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On Friday, November 15, 2024, a federal judge in the Eastern District of Texas vacated the Department of Labor (“DOL”)’s 2024 overtime exemption salary rule under the Fair Labor Standards Act (“FLSA”), including the already-implemented July 1, 2024 salary threshold increase (the “2024 Rule”). The ruling completely invalidates the 2024 Rule nationwide for all covered employers.

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The EAP Exemption Minimum Salary Thresholds Remain At Pre-July 1, 2024 Levels

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The 2024 Rule raised the minimum annual salary employers were required to pay employees to maintain exempt status under (a) the Executive, Administrative, and Professional (“EAP”) exemption, and (b) the Highly Compensated Employee (“HCE”) exemption. In particular, the 2024 Rule implemented the following phased salary increases:

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The 2024 Rule also implemented automatic updates to the salary thresholds every three years based on then-current earnings data, with the first scheduled automatic update set to occur on July 1, 2027.

The court’s ruling abrogates the July 1, 2024 salary increases and means neither the January 1, 2025 salary increases nor future automatic increases will go into effect.

As a result, the salary thresholds to maintain the EAP and HCE exemptions have been returned to the pre-July 1, 2024 levels, with no scheduled automatic updates occurring in the future. Thus, the current salary levels for the exemptions are:

The Duties Test Remains Unchanged And Integral To The Analysis

As a reminder, the 2024 Rule did not modify the “duties” test applicable to the EAP and HCE exemptions. The duties test remains the most important factor in determining whether an employee satisfies one of the exemptions. Indeed, the court observed the DOL historically set the salary portion of the test intentionally low to (a) only screen out individuals who are obviously non-exempt, and (b) account for differences between industries, regions, and business sizes across the country. Prior to the July 1, 2024 increase, the salary test screened out approximately 20% of employees who otherwise met the duties test for one of the exemptions. Had the January 1, 2025 salary increase taken effect, the 2024 Rule would have screened out between 30% to 50% of employees who otherwise meet the duties test for one of the exemptions.

The DOL must decide whether it will appeal the ruling to the Fifth Circuit, engage in a new round of rulemaking, or leave the pre-July 1, 2024 rule in place. It currently is unknown what strategy the DOL will take. Given the upcoming executive administration change, and the Fifth Circuit’s business-friendly reputation, we anticipate the DOL will face hurdles raising the salary thresholds regardless.

Employers must reevaluate their salary plans for job positions that fell below the January 1, 2025 salary threshold increase. We anticipate many employers will choose to pause planned salary increases that were set to take effect on January 1, 2025.

Employers also must decide whether they will (a) reduce salaries for employees who previously received a raise to comply with the July 1, 2024 increase (which no longer is in effect), and (b) will post new jobs that saw a salary increase at the current levels or recruit for those jobs at pre-July 1, 2024 levels. The impacts on employee morale and recruitment will be top considerations in making these decisions.

Our <a href="https://www.michaelbest.com/Practices/Labor-Employment-Relations/Wage-and-Hour-Compliance-Defense" target="_blank" rel="noopener">Wage and Hour Team</a> is available to discuss specific strategies in light of the court’s ruling.

Business professionals walking through a modern office space and ascending stairs during a busy workday.

Business professionals walking through a modern office space and ascending stairs.

Salary Threshold Rule Overturned

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