In a significant decision on November 15, 2024, the U.S. District Court for the Eastern District of Texas struck down the Department of Labor’s (DOL) 2024 final rule aimed at increasing the salary thresholds for white-collar exemptions under the Fair Labor Standards Act (FLSA). The ruling halts changes that would have impacted millions of employees and employers nationwide.
Here’s what you need to know about the decision, its implications, and how it affects your business.
The Overturned 2024 Rule
The now-vacated rule introduced several changes:
- Salary Threshold Increases: The rule raised the salary threshold for white-collar exemptions in two steps:
- To $43,888 annually ($844 per week) on July 1, 2024.
- To $58,656 annually ($1,128 per week) on January 1, 2025.
- Automatic Escalations: The rule proposed automatic threshold increases every three years.
- Highly Compensated Employee (HCE) Threshold: The threshold for HCEs would have risen from $107,432 to $132,964 on July 1, 2024, and to $151,164 in January 2025, with automatic updates thereafter.
The court’s decision invalidates all these changes and restores the salary threshold for white-collar exemptions to its 2019 level of $35,568 annually ($684 per week).
Key Reasons for the Court’s Decision
The court found three primary issues with the 2024 rule:
- Exceeding Authority: By setting salary thresholds so high, the DOL effectively replaced the duties test required by the FLSA with a “salary-only” test, exceeding its statutory authority.
- Unlawful Escalations: Automatic increases violated the Administrative Procedure Act, which requires regulatory changes to go through a notice-and-comment process.
- Nationwide Scope: The court deemed the rule overly broad, impacting millions of employees and businesses, justifying a nationwide block.
Impact on Employers
Employers nationwide now face a return to the previous 2019 threshold, but there are important considerations:
- Employee Reclassification:
- Employees reclassified as nonexempt under the July 2024 rule may now return to exempt status if they meet the duties test.
- Employers should carefully evaluate the duties of reclassified employees to ensure continued compliance.
- Salary Adjustments:
- Employers that raised salaries to meet the 2024 thresholds may choose not to lower them to avoid employee relations issues.
- If adjustments are necessary, ensure compliance with state-level requirements for advance written notice.
- State-Specific Rules:
- Some states, such as California, New York, and Washington, have higher salary thresholds than the FLSA’s 2019 level. Employers in these states must adhere to the stricter standard.
What’s Next?
The Biden administration may appeal the decision, but any resolution is unlikely before a potential change in presidential administration. Future regulations could also revisit these thresholds, so employers should stay alert for updates.
For now, the key takeaway is that white-collar exemptions remain tied to the 2019 salary threshold of $35,568 annually and the duties test.
Guardian HR Can Help
Navigating these shifting regulatory landscapes can be complex. At Guardian HR, we’re here to help. Our experts provide guidance on compliance with federal and state laws, employee classification, and more.
Don’t let sudden changes in labor laws disrupt your business. Contact Guardian HR today to ensure you’re prepared for whatever comes next.
If you wish to become a client of GHR and get access to all our great resources, including your own HR Manager and our team of employment attorneys, please contact us at sales@app.guardianhr.com or call us at 888.373.4724.