On Friday, November 15, 2024, the U.S. District Court for the Eastern District of Texas, in Texas v. Department of Labor, vacated the U.S. Department of Labor’s (DOL’s) 2024 final regulation increasing the salary threshold for certain “white collar” overtime exemptions under the Fair Labor Standards Act (FLSA) on a nationwide basis. This means that the increase in the salary level for white-collar workers to be deemed exempt, scheduled to become effective on January 1, 2025, will not go into effect. The decision also voids the July 1, 2024 increase that caused many employers to adjust compensation for white-collar workers to maintain them as exempt from overtime. Further, the decision strikes down the provisions providing for increases in threshold salary levels every three years on a going-forward basis.
The DOL’s 2024 rule raised the minimum weekly salary to qualify for exempt status from $684 per week to $844 per week, the annual salary equivalent of $43,888 per year as of July 1, 2024. The rule provided for a further increase of the threshold amount to $1,128 per week, or $58,656 annual salary, effective January 1, 2025. The rule also included an "escalator clause," which would have adjusted the salary thresholds every three years based on up-to-date wage data. The rule made similar changes to the salary threshold to qualify as a "highly compensated employee" exempt from overtime, increasing it from $107,432 to $132,964 as of July 1, 2024, and then again to $151,164 per year as of January 1,
2025.
Judge Sean D. Jordan vacated the DOL rule by granting summary judgment in favor of the state of Texas and a coalition of trade associations and employers in two consolidated Administrative Procedure Act cases. In so ruling, Judge Jordan considered the ruling of a Texas court in 2016 that blocked a similar proposed revision of salary levels supported by the Obama Administration. "As was true of the 2016 rule," Judge Jordan wrote, "the minimum salary level imposed by the 2024 rule 'effectively eliminates' consideration of whether an employee performs 'bona fide executive, administrative, or professional capacity' duties in favor of what amounts to a salary-only test." Judge Jordan relied upon the
history of the FLSA to conclude that job duties – not salary – are what make a white-collar employee exempt from overtime as a matter of law. By emphasizing salary over day-to-day job responsibilities, the DOL, according to the judge, exceeded its Congressionally delegated authority to "define" and "delimit" overtime exemptions.
The July 2024 salary-level increase moved the threshold for the exemption from $684 in weekly earnings to $844. Judge Jordan found that it is "fair to presume that at least a third of... employees, and likely more than that, were rendered nonexempt by the July 2024 increase." "When a third of otherwise exempt employees who the Department acknowledges meet the duties test are nonetheless rendered nonexempt because of an atextual proxy characteristic – the increased salary level – something has gone seriously awry." Judge Jordan also noted that the scheduled January 2025 increase would have represented a 65% increase from the salary level in effect as of the effective date of the 2024 rule, the
effects of which he characterized as "staggering." In sum, the court concluded that the 2024 rule was "designed on [its] face to effectively displace the FLSA’s duties test with a predominate, if not exclusive, salary-level test," and the DOL was not empowered to make such "sweeping changes."
This ruling vacates the DOL’s rule in its entirety across the nation, including the increases that went into effect on July 1, 2024. As a result, the salary threshold for exempt status now reverts back to the DOL’s 2019 rule, which set the exemption level at $684 per week, or $35,568 annually. Similarly, the exemption for "highly compensated employees" returns to $107,432 per year. While the DOL could pursue an appeal of the decision to the Fifth Circuit Court of Appeals, this would seem unlikely given the incoming DOL under the second Trump administration.
Calfee’s Labor and Employment group lawyers are available to assist you as to FLSA compliance, including proper classification of employees as exempt from overtime.
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