Friday, a federal court in the Eastern District of Texas vacated the Department of Labor’s (“DOL”) April 2024 Final Rule (the “Rule”) that would have raised the minimum salary level at which executive, administrative, professional and highly compensated employees can be classified as exempt from federal overtime and minimum wage requirements.
The April Rule, which we wrote about here, increased the salary threshold to $43,888 as of July 1, 2024, and was set to increase it again to $58,656 on January 1, 2025. Then, beginning in July 2027, the salary level would update every three years, commensurate with wage data.
In June, the Eastern District of Texas issued a preliminary injunction in Texas v. DOL, stopping the DOL from enforcing the new salary rule against the State of Texas. We wrote about that decision here . However, because the preliminary injunction only applied to Texas as an employer, the Rule’s initial salary increase took effect on July 1 for all other employers across the country.
Thereafter, Texas v. DOL was consolidated with a similar case in the same district, Plano Chamber of Commerce, et al. v. United States Department of Labor, et al., and the parties submitted cross-motions for summary judgment. Notably, the summary judgment motions followed the Supreme Court’s decision in Loper Bright Enters. v. Raimondo, which overturned agency deference that had long been a guiding principle in the implementation of DOL and other agency rules.
Friday, the Court issued its decision, granting summary judgment in favor of the plaintiffs. The Court held that the Rule was an unlawful exercise of the DOL’s power to “define and delimit” the operative terms of the Fair Labor Standards Act (“FLSA”), because the “sweeping changes” in the Rule effectively displaced the FLSA’s duties test with a salary-level test. “When a third of otherwise exempt employees who the Department acknowledges meet the duties test are nonetheless rendered nonexempt because of an atextual proxy characteristic—the increased salary level—something has gone seriously awry.”
The Court noted that previous salary threshold changes typically effected about one million employees and occurred 15-30 years apart. Conversely, the Rule was proposed only 5 years after the last salary level increase and was issued despite no increase in the federal minimum wage. Moreover, if the January 2025 salary increase had taken effect, an estimated three million employees would have become nonexempt (in addition to the one million workers affected by the July 2024 increase). In other words, the effect of the Rule was far more drastic than prior salary threshold increases. The Court recognized that the purpose of the salary threshold is to weed out employees who are “obviously nonexempt employees” (i.e., employees who would fail the duties test). However, the Rule went too far, by disqualifying large numbers of workers who would have met the duties test.
Additionally, the Court took issue with the Rule’s automatic adjustment of the salary minimum, which was set to begin in 2027, holding that such a mechanism would circumvent the DOL’s notice and comment requirements. “What the Department cannot lawfully do is put the []minimum salary level on autopilot, effectively immunizing itself from the APA’s procedural obligations and judicial review.”
In the end, the Court vacated the entire Rule and remanded it to the DOL for further consideration. Thus, the minimum salary threshold for the white collar exemptions now reverts back to the pre-July 2024 level of $35,568, and the threshold for highly compensated employees goes back to $107,432. Likewise, the previously-impending January 2025 increase is gone. Although the DOL may appeal the Court’s decision or issue a revised rule, for the time being, employers can breath a sigh of relief.
