2024 Wage And Hour Developments: A Year In Review

Introduction

This Year in Review looks back at some of the key wage and hour developments in 2024, including U.S. Department of Labor (DOL) regulatory activity, significant court decisions, and state legislative and regulatory changes.

The DOL pushed forward an ambitious regulatory agenda but faced considerable challenges in the courts. Most notably, the DOL's crown jewel, a final rule sharply increasing the salary threshold from $35,568 to $58,656 for employees subject to the "white collar" exemptions under the Fair Labor Standards Act (FLSA), took effect on July 1, 2024. However, the rule was invalidated in November by a federal court in Texas before the largest increase was scheduled to go into effect.

The DOL also issued a rule defining "independent contractors" under the FLSA, which critics argued made it more difficult to classify workers as independent contractors. But that rule also faces legal challenges in several courts and, given the change in administration, may ultimately be withdrawn. For now, the DOL has asked an appeals court for more time to consider how it will proceed in the litigation, and oral argument has been postponed. A rule implementing a minimum wage hike for federal contractors is also the subject of numerous lawsuits. Recently, a circuit split has been created, and the U.S. Supreme Court has denied a petition for review.

The Supreme Court issued a transformative decision (Loper Bright) overruling its Chevron precedent and reversing decades of judicial deference to federal agency rulemaking, including DOL actions. Also, the Supreme Court heard oral argument in 2024 regarding whether employers bear the burden of proving an exemption from overtime applies by a preponderance of the evidence or a higher "clear and convincing" standard applied by the Fourth Circuit. The Court answered that question in early January 2025, finding a preponderance of the evidence applies.

Federal circuit courts of appeals issued a flurry of precedential decisions addressing minimum wage, overtime, exemptions and the "salary basis" test, compensable time, expense reimbursement, employee status, and procedural matters, among others.

State and local legislatures and state agencies also did their part, adopting measures imposing new legal obligations on employers and minimum wage increases.

Here is an overview of the most noteworthy wage and hour developments from 2024 ... and the first month of 2025.

DOL Developments

Minimum Salary Requirement Rule Rebuffed

The DOL issued a final rule on April 26, 2024, increasing the minimum salary requirements for the "white collar" or "EAP" exemptions (executive, administrative, and professional) from the FLSA's minimum wage and overtime pay requirements. The final rule sharply increased, in two stages, the minimum salary an employee must be paid for a white-collar exemption to apply.

The first increase took effect July 1, 2024, raising the salary threshold from $684 per week ($35,568 per year) to $844 per week ($43,888 annually). The highly compensated exemption (HCE) total annual compensation level rose from $107,432 per year to $132,964 per year. The second, more substantial increase would have raised the salary minimum to $1,128 per week ($58,656 annually) and hike the highly compensated floor to $151,164 per year. The rule also provided for automatic updates to the salary thresholds every three years to reflect current earnings data, beginning July 1, 2027.

The rule immediately faced opposition. Several lawsuits challenged the new minimum salary thresholds. In consolidated cases brought by the State of Texas and a coalition of business groups, a Texas federal court enjoined the DOL from enforcing the rule, but only as to employees of Texas state government. State of Texas v. United States DOL, 2024 U.S. Dist. LEXIS 114902 (June 28, 2024). With the court declining to issue broader nationwide relief, the first minimum salary level increases took effect as scheduled on July 1.

While that was pending, the U.S. Court of Appeals for the Fifth Circuit, in which the Texas court resides, issued a decision in a long-running case seeking to invalidate the minimum salary thresholds in effect prior to the July 1 increase. Mayfield and R.U.M. Enterprises, Inc. v. United States DOL, 2024 U.S. App. LEXIS 23145 (Sept. 11, 2024). In Mayfield, a fast-food franchise operator had filed suit, taking aim at the $684 weekly ($35,568 per year) floor and $107,432 HCE annual threshold that took effect in 2019, under a rule issued during the first Trump Administration. The plaintiff argued the DOL lacks statutory authority to impose any minimum salary criteria for application of the EAP exemptions

The Fifth Circuit panel upheld the 2019 rule and the DOL's authority to impose some minimum salary requirement. (The appeals court upheld the 2019 rule under the more rigorous standard of review set forth by the Supreme Court in its landmark Loper Bright decision. See below.) While a salary requirement could serve as a proxy for identifying employees who are performing exempt duties, the appeals court held, the DOL may not set the salary floor so high that it effectively negates the duties test, which appears in the text of the FLSA..

