As we previously wrote and reminded readers, in April 2024, the Department of Labor (DOL) issued a final rule (the “2024 Rule”) increasing the standard salary level necessary to qualify for one of the executive, administrative, and professional (EAP or “white collar”) exemptions to the Fair Labor Standards Act (FLSA).
However, on November 15, 2024, Federal District Court Judge Sean Jordan of the Eastern District of Texas ordered vacatur of the 2024 Rule that saw the first increases to the salary basis requirement in decades. Now, the FLSA salary basis reverts to pre-2024 levels, and the impact on employers, many of whom were already adjusting to the new salary levels, is significant.
The 2024 Rule included three different increases. The first, which took effect on July 1, 2024, increased the minimum salary basis for an EAP exemption from the former level of $684/week ($35,568 annual) to $844/week ($43,888 annual). The second planned increase, scheduled to take effect on January 1, 2025, would have increased the salary basis from $844/week to $1,128/week ($58,656 annual). The 2024 Rule further specified that the salary basis would increase thereafter triennially based on contemporary earnings data, with the first triennial increase scheduled to take effect on July 1, 2027.
Now, all of these increases have been struck down by the Eastern District of Texas as unlawful. The District Court’s vacatur includes a roll back of the July 2024 increase that had already become effective nationally, but which is now vacated along with the entirety of the 2024 Rule. This means that there is no longer an increase to the salary basis for the EAP exemptions in 2024, and the salary basis for those exemptions, as of today, reverts to the pre-2024 Rule level of $684/week ($35,568 annual).
As part of its order, the District Court ordered the DOL back to the “drawing board” and to reconsider the rule altogether. In explaining its decision the District Court wrote at length about the historical basis and framework for setting a salary threshold, holding that the salary basis was historically intended to be “deliberately low” merely to weed out those who obviously would not meet the duties test for exemption and that the salary basis standard was never intended to replace the duties-based portion of the test. The District Court held that the DOL deviated from this historical framework beginning with its 2004 rule and determined that the 2024 Rule constituted an unlawful agency action, thus resulting in its vacatur.
Employers across the country must now grapple with what to do next. Many employers instituted salary increases when the July 2024 increase went into effect to ensure continuing exemption status for workers. These employers are now asking what they should do in light of the November 15 ruling, such as whether to claw back previously granted salary increases or to hit the pause button on future increases until salary levels catch up. Even with the ruling, making decisions such as clawing back already-granted increases or pausing future increases can be a complex situation. It is therefore critical that, before taking any action, employers speak with experienced employment counsel. Any action taken as a result of the order is likely to have significant ramifications for your workforce.
For employers that may now seek to claw back raises given out earlier this year, understand that said action risks negative impacts on employee morale, employee retention, and/or claims of adverse treatment. Conversely, employers considering leaving salaries at their post-July 2024 levels but ceasing future raises or inflation-based adjustments, should know that this option, too, carries many risks associated with employee morale, retention, and inflation-based hardships.
It is also important to note that the November 15 order does not in any way impact state salary thresholds for any state or local rules similar to the FLSA’s EAP salary test, many of which meet or exceed the thresholds required under the 2024 Rule. If you are an employer in a state with a state rule that exceeds the FLSA requirement, you will still be required to meet the state mandated minimum thresholds to continue to qualify for the exemption.
