Millions of Employees Retain Exempt Status as Federal Court Invalidates DOL’s Salary Threshold Increase for Overtime Exemptions

Legal Alert

November 18, 2024

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The Fair Labor Standards Act (“FLSA”) requires covered employers to pay employees overtime compensation at the rate of one and one-half times the regular rate of pay for all hours worked over 40 in a workweek, unless the employee qualifies for an exemption. To qualify as an exempt executive, administrative, or professional employee (“white collar worker”) under the FLSA, generally the employee must satisfy the applicable duties test, be paid on a salary basis regardless of how many hours are worked during the workweek, and the employee’s earnings must meet or exceed a minimum salary threshold also known as the standard salary level.

On April 23, 2024, the U.S. Department of Labor (“DOL”) issued a final rule increasing the minimum salary threshold for white collar workers to qualify for the overtime pay exemption from $684 per week ($35,568 annually) to $844 per week ($43,888 annually) on July 1, 2024, and $1,128 per week ($58,656 annually) as of January 1, 2025. The salary threshold increases were predicted to impact the classification of more than 4 million workers nationwide without any change to their job duties. The rule also contains an automatic mechanism that would update the minimum salary thresholds every three years based on then-current earnings data. Additional information can be found in the firm’s previous client alert: DOL Issues Final Rule Increasing Salary Thresholds for Overtime Exemptions - SGR Law.

On November 15, 2024, the U.S. District Court for the Eastern District of Texas struck down the DOL’s rule in its entirety, finding that the rule is out-of-step with both the DOL’s past practices and the historical screening function of the salary-level test. The court explained that because the white-collar exemption requires that an employee’s status turn on duties—not salary—and the rule’s changes make salary predominate over duties for millions of employees, the changes plainly exceed the DOL’s authority to define and delimit the terms of the white-collar worker exemption. The court also determined that implementation of an automatic salary threshold increase mechanism is unlawful because it circumvents the Administrative Procedure Act and by increasing the salary threshold in the future without any rulemaking or substantive analysis by the DOL.

As a result of the court’s ruling, the July 2024 salary threshold increase is immediately invalidated, and the January 2025 increase will not go into effect. As such, the minimum salary threshold for a white-collar worker to qualify for the overtime pay exemption remains $684 per week ($35,568 annually). Employers who previously adjusted the salaries or exemption status of employees to comply with the now-defunct July 2024 increase should consult with employment counsel to evaluate how to address those changes moving forward. Companies with employees in Alaska, California, Colorado, Maine, New York, or Washington should be aware that state salary thresholds for exemptions generally exceed the FLSA salary threshold.

If you have any questions regarding the issues raised in this client alert, please contact your Labor and Employment counsel at Smith, Gambrell & Russell, LLP.