The Post-Chevron World: 2024 Overtime EAP Exemption Rule Vacated

At a Glance

• The Eastern District of Texas recently vacated the 2024 EAP Exemption to the Overtime Rule. That means that the 2019 salary threshold of $684/week for EAP employees and annual salary threshold of $107,432 for highly compensated employees are now in effect again. Employers no longer need to plan for the additional automatic salary threshold increase that was scheduled to be effective on January 1, 2025, and are no longer required to adhere to the previous increase that went into effect on July 1, 2024.
• The Eastern District of Texas cited to Loper Bright and its sister case, Corner Post, the two cases that overturned the principle of Chevron deference, increased the statute of limitations for facial challenges to regulations, and endorsed nationwide vacatur of overbroad rules as an appropriate remedy under the APA. Thus, the Texas decision effectively moots similar pending litigation in the D.C. District Court.
• Because any new rules from the federal Department of Labor would have to meet the Eastern District of Texas’ standards, the 2019 salary threshold is likely to stay in place for the foreseeable future. The decision is limited to the federal Department of Labor’s decision-making authority, and therefore does not impact any salary threshold for exempt employees under any state wage and hour laws.

After filing to vacate the Department of Labor’s (DOL) promulgation of a new overtime rule, the State of Texas and other plaintiffs recently won their case in the U.S. District Court of the Eastern District of Texas.

As we previously reported, the State of Texas and other Texas business associations, sued the DOL under the Administrative Procedure Act (APA), claiming that the DOL’s new overtime exemption rule (the 2024 Rule) improperly exceeded the DOL’s authority under the Fair Labor Standards Act (FLSA) by overemphasizing salary minimums for overtime exemptions, rather than focusing on job duties.

The Association of Christian Schools International (ACSI) also filed a similar lawsuit in the U.S. District Court for the Middle District of Tennessee, which was later transferred to the U.S. District Court for the District of Columbia. The Eastern District of Texas’ order vacates the 2024 Rule nationwide. The DOL in the ASCI case has filed a notice of supplemental authority, notifying the D.C. District of the decision. We expect the D.C. District to declare the ASCI case moot now that the rule has been vacated.

It is not yet clear whether the DOL will appeal either order under the incoming Trump administration.

Analysis of the Ruling

Loper Bright, the recent Supreme Court decision overturning Chevron deference, played a key role in the Eastern District of Texas’ decision. Specifically, the district court cited to Loper Bright’s discussion of agency power, stating that “when there is an ambiguity ‘about the scope of an agency’s own power . . . abdication in favor of the agency is least appropriate.’ Loper Bright, 144 S. Ct. at 2266.” The district court held that the DOL had exceeded its statutory authority in implementing the new overtime rule by focusing on salary rather than the traditional duties analysis. In doing so, it pointed to the Fifth Circuit’s reasoning in Mayfield v. DOL, 117 F.4th 611 (5th Cir. 2024) that “a characteristic that differs so broadly in scope [from the text and structure of the statute or] from the original [rule] . . . would raise serious questions” as to the rule’s validity — even though that case ultimately upheld an earlier 2019 version of the EAP Exemption Rule. Essentially, the Eastern District of Texas found that, under the 2024 Rule, the salary test effectively displaced the duties test outlined in the FLSA, ruling that under the authorizing statute, “what matters is the functions or duties of the employee.”

More broadly, the ruling signals that even broad grants of statutory authority, as here, are vulnerable to challenge under Loper Bright, because courts may read statutes to be more narrow than they appear. For example, the FLSA broadly allows the DOL to “define and delimit” the term “bona fide executive, administrative, or professional capacity,” but does not expressly list salary or compensation as one of the standards for those EAP professionals.¹ And that narrow reading is what underpins the district court’s order. Indeed, this decision is part of a growing list of district court cases in which Republican-appointed judges apply a de facto “anti-deference” analysis of Loper Bright, rather than reverting to Skidmore deference as some scholars hypothesized.

Eastern District of Texas also highlighted that the 2025 salary increase would be far greater than previous salary increases. The court did not hold that salary tests are per se invalid, only that the salary threshold cannot be so high that it essentially renders the duties test obsolete. Of course, the order does not make clear when the salary threshold is too high; future caselaw will have to clarify that point.

Finally, the court found that the automatic salary threshold increases were likewise beyond DOL’s statutory grant of authority and evaded the APA’s notice-and-comment periods. Instead, any increases must be part of a formal rule that meets the APA’s requirements.

The district court also cited to Justice Kavanaugh’s concurrence in Loper Bright’s sister case, Corner Post, Inc. v. Bd. of Governors of Fed. Rsrv. Sys., 144 S. Ct. 2440 (2024), and declined to remand to the DOL, rather than vacating the rule, because the DOL had not argued that this was the type of exceptional case that is appropriate for remand.

What This Means for Employers

The vacatur of the 2024 Rule means that the July 2024 increase is reversed, the lower salary threshold from the 2019 rule is reinstated, and no automatic salary threshold increases (scheduled to begin January 1, 2025) will occur.

Practically, that means, as of and after Friday, November 15, 2024, employers are no longer required to pay overtime to EAP employees who are paid a salary of at least $684 per week (and who meet the appropriate duties test). Further, employers no longer need to plan for the additional salary threshold increase that would have been effective on January 1, 2025. As explained further in this companion alert, the Eastern District of Texas’ decision is limited to the DOL’s decision-making authority, and therefore does not impact any salary threshold for exempt employees under any state wage and hour laws, including some increases scheduled to take effect January 1, 2025.

Any further changes to the EAP Exemption Rule must be formally promulgated through the APA’s notice-and-comment period and other requirements. We do not know at this point whether the incoming Trump administration will attempt to raise the salary threshold, but it appears to be unlikely given the campaign’s promises to further deregulate various industries.