As previously reported here, the U.S. Department of Labor (USDOL) issued its final rule providing that, effective July 1, 2024, the salary threshold under the Fair Labor Standards Act (FLSA) for the white collar overtime exemptions would significantly increase. Specifically, the final rule provides for a two-step increase in the salary threshold: (1) effective July 1, 2024, an increase from $684 per week ($35,568 per year) to $844 per week ($43,888 per year), and (2) effective January 1, 2025, an increase from $844 per week to $1,138 per week ($58,656 per year). Thereafter, the salary threshold will increase automatically every three years.    

While many legal challenges have been filed, the first known ruling addressing this final rule was issued just a few days ago, on the last business day before the salary increase was to take effect, in State of Texas v. U.S. Dep’t of Labor, E.D. Tex., June 28, 2024 . In that case, the U.S. District Court for the Eastern District of Texas enjoined the final rule from taking effect, but only as to employees of the State of Texas. 

While the court’s ruling is limited only to individuals employed by State of Texas and does not apply to private employers in Texas or employers in other states, the court’s reasoning could have far reaching implications in other cases currently pending throughout the country, given the basis of the court’s decision. Notably, the primary basis of the court’s ruling was that the USDOL lacked the statutory authority to issue the rule in the first place. In its holding, the court stated that the final rule reflected a return to the “unlawful approach” the USDOL adopted when it unilaterally attempted to increase the salary threshold in 2016. If followed, this decision could have a significant impact on any pending and future legal challenges regarding the USDOL’s ability to enforce the final rule against employers across the country.  

Significantly, in its ruling, the court cited the U.S. Supreme Court’s almost contemporaneous decision in Loper Bright Enterprises, which overruled the Chevron deference doctrine (the doctrine allowing deference to administrative agency interpretations of federal statutes) and made clear that “courts must exercise their independent judgment in deciding whether an agency has acted within its statutory authority.” In relying upon the Loper Bright Enterprises case, the court questioned the authority of the USDOL to implement the salary threshold increase and noted that the FLSA defines exemptions based on duties that the employee “customarily and regularly” performs, not on how much they are paid.

For now, and with the exception of the State of Texas, employers must comply with the new minimum salary threshold floor of $684/week (which took effect on July 1), in addition to meeting the duties test, in order for an employee to qualify for the white collar exemptions under the FLSA. However, given this decision, its reasoning, the recent U.S. Supreme Court decision in Loper Bright Enterprises, as well as the many other pending cases attempting to enjoin the USDOL’s final rule on the basis of its lack of authority, it is likely that we have not heard that last word on this issue and the status of the “salary basis” exemption threshold.  

We will keep you posted as this issue evolves.