Joseph J. Brennan

Major League Baseball Hall of Fame Manager Earl Weaver managed his way to 1,480 wins.  When asked how, Mr. Weaver cut to the chase: “The key to winning baseball games is pitching, fundamentals, and three-run homers.”  While certainly tongue in cheek, the saying nonetheless rings true both in baseball and in litigation.  To prevail in court, litigants and their counsel must do the basics diligently and correctly, but big wins require big home runs.  On July 1, 2024, in its lawsuit challenging the Department of Labor’s new Salary Threshold Rule, the State of Texas hit a home run…but not a three-run home run.  And while the State of Texas rounds the bases, the game is far from decided.

Executive, Administrative, and Professional employees, pursuant to the Fair Labor Standards Act (FLSA), can be exempt from the general requirement that all employees be paid both a minimum wage and overtime for hours worked in excess of 40 in a week.  For an employee to be exempt from the FLSA minimum wage and overtime requirements, the following three tests must be met:

1. The Salary Basis Test: Employee is paid a predetermined and fixed amount that is not subject to a reduction (subject to limited exceptions).
2. The Salary Threshold Test:  The amount of salary paid to the employee must meet a minimum specified amount (which, until very recently, was $684 per week/$35,568 per year).
3. The Duties Test:  The employee must perform certain and specific executive, administrative, and/or professional duties.

On April 23, 2024, the United States Department of Labor (DOL) released its final rule modifying the above test.  While it left alone the standard tripartite analysis described above, it raised the Salary Threshold Test in a two phase approach:

1. Effective July 1, 2024, an employee must be paid a minimum of $844 per week ($43,888 per year), an approximate 23% increase in the current minimum threshold.
2. Effective July 1, 2025, an employee must be paid a minimum of $1,128 per week ($58,656 per year), an approximate 65% increase in the current minimum threshold.

With that, the stage was set and Texas came to the plate.  The State of Texas filed a lawsuit on June 3, 2024, challenging the legality of the Department of Labor’s new final rule -- State of Texas v. U.S. Dep’t of Labor, No. 4:24-cv-00499, E.D. Texas.  The state argued that by raising the Salary Threshold Test, the DOL exceeded its legal authority by classifying executive, administrative, and professional employees not by their job functions, which it argued was the directive Congress set forth in the Fair Labor Standard Act, but instead by their salary.  As part of its case, the State of Texas sought a preliminary injunction to effectively halt the enforcement of the DOL’s new rule nationwide.

On June 28, 2024, U.S. District Court Judge Sean Jordan granted the State of Texas’s preliminary injunction request, State of Texas v. U.S. Dep’t of Labor, No. 4:24-cv-499-SDJ (E.D. Tex. June 28, 2024), and issued a pointed decision concluding that the State of Texas was likely to prevail on the merits of the case.  Specifically, Judge Jordan wrote:

An examination of the ordinary meaning of the [executive, administrative, and professional employee] Exemption’s undefined terms shows that the Exemption turns on an employee’s functions and duties, requiring only that they fit one of the three listed, i.e., “executive,” “administrative,” or “professional capacity.” The exemption does not turn on compensation.

A Department-invented test, untethered to the text of the FLSA, that systematically deprives employees of the EAP Exemption when they otherwise meet the FLSA’s duties test, is necessarily unlawful.

That, folks, is what we call a home run – but not the three-run variety coveted by Mr. Weaver.  While lambasting the legal foundation for the Department of Labor’s new Salary Threshold Test, Judge Jordan limited the scope of the injunction.  Indeed, the State of Texas, in support of its demand for a preliminary injunction, pointed to how the imposition of the rule would cause irreparable harm to Texas employees, such as driving up labor costs to the point where certain governmental services must be suspended or terminated.  While it proved an effective argument, it narrowed necessary scope of the injunction to avoid this anticipated harm.  As a result, the injunction only bars the Department of Labor from enforcing the Salary Threshold Test as to Texas governmental employees.  The court did not grant the requested nationwide injunctive relief.

The foregoing limited scope injunction notwithstanding, other players are coming up to the plate.  The latest batter – the employer and plaintiff in Flint Avenue LLC v. U.S. Dep’t of Labor, No. 5:24-cv-00130-C (N.D. Tex. July 1, 2024) – similarly received an order from a District Court in Texas.  But, unlike the State of Texas, it faired far worse.  Judge Sam Cummings of the US District Court for the Northern District of Texas disagreed with Flint Avenue LLC’s argument that a preliminary injunction was necessary to prevent the rule from driving up its payroll costs, finding that the measure’s initial July 1 increase to overtime salary thresholds wouldn’t affect any of its employees, and the court denied the request for a nationwide preliminary injunction.  The result – a strikeout.

Unfortunately, given the limited scope of the injunction granted in State of Texas v. U.S. Dep’t of Labor and the lack of any preliminary injunction in Flint Avenue LLC v. U.S. Dep’t of Labor, the first phase increase to the Salary Threshold Test has gone into effect in all 50 states (with the exception of those employees employed by the State of Texas).  This means all private employers must play ball with the new minimum Salary Threshold Test of $844 per week by raising the salaries of exempt employee who are paid below this threshold amount, reclassifying those employees as nonexempt, or carefully monitoring employee hours to avoid overtime.  Failing to do so means risking liability arising from a lawsuit or Department of Labor audit.

The first trip though the batting order proved successful, albeit in a limited capacity.  The game will continue and it is anyone’s guess how these courts may rule when deciding the case on its full merits.  As Hall of Famer and Yankees Catcher Yogi Berra famously said: “It ain’t over ‘til it’s over.”

UB Greensfelder's Employment & Labor Practice Group is closely monitoring these developments and is prepared to support you and your organization with your business needs. Please reach out to our employment and labor attorneys if you have any questions.

UB Greensfelder Summer Associate Ian Robertson also contributed to this article.