On Friday, November 15, the District Court for the Eastern District of Texas invalidated the Department of Labor’s (DOL) 2024 rule aimed at increasing salary thresholds for white-collar exemptions (executive, administrative, and professional roles) and highly compensated employees (HCEs). The court also struck down the rule’s provision for automatic salary updates.
This decision means employers nationwide can disregard the DOL’s planned changes and continue using the pre-July 1, 2024, salary basis level of $35,766 annually ($684 per week) for white-collar exemptions.
DOL Ruling Overturned: Explore the implications of this significant decision, its impact on businesses, and what it means for compliance.
Background on the DOL Rule
In April, the DOL finalized a two-phase salary increase for white-collar exemptions:
- July 1, 2024: Raise to $43,888 annually ($844 per week)
- January 1, 2025: Further increase to $58,656 annually ($1,128 per week)
For highly compensated employees, thresholds were also set to rise:
- July 1, 2024: Increase to $132,964 annually
- January 1, 2025: Further increase to $151,164 annually
The rule included a mechanism for automatic salary adjustments every three years.
The Court’s Ruling
The court ruled that the DOL overstepped its authority under the Fair Labor Standards Act (FLSA) by focusing too heavily on salary rather than job duties, which the FLSA prioritizes. According to the court, setting such high salary thresholds effectively created a “salary-only” test, disregarding the statute’s emphasis on job functions.
Additionally, the court found the automatic salary updates violated procedural requirements under the FLSA and the Administrative Procedure Act (APA).
Implications for Employers
With the DOL rule invalidated, employers can maintain the current federal salary threshold. However, businesses should note that many states and local jurisdictions have higher thresholds for exempt employees, including:
- Alaska
- California
- Colorado
- Maine
- New York
- Washington
Employers operating in these states must comply with local laws, even as the federal thresholds remain unchanged.
What’s Next?
While the DOL may appeal the decision to the Fifth Circuit Court of Appeals, many believe the current administration might forgo further legal action, allowing the ruling to stand.
Employers should monitor developments closely and ensure compliance with both federal and state wage-and-hour regulations.
Want to learn more about this ruling and how your company compensation structure is impacted? Give our team a call!