All Eyes on Courts as Final Rule’s Effective Date Approaches

On April 23, 2024, the United States Department of Labor issued a final rule that will increase the minimum salary threshold for the FLSA’s familiar white-collar overtime exemptions. Effective next Monday, July 1, the salary threshold for exempt workers will increase from the current rate of $684 per week (i.e., $35,568 annually) to $844 per week (i.e., $43,888 annually). The changes don’t end there. Under the new final rule, the salary threshold will increase again on January 1, 2025, up to $1,128 per week (i.e., $58,656 annually).

The salary threshold for “highly compensated employees” (“HCEs”) is also set to rise. Currently, HCEs must earn a salary of at least $684 per week, with a total annual compensation of at least $107,432. On July 1, this yearly minimum will increase to $132,964, and then to $151,164 on January 1, 2025.

In other words, significant changes are coming to federal wage-and-hour law beginning next Monday, absent judicial intervention. Accordingly, employers should give prompt attention to any exempt employee currently making less than $43,888 per year (and, ultimately, less than $58,656 per year beginning on January 1). Likewise, employers should revisit any “HCE” classification for an employee earning less than $151,164 per year.

Even with the effective date looming near, the new rule’s fate remains uncertain. The State of Texas, business associations, and private litigants alike have all challenged the final rule and sought to enjoin the implementation of these heightened salary thresholds.  The regulation has been subject to several major legal challenges since the Department of Labor issued its final rule in April. One federal District Court in the Eastern District of Texas  held a hearing June 24 on the State of Texas’ request to freeze the rule. Also this week, a District Court in the Northern District of Texas received briefing on a software company’s request to enjoin the final rule. These legal challenges command attention. In 2016, a federal judge in Texas issued a nationwide injunction blocking the Department of Labor from implementing similar salary-threshold increases.

Although a court may enjoin the latest final rule before Monday’s effective date, employers cannot count on that outcome. To the extent not already completed, employers should spend these final days identifying employees who require an increase in salary or reclassification to nonexempt status before July 1, 2024 based on the final rule’s new threshold requirements.

United States Supreme Court will Decide Burden of Proof for FLSA Exemptions

The United States Supreme Court recently agreed to resolve a question that has split the federal courts of appeals. Namely, the Court will resolve what is burden of proof that employers must meet to show an employee is exempt from the FLSA’s minimum wage and overtime requirements. In E.M.D. Sales, Inc. v. Carrera, the Court will review a decision by the Fourth Circuit (which covers North Carolina, South Carolina, Maryland, and Virginia) holding that employers must meet a “clear and convincing” standard to establish an exemption from an overtime claim. This decisions is an outlier and conflicts with most other federal circuit courts of appeals, which have held that employers need only establish an exemption by a “preponderance of evidence.”

The Court’s decision will bring significant implications. If the Court adopts the Fourth Circuit’s higher “clear and convincing” evidentiary standard, employers will face increased risk of liability under the FLSA. Such a heightened burden makes it more difficult for employers to establish their employees are, in fact, exempt from the FLSA’s overtime requirements. For nationwide employers, the Court’s weighing-in will harmonize different standards in different parts of the country and ensure a uniform, national standard. We do not expect a decision from the Court in this case until 2025. For now, employers should continue to reassess their own FLSA classifications on a regular basis to ensure compliance with the most recent updates in the law.