As we previously discussed, the United States Department of Labor (the “DOL”) issued a final rule in the spring of 2024 (the “2024 Rule”) substantially increasing the minimum salary level for the executive, administrative, and professional exemptions (the “EAP” exemption, or so-called “White Collar” exemptions) and highly compensated employee exemptions under the Fair Labor Standards Act (the “FLSA”). Generally, the White Collar and highly compensated employee exemptions require that employees be paid a specified minimum salary and satisfy a “duties test.” The 2024 Rule raised the minimum salary in two phases, the first took effect on July 1, 2024, with the second increase effective as of January 1, 2025. In the vast majority of cases, regardless of their duties, if employees do not earn at least as much as the required minimum salary, they must be paid overtime for all hours worked over 40 in any given workweek.
As expected, the 2024 Rule and the DOL’s authority are being challenged in three separate lawsuits (State of Texas v. U.S. Dep’t of Lab., 4:24-cv-00499 (SDJ) (E.D. Tex. 2024); Flint Ave., LLC v. U.S. Dep’t of Lab., et al., 5:24-cv-00130 (SRC) (N.D. Tex. 2024); and The Ass’n of Christian Schs. Int’l v. U.S. Dep’t of Lab., 3:24-cv-00984 (M.D. Tenn. 2024). In the State of Texas case, the court issued a preliminary injunction halting the 2024 Rule solely as it applied to the plaintiff in the case (the State of Texas), declining to issue a nationwide injunction. In Flint Avenue, the Court denied plaintiff’s request for a nationwide injunction but left open the possibility of a permanent injunction in advance of the January 1, 2025 salary increase. Cross-motions for summary judgment have been filed, and a final decision on the permanent injunction is expected soon. Plaintiff’s request for a preliminary injunction in Association of Christian Schools International remains undecided, as the court recently granted the parties’ joint motion to transfer the case to the United States District Court for the District of Columbia.
In the meantime, in an important and long-awaited decision, the United States District Court for the Fifth Circuit, which includes the Texas federal courts where two cases challenging the 2024 Rule are pending, recently reaffirmed the DOL’s authority to establish salary thresholds for overtime pay. See Mayfield and R.U.M. Enters, Inc. v. U.S. Dep’t of Lab., No. 23-50724 (5th Cir. Sept. 11, 2024). Specifically, this court upheld a Trump-era rule from 2019 (the “2019 Rule”) requiring that employees be paid a minimum weekly salary of $684 ($35,568 annually) in order to be exempt from the FLSA’s overtime pay requirement.
The Mayfield Court analyzed the DOL’s authority under the FLSA to define overtime exemptions using salary as a determining factor. It confirmed that the DOL has long had the power to consider salary levels when deciding who must be paid for overtime, a practice that dates back to the enactment of the FLSA. The Mayfield Court noted that Congress has amended the FLSA multiple times but never challenged the DOL’s authority to set salary thresholds. Instead, the Mayfield Court held that the DOL’s use of salary-based criteria is consistent with legislative intent, rejecting the plaintiffs’ arguments that the DOL’s promulgation of the 2019 Rule exceeds its authority and represents an unconstitutional delegation of legislative power.
Although the Mayfield Court held the 2019 Rule to be valid (not the 2024 Rule), it rejected the very same legal challenges facing the 2024 Rule in the cases described above.
However, while the Mayfield decision affirmed the DOL’s ability to set a minimum salary, the State of Texas Court questioned whether the DOL could establish a threshold so high that it undermines the duties test. It found that the salary threshold for the White Collar exemptions aligns with the DOL’s authority under the FLSA only if it serves as a valid proxy for the employees exempted by the duties test. This holding suggests that the significant increases in the salary levels in the 2024 Rule may not meet this criterion, and ultimately may fail.
Nonetheless, the Mayfield decision held that the DOL has the authority to promulgate regulations increasing the minimum salary threshold, seemingly paving the way for finding that the 2024 Rule is valid.
Significantly, legal challenges have not halted the effective dates for the 2024 Rule for all employers subject to the FLSA. The 2024 Rule, effective July 1, raised the minimum salary for the EAP exemption to $844 per week ($43,888 annually), with another increase set to take effect January 1, 2025, bringing the salary threshold to $1,128 per week ($58,656 annually).
Failure to pay overtime continues to be one of the most, if not the most, frequent and costly litigations facing employers. As we previously discussed, a change in the law is an ideal time to make prospective changes to classifications. Thus, employers should review their classifications and salaries with all deliberate speed to ensure that any changes will be made no later than January 1, 2025.
