Court’s Decision Strikes Down Department of Labor Salary Threshold Increase Rule

As clients will recall from earlier alerts, the U.S. Department of Labor issued a rule in April 2024 that required employers to increase the salary floor for persons meeting the “white-collar” exemptions referred to as the “Executive”, “Administrative” and “Professional” exemptions (“EAP”, for short).  Generally, to meet these EAP exemptions and for the company to be exempted from paying overtime for hours worked over 40 per week, an employee must be paid a fixed weekly salary, regardless of the number of hours worked; the employee’s primary duty must be the performance of exempt duties spelled out by the Fair Labor Standards Act; and the employee must earn a minimum weekly salary established by law.

The DoL’s April 2024 rule required employers to implement two sets of exempt salary increases.  The first phase, implemented on July 1, increased the minimum weekly salary for most exempt employees from $684/week (annual $35,568) to $844/week (annual $43,888).  The second phase, which would have taken effect on January 1, 2025, would have increased the salary minimums for most exempt employees to $1,128/week (annual $58,656).  There was also a requirement that persons who were exempt using the Highly Compensated Employee test would have had to be paid at least these weekly amounts and whose minimum annual salary had to be increased to $132,964 on July 1, 2024, and $151,164 on January 1, 2025, respectively, with automatic escalators every three years thereafter.

As previously reported, several employers and employer organizations sued the DoL to prohibit implementation of these salary changes. On November 15, the Texas court where these lawsuits were filed issued a decision that the DoL rule exceeded its statutory authority under the Fair Labor Standards Act.   This decision effectively strikes down the April 2024 rule for all employers.

Practically speaking, although the ruling kills the entire rule, most employers would be hard-pressed to roll back salary changes they implemented on or before July 1 to bring exempt employees’ salaries up to the minimum $844/week (annual $43,888).  Employers will in any case not be legally required to implement the second phase of salary increases, but may do so if they choose.  

The court’s decision to nix the DoL rule was based on the fact that the agency increased the salary threshold but seemingly disregarded the duties tests, thus exceeding the DoL’s authority. The court also noted that changes such as these require the DoL to follow the federal Administrative Procedure Act and that the DoL lacked the authority to automatically trigger future increases.

While the DoL could appeal this decision, the likelihood of new cabinet appointments following a change in presidential administration would probably result in any such appeals being abandoned. 

Important takeaways to note after this court decision:

• The duties test of each exemption remains essential to determining who is or isn’t exempt from the overtime payment requirements.  Employers should periodically review job descriptions and consult with counsel to make sure that employees whose positions are intended to be exempt truly meet the requirements established by each of the DOL’s tests.  Where changes to job descriptions are needed, employers should be sure to share any updates with affected employees and obtain a signed acknowledgment of receipt of the updated requirements.
• This decision does not supplant any state law requirements that may require employers to pay higher salary minimums.  For example, the laws of Alaska, California, Colorado, Maine, New York, and Washington will still govern with respect to when an employee can be considered exempt when the state salary minimum exceeds the current federal minimum salaries.
• Employers should remain vigilant to state law changes, which would likely prevail over the federal standard.