of the employee,” Jordan wrote. “Put simply … ‘Congress elected to exempt employees based on the capacity in which they are employed. It’s their duties and not their dollars that really matter.’”

The court also held that the new rules’ automatic indexing mechanism violates the procedural requirements of the APA and improperly abdicates the department’s obligation to engage in active rulemaking. Rejecting the DOL’s “puzzling” premise that its use of automatic indexing would allow the agency to keep pace with changing employee earnings in a timely and efficient way, the court wrote: “As it turns out, the APA’s notice-and-comment provisions must be followed even when an agency finds them inconvenient.”

What happens now?

The DOL probably will appeal the ruling, but it is unlikely that any appeal could be heard before the new Trump administration takes the reins in January. It is equally unlikely that a Trump DOL will have the appetite for a fight to preserve these Biden-era regulations. The most likely outcome is that this ruling will send the DOL back to the drawing board in its effort to update the white-collar exemption rules.

The DOL has now tried twice to take the easiest route by just updating the salary level test and ignoring the time-worn duties tests. Next time, we may end up with a more comprehensive revamp, but one authored by a more employer-friendly administration.

For now, employers that implemented the first-level increase under the new rules on July 1, which increased the salary level to $844 per week ($43,888 per year), will now be faced with deciding whether to keep any raises they granted because of the new rules or claw them back — an option that comes with its own problems, including possible morale and state law compliance issues.

If you have any questions about this ruling, the FLSA, or other wage and hour obligations, please contact the author or another member of Steptoe & Johnson’s Labor & Employment Compliance Team.