Exempt Salary Thresholds Struck Down
On November 15, 2024, a Texas federal judge struck down the U.S. Department of Labor (DOL)'s Final Rule that increased salary thresholds for exempting certain executive, administrative, and professional (EAP) employees from earning overtime pay. The Final Rule took effect on July 1, 2024, and was scheduled for another increase on January 1, 2025. The Final Rule also incorporated a calculation mechanism that would automatically determine salary thresholds for EAP-exempt employees every three years from the effective date. As of July 1, 2024, the standard salary threshold for EAP-exempt employees increased from $684 per week ($35,568 per year) to $844 per week ($43,888 per year). The January 1, 2025 increase was scheduled to boost the threshold to $1,128 per week ($58,656 per year). The Final Rule, along with its calculation mechanism, have been invalidated as a result of this ruling.
The State of Texas initiated suit against the DOL, acting U.S. Secretary of Labor, Julie A. Su, the DOL's Wage and Hour Department, and Jessica Looman, in her official capacity as Administrator of the Wage and Hour Division, alleging that the EAP exemption threshold increases exceeded the Department's "authority under the FLSA and is otherwise unlawful." Judge Sean D. Jordan of the United States District Court for the Eastern District of Texas entered judgment enjoining the DOL from enforcing the Final Rule. Judge Jordan explained that whether an employee falls within the EAP exemption turns on whether that employee's duties and functions fall into one of the three exempt categories: executive, administrative, or professional. This exemption does not turn merely on compensation. In granting the State of Texas' motion for preliminary injunction, Judge Jordan found that by setting the salary thresholds so high, the DOL essentially created a "salary only" test that contravenes the Department's authority under the Fair Labor Standards Act (FLSA). Due to the scope of the rule, this judgment applies nationwide, meaning that all employers with EAP-exempt employees are impacted. This ruling directly affects the roughly 4.8 million white-collar workers that are overtime-exempt.
What's Next?
This ruling means that the July 1, 2024 increase has been invalidated, and the upcoming January 1, 2025 increase will not go into effect. Therefore, the EAP salary exemption threshold reverts back to the 2019 status, setting the threshold at $684 per week ($35,568 per year). Employers who made salary adjustments due to the July 1, 2024 increase should consult with counsel before actively rescinding those changes moving forward. Employers should be aware that some states have salary thresholds exceeding those set by the FLSA, including Alaska, California, Colorado, Maine, New York, and Washington.
While the DOL may appeal the decision to the Fifth Circuit Court of Appeals, it is unlikely to do so with the change of a new administration and DOL leadership. Nevertheless, MIJB's Labor and Employment Department will continue to monitor the situation and provide updates as they develop.
If you have any questions or concerns regarding this ruling, please contact the MacDonald, Illig, Jones & Britton LLP Labor & Employment team.
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