On November 15, 2024, Federal District Court Judge Sean Jordan of the Eastern District of Texas vacated and struck down the United States Department of Labor (DOL)’s final regulation increasing the salary threshold for “white collar” overtime exemptions under the Fair Labor Standards Act (FLSA).
Judge Jordan held that each of the three components of the final rule exceeded the DOL’s statutory authority under the FLSA. Given the nationwide scope of the rule, the court concluded that the rule is struck down on a nationwide basis. The court previously had enjoined enforcement of the rule against the State of Texas in its capacity as an employer of state employees. The court’s decision on Friday now vacates the rule for all employers nationwide.
This means, significantly, that the increase to the overtime threshold scheduled to take place on January 1, 2025 will not go into effect. Notably, the court also struck down the July 1, 2024 increase that previously had gone into effect, although this decision may have limited practical effect for employers, many of whom already have adjusted their payroll to comply with that increase. Finally, the court held that the final rule’s automatic “escalator” provision, which would have increased the threshold every three years going forward, also is unlawful.
Background
On April 23, 2024, the DOL released a final rule raising the salary threshold to qualify for certain overtime exemptions under federal law. Businesses and business groups almost immediately filed legal challenges to the rule.
What Are the Salary Thresholds?
Under the federal FLSA and state wage and hour laws, employers must classify all employees as either exempt or nonexempt. This classification determines how the employee should be paid to ensure legal compliance. Exempt employees are exempt from the overtime provisions of state and federal law and are expected to devote the number of hours necessary to complete their respective tasks. The compensation of an exempt employee does not change based upon the number of hours worked. By contrast, nonexempt employees must be paid overtime if they work more than forty hours per workweek. The most common FLSA overtime exemptions – often called the “white collar” exemptions – are the executive, administrative, and professional exemptions. Before this final rule was announced, the federal salary threshold was $684 per week ($35,568 annualized). Some states, including Alaska, California, Colorado, Maine, New York, and Washington, have instituted their own, higher salary thresholds that are not affected by Judge Jordan’s decision.
What Should Employers Do Now in Response to the Court’s Decision?
While the DOL can appeal the district court’s ruling, the pending change in administration means that new DOL leadership likely would abandon any appeal and allow the lower court’s decision to stand. As a result, it is expected that the January 1, 2025 increase will not go into effect as scheduled, and, as a matter of law, the July 1, 2024 increase is nullified. Employers that previously adjusted employee salaries or exemption status in response to the final rule are advised to consult with counsel before considering whether to rescind those changes going forward.
Some employers may be getting déjà vu all over again. In 2017, after the Obama administration had attempted to raise the white collar overtime thresholds, and that attempt was blocked by a court at the eleventh hour, the Trump administration issued its own rule expanding overtime pay obligations. The Trump rule applied to far fewer workers than what the Obama rule would have done. Stay tuned, as something similar may happen again.
Employers should consult with experienced human resources professionals and/or labor and employment counsel with any questions regarding these complex employment law issues. For all MEA members, the Hotline is available to provide this assistance. For MEA Essential and Premier members, a Member Legal Services attorney is available for additional consultation.
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