A federal judge in Texas has struck down the U.S. Department of Labor’s (“DOL”) 2024 rule that aimed to increase the salary threshold for overtime exemptions under the Fair Labor Standards Act (“FLSA”). This ruling, issued on November 15, 2024, has significant implications for employers nationwide.
Background
The FLSA generally requires employers to pay overtime to employees who work more than 40 hours in a week. However, certain executive, administrative, and professional (“EAP”) workers are exempt from this requirement if they meet specific criteria, including a minimum salary threshold.
The Overturned Rule
The DOL’s 2024 rule had implemented the following changes:
- Increased the minimum weekly salary for EAP exemption from $684 to $844 ($43,888 annually) on July 1, 2024.
- Planned to further raise the threshold to $1,128 per week ($58,656 annually) on January 1, 2025.
- Raised the highly compensated employee (“HCE”) exemption threshold from $107,432 to $132,964 annually on July 1, 2024, with a planned increase to $151,164 on January 1, 2025.
- Established automatic adjustments to these thresholds every three years.
Court’s Ruling
The U.S. District Court for the Eastern District of Texas found that the DOL had exceeded its statutory authority under the FLSA. The court held that the salary thresholds were set too high, creating a de facto “salary only” test for the EAP exemption. It was found that the FLSA requires that exemption status be primarily based on an employee’s duties, not their salary. The court also held that the DOL lacked overall authority to implement automatic future increases.
Implications for Employers
As a result of this ruling, the July 1, 2024 threshold increase has been nullified and the planned January 1, 2025 increase will not take effect. The salary threshold for EAP exemption is reverting to $684 per week ($35,568 annually) as well as the HCE exemption returning to $107,432 annually.
Employers who had already implemented salary increases to comply with the July 1, 2024 threshold may need to reassess their compensation structures.
Next Steps
The DOL could appeal this decision to the Fifth Circuit Court of Appeals. However, the outcome of such an appeal may be influenced by the incoming administration. We believe that the final rule is only temporarily ineffective which likely won’t be resolved until the second or third quarter of 2025. Upon revision, we are expecting the threshold to be less than that overruled, but more than the current threshold in place.