U.S. District Court Strikes Down Department of Labor’s Final Rule Increasing the Salary Thresholds for Salaried Exempt Executive, Administrative and Professional Employees
On November 15, 2024, a federal judge in the U.S. District Court for the Eastern District of Texas struck down the Department of Labor’s (the “DOL”) April 23, 2024 Final Rule. The Rule would have increased the salary thresholds required to exempt salaried executive, administrative or professional (“EAP”) employees from federal overtime pay requirements under the Fair Labor Standards Act (the “FLSA”).
The Court found that the DOL had exceeded its statutory authority in issuing the Final Rule by increasing the salary threshold in a manner that effectively eliminated any other aspect of the EAP exemption test. Because the FLSA itself only explicitly distinguishes exempt vs. non-exempt status based on an employee’s duties, the Court held that the de facto “salary only” test was not permissible under the statute. While the Court had previously enjoined enforcement of the Final Rule in Texas, this decision vacates all three phases of the Rule nationwide.
As we previously noted in our April 26 and July 3, 2024 Client Alerts, the annual salary threshold was increased under the Rule from $35,568 to $43,888 effective July 1, 2024. The Texas Court concluded that the DOL had exceeded its statutory authority when it enacted that increase and has returned the minimum salary threshold to its pre-Final Rule amount of $35,568 annually, or $684 weekly. Because the threshold only sets a minimum, employers will not be required to reclassify employees or adjust wages, but they now have the option to re-evaluate their workforce and consider re-classifying salaried exempt employees within the reinstated threshold.
In the planned second phase of the Final Rule (which had been set to take effect on January 1, 2025), the minimum salary threshold required to meet the overtime exemption would have increased to $58,656 per year. The final anticipated phase in the DOL’s strategy to increase protections for workers would have seen an automatic increase in the annual salary threshold every three years beginning July 1, 2027. Both of those phases have also been invalidated by the Court on the grounds that the DOL exceeded its authority.
It remains to be seen whether this decision will be challenged prior to the close of the Biden Administration. If challenged on appeal, however, it is likely the incoming Trump administration will withdraw any appeal. We will continue to monitor any developments in this area and provide updates as necessary.
Please contact any member of our Labor, Employment and Employee Benefits Group if you have any questions about the Final Rule’s revocation or employee classification under the FLSA.
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