On Friday the U.S. District Court for the Eastern District of Texas struck down the Department of Labor’s 2024 Exempt Employee Salary Level test (White-Collar tests) which had increased the salary level to $844/week ($43,888/yr) in July of this year with a scheduled second increase to $1,128/week ($58,656/yr) January 1, 2025. This ruling returns the salary level test to the level it was before July 1st – $684/week ($35,568/yr).
The Court found that the Department of Labor exceeded its authority under the Fair Labor Standards Act (statute) by setting the salary level so high it made the Job Duties Tests for Executive, Administrative, and Professional (EAP) exemptions irrelevant. This is the same argument this Court used back in 2017 under the then Obama-era’s DOL rule that sought to expand overtime pay eligibility by increasing the salary level test to $913/week.
The Court also struck down the rule’s automatic “escalator” provision. This provision of the rules would have increased the salary level test every three years.
The injunction applies nationwide, so at this time employers may revert to using the salary level test set at $684/week (the salary level in place before the 2016 rule) when determining if a position may be exempt or not – providing the position also meets the Job Duties tests prescribed for the EAP positions.
This last part is important because the District Court stated, “The duties-based test is clear: it applies to those employees ‘who in good faith, perform actual executive, administrative, or professional capacity duties’… Congress elected to exempt employees based on the capacity in which they are employed. It’s their duties and not their dollars that really matter.” The Court cited Hewitt 15 F. 4th 315.
From this determination, the District Court held that under the Administrative Procedures Act the remedy can only be rendering the DOL’s action void, and because this case was brought by employers impacted by the DOL rule, which impacts millions of employees nationally and would impose billions in costs to employers, the District Court vacated the DOL rule for “further consideration in light of this opinion.”
Readers may recall that in June of this year this Court issued a preliminary injunction that stopped enforcement of the new rule against the State of Texas only. That case was consolidated with another similar case that involved a broader set of employers. This new case, State of Texas v. United Stated Department of Labor, allowed this Court to vacate the rules for employers nationwide.
Normally an appeal to the Fifth Circuit bench would be immediately made; however, with the change in Washington’s Administration coming in the next couple of months, it is very unlikely the DOL will pursue an appeal of this decision.
What Should Employers Do?
If you have not made any changes to your exempt jobs, then you do not have to do anything.
Many employers have already increased pay to meet the first step of the rule that took the salary level test from $664/week to $884/week. This puts those employers in a bit of a quandary. Should the employer reverse any salary increases implemented to meet the new $884 salary level test in place as of July 1st? This is not recommended, but you can do it. But do check on state law on reduction of pay. However, if you do reduce pay you may suffer some employee morale and trust issues. One approach, if increases have already been made, might be to freeze the higher salary until the market catches up to it. If the employee is performing well, lump sum bonuses may be used to recognize merit instead. A merit bonus would not move the salary rate.
If your organization has moved some of your jobs to non-exempt rather than increase pay to maintain exempt status, you can move them back to exempt based upon the minimum weekly pay now being at $664/week or $35,568/yr.
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Sources:
Law and the Workplace Proskauer Rose LLP. Texas Court Strikes Down Federal Overtime Rule (Again) 11/17/2024)
Law360 Employment Authority. Texas Judge Strikes Down DOL Overtime Rule. (11/15/2024)