On November 15, 2024, a Texas federal district court blocked the U.S. Department of Labor’s (DOL’s) 2024 final rule increasing the salary threshold for “white-collar” overtime exemptions under the Fair Labor Standards Act (FLSA). The ruling is a substantial blow to the outgoing Biden administration’s long-standing attempts to raise the salary threshold for workers across the United States.
As a brief refresher, the FLSA established the executive, administrative, or professional (EAP) exemption, which states that the FLSA exempts “any employee employed in a bona fide executive, administrative, or professional capacity” from minimum wage and overtime compensation. These are often referred to as "white-collar" exemptions because they tend to apply to individuals working in office-type environments. To determine whether an employee fits into one of the EAP exemptions, the DOL looks at the duties and the salary level of an employee. The DOL has justified the use of a salary-level test on the grounds that it is effective as a screen for an employee’s actual duties.
Earlier this year, the DOL issued a final rule significantly raising the salary threshold in two phases. The first phase of the rule, which took effect on July 1, 2024, increased the minimum salary level from $684/week ($35,568 annualized) to $844/week ($43,888 annualized). The second phase of the rule would have taken effect on January 1, 2025, and raised the minimum salary level again to $1,128/week ($58,656 annualized). The rule also raised the annual compensation for a highly compensated employee to $132,964 on July 1, 2024, and would have raised it again to $151,164 on January 1, 2025.
The Texas federal district court struck down the 2024 final rule, finding both the July 1, 2024, and January 1, 2025, increases to the salary threshold unlawful. In its decision, the Court stated that “while the [DOL] may enact rules that ‘clarify the meaning’ of the EAP Exemption’s terms or that ‘impose some limitations on their scope, it cannot enact rules that ‘replace or swallow the meaning those terms have.’” The Court ultimately determined that the DOL exceeded its authority by increasing the salary threshold too high, effectively replacing the duties-based inquiry with a predominant salary-level test.
As a result of the Court’s decision, the previous federal salary thresholds, prior to the 2024 final rule, will now go back into effect. That is, the federal salary threshold will revert to $684/week ($35,568 annualized), and the highly compensated employee threshold will return to $107,432. While the DOL could appeal the decision to the highly conservative Fifth Circuit United States Court of Appeals, it is unlikely that the incoming Trump administration will continue the fight.
Many businesses across the country have already enacted game plans and taken action to adjust employee salaries in anticipation of the new salary level coming into effect. To discuss strategy in light of the Court’s decision striking down the DOL 2024 final rule and how it might impact your organization, we urge our members to reach out to Employers Council to discuss next steps.
Finally, it is important to note that many states, such as Colorado, have their own salary thresholds greater than the FLSA threshold. For instance, on January 1, 2025, Colorado EAP exemptions are set to increase from $1,057.69/week ($55,000/annualized) to $1,086.25/week ($56,485 annualized). State-specific salary thresholds are not impacted by the decision blocking the DOL’s 2024 final rule.
Employers Council members can access sample letters to inform employees of a change in status from non-exempt to exempt or from exempt to non-exempt. As always, we will continue to keep our members informed on the latest developments in labor and employment laws. Contact us at info@employerscouncil.org with questions.
Drew Hintze is an attorney for Employers Council.