Federal Court Strikes Down New FLSA Exemption Salary Levels
December 11, 2024
UPDATE: The DOL filed an appeal on November 26, 2024 to the 5th Circuit Court of Appeals.
On November 15, 2024, the U.S. District Court for the Eastern District of Texas vacated the Department of Labor’s (DOL) final rule that had increased the minimum salary thresholds for the Fair Labor Standards Act’s (FLSA) white-collar overtime exemptions. This decision reverts the salary thresholds to their pre-July 1, 2024, levels and halts the planned increases scheduled for January 1, 2025.
Background on the DOL’s Final Rule
The DOL’s final rule, effective July 1, 2024, raised the standard salary level for exempt executive, administrative, and professional (EAP) employees from $684 per week ($35,568 annually) to $844 per week ($43,888 annually).It also increased the total annual compensation requirement for highly compensated employees (HCEs) from $107,432 to $132,964.A further increase was set for January 1, 2025, which would have elevated the standard salary level to $1,128 per week ($58,656 annually) and the HCE threshold to $151,164, with automatic updates every three years thereafter.
Court’s Rationale
The court determined that the DOL exceeded its authority by implementing these salary increases, stating that the elevated thresholds effectively supplanted the duties test with a predominant salary-level test. The judge emphasized that the FLSA’s exemptions are based on the capacity in which employees are employed, focusing on their duties rather than their salaries.
Next Steps
The DOL may appeal the decision to the Fifth Circuit Court of Appeals. However, given the upcoming change in the presidential administration, it’s uncertain whether an appeal will be pursued. Employers should stay informed about any developments and be prepared to adjust their policies accordingly.
In summary, employers must ensure that employees classified as exempt under the EAP and HCE categories meet both the duties tests and the reinstated 2019 salary thresholds. Regular reviews of employee classifications and compensation are essential to maintain compliance with FLSA requirements.
Implications for Employers
As a result of this ruling, the salary thresholds revert to the 2019 levels:
- Standard Salary Level for EAP Employees: $684 per week ($35,568 annually)
- HCE Total Annual Compensation: $107,432, including at least $684 per week paid on a salary or fee basis
Employers should assess their current employee classifications and compensation structures to ensure compliance with the reinstated thresholds. For employees who were reclassified as non-exempt due to the now-vacated higher thresholds from July, employers may consider reverting them to exempt status if they meet the duties test and the 2019 salary levels. However, caution is advised when contemplating salary reductions for employees who received increases to comply with the July 2024 thresholds. Such actions could impact employee morale and potentially lead to legal challenges. Please reach out and discuss any questions or concerns before making changes to employees’ exempt status or salary levels.
December 13, 2024 Terri Davis