Shades of the wage-and-hour uncertainty that accompanied the end of President Obama’s administration in 2016 reappeared last week following a federal court’s decision to invalidate President Biden’s proposed overtime rule. Since part of President Biden’s rule had already taken effect, employers are understandably confused about what this means, what they are obligated (or permitted) to do, and what comes next.
The basics first. On Friday, November 15, 2024, a federal judge in Texas blocked the U.S. Department of Labor’s (“DOL”) Final Rule (“2024 Rule”), which would have increased the minimum salary required for the Fair Labor Standard Act’s (“FLSA”) executive, administrative, or professional (“EAP”) overtime exemption. The rule initially took effect on July 1, 2024, and increased the minimum EAP salary thresholds from $684 per week ($35,568 per year) to $844 per week ($43,888 per year), and would have raised salaries again on January 1, 2025, with further increases beginning July 1, 2027, and every three years thereafter. The court’s decision vacates the rule on a nationwide basis for all employers, as the court held that the DOL “exceeded the authority delegated by Congress.”
The EAP exemptions, also referred to as the white-collar exemptions, provides that FLSA’s overtime requirements do not apply to “executive, administrative, and professional” employees, but – notably – the FLSA itself did not include a minimum salary. In 1938, the DOL created the first minimum salary threshold–then $30 per week–which was increased by subsequent rules over the decades, culminating in the 2024 Rule, which the court in Texas struck down late last week. In light of the court’s decision, the 2019 Rule again controls, returning salary thresholds to $684 per week ($35,568 per year).
While the DOL may appeal the ruling, appeals typically take months (if not years) to conclude, and it is not yet clear whether the incoming administration led by President Trump would continue to press an appeal of President Biden’s proposed rule. In fact, when confronted with a similar situation before his first inauguration, President Trump ultimately decided to write his own rule rather than support a prior proposal drafted by President Obama. It seems likely he will do the same with the proposal drafted by President Biden.
What does this mean for employers?
First, since the court’s ruling applies on a nationwide basis, employers do not need to comply with its proposed salary threshold increase on January 1, 2025. Second, employers should consider how they want to handle employees who either received raises or had their exemption status changed when President Biden’s rule first took effect on July 1. For example, employers could consider converting employees who meet the 2019 Rule’s requirements back to exempt status. It could also reconsider raises that had been issued to other employees aimed at keeping them above the weekly salary level threshold initially implemented by President Biden’s rule. Any such changes should be on a prospective basis only.
