Heading into the holiday months of 2024, employers faced the difficult decision of whether they would either: (1) increase the salaries of certain employees that were classified as exempt from overtime pay and who made less than 58,656 annually, or (2) convert those employees to non-exempt status and start paying them overtime as of January 1, 2025. This dilemma arose from a new Overtime Rule issued by the Department of Labor (DOL) in 2024 that increased the minimum salary thresholds required for employees to meet the executive, administrative, or professional (EAP) employee exemptions from the overtime requirements of the Fair Labor Standards Act (FLSA). Then, on November 15, 2024, a federal court struck down the Overtime Rule nationwide.
Exempt EAP Employees
Under the FLSA, employees are entitled to minimum wage for all hours worked and overtime pay for hours worked over 40 in a workweek, unless they qualify for an exemption. Common exemptions from overtime include the executive exemption (think of managers supervising a department), administrative exemption (such as your high-level office workers exercising independent judgment on important matters), and professional exemption (employees using their specialized education or licenses, like CPAs or certain medical professionals). These more commonly cited exemptions are also known as the “white collar” or “EAP” exemptions. To qualify for an EAP exemption, an employee must satisfy both: (1) a minimum salary threshold test; and (2) a job duties test. Since 2020, employees generally must be paid at least $684 per week ($35,568 annually) on a salary basis to qualify for an EAP exemption (with limited exceptions for certain professions). Additionally, their primary job duties must demonstrate they are a bona fide executive, administrative, or professional employee.
The 2024 Overtime Rule
The DOL’s 2024 Overtime Rule increased the minimum salary threshold for the EAP exemptions from $684 per week to $844 per week ($43,888 annually) as of July 1, 2024, and raised the minimum salary threshold for the EAP exemptions to $1,128 per week ($58,656 annually) starting on January 1, 2025. The impact was significant in that millions of workers who had been classified as exempt could not meet an EAP exemption unless their salary increased, in some cases, substantially.
Soon after its release, the rule came under scrutiny by employers and a variety of interest groups. Several lawsuits followed. In June 2024, the State of Texas successfully moved for a temporary injunction on the Overtime Rule. However, the Court’s decision in that case only granted the injunction as to the State of Texas as an employer. The Court did not halt the rule’s implementation as to any other employer. Yet, the Court’s decision foreshadowed its November decision, which had nationwide impact.
The November 2024 Decision
On November 15, 2024, the Eastern District of Texas struck down the 2024 Overtime Rule. Finding in favor of the State of Texas and a coalition of trade associations and employers, the Court held that the DOL exceeded its authority in issuing the Overtime Rule. The Court found that the Rule effectively displaces the FLSA’s duties test, commenting that “[i]t’s [the employees’] duties and not their dollars that really matter.”
The Court reasoned that the DOL does have the authority to define the EAP exemption, including the authority, within limits, to impose a salary-level test to qualify for an EAP exemption. However, the Court stated that while the salary test can be used as a criterion, such as to screen out obviously non-exempt employees, it cannot displace the job duties test. In this case, the 2024 Overtime Rule’s changes would have made salary predominate over job duties for millions of employees who would otherwise meet the duties test.
What’s Next?
The Court found that the appropriate remedy was to vacate the 2024 Overtime Rule entirely. For now, the prior salary threshold remains in force, at $684 per week. Thus, employers are not required to act. The United States has appealed the November decision and lawsuits regarding the 2024 Overtime Rule are still pending in other federal courts. That said, the decision to pursue this appeal may be impacted by the new presidential administration.
It is also worthy of note that this same federal court struck down a 2016 Overtime Rule issued by the DOL, which had increased the EAP exemption salary threshold from $455 to $913 per week ($23,660 to $47,476 annually). In that case, after the rule was struck down, the DOL decided to implement less dramatic changes to the salary level in 2019, which is the effective threshold we have now (the increase was from $455 to $684 per week, instead of $913). If the Court’s decision on the 2024 Overtime Rule stands, we may see a similar approach from the DOL, who may now look to a less dramatic increase.
If you have any questions about the Court’s decision and its impact, please contact Kayla Ernst or any member of Ice Miller’s Workplace Solutions Practice Group.
This blog discusses wage and hour obligations under federal law. State laws may have minimum wage and overtime requirements and exemption tests that differ from federal law.
This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.