Many employers across the country were facing difficult staffing decisions surrounding a 2024 U.S. Department of Labor (“DOL”) regulation that increased minimum salary requirements for thousands of employees. On November 15, 2024, a Texas Federal Court (the “Court”) vacated and set aside a 2024 rule promulgated by the DOL that increased the minimum salary threshold for certain “white collar” exempt employees (the “2024 Rule”). The Court’s ruling affects the increases nationally and restores the minimum salary threshold to the previous minimum established under the Fair Labor Standards Act (“FLSA”).
The 2024 Rule:
- increased minimum salary thresholds, as of July 1, 2024, and was set to increase that minimum threshold again on January 1, 2025.
- increased the salary threshold from $684 per week to $844 on July 1, 2024;
- increased the weekly salary threshold to $1,128 effective January 1, 2025; and
- included automatic increases of the minimum salary threshold every three years.
Summary of the Court Decision and What it Means:
- The Federal Court found the 2024 Rule to exceed the DOL’s authority, and vacated and set aside the new thresholds.
- It is uncertain, but unlikely, if the DOL will appeal.
- Practice Point: Some states, like New York, have their own minimum salary threshold requirements to comply with overtime exemptions. These must still be followed, as the Court’s ruling does NOT affect any state-based salary thresholds. However, employers in New Jersey, Connecticut, Maryland, Florida, etc. would have been affected by the 2024 Rule, and are now covered by the Court decision.
What is the Salary Minimum Threshold the DOL Sought to Increase and Why is it Important?
Under the FLSA, employers are generally required to pay employees time and one-half for any hours worked in excess of 40 hours per week. This is commonly referred to as “overtime pay.” The FLSA, however, exempts certain executive, administrative, and professional workers from overtime pay if two primary conditions are met: (1) the employees’ duties or primary work meet a specific set of criteria (the “Duties Test”); and (2) the employee is paid on a fixed minimum salary paid on a per week basis (the “Salary Basis Test”). Specific to the Salary Basis Test, an employee was required to be paid the same, set amount per week.
In April 2024, the DOL raised the minimum salary requirement from $684 per week to $844 per week ($43,888 annually), effective July 1, 2024. The 2024 Rule also increased the minimum salary requirement to $1,128 ($58,656) as of January 1, 2025. The 2024 Rule included escalation provisions for salary increase every three years, as well.
The Federal Court’s Decision Setting Aside the DOL 2024 Rule
The Court issued a decision holding that 2024 Rule could not stand. Specifically, the Court held that the DOL exceeded its statutory authority to increase the salary threshold in this manner and magnitude. The Court cited to the text of the FLSA statute, which focuses on the duties an employee performs to be eligible for the overtime exemption, and that the statute does not specifically reference the salary that employees earn in order to be exempt. The Court found that because the 2024 Rule’s increase in salary made salary more important than duties, the changes exceeded the DOL’s authority.
Importantly, the Court found that given the impact of the 2024 Rule on hundreds of thousands of employers across the nation, the only reasonable outcome was for the Court to vacate and set aside the 2024 Rule. Meaning, the 2024 Rule increasing the salary thresholds on July 1, 2024, and future proposed increases, is null and void.
What to Do Now
The anticipated January 1, 2025 increase will not go into effect at the federal level. Also, according to the Court’s Decision and Order, the July 1, 2024 increase is technically nullified. So, employers that previously issued salary increases to employees to comply with the 2024 Rule’s July 1, 2024 increase, may consider reverting back to prior salaries. However, any such change in salary should be considered carefully and counsel should be consulted, as additional notices, restrictions, and requirements may apply.
It is also imperative to be aware that some states, including New York, California, Washington, Colorado, and Maine have their own salary threshold minimums that exceed that set by the FLSA. So, if you employ individuals in such states, you must still meet that state minimum threshold that is not affected by this Court ruling. For example, New York’s minimum salary threshold for overtime exemptions is set to increase to $1,237.50 per week ($64,350 per year) on January 1, 2025 for New York City and “downstate” (Nassau, Suffolk, and Westchester Counties), and to $1,161.65 per week ($60,405.80 per year) for the remainder of New York State. But, for other states like New Jersey, Connecticut, Maryland, Florida, etc. employers are to follow the federal FLSA Duties Test and Salary Basis Test.
The DOL has the option to appeal the Texas Federal Court ruling. However, it is widely speculated that the DOL will not appeal the ruling.
Should you have any questions regarding the above, please contact the authors, the Garfunkel Wild attorney with whom you regularly work, or contact us at [email protected].