On November 15, 2024, a Texas federal court ruled that the U.S. Department of Labor’s (DOL) final rule raising the salary threshold for “white collar” minimum wage and overtime pay exemptions (the Overtime Final Rule), which we previously detailed here, is vacated and set aside on a nationwide basis. In its decision, the United States District Court for the Eastern District of Texas held that components of the rule exceeded the DOL’s statutory authority under the Fair Labor Standards Act (FLSA).
Specifically, as of July 1, 2024, the Overtime Final Rule increased the minimum annual salary threshold from $684 per week (or $35,568 if annualized) to $844 per week (or $43,888 if annualized) to qualify executive, administrative, and professional positions as exempt from the FLSA’s minimum wage and overtime requirements. The Overtime Final Rule also increased the new total annual compensation to meet the highly compensated employee exemption from $107,432 to $132,964 as of July 1, 2024. Additional increases were to take place on January 1, 2025, with the threshold for white-collar exemptions set to increase to $58,656 per year and the highly compensated employee exemption threshold to increase to $151,164 per year.
Earlier this year, the court had enjoined the Overtime Final Rule, but only against the State of Texas in its capacity as an employer. Now, the impact of the court’s decision is that the Overtime Final Rule is vacated for all employers nationwide. This means that employers are not required to implement salary increases on January 1, 2025, to maintain an employee’s status as exempt from overtime under the FLSA. Additionally, the court invalidated the July 1, 2024 increases that already went into effect, meaning employers would not have been required to increase an employee’s annual salary from $35,568 to $43,888 for an employee to be exempt under a white-collar exemption or from $107,432 to $132,964 to rely on the highly compensated employee exemption. Of course, this November 15 decision comes too late for those employers that already had increased salaries for positions in order to maintain exemption by July 1. Even putting aside concerns about poor morale that likely would occur if an employer were now to reduce an employee’s salary, employers also should be aware that the DOL could appeal this decision to the Fifth Circuit Court of Appeals. Given that, it would be unwise for an employer that raised salaries on account of the Overtime Final Rule to now try to reduce an employee’s salary. Notably, the court’s decision also strikes down the Overtime Final Rule’s mechanism to increase the minimum salary level every three years.
As a reminder, in addition to meeting the salary test, an employee must meet a rigorous standard with respect to their job duties for an employer generally to treat them as exempt from overtime. Employees also must meet any state-specific requirements, which may include higher salary thresholds for exemption. For example, the minimum salary threshold for the executive and administrative exemptions under New York Labor Law is currently $1,200 per week ($62,400 if annualized) for New York City, Long Island, and Westchester County, and will increase effective January 1, 2025, to $1,237.50 per week ($64,350 if annualized). For California, the white-collar salary threshold for exemption is currently $1,280 per week ($66,560 if annualized) and is expected to increase to $1,320 per week ($68,640 if annualized) effective January 1, 2025, with the computer professional exemption, which permits an hourly rate, set to increase on January 1, 2025 from $115,763.35 if annualized (or $55.58 per hour) to $118,657.43 if annualized (or $56.97 per hour).
