DOL Overtime Rule
On November 15, 2024, a federal judge in the Eastern District of Texas, Sean Jordan, ruled that the U.S. Department of Labor’s (DOL) 2024 revisions to the minimum salary thresholds for certain exempt employees were unlawful. The judge found that the DOL had overstepped its authority by raising the salary levels too high and rejected the inclusion of an automatic salary increase feature in the new rule.
A Familiar Situation: The 2016 Rule
This is not the first time such a rule has been challenged. In 2016, the Obama-era DOL introduced a similar increase to salary thresholds for exempt employees, along with an automatic inflation adjustment. That rule was blocked by a Texas court, which ruled that the new salary levels were too high and violated legal requirements. The Trump administration later adjusted the rule and set the salary threshold at $684 per week for most exempt employees, and $107,432 annually for highly compensated employees (HCEs). This was not challenged.
Biden’s 2024 Rule: A Significant Change
In April 2024, the Biden DOL proposed changes aimed at narrowing the number of employees who could qualify for exempt status. Key elements of the new rule included:
- A salary increase for EAP (executive, administrative, professional) employees from $684/week ($35,568/year) to $844/week ($43,888/year), effective July 1, 2024.
- A further increase starting January 1, 2025, raising the EAP salary threshold to $1,128/week ($58,656/year).
- Automatic increases every three years based on inflation.
However, the rule faced immediate legal challenges, including one in Texas, where Judge Jordan had already blocked parts of the rule for the State of Texas. The rule was upheld in the Eastern District of Pennsylvania.
Judge Jordan’s Decision
Judge Jordan vacated the entirety of the 2024 rule, including both the July 2024 and January 2025 salary increases and the automatic inflation adjustment. He ruled that the DOL had exceeded its statutory authority and emphasized that salary thresholds should not replace the “duties test” that determines exempt status. He noted that the proposed salary thresholds were so high that they could result in a significant portion of employees being reclassified as non-exempt based solely on salary, rather than job duties. His ruling applies nationwide.
What Does This Mean for Employers?
The ruling means that employers are no longer required to implement the 2024 salary increases. Many businesses had planned to raise salaries or reclassify employees to comply with the new thresholds, but they can now hold off on these changes, as the law has reverted to previous standards. It is not recommended that any July 2024 salary increases be reversed for a variety of reasons, primarily workforce morale.
Also, employers should also consider state-level regulations, as many states have their own higher salary thresholds for exempt employees. States like California, New York, and Washington have minimum salary requirements for exempt employees that are higher than the federal thresholds, and more states may follow suit.
Moving Forward
While the DOL may appeal the ruling, it is unlikely that an appeal will be resolved before the next administration takes office in January 2025. Even if the Trump-era DOL returns, it’s unclear whether they would continue the appeal or reinstate the 2024 rule. Congress could also act on this.
For now, employers should evaluate any changes already made in anticipation of the new rule in January, weigh the impact of rolling back those changes, and consult legal counsel to ensure compliance with both federal and state laws. As always, we will continue to monitor these developments and provide updates to keep employers informed.
