/>iA federal district court in Texas has blocked a U.S. Department of Labor (DOL) final rule that would have increased the salary thresholds for certain exempt employees on January 1, 2025. As a result, the rule —and its accompanying threshold increases — will no longer go into effect, and the salary threshold increase that took effect on July 1, 2024, has been undone. For employers already dealing with a host of new laws taking effect in 2025, the decision may bring some relief, along with uncertainty of what to do with the changes they may have already made.
How We Got Here
As we previously wrote, in April 2024, the DOL issued a final rule increasing the salary thresholds for executive, administrative, and professional exempt employees under the Fair Labor Standards Act (FLSA). The rule implemented the salary threshold increases in phases. The first increase, which previously took effect on July 1, 2024, raised the salary threshold for these exempt employees from $684 per week ($35,568 annualized) to $844 per week ($43,888 annualized). A second increase was set to take effect on January 1, 2025, which would have increased the threshold again to $1,128 per week ($58,656 annualized). The rule also increased the salary threshold for “highly compensated employees” once and was set to do so again as well.
While the rule did not make any changes to the various “duties tests” an employee must satisfy to be properly classified as exempt, the increase in the salary thresholds caused employers throughout the country to review their classifications and respond accordingly.
Final Rule Blocked
However, only weeks before the second increase was set to take effect, a Texas federal district court vacated the rule nationwide. The court found that the DOL exceeded its authority by effectively displacing the FLSA’s “duties test” with a salary-level test. The court also took issue with the broad scope of the rule’s impact, as it would affect millions of employees nationwide. Lastly, the court held that the DOL exceeded its authority by implementing automatic salary-level increases that did not go through the standard notice-and-comment process for changes to regulations.
What’s Next?
As mentioned, the court’s decision not only prevents the January 2025 increase from taking effect, but it retroactively undoes the July 2024 increase, leaving the salary thresholds where they were before the April 2024 rule was published — that is, $684 per week ($35,568 annualized) for executive, administrative, and professional exempt employees, and $107,432 annualized for “highly compensated employees.”
Although the DOL may appeal the district court’s opinion, given the upcoming change in administrations, it may be unlikely the incoming administration will continue defending the rule in court.
Employers who responded to the July 2024 increase by reclassifying employees as non-exempt or increasing their salaries to the then-new level will not need to determine how to respond to this latest change. For employers who chose to reclassify employees as non-exempt, the reduction of the salary threshold gives them the ability to make those employees exempt once more. However, as a practical matter, employers who raised certain employees’ salaries to maintain their exempt status may find that they have no choice but to stay the course. Employers who may be considering repealing such changes, however, should consult with legal counsel before doing so.
Lastly, employers should keep in mind that some states have their own salary thresholds and duties tests for determining whether an employee qualifies for an exemption from wage and overtime requirements under state law, which can differ from the FLSA’s thresholds and duties tests.
