As we explained in a previous update, which you can access here, on April 23, 2024, the Department of Labor (DOL) announced its final rule governing the minimum salary required for employees to qualify for certain exemptions from the overtime pay obligations under the Fair Labor Standards Act (FLSA) (the “2024 Rule”). The 2024 Rule went into effect on July 1, 2024, and significantly increased the salary threshold for certain employees to be classified as exempt.
On November 15, 2024, in State of Texas v. United States Department of Labor, Judge Sean D. Jordan of the United States District Court for the Eastern District of Texas granted summary judgment for the State of Texas and struck down the 2024 Rule on a nationwide basis.
The 2024 Rule:
- raised the minimum salary level for the executive, administrative, and professional exemptions from $684 per week to $844 per week and raised the total annual compensation for the highly compensated employee exemption from $107,432 per year to $132,964 per year, effective July 1 2024;
- would have raised the salary level for the executive, administrative, and professional exemptions from $844 per week to $1,128 per week, and raised the total annual compensation the highly compensated employee exemption from $132,964 to $151,164 per year, effective January 1, 2025; and
- would have implemented a mechanism to automatically increase the salary level and total annual compensation triennially for executive, administrative, professional and highly compensated employees, starting on July 1, 2027.
Whether employees qualify for these exemptions depends not only on whether their salaries meet the minimum requirements, but also on whether their job duties meet certain requirements. The 2024 Rule affected only the minimum salary and total annual compensation requirements for these exemptions; it did not make any changes to the duties requirements.
Judge Jordan found that the DOL exceeded its rulemaking authority because, among other things, the July 1, 2024 and January 1, 2025 salary and total annual compensation level increases for the executive, administrative, professional, and highly compensated employee exemptions “effectively displace the FLSA’s duties test with a predominate—if not exclusive—salary-level test” and “effectively eliminate[] consideration of whether an employee performs bona fide executive, administrative, or professional capacity duties in favor of what amounts to a salary-only test.” State of Texas v. United States Department of Labor, 4:24-CV-499-SDJ, at 24 n.19, 38–39 (E.D. Tex. November 15, 2024) (quotation marks omitted).
The Court nullified and revoked the 2024 Rule on a nationwide basis, meaning that the July 1, 2024 minimum salary and total annual compensation level increase is no longer in effect and the January 1, 2025 increase will not go into effect as scheduled.
The DOL could appeal Judge Jordan’s decision to the Fifth Circuit Court of Appeals. However, based on the change in presidential administrations, whether the DOL will appeal the decision is uncertain. For now, employers should bear in mind that the minimum salary and total annual compensation levels revert to the 2019 rule, under which the minimum salary level for the executive, administrative, and professional exemption is $684 per week and the minimum total annual compensation for the highly compensated employee exemption is $107,432 per year.
Employers should consult with employment counsel for guidance to analyze whether this decision may impact operations and determine whether current employee classifications comply with applicable laws.
