Federal Court Blocks DOL Rule Increasing Exempt Employee Salaries

The recent judgment by the U.S. District Court for the Eastern District of Texas has invalidated the U.S. Department of Labor’s (DOL) new rule mandating significant salary increases for exempt employees under the Fair Labor Standards Act (FLSA). Delivered on November 15, 2024, this ruling holds substantial implications for employers nationwide. The decision maintains the salary threshold at $35,568 per year for employees who meet the “white-collar” exemptions in terms of duties and payment requirements, thereby exempting them from the FLSA’s overtime stipulations. In detail, the DOL issued a final rule on April 23, 2024, termed “Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees.” This rule required employers to increase the salary threshold to $43,888 per year starting July 1, 2024, and mandated a further increase to $58,656 per year effective January 1, 2025. Additional amendments included higher thresholds for the “highly compensated” exemption and the provision for employers to make year-end catch-up payments up to 10% if employee earnings fell short of the requisite threshold. The rule also called for automatic salary threshold increases every three years based on the consumer price index, eliminating the notice and comment period.

Court’s Decision

Following the DOL’s publication of the final rule, various lawsuits emerged, arguing against the sizable salary threshold increment, which would strip over 4 million employees of their exempt status despite their duties qualifying them as exempt. Within Texas, the court initially placed a limited injunction preventing the rule’s enforcement on public employers. Subsequently, on November 15, 2024, the court issued a comprehensive 62-page opinion declaring the 2024 rule as an unlawful exercise of agency power, resulting in a nationwide injunction against the final regulation. The court’s decision encompassed principles of statutory interpretation and administrative procedure. The ruling emphasized that the FLSA’s white-collar exemptions prioritize an employee’s duties over their salary. By considerably raising the salary threshold, the DOL effectively supplanted the statutory duties-based test articulated in the FLSA. The court highlighted the financial burden this rule would place on employers, especially small businesses and state governments, estimating first-year expenses at $2.7 billion nationwide. The court also deemed the provision for automatic salary threshold increases based on the consumer price index inconsistent with congressional intent, as it bypassed the regulatory process which requires the Secretary of Labor’s oversight in implementing such changes.

Implications for Employers

For employers, the court’s ruling provides temporary relief from escalating labor costs amidst a period of high inflation. However, the timing poses challenges as many employers have already invested considerable effort in preparing for the final rule’s implementation. Employers will need to reevaluate their strategies and budgets for 2025 to adapt to the ruling. Employers should continue using the 2019 salary threshold of $684 per week when determining whether an employee qualifies for white-collar exemptions. Employers who previously increased the salary threshold in July 2024 should reassess their current employee classifications to decide whether to reduce salaries while maintaining exempt status, uphold salaries as per the July 2024 increase, revert positions to exempt status that were reclassified as nonexempt, or contemplate salary adjustments for better recruitment and retention. Reducing pay after raising expectations in 2024 could potentially damage employee morale.

Strategic Review for Employers

The U.S. District Court for the Eastern District of Texas recently invalidated the U.S. Department of Labor’s (DOL) new rule mandating salary hikes for exempt employees under the Fair Labor Standards Act (FLSA). On November 15, 2024, the court’s ruling significantly impacts employers nationwide by reinstating the salary threshold at $35,568 per year for employees qualifying for “white-collar” exemptions, thus exempting them from the FLSA’s overtime requirements. The invalidated rule, issued on April 23, 2024, and named “Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees,” aimed to raise the salary threshold to $43,888 starting July 1, 2024, with a subsequent increase to $58,656 on January 1, 2025. Additional changes included higher thresholds for the “highly compensated” exemption and permitted employers to make year-end catch-up payments up to 10%. The rule also suggested automatic salary increases every three years, based on the consumer price index, without a notice and comment period.

Explore more

Closing the Feedback Gap Helps Retain Top Talent

The silent departure of a high-performing employee often begins months before any formal resignation is submitted, usually triggered by a persistent lack of meaningful dialogue with their immediate supervisor. This communication breakdown represents a critical vulnerability for modern organizations. When talented individuals perceive that their professional growth and daily contributions are being ignored, the psychological contract between the employer and

Employment Design Becomes a Key Competitive Differentiator

The modern professional landscape has transitioned into a state where organizational agility and the intentional design of the employment experience dictate which firms thrive and which ones merely survive. While many corporations spend significant energy on external market fluctuations, the real battle for stability occurs within the structural walls of the office environment. Disruption has shifted from a temporary inconvenience

How Is AI Shifting From Hype to High-Stakes B2B Execution?

The subtle hum of algorithmic processing has replaced the frantic manual labor that once defined the marketing department, signaling a definitive end to the era of digital experimentation. In the current landscape, the novelty of machine learning has matured into a standard operational requirement, moving beyond the speculative buzzwords that dominated previous years. The marketing industry is no longer occupied

Why B2B Marketers Must Focus on the 95 Percent of Non-Buyers

Most executive suites currently operate under the delusion that capturing a lead is synonymous with creating a customer, yet this narrow fixation systematically ignores the vast ocean of potential revenue waiting just beyond the immediate horizon. This obsession with immediate conversion creates a frantic environment where marketing departments burn through budgets to reach the tiny sliver of the market ready

How Will GitProtect on Microsoft Marketplace Secure DevOps?

The modern software development lifecycle has evolved into a delicate architecture where a single compromised repository can effectively paralyze an entire global enterprise overnight. Software engineering is no longer just about writing logic; it involves managing an intricate ecosystem of interconnected cloud services and third-party integrations. As development teams consolidate their operations within these environments, the primary source of truth—the