The US District Court for the Eastern District of Texas in State of Texas v. Department of Labor et al. granted the plaintiffs’1 motion for summary judgment because it determined that the US Department of Labor (DOL) exceeded its authority in implementing the 2024 salary increase rule (the 2024 Rule). The court’s opinion centered around the fact that the 2024 Rule would consume any analysis related to an employee’s functions or duties due to increasing the salary threshold level by more than $20,000.
Salary Level
The federal court determined that the DOL exceeded its authority by essentially making salary threshold the determinative factor in evaluating exempt status. The court concluded that an examination of “the ordinary meaning of the executive, administrative, and professional (collectively ’EAP’) exemptions’ undefined terms shows that they mainly focus on an employee’s functions and duties, requiring that they fit within one of the three listed categories—executive, administrative, or professional.” The court held that the DOL exceeded its authority under the language of the Fair Labor Standards Act (FLSA) by making the salary threshold so high that it effectively became the sole deciding factor in evaluating an employee’s exempt status, essentially obviating the required functions and duties assessment. Specifically, the court stated that “the Department’s 2024 Rule contemplates sweeping changes to the EAP Exemptions’ regulatory framework, designed on their face to effectively displace the FLSA’s duties test with a predominate—if not exclusive—salary test.” The 2024 Rule, according to the court, would have resulted in the reclassification under federal law of millions of employees as non-exempt and eligible for overtime even though they otherwise meet one of the EAP exemptions’ duties tests. As a result of the decision, the salary threshold remains at $35,568.
This decision does not impact state laws in states that have different (higher) exemption salary level thresholds (that is, New York, Maine, California, Colorado, and Alaska). Employers in those states will need to continue to comply with state law requirements. Other states, like Massachusetts, Connecticut, Rhode Island, Vermont, and Washington DC, which follow federal law (and do not have a separate applicable salary threshold level under state law), may continue to use the $35,568 threshold.
Automatic Increases
In addition to raising the salary threshold, the 2024 Rule included impermissible, the court found, automatic increases to the EAP exemptions’ minimum salary every three years. The court stated that the DOL does not have the authority to require automatic salary increases, because if automatic increases were allowed, the notice and comment rule making provisions of the Administrative Procedure Act would be violated. The court refused to allow the DOL to put the federal minimum salary threshold on autopilot.
Key Takeaways
The key points from the decision, which is on appeal, are:
- The federal exemption salary threshold remains at $35,568 for executive, administrative, and professional exemptions.
- The automatic salary threshold increases were stricken.
- Employers presently do not need to comply with the federal July 2024 ($43,888) or January 2025 ($58,656) increased salary thresholds because the court vacated the entire 2024 Rule. Again, however, employers with employees in states that have a separate minimum salary threshold must still comply with any applicable requirement under state law.
Employers considering rescinding increases (due to the business cost, as some employers have done) should carefully consider the employee morale issues and potential legal implications (for example, highlighting exempt versus non-exempt status issues) of doing so.
As noted, the Department of Justice filed an appeal to the Fifth Circuit. At this time, the appeal is still pending, and it is unclear whether the incoming administration will continue to pursue the appeal. Barclay Damon will continue to track this case for updates.
If you have any questions regarding the content of this alert, please contact Carolyn Marcotte Crowley, partner, at ccrowley@barclaydamon.com; Giuliana Hathaway, associate, at ghathaway@barclaydamon.com; or another member of the firm’s Labor & Employment Practice Area.
1The State of Texas and business organizations sued separately, and the cases were consolidated. State of Texas v. U.S. Dep’t of Labor, No. 4:24-cv-499 (S.D. Tex. 2024), Plano Chamber of Commerce, et al. v. U.S. Dep’t of Labor, No. 4:24-cv-468 (S.D. Tex. 2024).