Legal Showdown Continues: FTC Appeals Court Ruling Against Non-Compete Ban
October 24, 2024
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A federal judge in Texas struck down the U.S. Department of Labor's ("DOL") rule that drastically increased the minimum salary thresholds for bona fide executive, administrative, and professional employees (the "EAP Exemption").
Judge Sean Jordan of the U.S. District Court for the Eastern District of Texas halted the rule that was projected to expand overtime pay to millions of workers across the country.
Earlier this year, the DOL announced a final rule (the "2024 Rule") that would increase the EAP Exemption's salary threshold in two waves (Raising the Rate: DOL Expands Overtime Protections to Millions of Workers - Ward and Smith, P.A.). The first wave, which went into effect on July 1, 2024, increased the minimum salary threshold from $684 per week ($35,568 annualized) to $844 per week ($43,888 annualized). A second wave, which was anticipated to take effect on January 1, 2025, would have increased the salary threshold to $1,128 per week ($58,656 annualized). The 2024 Rule also implemented a mechanism to automatically increase the salary level triennially based on contemporary earnings data.
Judge Jordan's ruling vacates the entire 2024 Rule—including the increase that took effect on July 1, 2024. The State of Texas and a coalition of trade associations and employers contended that the 2024 Rule's minimum salary threshold increase exceeded the DOL's authority under the Fair Labor Standards Act ("FLSA"). Their reasoning was that the 2024 Rule displaced the duties-based inquiry required by the FLSA. Judge Jordan agreed with this argument. According to Judge Jordan, the EAP Exemption turns on duties—not salary—and the 2024 Rule makes salary predominate over duties. Because of this, the 2024 Rule exceeds the DOL's authority to define and delimit the EAP Exemption's relevant terms. Judge Jordan explained that while the DOL can impose some limitations on the EAP Exemption's operative terms, "it cannot enact rules that replace or swallow the meaning those terms have." He concluded that the DOL "simply does not have the authority to effectively displace the duties test with such a predominant salary-level test."
Now, the previous threshold of $35,568 ($684 per week) is back into effect. The DOL can still appeal Judge Jordan's ruling and have the 2024 Rule reinstated. However, this is unlikely given that President-elect Donald Trump prepares to return to office. While it is doubtful that the 2024 Rule will be resurrected, it is not out of the realm of possibility that Trump's administration would support an increase above $684 per week.
Whether employers have altered compensation plans, forecasted an increase in employee compensation, or are considering rolling back compensation changes, we encourage you to reach out to our Labor and Employment attorneys. Our experienced team is here to help you navigate these complex issues.
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