On November 15, 2024, a federal court in the Eastern District of Texas issued an order striking down the U.S. Department of Labor’s 2024 rule raising the salary threshold for the Fair Labor Standards Act’s most common overtime exemptions. The ruling effectively “turns back time” and reduces the salary thresholds for both the white collar exemptions and the highly compensated employee exemption to the overtime requirement to the previous requirements established in 2020. Employers should re-familiarize themselves with the 2020 salary thresholds and may reconsider plans to treat certain employees who satisfy the 2020 thresholds but not the 2024 thresholds as non-exempt.
The 2024 Rule and How We Got Here
On July 1, 2024, the United States Department of Labor (“DOL”) final rule (the “Biden Rule”) governing salary thresholds under the Fair Labor Standards Act (“FLSA”) went into effect. The Biden Rule increased the salary threshold for the FLSA’s “white collar” exemptions (including the Executive, Administrative, and Professional exemptions) to $43,888 per year, or $844 per week, on July 1, 2024. Furthermore, the Biden Rule was set to increase that threshold to $58,656 per year, or $1,128 per week, on January 1, 2025. The Biden Rule also increased the salary threshold for the Highly Compensated Employee exemption to $132,964 per year on July 1, 2024, to be followed by a planned increase to that threshold to $151,164 per year on January 1, 2025.
These threshold increases were the culmination of years of back and forth between the Obama, Trump, and Biden DOLs. Before 2016, the salary threshold for white collar exemptions was just $23,660 per year, which meant that employers could treat employees whose salaries were barely above the federal poverty level as exempt and not entitled to overtime for any hours worked in excess of 40 in a given week (subject to meeting applicable duties requirements). President Obama’s 2016 rule increased the white collar salary threshold to $47,476 per year. However, in a move that would later be echoed in 2024, that rule was enjoined by the U.S. District Court for the Eastern District of Texas in November of 2016 and eventually struck down in August of 2017. The Court’s reasoned in part that the salary level increase “effectively [eliminated] the duties test” that also governs whether one of the white collar exemptions applies to an employee.
The Obama DOL appealed this decision, but the Trump Administration eventually abandoned efforts to support the 2016 rule. For its part, the Trump DOL issued its own rule increasing the salary threshold on September 24, 2019, which took effect on January 1, 2020. This 2020 rule raised the white collar salary threshold to $35,568 per year, or $684 per week, and it also raised the Highly Compensated threshold to $107,432 per year, or $2,066 per week.
Wanting more employees to qualify for overtime, the Biden Administration eventually raised these levels again with the issuance of the Biden Rule. The Biden Rule also contained a built-in mechanism for automatic updates to the salary thresholds based on current earnings data. The 2020 rule did not include such a mechanism, but the 2016 rule (which was struck down) did.
Same Court, Different Day
Just like the 2016 rule, the Biden Rule was challenged in the Eastern District of Texas, this time by the State of Texas and a group of more than a dozen business organizations. On November 15, 2024, the court invalidated the Biden Rule’s salary increases based on the same reasoning as the 2016 decision: the Court concluded that “because the EAP Exemption requires that an employee’s status turn on duties—not salary—and because the 2024 Rule’s changes make salary predominate over duties for millions of employees, the changes exceed the Department’s authority to define and delimit the relevant terms.” This decision invalidates both the July 1, 2024 salary threshold increases and the expected January 1, 2025 increases under the Biden Rule. That means that the salary thresholds for both the white collar exemptions and the Highly Compensated Employee exemption have reverted back to their 2020 levels, which again are $35,568 per year and $107,432 per year respectively. And just as it did with the 2016 ruling, the incoming Trump Administration is likely to abandon attempts to appeal the court’s ruling once it assumes power.
What This All Means For Employers
Many employers have already taken steps to increase the salaries of employees whom they would like to continue treating as exempt in accordance with the 2024 rule, and it may be practically difficult from a retention standpoint to decrease those salaries moving forward. If employers have not already increased salaries, or if they perhaps increased salaries to comply with the July 1, 2024 increase but not the January 1, 2025 increase, then they no longer have to implement such increases in order to ensure that certain employees remain exempt. Employers can also reevaluate the duties of all employees who they have been treating as non-exempt but who make more than $35,568 per year (for the white collar exemptions) or $107,432 per year (for the highly compensated exemption), and determine whether they otherwise satisfy the requirements of the applicable exemptions. If they do, such employees may be reclassified as exempt.
It is unknown if the new Trump DOL will attempt to implement another salary threshold increase beyond the 2020 rule. If it does, employers will once again have to reevaluate their exempt employees’ salaries and duties. For now, however, employers can keep operating as if the Biden rule never took effect.
