On November 15, 2024, Judge Sean D. Jordan of the U.S. District Court for the Eastern District of Texas struck down the U.S. Department of Labor’s 2024 Rule increasing the minimum salary threshold for executive, administrative, and professional employees under the Fair Labor Standards Act (“FLSA”).[1] Judge Jordan held that each of the rule’s three components exceed the Department’s statutory authority under the FLSA. The decision appears to invalidate the Rule for all employers nationwide.
The 2024 Rule, touted as one of the Biden administration’s most substantial labor policies, has now been vacated; halting the next round of changes scheduled to go into effect January 1, 2025.
The Department of Labor’s 2024 Rule
The FLSA generally requires covered employers to pay employees an overtime premium of one and one-half times their regular rate of pay for hours worked over forty (40) hours in a workweek. However, the FLSA exempts certain “white-collar” workers who (1) perform executive, administrative, and professional duties, (2) are paid on a “salary basis”, and (3) are paid a minimum salary amount determined by the Department. In order for an employee to be exempt from overtime pay, all three factors must be met.
Published in April 2024, the 2024 Rule impacted the third requirement to claim the exemption by increasing the minimum salary threshold in two phases. In the first phase, the Rule increased the minimum salary threshold from $684 per week ($35,568 annual salary) to $844 per week ($43,888 annual salary) effective July 1, 2024. The second phase, slated to take effect January 1, 2025, would have increased the threshold to $1,128 per week ($58,656 annually).
The 2024 Rule also increased the annual total compensation for “highly compensated employees” (“HCE” employees). The minimum compensation threshold for these employees increased from $107,432 to $132,964 when it went into effect on July 1, 2024, and was slated to increase the threshold again on January 1, 2025, to $151,164.
The 2024 Rule also provided for an automatic triennial increase to the minimum salary for EAP employees and the total compensation for HCE employees beginning July 1, 2027 based on inflation.
The Court’s Decision
In his November 15 decision, Judge Jordan ruled that the Department overstepped by creating a “salary only” test for these exemptions while essentially eliminating the test used for considering whether a given employee’s job duties are of a bona fide executive, administrative, or professional capacity. Notably, the Court emphasized that the analysis for executive, administrative, and professional employees applies equally to the HCE employee exemptions under the 2024 Rule.
The Court further ruled that the DOL exceeded its authority by including future automatic increases to the salary threshold in the rule itself without creating proper regulations as is required by the Administrative Procedure Act.
Finally, in its ruling, the Court invalidated the increases that took effect in July 1, 2024.
Next Steps
This is the latest decision by this court to reign in administrative agencies since the Supreme Court overturned Chevron U.S.A. v. Natural Resources Defense Council, Inc., in July 2024 in Loper Bright Enterprises v. Raimondo. There, the Supreme Court eliminated the “agency deference” that Courts were required to give to administrative agencies in the interpretation of statues.
The court’s decision in Texas v. Dept. of Labor demonstrates an ongoing shift away from the ability of administrative agencies to create sweeping rules that affect employers and employees nationwide.
While the Department can appeal this decision to the Court of Appeals for the Fifth Circuit, the appeal will not likely be resolved before President Trump takes office. It is unlikely that President Trump’s administration will defend the 2024 Rule; in which case the Court’s ruling may remain in effect. Employers should contact their employment counsel to discuss the effect of this ruling on their decision to increase wages for 2025.
The St. Louis employment attorneys at McMahon Berger have been representing employers across the country in labor and employment matters for over sixty years and are available to discuss these issues and others. As always, the foregoing is for informational purposes only and does not constitute legal advice regarding any particular situation as every situation must be evaluated on its own facts. The choice of a lawyer is an important decision and should not be based solely on advertisements.
[1] Texas v. Dept. of Labor, E.D. Tex., No. 24-00499.
