On November 15, 2024, a federal judge in Texas invalidated the United States Department of Labor’s (DOL) rule that raised the minimum salary levels under the Fair Labor Standards Act (FLSA) “white collar” exemptions. This ruling provides timely relief for employers that were preparing to reclassify or increase the compensation of millions of workers who are currently classified as exempt from minimum wage and overtime compensation but who earn less than the DOL’s proposed salary thresholds.

The DOL’s rule, which took effect on July 1, raised the minimum salary level threshold for exempt employees under the FLSA white collar exemptions from $684/week ($35,568 annually) to $844/week ($43,888 annually) under the first phase of increases. This amount was set to increase to $1,128/week ($58,656 annually) beginning January 1, 2025, and then automatically increase every three years thereafter. The rule also raised the minimum compensation threshold for the FLSA’s highly compensated employee exemption (HCE) from $107,432 to $132,964 in July. This amount was set to increase to $151,164 on January 1, 2025.

The court found that the DOL exceeded its authority by setting salary thresholds that potentially overshadow the duties test for exempt status, which remains central to the FLSA’s overtime exemptions. The court also held that the final rule’s automatic “escalator” provision, which would have increased the threshold every three years going forward, was unlawful.

With the court’s ruling, the former salary threshold is reinstated effective immediately. Employers may continue to classify white-collar employees as exempt so long as they satisfy the applicable duties test and earn at least $35,568 annually (for HCE $107,432).

What’s next?

The Biden DOL may seek to appeal the ruling, but the incoming Trump Administration would most likely abandon the appeal and allow the lower court’s ruling to stand. It is not clear whether a Trump Administration DOL would rescind this rule altogether or seek to issue a less-extensive salary-threshold increase. There is also the possibility that states may take their own independent action in light of the court’s decision to increase their state law salary thresholds in response to this decision. The federal court’s decision does not affect any state laws that may already have higher salary thresholds.

Next steps for employers:

• Maintain Status Quo: Employers who already implemented salary increases might choose to maintain these adjustments to avoid disruptions. Rolling back salaries could impact employee morale and may violate state laws in some jurisdictions​. Employers may want to wait and see what happens with a potential appeal and how the new administration will respond before making any major changes.
• Focus on Compliance: This pause is an opportunity to review the exempt/non-exempt classifications of your workforce, ensuring compliance with both the reinstated salary threshold and the duties test.
• Monitor Legal Developments: Future appeals or new regulations from the DOL could once again affect overtime requirements. Employers need to remain vigilant and stay informed on the ever-changing world of workplace laws and regulations.