Resolving the legal challenge to the 2024 rule on the merits, the Texas federal court found the DOL's latest rule had done just that. State of Texas v. United States DOL, 2024 U.S. Dist. LEXIS 207864 (Nov. 15, 2024). While the Fifth Circuit had not addressed how high the salary threshold could be set, the district court found that the DOL's "staggering" 2024 increase effectively displaced the duties test, as evidenced by the sheer number of employees excluded from the exemption despite the exempt duties they perform. Therefore, the court vacated the rule in its entirety, including the July 1 salary level increase already in effect. The second minimum salary increase, scheduled for Jan. 1, 2025, never took effect. The salary level in effect prior to July 1 ($684 per week, $35,568 per year) was restored, and the annual salary level for the HCE exemption returned to its pre-July 1 threshold of $107,432.

The DOL has filed an appeal of the district court's decision striking down the 2024 rule. The Trump Administration may withdraw the appeal or choose not to defend the 2024 rule on appeal. It is also possible the Administration may maintain the appeal for the purpose of defending its rulemaking authority but later withdraw the 2024 rule and undertake new rulemaking. This was the approach taken by the first Trump Administration after an Obama-era minimum salary rule was likewise invalidated.

On Dec. 30, 2024, another Texas federal court issued a cursory order adopting the reasoning of Texas v. DOL and awarding summary judgment to plaintiffs in a separate legal challenge to the minimum salary rule. Flint Avenue LLC v. United States DOL, No. 5:24-cv-130. The court rejected the DOL's contention that the Nov. 15 ruling was in conflict with the Fifth Circuit's Mayfield decision. The DOL also is defending the rule in an ongoing suit brought in the federal court in the District of Columbia. Association of Christian Schools Int'l v. United States DOL, No. 1:24-cv-2618.

For their part, the plaintiffs in Mayfield have filed a petition for rehearing en banc, hoping to overturn the Fifth Circuit's holding that the DOL has statutory authority to impose a minimum salary requirement.

For a deeper dive:

Independent Contractor Rule Under Fire

The DOL released a final rule revising the standard for determining whether a worker is an employee or independent contractor under the FLSA. The rule, which took effect March 11, 2024, formally adopted the six-factor "economic realities" test to determine whether a worker is an employee or ndependent contractor. The DOL historically applied these factors in resolving the independent contractor question but never formally codified their use.

These factors are:

1. Opportunity for profit or loss depending on managerial skill;

2. Investments by the worker and the potential employer;

3. Degree of permanence of the work relationship;

4. Nature and degree of control;

5. Extent to which the work performed is an integral part of the potential employer's business; and

6. Skill and initiative.

The 2024 rule also formally rescinded the 2021 independent contractor rule issued by the DOL in the waning days of the first Trump Administration. The 2021 rule focused more narrowly on a few factors for determining whether a worker is an independent contractor and arguably allowed for the expanded use of independent contractors. After President Joe Biden took office, however, the DOL delayed the 2021 rule's effective date and ultimately withdrew it

Litigation seeking to invalidate the 2024 rule promptly ensued. Freelance writers and editors filed suit. They wanted to maintain their independent profession and claimed the rule would force them into undesired employment relationships or they would lose business clients that feared potential liability. A federal court held the independent contractors lack standing to challenge the rule because they are not a party subject to the regulation. Warren v. United States DOL, No. 2:24-cv-7 (N.D. Ga. Oct. 7, 2024). An appeal is pending in the Eleventh Circuit. In another suit brought by freelancers, a federal magistrate recommended dismissal for the same reason. The plaintiffs in that case have filed an objection to the magistrate judge's recommendation. Littman v. United States DOL, No. 3:24-cv-00194 (M.D. Tenn. Nov. 13, 2024).

