Legal Challenges to New DOL Rule Increasing Salary Basis for Exempt Status under FLSA
Topics: Legal Information, Wage & Hour Issues
A new Department of Labor (DOL) Overtime Rule (2024 OT Rule) which raises the salary threshold for white-collar exemptions scheduled to go into effect on July 1, 2024 is facing legal challenges. On May 22, 2024, several business associations filed a lawsuit in federal court challenging the 2024 OT Rule as exceeding the DOL’s authority. Plano Chamber of Commerce et al v. Julie Su, Acting Secretary, U.S. Dept. of Labor et al. U.S.D.C. E.D. of Texas Sherman Div., Case No.: 4:24-cv-00468. On June 3, 2024, the Texas Attorney General filed a second federal lawsuit seeking an injunction to prevent the implementation of the 2024 OT Rule. State of Texas v. U.S. Dept. of Labor, et al. U.S.D.C. E.D. of Texas Sherman Div., Case No.: 4:24-cv-00499. Both cases are currently pending in the U.S. District Court for the Eastern District of Texas.
Overview of 2024 OT Rule
The Fair Labor Standards Act (FLSA) sets out federal minimum wage and overtime laws and also specifies the criteria for classifying employees as “exempt” from those laws. Generally, to be exempt from overtime pay, an employee must satisfy (1) the “duties test” (i.e., perform specified exempt work duties) and (2) the “salary basis test” (i.e. be paid a fixed minimum weekly salary).
The 2024 OT Rule raises the minimum salary threshold for the executive, administrative, and professional exemptions – known as EAP and/or white-collar exemptions - from $684/week ($35,568 annually) to $844/week ($43,888 annually) starting on July 1, 2024, and to $1,128/week ($58,656 annually) starting on January 1, 2025. The salary basis for highly compensated employees will also increase from $132,964/year on July 1, 2024, and then to $151,164/year on January 1, 2025. The 2024 OT Rule also provides that starting in 2027, the salary threshold will be automatically adjusted based on changes in average earnings every three years.
According to the DOL’s estimates, the July 1, 2024 salary threshold increase will impact approximately 1 million employees, and another approximately 3 million employees will be impacted by the January 1, 2025 increase. 89 Fed. Reg. at 32843.
The Pending Lawsuits
Both pending lawsuits seek to invalidate the 2024 OT Rule as exceeding the DOL’s statutory authority because the new rule’s focus on minimum salary levels improperly focuses on salary rather than an employee’s duties to assess whether they should be exempt from overtime pay. The lawsuits argue that the 2024 OT Rule is similar to a 2016 OT Rule issued under the Obama Administration, which was struck down by the same court.
Next Steps
It seems likely that the pending cases will seek a preliminary injunction of the 2024 OT Rule before its July 1st implementation. Employers should continue to monitor the status of these cases to determine appropriate next steps. If the 2024 OT Rule goes into effect, employers will need to assess whether to increase salaries or re-classify employees as non-exempt and pay them overtime.
For employers with employees in California, California’s white-collar exemptions differ from the federal FLSA standards discussed above, including with respect to the salary test which must be at least twice the applicable minimum wage for a 40-hour week.
If you have questions regarding whether employees should be classified as exempt or non-exempt, seek legal guidance from your trusted CDF counsel.
