News, Insights & Events
DOL Overtime-Exempt Rule Vacated: Next Steps for Employers
November 19, 2024
Matt Heldt - TonkonTorp LLP
Last April, the Wage and Hour Division of the U.S. Department of Labor (DOL) released a rule increasing the salary threshold for overtime-exempt employees. On November 15, 2024, the U.S. District Court for the Eastern District of Texas set aside and vacated the rule, undoing current and future hurdles for exempt employees to retain exempt status.
Background
Most employees are entitled under federal law to a minimum wage and overtime at 1.5 times their regular hourly rate for all time worked over 40 hours a week—unless they are exempt. Generally, employees must meet a “primary duties” test, a “salary basis” test, and be compensated at or above a certain “salary threshold” before they may be properly considered exempt from overtime. Before the DOL rule, the salary threshold in Oregon was $644 per week, or $35,568 annually.
The 2024 Rule’s Impact
The 2024 rule scheduled a nationwide minimum salary threshold raise in two phases and provided for further periodic raises every three years. After July 1, 2024, all employees subject to the federal Fair Labor Standards Act (FLSA) needed a salary of at least $844 per week ($43,888/year) to qualify as exempt. Then, on January 1, 2025, the threshold would have raised again to $1,128 per week ($58,656/year). The salary threshold was set to increase again on July 1, 2027 and every three years thereafter based on current wage data. Phase one of the rule, raising the minimum salary to $844 per week, was already in effect when the Court’s decision was released.
What Happened
In vacating and setting aside the rule, the Court nullified it. The Court found that the DOL acted beyond its authority in setting the salary thresholds as high as it did in both the July and January phases. Likewise, the part of the rule providing future increases every three years was beyond the DOL’s authority because such increases would not happen through the process prescribed by the Administrative Procedure Act, as required by the FLSA. The Court also gave its decision a nationwide effect, considering the rule impacted hundreds of thousands of employers and millions of employees.
What Employers Need to Know Now
The DOL rule is no longer effective. The January 1 increase will not go into effect and the earlier July 1 increase has been nullified. Applicable salary thresholds under the law have essentially reverted back to “pre-rule” levels. Employers should, however, remain vigilant of preexisting and soon-to-be updated state requirements. The applicable threshold in Oregon is once again $684 per week ($35,568/year), but other states may have different (and substantially higher) requirements. State law is still in full force.
Employers in compliance with the now defunct July increase should pause before immediately lowering employee salaries. Other considerations, such as employee morale around the holidays and potential legal risk from other applicable laws, could make it advisable to maintain current salary levels. Employers should consult legal counsel before reducing salaries.
The DOL may appeal the Court’s decision to the Fifth Circuit Court of Appeals. Although an appeal is within the realm of possibility, the upcoming change in the White House lowers the likelihood of an appeal or, if an appeal is filed before January, that the DOL persists. For now, the Court’s decision is likely to stand.
This update is prepared for the general information of our clients and friends. It should not be regarded as legal advice. If you have questions about the issues raised here, please contact any of the attorneys in our Labor & Employment Practice Group, or the attorney with whom you normally consult.
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