On November 15, 2024, Judge Sean D. Jordan of the United States District Court for the Eastern District of Texas issued his final opinion that the Department of Labor (DOL) exceeded its authority when it raised the minimum salary to be paid by employers to meet requirements under the Executive, Administrative, or Professional (EAP) employee exemptions from overtime– the so-called “white collar” overtime exemptions under the Fair Labor Standards Act (FLSA).
Under the new rule, the DOL had increased the salary threshold from $684 to $844 per week, which began on July 1, 2024. Employers began paying the new salary threshold to employees who otherwise met the job duties test for EAP employees. Also built into the now vacated rule was an additional increase in the salary threshold, which would have taken place on January 1, 2025. The Rule also provided for increases in the salary threshold every three (3) years thereafter.
Initially, the Court awarded an injunction against the rule, preventing the rule from taking effect only as to State of Texas employees as the litigation progressed. However, the Court has completely vacated the overtime rule nationwide, setting the minimum salary threshold back down to the pre-July 1, 2024 level or $684 per week ($35,568 per year). As with the previous rule in 2016, given the new administration coming in January 2025, it is unlikely that the DOL will continue to litigate in favor of the new rule.
The FLSA requires employers to pay employees overtime pay, 1.5 times the regular rate of pay for hours worked over 40 hours in a week, unless the employee falls under some exception. Generally, to qualify under an EAP exemption, the employee must be paid a minimum salary irrespective of the quantity of work performed or the number of hours worked, and the employee must perform work primarily within the exempt duties as proscribed by the various exemptions. For example, to qualify for the Executive exemption from overtime pay, the employee’s primary duty must be managing employees or managing a customarily recognized department or subdivision of the enterprise. Under the Administrative exemption, the employee’s primary duty must be in the performance of office or non-manual work directly related to the management or general business operations, and the employee’s duties must also include the exercise of discretion and independent judgment with respect to matters of significance. For the Professional exemption, the employee’s primary duty must be performing work requiring advanced knowledge, defined as work that is predominantly intellectual in character and includes work requiring the consistent exercise of discretion and judgment. The advanced knowledge must be in a field of science or learning, and the advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction.
While employers are now free to reduce employee salaries back down to the 2019 salary threshold in light of this recent ruling, it remains to be seen whether employers will do so in light of potential employee relations issues that might arise.
Employers with questions regarding how this ruling will impact them and their employees and whether they are implementing the EAP exemptions correctly should reach out to Kristina Curry at (937) 223-1130 or email kcurry@pselaw.com.
