FLSA Salary Exemption Hike Set Aside Nationally: What to Do Now?

Earlier today, November 15, 2024, United States District Court Judge Sean D. Jordan of the Eastern District of Texas, granted summary judgment against the Department of Labor determining that the United States Department of Labor regulations expanding overtime eligibility to over four million workers went beyond the agency’s authority and vacating and setting aside the rule, foreclosing it from fully taking effect on January 1, 2025.

Background

As many readers know, earlier this year, the Department of Labor issued updated regulations that increased the salary threshold required for certain exempt employees from $35,568 to $43,888 on July 1 and $58,656 on January 1. More information concerning the rule itself is available here.

The Decision

The State of Texas, the Plano Chamber of Commerce, and other businesses brought a civil action seeking to enjoin or stop enforcement of the regulation and arguing that the Department of Labor exceeded its authority in increasing the salary level given that the FLSA’s text does not specify any minimum salary for an employee to qualify for an administrative, executive, or professional exemption. In its ruling, the court noted that case law supports that the DOL has the authority to “impose a salary-level test to qualify for the exemption” but that the current rule exceeds the Department’s authority because it increases the minimum salary level for an administrative, executive, or professional exemption to a level that “effectively displaces the duties-based inquiry,” focusing only on the salary-level test.

What Does This Mean For Employers

Many employers may have already announced or amended salary pay requirements to meet the annual increase of $58,656. If that is the case in your organization, employers should maintain their current pay practices. If the organization decides to attempt to reduce said salary, it should review local and state laws concerning pay reductions and should also take into account morale implications that accompany any decrease in pay. If a roll-back of any prior increases is considered (and permitted under state law), such roll-back should also be done on an “across the board” basis to limit any arguments concerning discriminatory or retaliatory behavior.

Employers who have been analyzing and discussing courses of action moving forward can pause said discussions (for now). While the DOL is likely to appeal this decision, it is doubtful that said appeal would be heard before January 1, 2025, and additionally unlikely that in 2025, President-elect Trump’s administration would support the DOL’s continued attempts at enforcement of the regulation in the new administration. This does not, however, mean that the work done in analyzing positions under the regulation is without value. In many cases, an annual review of the duties test of an employer’s exempt workforce is valuable to confirm that the individuals remain appropriately categorized as exempt.

Employers with questions about this decision or wage and hour concerns should contact a member of Verrill’s Employment and Labor Practice Group.