Federal Court Turns back Time on DOL’s Overtime Exemption Salary Threshold Rule: What Employers Need to Know

On Friday, November 15, a Texas federal court turned back time on the minimum salary threshold rule for certain overtime exemptions under the Fair Labor Standard Act’s (“FLSA”)—halting the planned January 1, 2025, increase, reversing the already-effective July 1, 2024, increase, and turning back time to the salary threshold outlined in the 2019 rule (which was effective January 1, 2020). The decision impacts all employers covered by the FLSA on a nationwide basis. Read on for further information, predictions, and practical impacts for employers.

Background: The DOL’s Overtime Exemption Salary Threshold Rule

As we discussed in our article, DOL Raises Overtime Exemption Salary Threshold: Millions of Workers Soon Newly Subject to Overtime Laws, in April of this year the U.S. Department of Labor (“DOL”) issued a final rule increasing the salary threshold for executive, administrative, and professional employees to qualify for the FLSA’s overtime exemptions from $684 per week ($35,568 per year) to $844 per week ($43,888 per year), effective July 1, 2024. Similarly, the DOL increased the minimum salary requirement for “highly compensated” employees to $132,964 per year. In the same rule, the DOL scheduled further increases to take place on January 1, 2025 (to $1,128 per week for white-collar employees and $151,164 year for highly-compensated employees), July 1, 2027, and automatically every three years thereafter.

The Court’s Ruling: What Employers Need to Know

On November 15, 2024, the Eastern District of Texas vacated the DOL’s April 2024 rule entirely, ruling that the agency exceeded its authority. As a result:

• The July 2024 increase is reversed.
• The salary threshold outlined in the 2019 rule (which was effective January 1, 2020) is reinstated.
• All future planned increases set forth in the April 2024 rule (including the increased scheduled for January 1, 2025) will not occur.

Accordingly, as of Friday, November 15, employers need not pay overtime to employees who are paid a salary of at least $684 per week and meet the other requirements under the duties tests for the administrative, professional, or executive exemptions. In addition, employers planning for the January 1, 2025, increase need no longer do so.

The court further ruled that the DOL cannot schedule automatic increases to salary thresholds, but instead must undertake the formal rulemaking process each time it plans to increase the salary threshold.

The DOL may challenge the ruling either by issuing a new formal rule or appealing the decision, but due to the impending administration transition, neither approach is likely to succeed.

Looking Ahead

Because the DOL allows employers to voluntarily pay overtime to employees who could be properly classified as exempt, this change does not bring risk of penalties or litigation. Nevertheless, employers should consider revisiting employee exemption statuses to determine if the position could qualify as exempt. All employees properly classified as exempt under the threshold in place between July 1, 2024, and November 14, 2024, remain properly classified as exempt. Employees classified as non-exempt under the July 2024 salary threshold rule could now be properly classified as exempt and may no longer be owed overtime pay if their salary meets or exceeds the current threshold (and otherwise satisfy an applicable “duties” test).

Before making changes pursuant to this decision, consider the following factors:

• The (slight) chance of appeal. Though small, there is a chance the DOL could attempt to implement a new rule increasing the salary threshold again or that it could appeal the Texas court’s decision.
• State overtime laws. The Texas court’s ruling does not impact overtime rules in states with more restrictive laws. For example, this ruling has little impact on California employers, which already must pay a higher minimum salary to certain employees to qualify for exempt status under state wage and hour law.
• State wage change notice requirements. Employers planning to make changes to employees’ wages (or cancel planned changes) may be required to give employees advance notice pursuant to state law. Employers should check local requirements.
• Employee morale. Employers considering reclassifying newly nonexempt employees as exempt should consider whether doing so will negatively impact employee morale.

For tailored advice considering factors relevant to your workplace and for more information, please contact your Quarles & Brady counsel or:

• Ted Hollis: (317) 399-2834 / edward.hollis@quarles.com
• Amanda Collins: (414) 277-3083 / amanda.collins@quarles.com