Employment/Health Law Alert by Lamb McErlane attorneys: Vasilios J. Kalogredis, Esq. and Sonal Parekh, Esq.

On November 15, 2024, a federal judge in the Eastern District Court of Texas struck down the Biden administration’s Department of Labor’s (“DOL’s”) overtime final rule (“Final Rule”), which raised the salary threshold to qualify an employee for exempt status as an executive, administrative or professional (“EAP”) employee under the Fair Labor Standards Act (“FLSA”).[1] Specifically, the Final Rule implemented a two-phase approach to increasing the minimum salary threshold under the FLSA overtime regulations. The first increase took effect on July 1, 2024 (“July 2024 Increase”) and the second increase was to take effect on January 1, 2025 (“January 2025 Increase”), which would have increased the minimum salary threshold to $1,128 per week (or $58,656 per year).

In its decision, the Court ruled that the DOL exceeded its authority delegated to it by Congress by increasing the salary amount to an exceptionally high level and, in doing so, going beyond what the FLSA contemplated, and thereby violating the statutory language of the FLSA and prior court decisions. The Court held that the Final Rule effectively displaced the FLSA’s duties test with a salary-level test. The Court elaborated that if the January 2025 Increase had taken effect, approximately three million employees would have become nonexempt, in addition to the one million workers affected by the July 2024 Increase. The Court further noted that the Final Rule’s automatic adjustment of the salary minimum, set to begin in 2027, would circumvent the DOL’s notice and comment requirements, “effectively immunizing itself from the Administrative Procedure Act’s procedural obligations and judicial review.”

The Court’s ruling vacates all components of the Final Rule, meaning that the salary thresholds set by both the July 2024 Increase and January 2025 Increase will no longer be in effect and triennial automatic updates will no longer take place. The decision applies to all covered employers and employees under the FLSA nationwide. Accordingly, the salary threshold set in the 2019 regulations will be the salary threshold employers should now adhere to (i.e., $684 per week or $35,568 per year).

If an employer did not provide an increase in annual salary level to $43,888 and simply classified the employee to non-exempt, it may be possible to reclassify the employee as exempt. On the other hand, if an employer has provided a salary level increase, the employer should consult with counsel before contemplating a rollback of those recent salary increases. Of course, employers in all states should remain cognizant of whether their state laws provide a higher salary level for the exemption than the FLSA.

Although the DOL could appeal this decision to the U.S. Court of Appeals for the Fifth Circuit, such an appeal is not anticipated to be successful given the upcoming changes in the Administration as a result of the recent Presidential election.

[1] See State of Texas v. U.S. Dept’ of Labor, Civil Action No. 4:24-cv-499, E.D. Tex. (Nov. 15, 2024).