On November 15, the Federal District Court for the Eastern District of Texas invalidated the Department of Labor’s final rule that increased the minimum salary for executive, administrative, and professional (EAP) exemption for overtime pay under the Fair Labor Standards Act (FLSA). This decision invalidates the rule on a nationwide basis for all employers. As a result, the salary threshold reverts to DOL’s 2019 rule, which set the EAP exemption salary threshold at $684 per week.

Background on the 2024 Rule

The FLSA generally requires employers to pay overtime (time-and-a-half) to employees who work more than 40 hours per week. The law exempts EAP employees who are paid on a salary basis, primarily perform EAP duties, and earn a minimum salary.

The DOL’s 2024 final rule implemented three changes in stages to the minimum salary requirement exemption. First, it increased the minimum for non-exempt positions from $684 to $844 per week starting July 1, 2024. Second, it raised the minimum salary level to $1,128 per week starting on January 1, 2025. Third, the rule implements an index system that automatically increases the salary threshold starting in 2027. The DOL estimated the final rule would cause millions of previously exempt workers to become non-exempt.

The Court’s Reasoning for Invalidating the 2024 Rule

In a 62-page opinion, the Court struck down the 2024 rule in its entirety. The Court found that the July 1, 2024 and January 1, 2025 increases were so substantial that salary level would effectively determine an employee’s exemption status instead of the employee’s job duties. The Court also found the DOL had exceeded its statutory authority, because Congress intended for an employee’s job duties to determine exemption status, not salary level. Although the Court acknowledged the department could use salary as a proxy for identifying employees who would clearly not meet the duties test, it added that DOL cannot substitute salary level for an analysis of an employee’s job duties. Finally, with reference to the automatic threshold increases to begin in 2027, the Court held the DOL could not evade the procedural requirements of the APA by setting its rulemaking on “autopilot.”

Next Steps for Employers

The ruling applies nationwide, which means that employers may revert to the 2019 salary threshold of $684 per week ($43,888 per year) to determine whether employees are exempt or non-exempt. Workers who became non-exempt because of the July 1, 2024 salary threshold increase may return to exempt status as a result of this ruling.

Employers, however, should also confirm if there are state or local salary threshold rules that may apply when determining whether employees are exempt or non-exempt.  While this ruling impacts the federal rules governing an employee’s exempt or non-exempt status, it does not impact state or local laws.  A state or local government may adopt rules that require employees working in that state or locality to have a higher minimum salary than what the DOL requires to qualify for exempt status.

The DOL may appeal the decision to the Fifth Circuit, but that decision might in turn be adjusted by the upcoming change in administration.

This article summarizes aspects of the law. This article does not constitute legal advice. For legal advice regarding your situation, you should contact an attorney.