Texas Federal Court Strikes Down the U.S. Department of Labor’s Salary Threshold Rule for Exempt Employees

November 22, 2024 Katya Lancero Norris Shar Bahmani Employment Law

Texas Federal Court Strikes Down the U.S. Department of Labor’s Salary Threshold Rule for Exempt Employees under the Fair Labor Standards Act on a Nationwide Basis

November 22, 2024 By: Katya Lancero Norris

In May 2023, we published an article about the U.S. Department of Labor’s (“DOL”) final rule increasing the minimum salary threshold requirement on July 1, 2024, under the executive, administrative, and professional (“EAP”) so-called “white collar” exemptions and the highly compensated employee total annual compensation threshold under the Fair Labor Standards Act (“FLSA”).  The FLSA is a federal law requiring private and government-sector employers to pay employees no less than the federal minimum wage for all hours worked and overtime compensation for all hours worked over 40 in a workweek unless those employees are “exempt” under the FLSA.  Both thresholds were intended to increase again on January 1, 2025, and additional salary threshold increases were intended to take place every three years.  Although Arizona’s minimum wage is higher than the federal minimum wage (currently, the Arizona minimum wage is $14.35 per hour), Arizona does not have any overtime compensation laws, and thus, the federal FLSA overtime laws apply in Arizona. 

This past Friday, November 15, 2024, the U.S. District Court for the Eastern District of Texas struck down the final rule, finding the rule exceeded the DOL’s statutory authority.  In making this ruling, the court analyzed the rule under a new standard set forth by the Supreme Court of the United States in Loper Bright Enterprises v. Raimondo, 144 S. Ct. 2244 (2024), which overturned the Chevron doctrine, dictating that courts must analyze government agency interpretations of laws independently in deciding whether an agency has acted within its statutory authority, and must afford less deference to government agency interpretations of the law than previously required.

The November 15, 2024 ruling vacates and sets aside the July 1, 2024 salary threshold increase, although many employers may have already adjusted their payroll to comply with that increase, and it also eliminates the January 1, 2025 and future salary threshold increases on a nationwide basis.

Thus, the salary thresholds to remain properly classified as exempt under the executive, administrative, and professional exemptions of the FLSA is $684 per week, which is equivalent to a $35,568 annual salary.  Importantly, however, employees must also perform exempt duties to be deemed “exempt” under the FLSA.  It is not enough to simply pay workers the required salary threshold. 

For example, to be exempt under the executive employee exemption, an employee must not only be paid the requisite minimum salary threshold, but the following exempt duties must all be met as well:

  1. The employee’s primary duty must be managing the enterprise or managing a customarily recognized department or subdivision of the enterprise;
  2. The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalents; and
  3. The employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion, or any other change of status of other employees must be given particular weight.

As another example, to be exempt under the administrative employee exemption, an employee must not only be paid the requisite minimum salary threshold, but the following exempt duties must all be met as well:

  1. The employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and
  2. The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

Next Steps

The DOL may appeal the federal Texas court’s ruling to the U.S. Court of Appeals for the Fifth Circuit in advance of President-elect Trump taking office.  The new presidential administration under President-elect Trump, however, could withdraw the appeal, and it could also undertake a new rulemaking.

Please contact Katya Lancero Norris at norris@sackstierney.com or Shar Bahmani at bahmani@sackstierney.com if you have questions about whether your employees are properly classified as exempt under the FLSA.

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