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Federal Court Invalidates DOL’s New Salary Thresholds for Exempt and Highly Compensated Employees with Nationwide Effect
Print PDFOn November 15, 2024, a federal judge in Texas invalidated the U.S. Department of Labor’s (“DOL”) April 2024 rule that raised the minimum salary thresholds for employees to be classified as exempt from minimum wage and overtime requirements under the Fair Labor Standards Act (“FLSA”). The court held that in enacting the rule, the DOL had exceeded its statutory authority. Therefore, the court vacated the rule nationwide, meaning that employers may now revert to the former, much lower salary thresholds when considering exemption status.
By way of background, on April 23, 2024, the DOL announced a final rule called “Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees,” which took effect on July 1, 2024. The rule raised the requisite standard salary level for exempt employees from $684 to $844 per week (or $43,888 annually) effective July 1, 2024, and further increased the threshold to $1,128 per week (or $58,656 annually) effective January 1, 2025. The rule also provided for additional increases on July 1, 2027, and every three years thereafter. Moreover, the rule changed the threshold for total compensation for highly compensated employees from $107,432 per year to $132,964 per year as of July 1, 2024, and to $151,164 per year as of January 1, 2025.
The Texas court cited to evidence that the DOL’s rule had already changed the statuses of about one million employees to non-exempt without any changes to their duties, and that the January 1, 2025 increase would render approximately 3 million more employees non-exempt. The State of Texas and a coalition of trade associations and employers moved to enjoin the rule, contending that the rule’s changes to the minimum salary levels exceed the DOL’s authority under the FLSA. Judge Sean D. Jordan of the United States District Court for the Eastern District of Texas agreed, vacating the rule in its entirety with nationwide effect.
Accordingly, employees who meet the duties tests for the respective exemptions may be properly classified as exempt at the previous salary level of $684 per week (or $35,568 annually). The total compensation threshold for highly compensated employees similarly reverts back to $107,432 per year. The DOL may appeal the court’s decision to the Fifth Circuit; however, the likelihood of further litigation will almost certainly be curtailed by the upcoming administration change.
This advisory was prepared by Nutter’s Labor, Employment and Benefits practice group. For more information, please contact any member of the LEB group or your Nutter attorney at 617.439.2000.
This advisory is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising.
