Client Alert: 2024 Increased Federal Overtime Eligibility Declared Unlawful

Posted on Nov 22, 2024 by

On November 15, 2024, the United States District Court for the Eastern District of Texas issued a decision[i], setting aside and vacating the U.S. Department of Labor’s Final Rule (“Final Rule”)[ii], which required increases to the minimum salary requirements for exempt employees under the federal Fair Labor Standards Act (FLSA).

As you may recall, the now vacated Final Rule increased the minimum salary requirements for exempt status from $35,568 ($684 per week) to $43,888 ($844 per week) effective on July 1, 2024, with a second increase to $58,656 ($1,128 per week) to go into effect on January 1, 2025. The Final Rule also provided for recalculation of minimum salary thresholds in 2027 and every three years thereafter. Many employers began compliance with the Final Rule by either increasing salaries for exempt employees to meet the new level effective on July 1, 2024 or by reclassifying employees as non-exempt, and, therefore, overtime eligible as of that date. These changes were further outlined in Part One and Part Two of a Client Alert on our website.

In its November 15th ruling, the District Court decided that the Final Rule exceeded the authority of the U.S. Department of Labor under the FLSA, and, therefore, is unlawful. The District Court effectively nullified the Final Rule and all required increases. This means that the current FLSA minimum salary threshold for exempt employees is back to $35,568/year ($684 per week). The U.S. Department of Labor can appeal the Final Judgment; however, with the upcoming change in administration, it could decide not to appeal.

What this means for employers:

Employers will not have to modify employee salaries or classifications to comply with the now vacated Final Rule. If an employer made increases to the salaries of exempt employees or reclassified workers in July 2024, these decisions could be reversed, although reducing pay for salaried employees likely would not have a positive impact on employee morale or retention. Therefore, Employers who made increases in July to comply with the Final Rule may instead decide to take these adjustments into account in future compensation decisions. Employers who reclassified employees to non-exempt status may want to revisit whether these employees continue to meet both the salary and duties requirements for exempt status under state and federal law, and, if so, consider reinstating their status as exempt employees.

If you have questions about how to approach any employee pay or classification matters in light of the District Court’s decision, please contact Attorney Rebecca Kent or Attorney Jacquelyn Adamicki.

[i] Decision, Plano Chamber of Commerce, et al., v. U.S. Department of Labor, et al. (2024) (No. 4:24CV00468).
[ii] “Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees,” 89 Fed. Reg. 32842 (Apr. 26, 2024) (codified at 29 C.F.R. §§ 541.0–541.710).
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Rebecca L. Kent

Employment & Labor Law and Commercial Litigation Attorney at McCarty Law LLP
Becky assists businesses as they confront the legal questions and challenges that arise each day in the area of human resources. She provides legal services in the areas of employment and labor law and represents clients in employment and business-related litigation.