The Department of Labor, in April of 2024, finalized a rule to increase the Fair Labor Standards Act (FLSA) salary threshold for exempt workers. Under the proposed rule, the salary threshold would be advanced in two phases. First, beginning on July 1, 2024, the annual salary threshold for exempt employees would increase to $43,888 or $844 per week. The annual salary threshold for exempt highly compensated employees would increase from $107,432 to $132,964. Then, on January 1, 2025, the salary threshold was scheduled to increase, again, to $1,128 per week or $58,656 per year and with highly compensated employees receiving an increase in salary threshold to $151,164 per year. The rule further provided that beginning July 1, 2027, and every three years thereafter, the salary thresholds were to be updated to reflect current earnings data.
On November 15, 2024, the U.S. District Court for the Eastern District of Texas vacated and set aside the Department of Labor’s rule and thereby nullified these increases.
The FLSA generally provides that employees are to be paid a minimum wage for hours worked and receive “overtime pay” (hourly rate times 1.5) for hours worked over 40 hours per week. The FLSA has carved out exemptions for certain categories of “white collar” positions. To qualify for an exemption, the FLSA applies two tests: the “duties test” and the “salary test”.
The "duties test" examines whether an employee's primary job responsibilities fall under executive, administrative, or professional categories, while the "salary test" determines if the employee is paid a salary exceeding a specific minimum amount. Both tests must be satisfied before an employee can be considered exempt from overtime pay. Simply stated, the duties test examines the nature of the work performed, and the salary test examines the pay level required for exemption. The DOL, by and through this proposed “Rule 2024,” sought to advance the salary test. There was no coinciding address of the duties test.
The Texas Court struck down the proposed rule holding, “that in adopting the 2024 Rule, the DOL improperly displaced the duties component of the exemptions with a predominantly salary-driven analysis.” “[T]he Exemption requires that an employee’s status turn on duties—not salary—and because the 2024 Rule’s changes make salary predominate over duties for millions of employees, the changes exceed the [DOL]’s authority to define and delimit the relevant terms.” In State of Texas v. U.S. Dept. of Labor, et al., Civil No. 4:42-CV-468-SDJ (E.D. Tex. Nov. 15, 2024). The Court added that the clause providing for review and increase of the salary threshold every three years, further alienated the duties-based test and was beyond the DOL authority.
As a direct consequence of the Texas Court ruling, the modifications to the salary threshold are nullified. The advancement scheduled for January 1, 2025 will not take effect. The advancement forwarded in July of 2024 is abolished.
If your organization changed the employment categorization for employees from exempt to non-exempt status due to the July 1 increase, you should notify them of the rule-change and advise them of their exempt designation under the FLSA. In addition, if your organization notified employees of the January 1, 2025 change, you must send a second notice stating that the court has vacated the rule and that their status will not change due to the rule. Both notices should specify any applicable time-keeping requirements and modifications. Please note, some states, including but not limited to, California, New York, Maryland, North Carolina, and Hawaii, require advance notice to employees of any reduction in pay. Each state has its own notice provision designating the requisite time for notification. If the referenced adjustments will result in a reduction in pay, you must provide notice in accordance with applicable state law.
If you have questions or need assistance in crafting appropriate notice to your employees, please contact James F. Devine, Esq. at jfdevine@c-wlaw.com or (717) 390-3020.
Disclaimer
The information in this article is provided for general informational purposes only and may not reflect the current law in your jurisdiction. By reading this article, you understand that there is no attorney-client relationship between you and Cipriani & Werner, P.C. or any of our attorneys. No information contained in this article should be construed as legal advice from Cipriani & Werner, P.C. or the individual authors.