The US Department of Labor (DOL) released a rule earlier in 2024 designed to expand the overtime eligibility of non-exempt employees by increasing the exempt classification salary threshold under the Fair Labor Standards Act (FLSA).

The increase went from $35,568 per year ($688 a week) to $43,888 a year ($844 a week) as of July 1, 2024, with a plan to increase it to $58,656.00 a year ($1,128.00 a week) year on January 1, 2025. It also introduced automatic triennial updates to the salary threshold moving forward.

The July 1 increase took effect, and many employers adjusted salaries or FLSA classifications of employees to ensure compliance. This all occurred against the background of a legal challenge alleging that the DOL had overstepped its authority by increasing the salary level.

Texas Court Ruling: Key Details

On November 15, 2024, a federal court judge in Texas concluded that the DOL exceeded its authority by raising the salary threshold too high and allowing for automatic adjustments every three years. The judge struck down the pending January 1 increase and took the unusual step of invalidating the already-in-effect July 1 increase.  The court also found that the planned automatic triennial increases were unlawful.

The DOL’s next steps remain unclear, with options including appealing the decision to the Fifth Circuit Court of Appeals, doing nothing, or waiting for the incoming administration to decide on a new approach.

Chronology of Events

Originally designed to increase the potential for overtime of approximately 4 million hourly workers, the final rule, released in the late spring of 2024, forced employers to act quickly to comply with the July 1 deadline.  Building on the methodology used successfully by the Trump administration in 2019, the July 1 increase tracked close to a cost-of-living increase between 2019 and 2024.

The initial legal challenge in June 2024 was unsuccessful except for the state of Texas as an employer. The judge did so because the state was the only party challenging the rule in this lawsuit.

Post-election, a dozen employer groups and the state of Texas returned to federal court and sought to vacate the rule for all employers nationwide.  On November 15, the judge agreed and struck down the rule.

Context and Implications

Since 2016, the Department of Labor has made three attempts to increase the salary threshold to determine exemption status under the FLSA. In two of these cases, a federal judge in Texas overturned the proposals. Adding to the complexity, the Supreme Court repealed the so-called “Chevron” doctrine earlier this year, which required courts to defer to agencies’ expertise in ambiguous or unclear laws. Federal courts are now likely to exercise greater power over administrative decisions such as these.

Employers should consider the following options:

1. Maintain Current Adjustments: If you have already made the adjustments, especially based on the July 1 salary level, consider leaving them alone. The difficulty of undoing such sensitive matters as pay and status may not be worth the effort.
2. Pause Future Reclassification Efforts: Depending on where you are in the process, pause your reclassification efforts on the January 1 increase pending clarity from the DOL in the new administration.

Massachusetts employers should remain vigilant about compliance with state wage and hour laws, including recordkeeping, overtime, and treble damages requirements. Employers should also prepare for the state’s new pay transparency law, which takes effect in 2025.

Need Help?

AIM members with questions about this ruling or other employment-related issues can contact the AIM Helpline at 800-470-6277 or helpline@AIMnet.org.

For a deeper dive into FLSA classification, including job description compliance and tailored guidance, reach out to AIM HR Solutions at HRinfo@AIMHRSolutions.com or
617-488-8321.