In order to classify employees as exempt from overtime pay requirements, employers may rely on the so-called “white-collar” exemptions available for administrative, executive, and professional employees. In addition to meeting the job duties test of each exemption, employers are required to pay a guaranteed minimum salary specified in Department of Labor regulations.
At the start of 2024, the minimum salary requirement for the white-collar exemptions stood at $684 per week, or $35,568 on an annual basis, reflecting an increase implemented by the Department of Labor (“DOL”) in 2019 under the Trump administration. In April 2024 the DOL issued a new rule that implemented a two-stage increase to the exempt employee salary amount – a smaller increase effective July 1, 2024, to $844 per week/$43,888 per year and a larger increase which goes into effect January 1, 2025, to $1,128 per week/$58,656 per year. The rule also provides for automatic increases to the salary threshold every three years (starting on July 1, 2027) to reflect current earnings data.
Multiple lawsuits have been filed challenging the legality of the salary increase rule, including three lawsuits filed in Texas federal courts. One these lawsuits was brought by the State of Texas, State of Texas v. Department of Labor et al., United States District Court for the Eastern District of Texas, Civil Action No. 24-cv-499. On June 28, 2024, the Court issued a preliminary injunction blocking the DOL rule (and related salary increases) from going into effect – but this ruling only blocked enforcement of the DOL rule against the State of Texas in its capacity as an employer. Although this decision did not decide the legal validity of the DOL rule on the merits, the Court’s ruling explained that the State of Texas had demonstrated a likelihood of success on the merits of these arguments as the basis for issuing the preliminary injunction.
Arguments against the validity of the DOL rule gained a significant boost from the United States Supreme Court’s decision in Loper Bright Enterprises v. Raimondo issued on June 28, 2024 – which eliminated the requirement that federal courts give broad deference to federal agencies when reviewing the validity of administrative agency rules. In the wake of the Loper Bright decision, a number of federal courts have invalidated federal agency rules, including other rules issued by the DOL. The district court in the State of Texas case cited Loper Bright in granting its limited preliminary injunction.
The State of Texas, and other business groups whose cases were later consolidated with the State of Texas action, have filed motions for summary judgment seeking a judgment on the merits of their legal challenge, and the DOL has opposed these motions. The briefing of these motions in the State of Texas case was completed on September 19, 2024, and the motions are now under submission for decision by the district court. Should the Court grant the motion for summary judgment and rule that the DOL’s rule is legally invalid, the decision may have the effect of invalidating the DOL salary increases on a nationwide basis – similar to the outcome of litigation in 2017 which blocked a salary threshold increase attempted by DOL rule under the Obama administration.
With the second DOL salary increase (to $1,128 per week/$58,656 per year) set to go into effect on January 1, 2025, employers nationwide are anxiously awaiting the outcome of the legal challenges currently pending in multiple federal courts. With the motion for summary judgment fully briefed in the State of Texas case, a ruling before the end of the year is anticipated. But there is no hard deadline for the Court to issue its ruling. And, of course, there are no guarantees that the Court’s decision (even if it invalidates the rule) will do so in a way that will block the DOL rule nationwide (although that relief has been requested). Beyond this, any district court decision will almost certainly be appealed to the federal Fifth Circuit Court of Appeals (and perhaps eventually to the United States Supreme Court). Earlier this month in Mayfield v. Department of Labor, Case No. 23-50724 (5th Cir. September 11, 2024), the Fifth Circuit Court of Appeals (which covers Louisiana, Texas, and Mississippi) recently upheld the legal validity of the DOL’s 2019 salary threshold increase; however certain language in the Court’s opinion suggests that the new 2024 increases by the DOL may not be protected by the Court’s analysis in this decision. Future developments in these cases bear close watching as we move into the final quarter of 2024.
While awaiting the outcome of this litigation, employers should be reviewing their current wage payment practices and making contingency plans for how they will adjust pay practices for employees who salaries are currently below the new threshold should the second salary increase go into effective January 1, 2025. Planning options include increasing the salaries of employees to comply with the higher salary threshold, re-classifying employees as non-exempt and paying these employees time and a half overtime (for all hours worked in excess of 40 hours per week), or taking steps to limit the number of hours worked by these employees to ensure they do not trigger overtime pay requirements.
There is good reason for employers to be optimistic that the new DOL rule may be blocked by federal courts from going into effect, but employers should remain vigilant and start making contingency plans now for how they will meet this new compliance challenge should the second salary increase go into effect on January 1, 2025. Employers should consult their labor and employment counsel in developing the best strategy for managing this legal risk.