Unless and until the Fifth Circuit overturns the vacatur, the 2024 Rule is not in effect, and the minimum salary levels under the EAP and HCE exemptions have reverted to their prior levels.

In July 2024, a new rule published by the U.S. Department of Labor (“DOL”) went into effect, raising the salary threshold for the Fair Labor Standards Act’s (“FLSA”) exemptions for executive, administrative, professional, and computer employees and the total annual compensation level for the highly compensated employee exemption (the “2024 Rule”). The 2024 Rule also included periodic, automatic increases of the minimum salary thresholds.

However, a Texas federal court struck down the 2024 Rule on a nationwide basis on Nov. 15.

Here is what employers need to know about this important development.

Background

The FLSA generally requires employees be paid at least the federal minimum wage for all hours worked, plus overtime pay for all hours worked over 40 hours in a workweek.

However, there are several exemptions from these requirements, and the 2024 Rule affected two of those exemptions: (i) employees employed in a bona fide executive, administrative, or professional capacity (commonly referred to as the “EAP” exemption); and (ii) “highly compensated” employees (the “HCE” exemption).

To qualify for the EAP exemption, DOL regulations require that each of the following tests be met:

1. The employee must be paid a predetermined, fixed salary;
2. The amount of the fixed salary paid must meet a minimum salary level; and
3. The employee’s primary job duties must involve executive, administrative, or professional duties as defined by the regulations.

The 2024 Rule raised the minimum salary under #2 from $684 per week ($35,568 annually) to $844 per week (or $43,888 annually) effective July 1, 2024, which would have increased to $1,128 (or $58,656 annually) effective January 1, 2025. The 2024 Rule also increased the minimum compensation for the HCE exemption from $107,432 per year to $132,964 per year starting July 1, 2024, which also would have automatically increased on Jan. 1, 2025, to $151,164 per year.

After Jan. 1, 2025, the minimum compensation level for the EAP and HCE exemptions were scheduled to automatically increase every three years.

According to the DOL, in the first year the 2024 Rule was to be effective, more than four million employees who were previously exempt would be rendered nonexempt, with no change in their duties.

Legal Challenges

Shortly before the 2024 Rule was to go into effect, the State of Texas and a coalition of trade associations and employers filed a lawsuit in the Eastern District of Texas—State of Texas Plano Chamber of Commerce, et al. v. U.S. Dept. of Labor, et al.—contending the 2024 Rule’s salary level increases exceeded the DOL’s authority under the FLSA.

U.S. District Judge Sean D. Jordan sided with the plaintiffs, ruling the DOL exceeded its authority in issuing the 2024 Rule because it “effectively displace[d] the FLSA’s duties test with a predominate—if not exclusive—salary-level test.” Judge Jordan also observed the last two DOL rules that effectively increased the minimum salary requirements occurred after 30 and 15 years, respectively, since the prior minimum salary was set, and the federal minimum wage had increased significantly over each period. The 2024 Rule, however, came only 5 years after the prior increase, and there had been no interim change to the federal minimum wage. Judge Jordan found it telling that the prior two increases both affected approximately 1.2 million workers each, whereas the 2024 Rule was expected to impact over 4 million workers in its first year alone.

Because the EAP exemption required that an employee’s status turn on duties rather than salary, and because the 2024 Rule’s changes “[made] salary predominate over duties for millions of employees,” Judge Jordan ruled that the 2024 Rule exceeded the DOL’s authority to “define and delimit” the terms of the FLSA exemptions. As a result, Judge Jordan vacated the 2024 Rule and remanded the issue to the DOL for “further consideration” in light of the Court’s opinion.

The DOL appealed that ruling on Nov. 25. The Fifth Circuit Court of Appeals is expected to rule upon the issue in 2025.

What Now?

Unless and until the Fifth Circuit overturns the vacatur, the 2024 Rule is not in effect, and the minimum salary levels under the EAP and HCE exemptions have reverted to their prior levels: $684 per week for the EAP exemption, and total annual compensation of at least $107,432 (including at least $684 per week paid on a salary or fee basis) for the HCE exemption.

Even if the Fifth Circuit upholds the vacatur, the DOL very well may try again by amending the 2024 Rule to address Judge Jordan’s holdings. However, the forthcoming change in presidential administrations could impact the DOL’s appetite to continue dedicating resources in pursuit of this issue. In all, 2025 promises to be an interesting year for these exemptions.

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Reprinted with permission from the December 16, 2024 issue of Texas Lawyer. © 2024 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.