By Samantha Halem, Tavish Brown November 20, 2024
On November 15, 2024, the United States District Court for the Eastern District of Texas issued an order in the matter of Plano Chamber of Commerce v. Dep’t of Labor that vacated and set aside the U.S. Department of Labor’s (“DOL”) 2024 final rule raising the overtime exemption salary threshold for executive, administrative, and professional (“EAP”) employees.[1]
The court’s ruling strikes down the entirety of the DOL’s 2024 regulation on a nationwide basis, meaning both that the newly implemented July 2024 salary threshold of $844 per week (or $43,888 annually) is no longer in effect and the January 2025 increase will not go into effect. As a result, the salary threshold for the EAP overtime exemption has immediately reverted to the prior threshold of $684 per week (or $35,568 annually). While the DOL may appeal the ruling, it is anticipated that the incoming Trump administration will abandon the 2024 regulation.
Background
The EAP Overtime Exemption The Fair Labor Standards Act (“FLSA”) generally requires overtime pay to employees who work more than forty hours a week. Relevant here, the EAP exemption provides that the overtime requirements in the FLSA shall not apply to “any employee employed in a bona fide executive, administrative, or professional capacity” as those terms are defined by DOL regulations (the “EAP Exemption”) and discussed below.
DOL regulations provide that an employee must satisfy a three-prong test to qualify for the EAP Exemption: (1) the employee must be salaried, i.e., be paid a fixed and predetermined sum per week irrespective of the quantity or quality of work performed; (2) the employee’s primary work must be the performance of EAP duties (the “Duties Test”);[2] and, (3) the employee’s salary must exceed a minimum threshold. The general purpose of the salary threshold is understood to be a proxy for identifying workers who do not meet the Duties Test in an effort to prevent employers from improperly designating “obviously nonexempt employees” as exempt from overtime requirements under the EAP Exemption.
In January 2020, the salary threshold was raised to its current rate of $684 per week (or $35,568 annually).
The (Now Moot) 2024 Overtime Rule
On April 26, 2024, the DOL issued a final rule raising the salary threshold requirement for the EAP Exemption in two phases. First, on July 1, 2024, the threshold was increased to $844 per week (or $43,888 annually). Second, on January 1, 2025, the threshold was scheduled to increase to $1,128 per week (or $58,656 annually). The rule also created an automatic indexing mechanism that would have automatically increased the salary threshold every three years based on a percentile of average salary levels for salaried employees.
The Court’s Order
In its ruling, the Plano court found that the DOL exceeded its authority under the FLSA and vacated the entire regulation. With respect to the 2024 and 2025 threshold increases, the court found that the DOL exceeded its authority under the FLSA by “effectively eliminat[ing]” consideration of the Duties Test, i.e., the requirement that an exempt employee perform “bona fide executive, administrative, or professional capacity” duties, in favor of a “salary-only test.” Regarding the automatic indexing mechanism, the court held that the DOL abandoned its duty under the FLSA to “define and delimit” the meaning of the EAP Exemption and would violate the notice-and-comment rulemaking requirement of the Administrative Procedures Act.
What Does This Mean?
The practical effect of the Plano decision is simple: the salary threshold for the EAP Exemption has immediately reverted to the January 2020 rate of $684 per week (or $35,568 annually).
The Plano decision does not eliminate the ability of the DOL to adjust the EAP Exemption’s salary threshold. Importantly, on September 11, 2024, the United States Circuit Court for the Fifth Circuit issued a decision in the matter of Mayfield v. Dep’t of Labor that upheld the DOL’s January 2020 salary threshold increase.[3] In Mayfield, the Fifth Circuit observed that while the DOL is empowered to enact rules that clarify the meaning of and impose “some limitations” on the FLSA’s EAP Exemption, the DOL “cannot enact rules that replace or swallow the meaning those terms have.” Citing Mayfield, the Plano court found that the 2024 regulation’s salary thresholds effectively displaced the Duties Test. The Plano decision does not, however, challenge the DOL’s underlying authority to impose a salary threshold for the EAP Exemption.
Next Steps for Employers
Employers who adjusted salaries or exemption status of employees in connection with the July 1, 2024 salary threshold should consult with counsel before considering whether to rescind or alter those changes. Employers are also reminded that multiple states have overtime salary thresholds that exceed the FLSA’s threshold, including Alaska, California, Colorado, Maine, New York, and Washington. Employers should consult with counsel to discuss compliance with any applicable state overtime laws.
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[1] See Memorandum and Opinion Order (ECF No. 76) in the matter of Plano Chamber of Commerce v. Dep’t of Labor, Case No. 4:24-CV-499-SJD (E.D. Tex. Nov. 15, 2024).
[2] The Duties Test comprises several distinct tests applicable to executives, administrative professionals, learned professionals, computer employees, and sales employees. Employers should consult with counsel about whether a specific job classification falls within the EAP Exemption.
[3] Mayfield vs. Dep’t of Labor 117, F.4th (5th Cir 2024).
