On November 15, 2024, the U.S. District Court for the Eastern District of Texas (the “Court”) vacated the Department of Labor’s (“DOL”) April 2024 Final Rule (“2024 Final Rule”) that raised the minimum salary threshold for application of the executive, administrative and professional (“EAP”) exemptions from the minimum wage and overtime requirements of the Fair Labor Standards Act (“FLSA”). The upcoming DOL’s January 1, 2025 increase in the salary threshold was set to make an estimated 4.8 million workers overtime-eligible, regardless of whether they otherwise perform duties qualifying them for the EAP exemption. However, the Court’s decision means the 2024 Final Rule will not apply to employers nationwide.
Background and the Court’s Decision
The 2024 Final Rule made three key changes to the FLSA: (1) it raised the minimum weekly salary to qualify for the EAP exemption from $684 per week to $844 per week or the equivalent salary of $43,888 per year, to go into effect on July 1, 2024; (2) an additional increase to that threshold to $1,128 per week, the equivalent of a $58,656 annual salary, was to go into effect on January 1, 2025; and (3) it would have adjusted the salary thresholds every three years based on up-to-date wage data. The rule made similar changes to the highly compensated employee exemption and raised that salary threshold to an annual salary of $132,964 on July 1, 2024, up from $107,432. It was set to increase to $151,164 per year on January 1, 2025.
The Court found that, unlike the DOL’s 2019 Final Rule, the DOL exceeded its statutory authority in the 2024 Final Rule salary threshold because the Rule “demonstrates that its use of the salary proxy is not so much defining and delimiting the original statutory terms as replacing them.” The Court, relying on the recent Supreme Court decision in Loper Bright Enterprises, ruled that the language of the FLSA does not give the DOL explicit power to set salary threshold requirements for EAP exemptions that yield different results than Congress intended. The Court found that the overwhelming weight given to the minimum salary thresholds goes against both the congressional intent and the statutory language of the FLSA.
Further, the Administrative Procedure Act (“APA”) requires agencies such as the DOL to allow industries to comment on proposed rules and regulations. The scheduled triennial raises contain no provisions for notice and comment rulemaking, hence their unlawfulness under the APA.
What Does This Mean?
With the Court now having vacated the DOL’s 2024 Final Rule for all employers across the nation, the salary threshold returns to the DOL’s 2019 level of $684/week. In other words, the salary increase that went into effect July 1, 2024, is now invalid; the salary increase that was to take effect January 1, 2025, will not go into effect; and, future increases that had been set to occur every three years will not occur either.
Employers that made salary changes in light of the July 1, 2024 increase may want to consider whether to keep those changes in place or revert to the previous salary pay levels. Employers will also need to consider whether to make the pay changes they may have been preparing to make in anticipation of the January 1, 2025 increase.
In thinking about the options, employers need to be mindful that the DOL may choose to appeal the Court’s decision. However, many believe the incoming Trump administration would likely drop such an appeal. This would follow the procedural history of the 2016 rule, which was appealed but promptly dropped by the 2017 Trump administration.
Also, before reducing any current salaries to the $684/week level, employers should evaluate how such a reduction may impact employee morale. Employers that already communicated a planned January 1, 2025 increase that decide not to move forward with the increase should also consider notifying employees soon. Employers need to be mindful of state laws that may set salary minimums and/or require advance notice to employees prior to wage changes.
Practical Takeaways
- With the Court’s ruling, changes made to comply with the July 1, 2024 salary threshold and changes that were going to be made to comply with the January 1, 2025 increase can be set aside.
- Employers still need to consider any state laws that may be at play for both minimum salary levels and notice requirements for pay changes.
- Employers should carefully consider their options before determining a strategy, and then consider how and when they will communicate the decision to impacted employees.
- Employers need to continue to monitor the potential for the Court’s decision to be appealed.
If you have questions about the minimum salary threshold and these changes, or about your next steps, please feel free to contact:
- Kevin Stella at (317) 977-1426 or kstella@hallrender.com;
- Charles Roozen at (414) 721-0919 or croozen@hallrender.com; or
- Your primary Hall Render contact.
Special thanks to Kip Coljohn, Summer Associate, for his assistance in the preparation of this article.
Hall Render blog posts and articles are intended for informational purposes only. For ethical reasons, Hall Render attorneys cannot—outside of an attorney-client relationship—answer specific questions that would be legal advice.
