By Robert G. Brody and Fintan S. Lalor
On November 15, 2024, the U.S. District Court for the Eastern District of Texas set aside the Department of Labor (DOL)’s final rule (2024 Rule) that mandated increases in the minimum salary thresholds to qualify for an exemption from federal overtime. In his 62-page decision, Judge Sean D. Johnson concluded the 2024 Rule exceeded the DOL’s statutory authority under the Fair Labor Standards Act (FLSA). As a result, the increase in the overtime threshold that was scheduled to begin on January 1, 2025, did not go into effect, and the July 1, 2024 increase was struck down on a nationwide basis. The DOL has appealed the ruling, however, it is unclear whether the incoming Trump Administration will abandon the appeal and allow the decision to stand.
Background
The FLSA generally requires employers to pay an employee an hourly rate of time-and-a-half (overtime) if that employee works more than 40 hours in a week. However, certain classes of employees are exempt from overtime if various requirements are met. These requirements involve the performance of certain duties and the payment of a minimum salary. The 2024 Rule primarily focused on the salary requirement for two classes of exempt employees: executive, administrative, or professional employees (EAP), and highly compensated employees (HCE).The 2024 Rule significantly increased the minimum salary threshold from the previous level, which was set by the DOL in 2019 (2019 Rule).
The 2024 Rule
In April of 2024, the DOL issued the 2024 Rule which increased the salary threshold for the EAP exemption from $35,568 per year to $43,888 per year, effective July 1, 2024. The 2024 Rule also increased the salary threshold required to qualify for the HCE exemption from $107,432 to $132,964 per year. Both levels were set to increase again on January 1, 2025. The July changes, discussed here, were put into effect for several months prior to the Texas court’s ruling, and impacted roughly 1 million employees. As a result of the increases, employers had to re-classify certain employees as nonexempt or increase their salaries. In the highly anticipated November decision, the Texas federal court vacated the 2024 Rule in its entirety.
Employer Takeaways, now that the 2024 Rule is Vacated
In the wake of the court’s decision, the salary thresholds that were in effect prior to July 1, 2024, are restored ($35,568 for EAP, and $107,432 for HCE). Employers that have already implemented the increase may legally revoke it, but such a decision may cause more angst for an employer than the savings is worth. If you want to make such a change, we urge you to seek advise from competent counsel. Moreover, some states (including NY and CA) have a minimum salary threshold above the federal minimum. Employers in such states will not be impacted by this decision as they are still bound by the higher state minimum. Finally, employers should monitor the status of the DOL’s appeal, as how the Trump Administration will decide to proceed has yet to be announced.
Brody and Associates regularly advises management on complying with the latest local, state, and federal wage and hour laws. If we can be of assistance in this area, please contact us at info@brodyandassociates.com or 203.454.0560.
