On November 15, 2024, the US District Court for the Eastern District of Texas overturned the Department of Labor's (DOL) final rule which increased the salary threshold for workers to be exempt from overtime requirements. In April of this year, the DOL announced a final rule that expanded the compensation threshold for exemption eligibility under the Fair Labor Standards Act (FLSA). The compensation threshold was raised from $35,568 annually to $43,888 on July 1, 2024, with the threshold scheduled to be raised again on January 1, 2025 to $58,656. Additionally, the final rule called for the threshold to be automatically increased every three years. The District Court's decision invalidates this rule, not only cancelling the January 1, 2025 increase and subsequent increases, but further undoes the July 1, 2024 increase. The threshold for overtime eligibility under the FLSA is set, once again, at $35,568 annually.
Under the FLSA, workers are entitled to overtime compensation for any hours worked over forty in a week unless they qualify for specific exemptions described in the law. As applicable here, the FLSA provides exemptions for workers who are bona fide executive, administrative, or professional employees. The test for whether a worker qualifies for these exceptions looks at the salary level an employee is compensated at, but also examines the employee's specific duties. In invalidating this rule, the District Court found that by implementing such a significant increase to the compensation threshold, the DOL was making the salary level the predominant consideration for an employee's exempt status. The District Court noted that the rule "῾effectively eliminates' consideration of whether an employee performs bona fide executive, administrative, or professional capacity duties in favor of what amounts to a salary-only test." Accordingly, the District Court held that the DOL exceeded its authority and vacated the rule.
Also included in the DOL's rule was an increase in the exemption threshold for "highly compensated" employees. Under the FLSA, employees who earn at least a certain amount annually—an amount substantially higher than the annual equivalent of the weekly standard salary level—"have almost invariably been found to meet all the other requirements of the regulations for exemption." Accordingly, a "highly compensated" employee exemption was established with a salary threshold significantly higher than the threshold otherwise required for exemption. The DOL's rule increased the salary level for an employee to qualify as "highly compensated" from $107,732 per year to $132,964 beginning July 1, 2024, with it set to increase again to $151,164 on January 1, 2025. The District Court's decision invalidated the DOL's entire rule, and thus the threshold for "highly compensated" employees is once again $107,732.
The DOL has the ability to appeal the Court's decision to the Court of Appeals, and potentially to the US Supreme Court for review. However, before the Court of Appeals would have the opportunity to review this decision, President-elect Donald Trump will be sworn in as the 47th President. His administration is not likely to pursue the appeal.
The District Court's decision is significant as not only does it cancel future increases in the salary thresholds, but it also retroactively invalidates the increases that went into effect this summer. Employers who implemented policy changes in response to the rule may wish to reevaluate those changes in light of the District Court's decision. Employers should take caution, however, that any changes made in response to this ruling do not trigger other requirements under the FLSA or other applicable employment law.
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