By Nick Golding and Mark McAnulty
On November 15, 2024, the Eastern District of Texas set aside a Department of Labor (DOL) rule that was set to expand minimum wage and overtime eligibility for employees under the Fair Labor Standards Act (FLSA). The Court’s decision invalidated the rule nationwide before additional changes were set to take effect on January 1, 2025.
What was the rule?
Announced this past April, the DOL’s rule provided for tiered increases to the minimum salary levels required to satisfy the tests for exemption under the executive, administrative, and professional (EAP) and highly compensated employee exemptions.
Beginning July 1, 2024, the minimum weekly salary level required to satisfy an EAP exemption increased from $684 per week (equivalent to $35,568 per year) to $844 per week (equivalent to $43,888 per year). The minimum salary level required to satisfy an EAP exemption was set to increase again to $1,128 per week (equivalent to $58,656 per year) on January 1, 2025.
Beginning July 1, 2024, the highly compensated employee total annual compensation threshold increased from $107,432 per year (including at least $684 per week paid on a salary or fee basis) to $132,964 per year (including at least $844 per week paid on a salary or fee basis). This amount was set to increase again on January 1, 2025, to $151,164 per year (including at least $1,128 per week paid on a salary or fee basis).
Finally, the DOL’s rule called for these salary levels to be automatically adjusted again on July 1, 2027, and every three years thereafter, based on earnings data.
The Court’s Decision
The Court held that both the July 1, 2024, and January 1, 2025 salary level increases and the implementation of automatic adjustments exceeded the DOL’s authority. Specifically, the Court found that the rule’s changes to the salary levels improperly made salary predominate over the EAP duties test. The Court also held that the rule’s automatic adjustments, which were estimated to result in approximately six million employees losing their exempt status within 10 years, far exceeded the DOL’s rulemaking authority and conflicted with the applicable text of the FLSA. In justifying its decision to strike down the rule nationwide, the Court found such relief to be appropriate given the rule’s “impact on millions of employees in every facet of the economy.”
Next steps
Employers no longer need to prepare for the January 1, 2025 salary level increase to go into effect. The July 1, 2024, increases are also invalidated, and employers may seek to roll back changes to the previous minimum salary levels of $684 per week (equivalent to $35,568 per year) for the EAP exemption and $107,432 per year (including at least $684 per week paid on a salary or fee basis) for the highly compensated employee exemption. Although the DOL has the right to appeal the Court’s decision to the Fifth Circuit, it is unlikely to do so given the results of this year’s elections.
For more information on this or any related topic, please contact Nick Golding, Mark McAnulty, or any of the KDDK Labor and Employment Law professionals.
