The U.S. Department of Labor’s (“DOL”) final rule raising exemption salary thresholds under the Fair Labor Standards Act (“FLSA”) has been vacated with nationwide effect, including increases that took effect in July 2024.
As we previously reported HERE, in April 2024, the DOL implemented its final rule, which raised the Executive, Administrative and Professional (“EAP”) exemption threshold to $844 per week ($43,888 annually) on July 1, 2024, and was set to increase to $1,128 per week ($58,656 annually) on January 1, 2025. It also established the annual “highly compensated employee” (“HCE”) exemption threshold at $132,964 as of July 1, 2024, and $151,164 as of January 1, 2025. The DOL managed to survive multiple challenges to its authority to define salary thresholds under the final rule (see HERE) – until now.
On November 15, in State of Texas v. United States Dep’t of Labor, Judge Sean D. Jordan of the Eastern District of Texas ruled that the DOL exceeded its rulemaking authority. Judge Jordan vacated the final rule in its entirety with nationwide effect, including those increases that took effect in July 2024. To reach this determination, Judge Jordan analyzed the applicable text under the FLSA, which referred to employees working in a “bona fide executive, administrative, or professional capacity[,]” and noted that such terms all relate to duties, not salary. Although Judge Jordan acknowledged that the term “bona fide” provides the DOL some authority to consider salary level in defining the exemptions, the court found that the “staggering” increases effectively displaced the “duties” test and imposed a test predominantly focused on salary level. Because an employee’s exemption status must be based on duties and not salary, the court held that the “sweeping changes” under the final rule exceeded the DOL’s authority to define and delimit the exemptions.
Pursuant to this decision, exemption salary thresholds will revert back to prior levels set in 2019 with the EAP exemption threshold at $684 per week ($35,568 annually), and the HCE exemption threshold at $107,432 annually. Although the DOL is likely to appeal this decision to the Fifth Circuit, a ruling is not expected before the arrival of the Trump Administration in January 2025. This ruling does not affect state laws containing higher salary thresholds than those under the FLSA, including those in New York and California.
If you have any questions related to the court’s decision or its potential impact on your workplace, please reach out to the NFC Attorney with whom you typically work or call us at 973.665.9100 or 619.292.0515.
