Federal Court Strikes Down the DOL Salary Threshold Increase on a Nationwide Basis

On November 15, 2024, in State of Texas, et al. v. United States Department of Labor, the U.S. District Court for the Eastern District of Texas vacated the U.S. Department of Labor’s (“DOL”) April 23, 2024 final rule that raised the salary threshold to qualify for certain “white collar” overtime exemptions under federal law (the “Salary Threshold Rule”). As a result, the Salary Threshold Rule has been voided on a nationwide basis.

FLSA Exemption Background  

Under the Fair Labor Standards Act (“FLSA”), employees are entitled to overtime compensation for any week in which they work more than 40 hours, unless they are classified as “exempt.” According to the FLSA, certain “white collar” workers – executives, professionals, and administrative personnel – are “exempt” from overtime requirements if: (1) they are paid a fixed salary that meets or exceeds the salary threshold set by the DOL and (2) their primary job duties meet the applicable duties test (the “EAP exemptions”).

The Salary Threshold Rule

Last April, the DOL issued the Salary Threshold Rule, which raised the EAP exemptions salary threshold to $844 per week ($43,888 annually) as of July 1, 2024 and $1,128 per week ($58,656 annually) as of January 1, 2025. Thereafter, the Salary Threshold Rule contemplated automatic updates every three years.

Additionally, the Salary Threshold Rule raised the minimum salary threshold for the “highly compensated employee” exemption from $107,432 to $132,964 per year, effective July 1, 2024. That threshold was slated to increase to $151,164 per year on January 1, 2025 and would also be subject to automatic updates every three years.

Prior to the Salary Threshold Rule, the last time the DOL updated the EAP exemptions salary threshold was in 2019 when the threshold was increased to $684 per week ($35,558 annually).

The Court’s Decision

In State of Texas, et al. v. United States Department of Labor, the State of Texas and “a coalition of trade associations and employers” challenged the Salary Threshold Rule before the first July 1, 2024 effective date by arguing that the DOL exceeded its authority to promulgate the Salary Threshold Rule and called the DOL’s method of calculating the salary thresholds into question.

In a June 28, 2024 decision, U.S. District Judge Sean Jordan stayed the July 1, 2024 increases for only the State of Texas government employees after finding that the plaintiffs were likely to succeed on the merits of their claim that the DOL exceeded its authority when it issued the Salary Threshold Rule. Notably, however, Judge Jordan refused to grant the requested nationwide injunctive relief, but indicated that he would issue a final decision on the parties’ summary judgment motions before January 1, 2025. Therefore, the July 1, 2024 salary threshold increases described above went into effect, except as to Texas government employees. 

In a 62-page decision, on November 15, 2024, the Court granted the plaintiffs’ motion for summary judgment, striking down the Salary Threshold Rule on a nationwide basis. The Court held that with respect to both the July 1, 2024 and January 1, 2025 increases, the DOL created a de facto “salary only” test for the EAP exemptions by setting the salary threshold as high as it did. The Court discussed the grave concern it had for the number of employees who would lose their exempt status under the Salary Threshold Rule, despite working in an exempt capacity and satisfying the applicable duties test. Indeed, the Court reasoned that previously the DOL’s working assumption was that the salary threshold test should not exclude more than ten percent of employees who meet the duties test, but the Salary Threshold Rule increased that percentage by more than triple. As the application of the EAP exemptions should primarily turn on an employee’s primary job duties and not salary level, the Court found that the DOL exceeded its authority when it issued the Salary Threshold Rule.

The Court also concluded that the automatic three-year salary threshold increases described above went well beyond the DOL’s authority.   

Employer Takeaway

As a result of this recent decision, the January 1, 2025 increases will not go into effect as scheduled and the July 1, 2024 increases are void. Therefore, the salary threshold in effect prior to July 1, 2024 for the EAP exemptions is restored (i.e., $35,568 per year) and the salary level for highly compensated employees is reinstated (i.e., $107,432). The DOL may appeal this decision to the Fifth Circuit Court of Appeals, but the chances of the DOL pursuing such an appeal is considered to be low given the incoming Trump administration.

Employers who previously adjusted salaries or exemption statuses of employees prior to the July 1, 2024 effective date should consult with counsel prior to rescinding those changes. Further, employers who were preparing to increase salary levels and reclassify employees to comply with the January 1, 2025 deadline may now reconsider those increases and reclassifications.

Employers should be aware that various states impose higher salary requirements than federal law and must ensure compliance with any applicable state requirements.