On November 15, 2024, Judge Sean Jordan of the U.S. District Court for the Eastern District of Texas issued a nationwide injunction blocking the Department of Labor's (DOL) 2024 overtime rule. This rule aimed to raise the salary threshold for white-collar exemptions under the Fair Labor Standards Act (FLSA) from $35,568 to $43,888 annually on July 1, 2024, and to $58,656 on January 1, 2025. Judge Jordan ruled that the DOL exceeded its statutory authority by prioritizing salary levels over job duties, effectively overriding the FLSA's emphasis on the duties test.
The court concluded that the 2024 rule improperly shifted the framework for determining exemptions, emphasizing salary thresholds as the dominant factor instead of considering an employee’s actual job responsibilities. The judge’s decision also drew from a recent Supreme Court ruling rejecting "Chevron deference," allowing courts greater scrutiny over agency interpretations of statutes. This further strengthened the argument that the DOL overstepped its authority.
This ruling has significant implications for employers, particularly those who adjusted salaries or reclassified employees in anticipation of the 2024 thresholds. While employers can revert to the previous salary standard of $35,568 annually, doing so requires careful consideration of employee morale, legal compliance, and operational impacts. With President Trump scheduled to take office in January, it is improbable that the DOL will appeal the decision.
5 Takeaways for Employers
- Evaluate Salary Adjustments Made in 2024: If you raised employees’ salaries to meet the $43,888 threshold on or before July 1, 2024, you may consider reversing those increases. However, reducing pay can harm morale and productivity, leading to higher turnover and associated costs. Before making such changes, consulting with legal counsel is recommended as state and local employment laws may require notice
- Re-assess Employee Classifications: Employers who reclassified employees from exempt to non-exempt status under the July 2024 salary test can revert these employees to exempt status, provided their annual salaries exceed $35,568 and they meet the FLSA duties test. Be cautious, as incorrect classifications could lead to compliance risks or legal disputes.
- Monitor Ongoing Legal Developments: While the DOL may not appeal the court’s decision or introduce a revised salary threshold rule, revised state and local wages rules may be introduced in the near future. Employers should closely track updates to ensure compliance and avoid unnecessary administrative or operational changes.
- Strategize Employee Communication: Transparent communication is essential when making compensation or classification changes. Employees who perceive salary reductions or reclassifications as unfair may feel undervalued, reducing morale and productivity. Craft clear messaging to explain the legal context and emphasize your organization’s commitment to fair treatment.
- Prepare for Future Wage and Hour Changes: This decision highlights the dynamic nature of wage and hour laws. Employers should implement robust processes for reviewing compensation structures and classification practices regularly. Engaging in proactive workforce planning and staying informed about federal, state, and local regulations can help mitigate future compliance challenges.
By integrating these takeaways into your compensation strategy, your organization can navigate the aftermath of this ruling while maintaining compliance, workforce stability, and operational efficiency.
If you have any questions about the FLSA overtime rule, salary threshold adjustments, or any other employment law matters, please contact Michael A. Airdo at mairdo@airdowerwas.com or James C. Jansen at jjansen@airdowerwas.com.