Federal Court Invalidates DOL Rule on 2024 and 2025 Salary Threshold Increases Under The FLSA

A federal court in Texas on November 15, 2024 invalidated a federal Department of Labor Rule (“DOL Rule”) that in July 2024 had increased the salary threshold levels for wage and hour exemptions and Highly Compensated Employees under the federal Fair Labor Standards Act, and was scheduled to further increase those salary thresholds as of January 1, 2025, with continued increases scheduled every three years thereafter.   As a result, effective immediately the salary thresholds and exemption levels have reverted back to their 2020 levels at $35,568 per year for most salaried employees’ exemptions and $107,432 for Highly Compensated Employees.  The levels had increased back in July to $43,888 per year for most salaried employees and $132,964 for Highly Compensated Employees, and was scheduled to increase as of January 1, 2025 to $58,656 per year for most salaried employees and $151,164 for Highly Compensated Employees. Further, they would have automatically increased again in three years.

All these planned changes under the DOL Rule will not go into effect as a result of the Court’s ruling.  While the Court’s decision could be appealed, the likelihood of a reversal is limited based on the judicial and political environment. This means that if your business had increased the salary threshold for exempt employees and/or Highly Compensated Employees in July, they no longer apply from a legal standpoint.  Furthermore, there is no requirement to move forward with the planned increases that had been scheduled for January 1, 2025. 

For employers that have already made the July 2024 increases to the salaries of exempt employees, there is not a legal obligation to continue those pay increases.  However, all employers need to carefully consider the practical impact of undoing those increases which almost certainly would result in retention problems of your salaried exempt employees.  Employers can take into consideration that the current salary threshold level is $35,558 when setting salaries for newly hired exempt staff.  That does not mean that is the level that such salaries should be set, but rather it means that $35,558 is a minimum amount that must be paid for an employee to be classified as an exempt employee under the FLSA.  Obviously, employers can go above that amount in paying its salaried exempt staff.

This is an important time to review Job Descriptions and salary levels for all your exempt employees, as well as your organizational structure.  This is particularly important given that the Trump Administration almost certainly will abandon an appeal or potential appeal of the Texas Court’s decision, and further given that the likelihood is minimal for a salary increase to the FLSA’s salary thresholds in the next four years. As such, the focus of wage and hour laws likely will be back on the duties test for exempt classification, rather than the recent focus on salary levels.