The most significant litigation is a lawsuit filed by business groups. It had begun as a challenge to President Biden's withdrawal of the 2021 rule. Coalition for Workforce Innovation v. Walsh, No. 1:21-cv-130 (E.D. Tex.). The plaintiffs argued that the 2021 rule was improperly rescinded and later challenged the 2024 rule. DOL's motion to dismiss the case is pending. Other businesses sued to preserve the ability to retain independent contractors. A federal court in Louisiana declined to issue a TRO or preliminary injunction, concluding that the trucking company plaintiffs failed to show they would suffer harm absent injunctive relief. Frisard's Transp., LLC v. United States DOL, No. 2:24-cv-347 (E.D. La. March 8, 2024). The plaintiffs have appealed the ruling.

Most recently, a federal court upheld the independent contractor rule on the merits in a suit brought by another trucking company, finding the rule was not arbitrary or capricious under the Administrative Procedures Act. The court granted the DOL's motion to dismiss or, in the alternative, summary judgment. Colt & Joe Trucking v. United States DOL, 2025 U.S. Dist. LEXIS 4657 (D.N.M. Jan. 9, 2025)

The fate of the independent contractor rule, however, ultimately may be sealed by the Trump Administration outside of litigation. The Trump DOL could rescind the 2024 rule and undertake new rulemaking to restore the 2021 rule introduced during President Trump's first term. As with its minimum salary rule, the DOL is defending the independent contractor rule on several fronts.

The U.S. Department of Justice (DOJ) has asked the Fifth Circuit to pause the appeal pending in the Frisard's Transportation case and postpone oral argument, which had been scheduled for Feb. 5, 2025, to give the new administration time to consider the issues at stake and determine how the DOL wishes to proceed. On Jan. 24, 2025, the Fifth Circuit granted the motion. The DOJ also has asked the district court for a continuance of a scheduled status conference in the Coalition for Workforce Innovation case for similar reasons.

For a deeper dive:

Tip Rule Twists and Turns

In a landmark decision, the Fifth Circuit struck down a 2021 DOL "dual jobs" rule, which set strict limits on the amount of time tipped employees can spend performing work that does not directly generate tips. Restaurant Law Center v. United States DOL, 2024 U.S. App. LEXIS 21449 (Aug. 23, 2024).

he FLSA permits tipped employees to receive $2.13 per hour in a direct wage, so long as the combination of their direct wage and tips equals at least the $7.25 hourly minimum wage. (Many states have laws that require higher tipped rates.) The dual jobs regulation, first promulgated in 1967, provides that if an employee is working two separate occupations (such as server and cook), this tip credit against the minimum wage is available only when the employee is working in the tipped occupation.

The "80/20" or "20%" rule limits the amount of time an employee may spend on work that is not tip-producing to 20% of the employee's hours in a given workweek, while still allowing the employer to take the tip credit. This provision first appeared in the DOL's field handbook in 1988. The 2021 rule codified this guidance for the first time. The rule further distinguished between tip-producing work, such as waiting tables, and work that directly supports tip-producing work, such as bussing tables. Finally, the rule imposed a new "30-minute" restriction, limiting to 30 minutes the amount of continuous time during a shift that a tipped employee may spend performing tasks that are "directly supporting" tipped work.

The Fifth Circuit found the 2021 rule conflicts with the statutory scheme that Congress established under the FLSA. The FLSA allows the tip credit for any employee "engaged in" an "occupation ... that customarily and regularly receives more than $30 a month in tips," the court observed. It continued, "The FLSA does not ask whether duties composing that given occupation are themselves each individually tip producing." The court vacated the rule, voiding the provision nationwide. The court made clear, however, that the underlying dual jobs regulation was valid.

