The Department of Labor ("DOL") issued its Final Rule on April 23, 2024, increasing the wage thresholds for certain exemptions to minimum wage and overtime requirements under the Fair Labor Standards Act ("FLSA"). As of July 1, the effective date, the minimum weekly salary to qualify for the "white-collar" exemption will increase from $684 per week to $1,128 per week, and the yearly salary threshold to qualify for the "highly compensated employee" exemption will increase from $107,432 to $132,964. More information on the changes employers should anticipate can be found in our prior article, DOL's New Rule Increases Salary Threshold for FLSA Overtime Exemption Eligibility .
In anticipation of the Rule taking effect July 1, two lawsuits challenging it have been filed. Both are pending in the Eastern District of Texas, the Court that blocked a similar DOL rule from going into effect in 2016. Notably, that Court ruled in 2017 that the 2016 DOL rule was impermissible because it focused on the salary element of exemption to the exclusion of the job duty element. One of the now-pending lawsuits, filed by several business associations and the Plano Chamber of Commerce, argues that the new Rule is impermissible for the same reason, citing the precedent established by that 2017 ruling.
The other pending lawsuit, filed by the Texas Attorney General, asserts that the DOL exceeded its authority by issuing the Rule. This is the same argument asserted in a pending Fifth Circuit case regarding the 2016 DOL rule. Thus, a Fifth Circuit opinion in that case will control the ultimate outcome in the Texas AG's case. In the meantime, the Texas AG also moved for a temporary restraining order to block implementation of the Rule. The Court is hearing arguments on that motion on June 24, one week prior to the Rule's implementation. The Court will very likely issue its opinion prior to July 1, and we will issue an alert on the substance and effect of that opinion immediately.
While it is possible the Rule will be blocked from taking effect, as happened in 2016, employers should not rely on that possibility. Instead, employers should review their workforces to identify employees whose exemption may be eliminated by the Rule, and then decide whether to re-classify employees or raise their salaries to meet the Rule's new threshold for the exemption. When making determinations as to current exempt employees by virtue of the "white-collar" exemption, employers should ensure that those employees continue to meet the duties tests (dependent on type of role — executive, administrative, professional, etc.) if they decide to raise their salaries to continue the exemption.
Although it behooves employers to have a plan for July 1 implementation of the Rule, whether that involves pay raises and/or reclassifications, they should also stay apprised of developments in the pending litigation, as a ruling could block the Rule from taking effect. As such ruling could come on the very eve of the July 1 date it takes effect, employers should not implement reclassification and/or pay raises (or advise employees that such changes will be forthcoming) until July 1.
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