Federal Court Overturns 2024 Salary Threshold Rule for Exempt Employees

Ruling repeals the salary threshold increases that took effect on July 1, 2024 and stops the planned increase set for January 1, 2025.

On November 15, 2024, the U.S. District Court for the Eastern District of Texas vacated the Department of Labor’s (DOL) rule that had increased the salary thresholds for the Fair Labor Standards Act (FLSA) overtime exemptions. This ruling repeals the salary threshold increases that took effect on July 1, 2024 and stops the planned increase set for January 1, 2025.

Background of the DOL’s 2024 Overtime Rule

The DOL’s 2024 rule was set to expand overtime protections by raising the salary thresholds for the executive, administrative, and professional exemptions under the FLSA. The rule proposed a two-phase increase:

• July 1, 2024: Increase from $684 per week ($35,568 annually) to $844 per week ($43,888 annually).
• January 1, 2025: Further increase to $1,128 per week ($58,656 annually).

Legal Challenge and Court’s Decision

The State of Texas, along with various business groups, challenged the DOL’s rule, arguing that the substantial increases to the salary threshold effectively overrode the duties tests established by Congress to determine an individual’s FLSA exempt status. The court agreed, stating that the DOL exceeded its authority by emphasizing salary levels over job duties, which could displace the duties-based exemption analysis required by the FLSA.

Implications for Employers

As a result of the court’s ruling, the salary thresholds for FLSA exemptions revert to the levels effective on June 30, 2024 of $684 a week or $35,568 per year.

Employers who adjusted salaries to comply with the now-invalidated July 1, 2024 increase may consider reverting to the previous salary levels. However, before making any changes, organizations should:

• Check State Requirements: Many states set their own salary thresholds, which may exceed federal standards. Verify compliance with any applicable state-specific laws.
• Evaluate Workforce Impact: Rolling back salary increases could hurt morale and employee retention. Carefully consider how such changes may affect your team.
• Seek Legal Guidance: Consult with legal experts before making adjustments to ensure adherence to wage and hour regulations and avoid potential compliance issues.
• Stay Updated: Keep track of legal developments, including appeals or regulatory updates, that might influence future salary threshold requirements.

By carefully evaluating these factors, organizations can make informed decisions that balance legal compliance with employee well-being.