Lindabury, McCormick, Estabrook & Cooper, P.C. Firm News & Events
The U.S. Department of Labor’s (“DOL”) final regulation increasing the salary threshold for the “white collar” overtime exemption came to a halt on November 15, 2024, when the U.S. District Court for the Eastern District of Texas vacated and set aside the regulation as exceeding the DOL’s statutory rulemaking authority.
The regulation sought to increase the salary requirements established in 1975 for the executive, administrative, and professional (“EAP”) exemptions (commonly referred to as the “white collar” exemptions) to the overtime requirements under the Fair Labor Standards Act (“FLSA”). The FLSA generally requires overtime pay for employees who work over forty hours in a week. However, under the EAP exemptions, those overtime requirements do not apply to employees employed in a bona fide administrative, executive, or professional capacity. To be classified under one of the EAP exemptions, the employee must i) meet or exceed a minimum salary requirement, and ii) meet certain duties tests mandated by the FLSA.
The challenged rule issued by the DOL raised the previous minimum salary requirement of $684 per week, or $35,568 per year, in three stages. The initial stage was rolled out on July 1, 2024, and raised the minimum salary for EAP overtime exemption to $844 per week, or $43,880 per year, placing an estimated one million previously exempt employees into nonexempt status. The second rollout, which was set to take place on January 1, 2025, sought to raise the minimum salary requirement to $1,128 per week/$58,656 per year. Following these initial increases, the minimum salary requirement was set to be raised every three years based on contemporary earnings data.
The first phase of the rollout was implemented by employers throughout the country except in the state of Texas, where the DOL’s rule was stayed by a Texas District Court pending a challenge to the DOL’s rulemaking authority to increase the FLSA salary requirements established by Congress. Following further proceedings, the Eastern District of Texas struck down the DOL’s regulation in its entirety, including the July 1st implementation, finding that the regulation exceeded DOL’s rulemaking authority. Unlike the initial stay, this final ruling vacated the DOL’s rule across all 50 states.
What Does This Mean For My Business?
The incoming administration under President-Elect Donald Trump will likely abandon any existing efforts by the DOL to appeal the court’s ruling. What this means for the immediate future is that the regulation increasing the minimum salary requirement will remain vacated and thus have no legal force or effect. There is also no current indication that President-Elect Trump’s administration will revisit any regulation significantly raising the minimum salary requirement for EAP employees.
As most employers wishing to preserve the exempt status of employees already increased employees’ salaries to meet the July 1 minimum of $43,880, they are unlikely to role those increases back. However, this judicial ruling may cause employers to ditch their plans for the phase two increase they expected to implement on January 1, 2025, as well as the automatic three-year increases under the final phase of the now vacated rule.
It is also expected that employers who opted to re-classify employees to hourly roles rather than meet the increased salary requirements of the invalidated regulation will consider reverting those employees back to salaried exempt positions. Such reclassifications are entirely permissible so long as the employees’ job responsibilities meet the applicable EAP exemptions’ duties test.
Contact the Labor and Employment attorneys at Lindabury, McCormick, Estabrook & Cooper, P.C. for any questions regarding state and federal requirements for making such reclassifications, or any further inquiries regarding this recent decision.