Federal Court Blocks DOL’s Final Rule on Salary Threshold Increase: What this Means for Employers
On November 15, 2024 a U.S. Federal District Court blocked the Department of Labor (DOL) final rule that raised the minimum salary that employers would be required to pay employees to maintain their overtime exempt status under the Fair Labor Standards Act. As such, employers nationwide do not need to increase exempt employees’ salaries in January of 2025.
The ruling also means that the prior increase from July 2024 and the automatic increases in the future are no longer the minimum standard to determine the salary basis test for exemption status.
General Rules under the Fair Labor Standards Act (FLSA) and Background of the DOL’s Final Rule
The FLSA requires covered employers to pay covered employees minimum wage and overtime compensation at the rate of time-and-one-half for hours worked over 40 in one workweek. However, the FLSA exempts certain employees from its minimum wage and overtime requirements for employees employed as bona fide executive, administrative, professional and highly compensated employees.
To be classified as exempt from the FLSA’s overtime requirements, employees must generally meet certain tests regarding their job duties and be paid on a salary basis meeting the statutory minimum thresholds.
On April 23, 2024, the DOL released a final rule that raised the salary thresholds for certain overtime exemptions under the Fair Labor Standards Act.
Prior to the DOL’s final rule, the salary threshold for executive, administrative, and professional employees annualized to $35,568 per year.
The effective date for the final rule was July 1, 2024. However, certain provisions were not set to go into effect until January 1, 2025, specifically:
- Beginning July 1, 2024, the final rule mandated an increase in the threshold for bona fide executive, administrative, and professional employees to $43,888 per year.
- Beginning January 1, 2025, the final rule raised the threshold for bona fide executive, administrative, and professional employees to $58,656 per year.
- Beginning July 1, 2027, and every three years thereafter, the salary thresholds would automatically update.
Texas v. U.S. Department of Labor
The State of Texas challenged the DOL’s final rule on the grounds that the DOL exceeded their authority under the FLSA. A Federal U.S. District Court Judge agreed, finding that the final rule “effectively abdicates” the DOL’s role in defining and delimiting the white collar exemptions and displaces the FLSA’s duties test with a predominant salary-level test. The Court also held that the automatic three-year increases violates the notice-and-comment rulemaking requirements of the Administrative Procedure Act.
What’s Next?
As a result, the DOL’s final rule has been vacated. The January 1, 2025 deadline to increase minimum salaries for exempt employees is no longer in effect, and the earlier increase from July 1, 2024 is also no longer mandatory. However, this may not be the end of the story. On November 26, 2024, the DOL filed a notice of appeal from the November 15, 2024 decision.
Our Swenson Lervick employment law attorneys continue to monitor the future of the FLSA’s minimum salary thresholds for exempt employees as litigation, laws, and regulations develop. In the meantime, employers should evaluate their current employment practices to ensure that all employees are properly classified under the Fair Labor Standards Act. For additional questions about the requirements of the Fair Labor Standards Act, let us Be Your Guide.
*Disclaimer: This memo is for general informational purposes only. It is not legal advice and should not be relied upon as such. For legal advice about your specific situation, please contact us.