The DOL’s Salary Threshold Increase Blocked Nationwide
Posted by kmayberry on Nov. 19, 2024 / Subscribe 0
The DOL’s Salary Threshold Increase Blocked Nationwide
Bodman PLC
On April 23, 2024, the Department of Labor (“DOL”) issued a new rule that fashioned a two-part
increase to the salary threshold for exempt workers with effective dates of July 1, 2024 and
January 1, 2025. While the July 1, 2024 went into effect for most employers, a federal judge
vacated the DOL’s new rule nationwide ahead of the January 1 st increase. This provides timely
relief for employers that were preparing to reclassify or increase the compensation of millions of
workers who are currently classified as exempt from minimum wage and overtime compensation
but who earn less than the DOL’s proposed salary thresholds.
Background
Under the Fair Labor Standards Act (“FLSA”), employees are entitled to overtime compensation
for any week in which they work more than 40 hours, unless they are classified as “exempt.”
Certain “white-collar” employees are eligible for executive, administrative, and professional
exemptions if they: (i) are compensated on a salary basis at a rate that exceeds the salary
threshold then-defined by the DOL, and (ii) satisfy the corresponding duties tests.
The DOL’s two-part initiative increased the salary threshold from $35,568 to $43,888 on July 1,
2024, and sought to increase the threshold to $58,656 on January 1, 2025.
Legal Challenges
Legal challenges commenced almost immediately. In particular, the State of Texas and “a
coalition of trade associations and employers” filed suit in the U.S. District Court for the Eastern
District of Texas, arguing that the DOL exceeded its authority and casting doubt upon the
calculation method relied upon in selecting the new thresholds. The federal judge stayed the July
1 increase only for the parties to the litigation. Now, in advance of the January 1 increase, the
federal judge vacated the entirety of the DOL’s new rule, preventing implementation and
enforcement nationwide, because it “exceeds the [DOL’s] authority and is unlawful.”
The DOL may appeal this decision, but the upcoming change in administration makes the
likelihood of an appeal uncertain. Regardless, the Fifth Circuit Court of Appeals and, if pursued
further, the Supreme Court, are likely to uphold this decision.
Next Steps
The former salary threshold is reinstated, so employers may continue to classify white-collar
employees as exempt so long as they satisfy the applicable duties test and earn at least $35,568
annually.
Employers must also keep in mind that state-specific compliance is imperative as various states
define their own, elevated salary thresholds.
For those employers that audited their exempt and non-exempt classifications in anticipation of
the January 1 increase, and identified potential misclassifications rooted in the duties test, the
invalidated DOL rule may still provide strategic cover for reclassifications.
Employers are encouraged to contact their employment attorney to discuss strategies for
employee classifications and compensation in compliance with state and federal wage and hour
laws.
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