Written By: Christopher Leddy, Esq., David Frankel, Esq., and Maria Matkou, Esq.
Previously, our firm published an article warning employers of a new U.S. Department of Labor (“DOL”) Rule (the “Rule”) regarding increases to the salary thresholds for federal exemptions from minimum wage and overtime under the Fair Labor Standards Act (the “FLSA”). As predicted in the aforementioned article, there were legal challenges to the Rule and, on November 15, 2024, a federal court in Texas vacated the Rule. As a result of the court’s decision, the salary requirements for the executive, administrative, and professional exemptions (the “EAP Exemptions”) will continue to be $644/week ($35,568 annualized) nationwide. Notably, the required salary increases that went into effect on July 1, 2024 under the Rule, which was $844/week ($43,888 annualized), are also vacated.
Executive, Administrative, and Professional Exemptions:
For the EAP Exemptions, the FLSA generally requires that employees perform certain job duties to qualify for exemptions. The Court reasoned that the Rule exceeded the DOL’s statutory authority because the Rule “is not based on a permissible construction of [the FLSA] … the minimum salary imposed by the 2024 Rule ‘effectively eliminates’ consideration of whether an employee performs ‘bona fide executive, administrative, or professional capacity’ duties in favor of what amounts to a salary only test.”
Highly Compensated Employee Exemptions:
The FLSA also includes a highly compensated employee exemption (the “HCE Exemption”), which provides that employees who earn the requisite salary and customarily and regularly perform at least one of the duties of an exempt executive, administrative, or professional employee identified in the standard tests for exemption are not covered by the minimum wage and overtime requirements. Prior to the Rule, the salary requirement for the HCE Exemption was $684/week and $107,432/year. Effective July 1, 2024, the salary requirement was increased to $844/week and $132,964/year. However, as a result of the Rule being vacated, the HCE Exemption remains $684/week and $107,432/year. The Court specifically explained that its “analysis regarding the legality of the changes to the standard salary level applies equally to the Department’s changes to the HCE level.”
Conclusion:
What does this change mean for employers? Simply put, employers will not need to make the choice between raising the salaries or paying minimum wage and overtime. It is also exceedingly unlikely that the Court’s decision will be overturned on appeal because (i) the decision will be appealed to the Fifth Circuit Court of Appeals, which is likely to agree with the Court’s decision, and (ii) the DOL will be under the authority of an entirely different presidential administration effective January 20, 2025, which is also likely to agree with the Court’s decision. It is important to note, that this decision does not affect state laws requiring higher salary thresholds for employees to qualify as exempt from minimum wage and overtime requirements. Therefore, staffing companies and employers must still be aware of state laws.