DOL Rule on Increased FLSA Salary Thresholds Takes Effect

The following article was first published by Shipman & Goodwin LLP in the News & Insights section of its website. It is reposted here with permission.

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The U.S. Department of Labor’s final rule expanding overtime protection in the form of salary threshold increases for FLSA exempt workers took effect July 1 for most employers across the country.

There has been some uncertainty over the past month with three cases pending in Texas federal court challenging the legality of the rule.

On Friday, June 28, 2024, the judge in one of those cases, State of Texas v. U.S. Dep’t of Labor, No. 4:24-CV-499-SDJ (E.D. Tex.), which was consolidated with Plano Chamber of Commerce, et al. v. Su, 4:24-CV-468 (E.D. Tex.), granted the State of Texas’ motion for preliminary injunction, finding that the rule “is likely unlawful” because it attempts to substitute the FLSA’s “duties” test with a salary test, and the DOL lacks authority to make such a change.

Notably, however, this injunction only applies to the State of Texas as an employer.

Therefore, all other employers, public and private, should plan to implement the salary increases effective July 1.  

Salary Thresholds

For reference, the increases are as follows:

• Effective July 1, 2024: the salary threshold for employees who meet the executive, administrative, and professional exemptions will increase from the current level of $684 per week ($35,568 annually) to $844 per week ($43,888 annually).
  In addition, highly compensated employees must be paid at least $2,557 weekly on a salary basis ($132,964 annually).
  
• Effective Jan. 1, 2025, the salary threshold for executive, administrative, and professional employees will increase to $1,128 per week ($58,656 annually).
  Highly compensated employees will need to be paid at least $2,907 weekly on a salary basis ($151,164 annually).

Texas Case

The Texas court had previously enjoined enforcement of a similar rule in 2016, concluding that it “essentially made an employee’s duties, functions, or tasks irrelevant if the employee’s salary fell below the new minimum salary level,” and unlawfully “made salary rather than an employee’s duties” the determinative factor for the EAP exemption.

That case was Nevada v. U.S. Dep’t of Lab., 275 F. Supp. 3d 795, 806–07 (E.D. Tex. 2017).

Based upon the same reasoning, the court found that the State of Texas was likely to succeed on the merits of its claim that the 2024 final rule interferes with the duties test, and would likely suffer irreparable harm in terms of having to raise salaries, pay time-and-a-half for all hours worked in a given week exceeding 40 hours, and/or prohibit employees from working over 40 hours per week.

The court noted that, while the first two injuries are economic, “they still are likely unrecoverable, as federal agencies generally enjoy sovereign immunity for any monetary damages.”

Employers should continue to monitor this situation for additional updates and changes.

Finally, the court found that the balance of equities tipped in favor of the State of Texas, because “the public interest is not served by the implementation of a rule that is likely unlawful.”

Although the decision only applies to the State of Texas, its reasoning is broadly applicable, and it provides a blueprint for invalidating the 2024 final rule in a broader context.

Employers should continue to monitor this situation for additional updates and changes.

Specifically, there is one other case challenging the applicability of the DOL final rule for which a motion for injunction is fully briefed and pending in another Texas federal court: Flint Avenue, LLC v. United States Department of Labor, 5:24-cv-00130 (N. D. Tex.). A decision on that motion may come any day.

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About the author: Sarah Westby is a partner in Shipman & Goodwin LLP’s Employment and Labor Practice Group and chair of the firm’s Cannabis Team.