On Dec. 17, 2024, the DOL issued a final rule removing the "80/20" and 30% non-tipped work restrictions added in the 2021 rule and reinstating the text of the dual jobs regulation as it existed prior to the effective date of the invalidated rule. As restored, the regulation does not impose any time restrictions on the amount of non-tipped work that tipped employees may perform. Issuance of this final rule may signal the DOL has chosen not to file a petition for review with the Supreme Court. Even if a petition were to be filed, the Trump Administration likely would withdraw it, as the 2021 rule is inconsistent with a 2020 rule proposed during the first Trump Administration. The new administration may opt to go even further and issue a new regulation to replace the haggard 1967 regulation.

Caselaw in several federal circuits outside the Fifth Circuit uphold the 80/20 rule as it existed prior to the 2021 rule. These rulings generally deferred to the DOL and its interpretation of its dual jobs rule. Following the Supreme Court's Loper Bright decision, however (see below), the DOL's interpretation is not subject to judicial deference.

For a deeper dive:

Uncertain Fate of Federal Contractor Minimum Wage Mandate

President Biden issued Executive Order (EO) 14026 in 2021, which increased to $15 the minimum hourly wage for employees working on federal government contracts and provided for annual increases to the minimum wage. On Sept. 30, 2024, the DOL announced the wage rate of $17.75 per hour to take effect Jan. 1, 2025.

In November, the U.S. Court of Appeals for the Ninth Circuit held that the president lacked authority under the Procurement Act to issue EO 14026. State of Nebraska v. Su, 2024 U.S. App. LEXIS 28010 (Nov. 5, 2024). The appeals court also held the DOL regulation implementing the EO was arbitrary and capricious because the DOL failed to consider alternatives to the $15 rate, such as a lower wage rate or phasing in the $15 rate over several years. The appeals court did not, however, invalidate EO 14026 or the implementing regulation. Instead, it sent the case back to the federal district court in Arizona, which had upheld the wage mandate in a legal challenge brought by several states.

On remand, the district court is expected to issue a preliminary injunction barring application of the wage mandate, although it is not clear whether the injunction will apply to just the plaintiff states (to the extent of their relationships with the federal government as federal contractors) or as a complete ban to enforcement within the states. Meanwhile, on Dec. 20, 2024, the DOL filed a petition for en banc rehearing of the divided Ninth Circuit panel decision.

Two other legal challenges were filed. The Fifth Circuit recently reversed a 2023 decision invalidating EO 14026 in a case brought by the states of Louisiana, Mississippi, and Texas. The Texas district court had narrowly enjoined the wage mandate only as applied to the plaintiff state governments, refusing to issue a nationwide injunction because it did not want to "encroach" upon other federal courts that had upheld the executive order. State of Texas v. Biden, 2023 U.S. Dist. LEXIS 171265 (Sept. 26, 2023). The Fifth Circuit, however, reversed the decision and upheld EO 14026, setting up a split with the Ninth Circuit. State of Texas v. Trump, 2025 U.S. App. LEXIS 2485 (Feb. 4, 2025).

In another case, the U.S. Court of Appeals for the Tenth Circuit affirmed a lower court's refusal to grant a preliminary injunction barring enforcement of the wage mandate. Bradford v. United States DOL, 2024 U.S. App. LEXIS 10382 (Apr. 30, 2024). The appeals court held the plaintiffs were not likely to show the DOL lacked statutory authority to issue the DOL rule implementing EO 14026. Again, however, the appeals court did not issue a final decision on the merits. The plaintiffs filed a petition for certiorari at the Supreme Court asking the justices to address whether the wage mandate exceeds the president's authority under the Procurement Act and, if not, whether the statute improperly gives lawmaking authority to the president. On Jan. 13, 2025, the petition for certiorari was denied.

For now, the minimum wage mandate is in effect. But a broader reprieve (through a variety of avenues) may be forthcoming. The Trump Administration may opt to abandon the bid to rehear the Ninth Circuit panel's holding. President Trump also may opt to rescind President Biden's executive order and decline to defend the wage mandate if the Supreme Court decides to review the Tenth Circuit opinion.

To view the full article click here

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

2024 Wage And Hour Developments: A Year In Review

Contributor

Employment and HR

Contributor

United States