Texas Judge Strikes Down FLSA Salary Rule
On November 15, 2024, a federal judge in the Eastern District of Texas struck down the new Fair Labor Standards Act (FLSA) salary rule that took effect earlier this year, and which was scheduled for another significant increase on January 1, 2025.
The new rule, announced on April 26, 2024, significantly raised the salary threshold required to classify an employee as exempt from overtime under the commonly used “white collar” exemptions applicable to certain professional, managerial, and administrative employees.
Under the 2024 rule, the salary threshold was first raised to $844 per week ($43,888 annually) effective July 1, and it was scheduled to increase again on January 1 to $1,128 per week ($58,656 annually). In addition, the 2024 rule would have automatically continued to raise the threshold every three years on July 1 to keep pace with overall wage inflation. Prior to the enactment of the new rule, the FLSA salary threshold was $684 per week ($35,568 annually) and did not contain an automatic adjustment mechanism.
In granting summary judgment for a group of plaintiffs challenging the 2024 FLSA salary rule, the Texas court held that the U.S. Department of Labor had exceeded its statutory authority. In doing so, the court determined that the FLSA loosely defines the white collar exemptions solely in terms of their job duties, and not with respect to any minimum salary level.
Accordingly, the Department’s authority to further refine the definitions of those exemptions is also limited to rules relating to the job duties applicable to such positions. While the court recognized that the Department has some authority to set a required minimum salary applicable to the white collar exemptions, it may do so only to the extent that the salary acts as a proxy for employees’ job duties.
The court found that the 2024 rule set the minimum salary at a level so high that it effectively replaced the job duties tests rather than acting as an appropriate proxy for them. Indeed, the court noted that the impact of the 2024 rule would be to immediately render approximately four million currently exempt employees non-exempt, despite their job duties remaining exactly the same.
The court’s ruling takes effect immediately, is nationwide in scope, and impacts the entire 2024 FLSA salary rule, including the July 1 increase that already took effect. The consequence is that the FLSA salary threshold for white collar exempt employees immediately returns to its previous level of $684 per week ($35,568 annually).
Employers have the option to return to the pre-2024 salary level and unwind any increases that may have been granted on July 1, and there will no longer be a required increase on January 1 as planned. In addition, the salary threshold will no longer be indexed to inflation and automatically increased every three years as the new rule had provided. In every way, the FLSA salary threshold now returns to the status quo that existed prior to July 1, 2024.
This change, while undoubtedly welcome to many employers, may cause challenges for those that have already given salary increases to employees to comply with the July 1 increase, or had rolled out plans to give additional increases starting on January 1. Employers should consult with counsel as to the best approach in moving forward under the new (old) rule, whether to unwind previously announced changes, and how to message these changes to their workforce.
It remains to be seen what steps, if any, the Department of Labor or other interested parties may take to revive the 2024 salary rule through the appeals process. However, with the incoming change in presidential administration, it seems reasonably likely that the 2024 salary rule is gone for good, at least in its previous form.
For questions on this FLSA decision, or for any employment law issue or concern, please contact firm employment law attorneys Daniel Strader, Peter Hale, Suzanne King, or Katy Rand.