Earlier today, the United States District Court for the Eastern District of Texas granted summary judgment in favor of the state of Texas and a coalition of business organizations, striking down the Department of Labor’s regulations mandating significant increases to the salary basis for white-collar employees. As a result, the increases in salary implemented last July, as well as the increase that was to go into effect on January 1, have been nullified.
As discussed last April, under the now invalidated regulations, an employee had to earn a salary of at least $844 per week effective July 1, 2024, and $1,128 per week effective January 1, 2025, to be considered exempt. The regulations also introduced an “indexing” mechanism, which would have automatically raised salary thresholds starting January 1, 2027, and every three years thereafter. These changes would have made millions of salaried employees eligible for overtime compensation with the stroke of a pen, even though their job duties had not changed at all.
Those increases proved to be a step too far for the Texas Court, which found that they had made the “duties” portion of the exemption test irrelevant, contrary to the statute’s requirement that the Department of Labor consider the functions or duties of the employees in implementing regulations to define the white-collar exemptions. Increasing the salary amounts so drastically, the Court held, improperly had displaced the inquiry about the duties the employees performed, instead implementing salary as a proxy for the duties in which a significant percentage of those workers engaged.
This ruling is a positive development for employers facing challenging decisions about whether to raise salaries for white-collar employees or convert exempt employees to non-exempt status. Although the decision came too late to prevent the mandatory increases implemented last July, it serves as an important check against future attempts by the Department of Labor to impose similar sweeping changes to white-collar salary requirements.
Dykema’s attorneys continue to closely monitor these legal developments and are available to counsel employers on their implications for their workforces.