by JPeters | December 6, 2024 1:38 pm
A federal judge has vacated the Department of Labor’s[1] (DOL) final “white collar” overtime exemption rule published last spring[2]. The ruling, announced on November 15 by the United States District Court for the Eastern District of Texas[3], means that employers nationwide do not have to comply with the increase in the salary threshold for white-collar exemptions from overtime available under the Fair Labor Standards Act[4] (FLSA) for executive, administrative, professional and “highly compensated” employees.
Under the FLSA, employers are required to pay employees overtime wages at time and one-half for all hours worked each workweek over 40 hours, unless an exemption applies. The FLSA exempts “white collar” employees (i.e., employees who qualify as “executive, administrative, or professional” employees or as highly compensated employees) from the law’s overtime requirements. The FLSA set forth a two-part test to determine whether an employee may be appropriately classified as exempt: 1. The “job duties” test and 2. The “salary basis” test. The job duties test focuses on employees’ primary tasks and responsibilities to determine if they qualify for the exemption. The salary basis test focuses on the amount and method of compensation. If both parts of this test are met, an employee may be classified as exempt from the overtime pay rule.
What’s been nixed?
In the final rule[5] announced on April 23, 2024, the DOL sought to update and revise regulations under the FLSA to increase the minimum salary threshold at which “white collar” employees could be classified as exempt. The first increase, effective July 1, 2024, raised the minimum salary for exemption for executives, administrators, and professionals from $684 per week ($35,568 per year) to $844 per week ($43,888 per year) and from $107,432 to $132,964 for highly compensated individuals. The new rule also provided for automatic increases every three years, with the amount of the increase tied to contemporary earnings data.
Legal challenges followed the April announcement of the final rule. In June 2024, the federal court in the Eastern District of Texas granted a preliminary injunction[6] preventing the rule’s enforcement against the state of Texas as the employer. The court’s summary judgment decision[7] on November 15 vacates the entire rule for all employers in the United States.
What next?
For now, the DOL’s final rule cannot be enforced anywhere, and the salary threshold returns to $684/week, the level set in 2019. The DOL may seek an emergency stay of the vacatur or appeal the decision to the Fifth Circuit — but emergency relief is unlikely. It’s more likely that the incoming Trump administration will abandon litigation entirely or propose its own rule.
Employers that have made salary adjustments in light of the July 1, 2024 increase may want to consider whether to keep those changes in place or revert to the previous salary pay levels. Before doing so, however, employers should evaluate how such a reduction may impact employee morale. Similarly, if employers have already communicated a planned January 1, 2025, increase, they should notify employees immediately if they decide not to move forward with that plan. Proceed with caution. Rolling back any planned — or already implemented — salary increases could present practical and legal challenges.
If you have any questions or concerns about your current overtime policies and how this recent development affects those policies, don’t hesitate to contact Orr & Reno for assistance.
Steven L. Winer[8] and Elizabeth C. Velez[9]
Source URL: https://orr-reno.com/blog-navigating-overtime-ruling/
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