SHERMAN, Texas – This summer, the U.S. Department of Labor (DOL) adopted a new rule increasing the salary thresholds for overtime pay exemption, and the rule may have had a negative impact on churches and ministries. But a federal judge, last week, struck down the new overtime rule nationwide.
On Nov. 15, the U.S. District Court for the Eastern District of Texas vacated and set aside the DOL’s final regulation increasing the salary threshold for the “white collar” overtime exemption under the Fair Labor Standards Act (FLSA) on a nationwide basis.
The new regulation became effective July 1, and required employers to pay overtime rates to salaried workers who make less than $43,888 a year in certain executive, administrative and professional (EAP) roles. On Jan. 1, 2025, that threshold amount was set to rise to $58,656. But the court held that the new regulation exceeded the DOL’s statutory authority under the FLSA. Further, the court held that given the nationwide impact of the rule on hundreds of thousands of employers and millions of employees, striking down the rule on a nationwide basis was warranted.
The FLSA is the federal law regulating minimum wages and overtime hours. FLSA generally requires an employer to pay an employee time-and-a-half (“overtime”) if the employee works more than 40 hours in a week. But the law exempts some employees from that requirement, notably, certain EAP workers under the white-collar exemption. To qualify for the white-collar exemption, an employee must satisfy a three-prong test: 1) be paid on a salary basis, i.e., not paid by the hour (the “salary basis” test); 2) primarily be performing exempt EAP duties (the “duties test”); and 3) be paid a minimum salary (the “salary threshold test”).
In a 62-page decision, writing about both the July 2024 and Jan. 2025 increases, the Texas federal court held that by setting the salary threshold as high as it did, the DOL created a de facto “salary only” test for the EAP exemption. This, the court held, was in excess of the Department’s authority under the statute.
As previously reported in The Pathway, pastors and ministerial employees are generally treated as exempt from coverage under the overtime rules. As to non-pastoral employees, churches or other non-profits may wish to consult legal or accounting professionals to discuss their particular facts in relation to this latest court decision. The case is STATE OF TEXAS and PLANO CHAMBER OF COMMERCE, ET AL. v. UNITED STATES DEPARTMENT OF LABOR, ET AL., CIVIL NO. 4:24-CV-499-SDJ LEAD CASE, and CIVIL NO. 4:24-CV-468-SDJ.
The DOL may seek to appeal the lower court’s decision to the Fifth Circuit Court of Appeals. However, given the upcoming change in presidential administration, some observers expect that under new leadership the DOL would likely abandon any appeal and allow the lower court’s decision to become the final judgment. It is uncertain whether President Trump’s DOL will pursue some increase in the salary floor, or will leave the 2019 threshold in place.
EDITOR’S NOTE: Mike Whitehead is an attorney in private practice in Lee’s Summit, MO, and serves as general counsel for the Missouri Baptist Convention. This article is not legal advice, but is provided for education and information only.