On November 15, 2024, the U.S. District Court for the Eastern District of Texas ruled that the U.S. Department of Labor’s (“DOL”) 2024 final rule on exempt salary thresholds is unlawful. The ruling has nationwide effect. Texas v. United States Dep’t of Lab., No. 4:24-CV-468-SDJ (E.D. Tex.).
At issue in the court’s ruling was the DOL’s final rule, passed on April 23, 2024, increasing the Fair Labor Standards Act (“FLSA”) weekly salary threshold for the overtime pay exemption for executive, administrative, and professional (EAP) employees in two phases. Under the rule, the weekly exempt salary minimum increased from $684 per week ($35,568 per year) to $844 per week ($43,888 per year) on July 1, 2024, and was set to increase to $1,128 per week ($58,656 per year) on January 1, 2025, with updates scheduled for every three years. To comply with the DOL rule, employers across the country who had EAP employees with salaries below the new threshold levels – particularly those in states without existing higher minimums under state law – were faced with either increasing the employee’s weekly salary to meet the new threshold amount to maintain exempt status or reclassifying the employee as non-exempt and following the FLSA’s time tracking, overtime pay and other requirements for non-exempt employees. However, the court’s November 15, 2024 ruling effectively sets aside both the July 2024 and January 2025 salary threshold increases nationwide. Accordingly, the minimum weekly salary threshold for the EAP exemptions now remains at $684 per week ($35,656 per year).
The U.S. District Court for the Eastern District of Texas is not new to evaluating DOL exempt salary rules. In 2017, this same court enjoined a similar DOL rule issued during President Obama’s administration, holding that the increased weekly salary threshold proposed at that time improperly marginalized the duties portion of the historical multi-part exemption test that considers both salary and an employee’s duties, functions and tasks to determine exempt status. In challenging the DOL’s 2024 rule, the State of Texas and a coalition of trade associations and employers made analogous arguments, alleging that the increased salary threshold “effectively displaces the duties-based inquiry required by the FLSA’s text with a predominant salary-level test.”
The federal Texas court’s ruling held the DOL exceeded its congressionally granted authority in creating the new proposed salary thresholds and automatic triennial update. The court analyzed the text of the FLSA, which exempts “any employee employed in a bona fide executive, administrative, or professional capacity.” The court found the ordinary meaning of the word “capacity” – along with the use of the executive, administrative and professional limitation – to compel a functional inquiry into an employee’s responsibilities – not just their salary. Citing an appellate ruling of the U.S. Court of Appeals for the Fifth Circuit issued earlier this year, Mayfield v. United States Dep’t of Lab., 117 F.4th 611 (5th Cir. 2024), the court acknowledged that the FLSA’s text allows the DOL to “define and delimit” the terms of the EAP exception. The court stated, however, that the DOL’s power is not unbounded and that it cannot “enact rules that replace or swallow the meaning those terms have.” The court found that the heightened salary requirements of the 2024 rule involved dramatic increases that would disrupt the balance of the multi-part salary and duties test, making “salary predominate over duties for millions of employees.” In its ruling, the court distinguished the DOL’s 2004 and 2019 salary threshold increases from the 2024 rule. The court emphasized a lack of change in the federal minimum wage since the 2019 minimum salary level increase and the expansive impact, particularly, of the January 2025 increase, “render[ing] nonexempt at least 2 of every 5 employees who meet the duties test.” Additionally, the court took issue with the automatic update of the salary threshold every three years, because the increase mechanism was “tied exclusively to a percentile of average salary levels for salaried employees, in a specific part of the country, regardless of duties,” and, as stated by the court, effectively does away with the DOL’s role in defining and delimiting the exemption, as it should under the FLSA.
It will be important to consult with legal counsel and watch for additional developments. The DOL may seek to appeal the district court’s ruling, or, alternatively, the newly elected presidential administration may choose to abandon the rule. Regardless of these potential developments, employers should be sure to comply with any state or local laws that may require certain exempt salary levels. In addition, employers who may have adjusted their pay or exempt employee classifications earlier this year to comply with the 2024 DOL rule’s July 1, 2024 salary threshold or to prepare for the January 1, 2025 increase should consult their legal counsel about their options if they wish to potentially revisit those actions.
If you have any questions about the vacation of the 2024 DOL rule, please contact the authors listed above or your regular Lathrop GPM attorney.