Perspectives

Federal Judge in Texas Strikes Down Department of Labor’s Effort to Raise Salary Threshold for Exempt Employees

A recent ruling from a federal judge in Texas has blocked the Department of Labor’s attempt to raise the salary threshold for employees to qualify for exemption from overtime pay under the Fair Labor Standards Act (FLSA). This decision has significant implications for businesses and worker alike, particularly regarding how exempt status is determined for employees in executive, administrative, and professional (EAP) roles.

The FLSA and the EAP Exemption 

The FLSA mandates that covered employers pay employees at least the federal minimum wage and provide overtime pay for hours worked over 40 hours in a week. However, the law includes an important exception for EAP employees, meaning those in executive, administrative, or professional roles may be exempt from these requirements.

For employees to qualify for this exemption, they must meet certain criteria, which the Department of Labor (DOL) defines through regulations. One of these criteria is the salary level. The DOL periodically updates this salary threshold, and in its 2024 Rule, the Department aimed to raise the minimum salary for exempt employees to a higher level.

The 2024 Rule and the Court’s Decision

On November 15, 2024, a Federal Judge in Texas ruled against the DOL’s 2024 Rule, which had raised the salary threshold for EAP employees. The first phase of the rule, which took effect on July 1, 2024, increased the salary level from $684 per week ($35,568 annually) to $844 per week ($43,888 annually). This change would have made approximately one million employees who were previously considered exempt eligible for overtime pay.

The court ruled that the DO exceeded its authority under the FLSA by using a “salary -only” approach to determine whether an employee is exempt. According to the ruling, the FLSA requires the DOL to consider the duties of employees, not just their salary level, when applying the EAP exemption. The judge found that the department’s rule did not properly account for the role and responsibilities of the employee, violating the scope of authority granted by Congress.

What About the Other Phases of the 2024 Rule? 

The 2024 rule included additional phases that had not yet taken effect. The second phase was set to raise the salary threshold to $1,128 per week starting January 1, 2025. The third phase would have implemented automatic increases to the salary threshold starting in 2027 without requiring notice or public comment. The court also found the provisions to be beyond the DOL’s authority, finding that the Department lacked the power to make these changes unilaterally.

What Does This Mean for Employers?

If your company had already raised employee salaries outlined in the 2024 rule, you are not in violation of the law by rolling back those increase. However, it’s important to note that you cannot ask employees to return the additional pay they received, as that could lead to legal and reputational issues.

It’s also worth considering the impact that lowering salaries might have on employee morale. While the legal ruling may allow businesses to revert to the previous salary levels, doing so could cause dissatisfaction and erode trust within the workforce.

Could the Biden Administration Appeal?

While the decision may seem final, the Biden Administration could still choose to appeal the ruling, although a reversal seems unlikely. The court’s decision was notably supported by the Supreme Court’s ruling earlier this year in Loper Bright Enterprises v. Raimondo. In that case, the Supreme Court overturned decades of precedent by overturning what is known as Chevron deference, which had previously allowed agencies like the DOL considerable discretion in interpreting the laws they enforce. Now, courts are required to exercise their own judgement in determining whether an agency has stayed within its statutory authority. Given the court’s reliance on Loper Bright, it seems highly unlikely that the ruling will be overturned.

Conclusion

The Texas federal judge’s decision to strike down the Department of Labor’s 2204 salary threshold increase is a significant development for businesses and employees affected by the FLSA’s overtime and minimum wage exemptions. While the ruling halts the planned increases, employers must be careful about reversing salary adjustments that were already made. moreover, the possibility of an appeal remains, but the likelihood of a reversal is slim in light of recent Supreme Court decisions. Employers should continue to monitor the situation and ensure their compensation practices align with current legal standards.