U.S. District Court Vacates the DOL’s July 1, 2024 Increases to the Salary Thresholds for Overtime Exemptions Under the FLSA, Which is Now Pending Appeal

U.S. District Court Vacates the DOL’s July 1, 2024 Increases to the Salary Thresholds for Overtime Exemptions Under the FLSA, Which is Now Pending Appeal

Rob Thomas, Of Counsel

Last Spring, the Rocky Mountain Employer discussed the U.S. Department of Labor’s (“DOL’s”) anticipated increases to the minimum salary thresholds for exemptions from the Fair Labor Standards Act’s (“FLSA’s”) overtime exemptions for executive, administrative, and professional employees—including the salary thresholds for “highly-compensated employees”—which went into effect on July 1, 2024, and which affected the exempt status of salaried and highly-compensated employees both in Colorado and nationwide (the “Final Rule”).[1]  However, on November 15, 2024, the U.S. District Court for the Eastern District of Texas, in Texas v. United States Department of Labor,[2] vacated the DOL’s Final Rule, effectively resetting salary thresholds to their previous 2019 levels.    

The Final Rule, and Texas v. United States Department of Labor

Per the Final Rule, on July 1, 2024, the DOL increased the required salary threshold for executive, administrative, and professional overtime exemptions to $844/week ($43,888.00) annually)—up from $684/week ($35,568.00 annually)—with progressive increases also set to take effect on January 1, 2025, July 1, 2027, and every three years thereafter.  The Final Rule also provided that the minimum salary for highly compensated employees would increase from $107,432.00/year to $132,964.00/year on July 1, 2025.[3]  The latter change was of particular significance to Colorado employers, considering that Colorado’s salary threshold for highly compensated employees in 2024 is less than the revised federal threshold under the Final Rule ($123,750.00) and, therefore, some Colorado employers likely found themselves with certain highly-paid employees who were no longer exempt from federal overtime protections. 

The court’s decision in Texas effectively wiped out any such concerns.  In his November 15, 2024 decision, Judge Sean Jordan determined that the Final Rule must be vacated an set aside nationwide, as if it never existed, for multiple reasons. 

First, applying the United States Supreme Court’s monolithic decision in Loper Bright Enterprises v. Raimondo,[4]   the court found that the DOL exceeded its authority in issuing the Final Rule because the proposed salary increases had the effect of making exempt status turn on salary levels for millions of employees, as opposed to turning on whether these employees were bona fide executive, administrative, or professional employees (“EAP Employees”) under the FLSA’s job duties test. 

Of particular importance to the court was the fact that, under the Final Rule, the number of employees who satisfy FLSA’s job duties test for EAP employees, but who would nonetheless be non-exempt from overtime under the FLSA’s salary thresholds, would triple—further showing that the DOL’s salary increases were not rationally related to the FLSA’s emphasis on job duties for purposes of overtime exemptions.  The court likewise noted that the increase in the number of employees who would be found non-exempt based on salary alone would only further escalate under the Final Rule’s anticipated 2025 and 2027 salary threshold increases—effectively relegating the job duties test to a simple salary cutoff in contravention of the DOL’s enumerated authority under the FLSA.

In terms of remedies, the court determined that simply remanding the Final Rule to the DOL for revisions without vacating it was inappropriate, given that the court found that there was “no likelihood” that the DOL could justify the Final Rule on remand because it “plainly” exceeded the DOL’s authority under the FLSA.  As such, the court determined that the only appropriate remedy under the circumstances was to vacate the Final Rule entirely, effectively reverting salary thresholds back to 2019 levels, and retroactive to July 1, 2024 as well when the Final Rule first became effective. 

Employer Considerations

The DOL almost immediately filed a notice of appeal to the Court of Appeals for the Fifth Circuit following Judge Jordan’s opinion, but whether the DOL will continue to pursue the appeal once President-elect Trump takes office is another question.  In the meantime, Colorado employers impacted by the Final Rule’s increase to highly compensated employee thresholds beyond those set forth under Colorado law can breathe a sigh of relief for the moment.  Of course, so long as Colorado’s own state-law salary thresholds for exempt EAP Employees and highly-compensated employees continue to exceed federal thresholds, Colorado employers must be mindful to meet or exceed such thresholds in order to avoid overtime liability.  Campbell Litigation remains available to assist with these and other wage and hour-related questions under federal and state law.

[1]See https://www.rockymountainemployersblog.com/blog/2024/5/16/department-of-labor-issues-final-rule-raising-the-minimum-salary-requirements-for-executive-administrative-professional-and-highly-compensated-employees-for-overtime-exemptions-under-the-flsa.

[2] --- F. Supp. 3d ----, 2024 WL 4806268 (E.D. Tex. Nov. 15, 2024).

[3]Under the FLSA, a “highly compensated employee” may be exempt from overtime if the employee is paid the increased salary threshold and performs at least one of the job duties under the executive, administrative, and professional job duties tests.

[4]144 S. Ct. 2244 (2024).