Update on the Department of Labor's 2024 Overtime Pay Rule
In April 2024, Barrett McNagny’s Labor and Employment section reported that the Department of Labor (“DOL”) released a final rule that raised the salary threshold to qualify for certain overtime exemptions (the “2024 Rule”) under the Fair Labor Standards Act (“FLSA”), which was designed to expand employee overtime pay eligibility. (Read the article from April 2024)
As anticipated, litigation ensued over the 2024 Rule, and it was challenged based on running afoul of the DOL’s statutory authority to create certain salary thresholds and allow for automatic adjustments of those thresholds every three years. The United States District Court for the Eastern District of Texas heard the legal challenge and agreed with the rule’s challengers. On November 15, 2024, the Texas district court issued its opinion and order, thus setting aside the 2024 Rule as an unlawful exercise of the DOL’s power and prohibiting the DOL’s enforcement of the 2024 Rule nationwide.
Therefore, the July 1, 2024, salary increase exceeded the DOL’s authority and the second phase of changes to the salary threshold set for January 1, 2025, will not occur.
EAP Exemption & The 2024 Rule
Under the FLSA, employers are generally required to pay an employee time and a half for all hours worked more than 40 hours in one work week. Employees who are employed in a bona fide executive, administrative, or professional capacity (“EAP” or “white-collar” exemption) are exempt from minimum wage and overtime protections if they are:
- Paid a salary
- Paid at least a specified weekly salary level
- Primarily perform executive, administrative, or professional duties (as provided in the DOL regulations).
The 2024 Rule affects the salary level portion of the test above as follows:
- Raised salary level from $684 to $844 per week (or from $35,568 annually to $43,888 annually) beginning July 12, 2024;
- Raises the salary level from $844 per week to $1,128 per week (or from $43,888 annually to $58,656 annually) starting on January 1, 2025; and
- Implements a mechanism to automatically increase the salary level every three years based on contemporary earnings data. The first automatic change was set to occur on July 1, 2027.
In reviewing the history of the EAP exemption, the DOL’s history of rulemaking on this subject, and recent litigation, the Texas district court determined that the determinative portion of the test for EAP exemption is an employee’s duties (or capacity in which they are employed), not the dollars the employee earns. Instead, the minimum salary level imposed under the 2024 Rule effectively eliminates consideration of whether an employee performs “bona fide executive, administrative, or professional capacity” duties in favor of what amounts to a salary-only test. It is this consideration that the court determined exceeds the DOL’s authority under the law to make salary (rather than duties) determinative of whether an executive, administrative or professional capacity employee should be exempt from overtime pay. In other words, the 2024 Rule created an improper, predominant salary level test. By doing so, the DOL exceeded its authority.
The Road Ahead
It is anticipated that the DOL will appeal the Texas district court’s ruling to the United States Court of Appeals for the Fifth Circuit. As the nation prepares for the change in presidential administration, whether that appeal will be heard before the presidential inauguration remains to be seen. The pending litigation means that employers must confer with legal counsel and monitor the changing landscape on this legal issue.
For additional questions or concerns about the 2024 Rule, pending litigation, or for assistance with communicating with your employees on this legal topic, please contact a member of Barrett McNagny’s Labor and Employment Law Team listed below.