Federal District Court Strikes Down DOL’s 2024 Increases to Salary Thresholds for Overtime Exemptions

On November 15, 2024, the Federal District Court for the Eastern District of Texas struck down the recent 2024 Department of Labor rule, which changed the salary threshold for exempt employees under the Fair Labor Standards Act (FLSA). The 2024 Final Rule temporarily increased the salary threshold for executive, administrative, and professional employees to qualify for exempt status in July and was set to increase again effective January 1, 2025.

The Eastern District Court of Texas held that the 2024 Rule exceeded the agency's statutory rulemaking authority and vacated the 2024 Final Rule for all employers nationwide. The Court's holding means that the July 2024 increase is no longer required and the January 2025 increase will not go into effect next year.

Background Information: 2024 Final Rule

As background information, the 2024 Final Rule was announced on April 23, 2024. The 2024 Final Rule revised the regulations issued under the FLSA that implement the exemptions from minimum wage and overtime pay requirements. The 2024 Final Rule revised the regulations in three ways:

1. Increased the minimum salary threshold level for executive, administrative, and professional exempt employees.The 2024 Final Rule increased the salary threshold required to exempt a bona fide executive, administrative, or professional employee from federal overtime requirements in two-phases. Effective July 1, 2024, the threshold was increased to $844 per week, which is the equivalent of an annual salary of $43,888. Effective January 1, 2025, the threshold was supposed to increase to $1,128 per week, which is the equivalent of an annual salary of $58,656.
2. Increased the highly compensated employee total annual compensation threshold.The 2024 Final Rule also increased the earnings threshold for the highly compensated employee exemption in two phases. Effective July 1, 2024, the total annual compensation requirement for highly compensated employees was $132,964. Effective January 1, 2025, the annual compensation requirement was supposed to increase to $151,164.
3. Provided for the automatic updating of these thresholds every three years.The 2024 Final Rule implemented a mechanism that provided for automatic updates to the thresholds listed above based on wage data at the time of the update.

Current Salary Thresholds

However, following the court's holding, now that the 2024 Rule is no longer in effect, these changes will revert back to the previous 2019 requirements, listed below:

1. Salary threshold for executive, administrative, and professional exempt employees: $684 per week, or $35,558 per year
2. Highly compensated employee total annual compensation threshold: $107,432 annual compensation
3. No automatic updating of these thresholds every three years

What Now?

Many employers will find themselves asking what they should do now that the 2024 Final Rule has been struck down. With this most recent decision, the July 2024 increase is now void and the January 2025 increase will no longer go into effect. While the DOL could seek appeal of the court's decision, this is unlikely given the change in presidential administrations happening in January 2025.

Employers who increased salaries and/or adjusted exempt status may want to consider whether to revert salaries and/or exemption status to what they were prior to the July 2024 update. However, in making this decision, employers should consult with legal counsel, due to considerations such as employee morale and state law requirements. Employers who have questions about the District Court's invalidation of the 2024 Final Rule should reach out to Dentons Labor and Employment attorneys to discuss strategy and to assist with mitigating the effects of these changes.