Federal Court Shuts Down DOL’s Rule to Raise White Collar Exemption Thresholds

On November 15, 2024, a Texas federal court overturned the U.S. Department of Labor’s (DOL) rule that would have raised salary minimums for most employees exempt from overtime and minimum wage requirements under the Fair Labor Standards Act (FLSA).

The DOL may still appeal the court’s decision to reverse it, but the rule has been invalidated for now.

Recap

If you missed the original ruling, the DOL proposed two mandatory increases to the minimum salary threshold for certain exempt employees. The rule’s first increase was effective July 1, 2024, raising the minimum salary for such employees from $684 to $844 per week. The rule’s second increase to $1,128 per week was planned for January 1, 2025, but now is null and void nationwide.

The following table is a screen capture detailing the minimum salary increases from the DOL’s website:

The final rule also raises the salary threshold for certain highly compensated employees (HCEs) who are salaried, earn above a certain total compensation level, and meet a basic duties test.

Employees who meet these criteria are exempt from FLSA overtime and minimum wage rules. Under the new rule, the salary requirement for HCEs goes up from $107,432 annually (which includes at least $684 per week) to $132,964 annually (at least $844 per week), starting July 1, 2024. There was also a planned second increase, which would have bumped the salary to $151,164 annually (at least $1,128 per week) on January 1, 2025.

What employees were these exemptions planned for?

While these salary requirements are not in effect now, the DOL could still appeal the Texas Federal court’s decision. Consequently, employers may benefit from having a general understanding of the rule’s exemptions under FLSA requirements, and look out for future headlines.

These exemptions have been called “white collar exemptions” because they not only concern an employee’s salary but also the duties they perform. For an employee to be exempt from FLSA minimum wage and overtime requirements (and therefore receive the DOL’s planned minimum salary amounts) they must meet the following three tests.

1. Salary basis test– The employee must be paid a predetermined and fixed salary that does not fluctuate according to the work they perform.
2. Salary level test– The amount of salary the employee is paid must meet a specific amount. For the July 1, 2024 increase, the threshold was $43,888.
3. Duties test- The employee’s duties must center primarily around either executive, administrative, or professional.

Here’s more detail on these specific duty exemptions directly from the FLSA.

Executive

• “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
• The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.”

Administrative

• “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
• The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.”

Professional

• “The employee’s primary duty must be the performance of work requiring advanced knowledge, defined as work which is predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgment;
• The advanced knowledge must be in a field of science or learning; and
• The advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction.”

The Ruling

Judge Jordan found that the new salary increases did not just screen out non-exempt employees but also disqualify significant portions of employees who would otherwise meet the applicable duties tests. For example, the Judge calculated that the July 2024 increase alone resulted in a third of prior exempt employees being disqualified from the exemption.

Judge Sean Jordan for the Eastern District of Texas ruled that the DOL’s original plan exceeded the department’s authority and would disproportionately disqualify too many employees due to the imposed salary thresholds. These newly found non-exempt employees would have otherwise met the duty requirements.

What This Means For California Employers

Since California’s white-collar salary requirements are higher than those outlined in the FLSA, the developments in Texas’ federal court don’t change obligations for California employers. Employers operating in the golden state should continue to apply state required exemption standards. For more specifics on California white-collar overtime exemption standards (executive, administrative, and professional) visit the Department of Industrial Relations (DIR) website.

Wrap-Up

It’s unclear if the DOL will appeal the decision to overturn it’s rule. Stay tuned for future updates on this topic, and contact us to learn how California Payroll’s HR compliance tools and experts can help you stay on top of new rules and regulations in the evolving legal landscape.

This information is provided as a courtesy of California Payroll and should not be taken as legal or tax guidance for business owners or payroll professionals. If you have any further questions about this topic, we encourage you to seek advice from your applicable legal professional.

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