On Friday, November 15, 2024, the U.S. District Court for the Eastern District of Texas vacated the federal Department of Labor’s (“DOL”) final rule (“Final Rule”) raising the minimum salary thresholds for the Fair Labor Standard Act’s (“FLSA”) white collar overtime exemptions.  Although it is a decision of a trial level court, and therefore subject to appeal, the decision presently applies nationwide.  This means that the pre-July 1, 2024 white-collar exempt salary thresholds have been reinstated and, unless the legal landscape changes, the January 1, 2025 salary increases to the salary exempt thresholds will not take effect. 

Salary Threshold Prior to July 1, 2024

The FLSA requires employers to pay non-exempt employees at least minimum wage for every hour worked and overtime pay when an employee works in excess of 40 hours in a given workweek.  However, the FLSA “exempts” certain employees from these requirements, including the so-called “white-collar exemptions.”  To properly classify an employee as “exempt” under the white-collar exemptions, the employee generally must be (i) paid on a salary basis, (ii) perform specific exempt duties (e.g., executive, administrative or professional (“EAP”) duties), and (ii) earn a minimum salary.  See US DOL Fact Sheet #17A.  

Prior to July 1, 2024, based on a DOL 2019 salary adjustment, employers could satisfy the third part of the test if employees were paid a salary of at least $684 per week ($35,568 annually). The DOL’s Final Rule increased the threshold to $844 per week ($43,888 annually) effective as of July 1, 2024. The threshold was set to further increase to $1,128 per week ($58,656 annually) effective as of January 1, 2025, with an automatic increase to this threshold every three years going forward.  The Final Rule also increased the minimum salary level for “highly-compensated employees” (“HCE”) from $107,432 to $132,964 as of July 1, 2024 and again to $151,164 as of January 1, 2025, also with automatic increases to the threshold every three years.

The District Court’s Decision Vacates the Final Rule Nationwide

The U.S. District Court’s decision held that the DOL exceeded its authority by mandating these salary increases.   In reaching its conclusion, the Court noted that the DOL’s authority to implement changes to these salary levels “is not unbounded.”  The judge noted that this increase comes only five years after the prior increase to the salary levels in 2019, when previously such adjustments had been made by the DOL after a longer stretch of time.  The judge also underscored the substantial number of employees that employers would need to reclassify as non-exempt due to these salary increases stating “something has gone seriously awry” with this Final Rule.

Next Steps for Employers

This decision has effectively nullified the DOL’s Final Rule. This means that the July 1, 2024 mandated salary increase has been rescinded, and the scheduled increase for January 1, 2025 will not go into effect, nor will the automatic increases every three years go into effect.  In effect, the salary thresholds have reverted back to the DOL’s 2019 levels of $684 for most EAPs, and $107,432 for HCEs. 

The DOL may appeal the District Court’s decision to the Fifth Circuit Court of Appeals. However, it is extremely unlikely that the appellate court (which has recently issued a separate decision noting the limits of the DOL’s powers) or the new presidential administration taking office in January, will revive the Final Rule. 

Employers—particularly schools—should note that while this decision applies nationwide to all employers, there are some white-collar exempt employees, such as teachers and some coaches, who are not impacted by either the Final Rule or this recent decision, because those particular classes of employees are not required to satisfy the minimum salary threshold.

McLane’s ELPG group will continue to monitor the Final Rule developments and provide timely updates as they occur.