On Friday, November 15, 2024, a federal district court in Texas struck down the US Department of Labor’s 2024 rule increasing the salary basis test for exempt employees. This rule involved an increase in the salary basis in July 2024 (to $844 per week), an increase set to go into effect in January 2025 (to $1,128 per week), and graduated increases every three years beginning in July 2027. The Texas Court’s order applies nationwide, effectively rolling back the “salary basis test” to the 2019 level of $684 per week. The Court also struck down the increases to the Highly Compensated Employee salary basis as well, which was enacted as a part of the same rule.
Practically, as a result of the Court’s decision, employers return to the same legal landscape that existed on June 30, 2024. There is a chance the DOL appeals the decision of the Texas Court and/or requests a stay from an appellate court while the decision is appealed, but that seems unlikely given the impending change in federal administration. For Idaho employers and employees covered by the Fair Labor Standards Act (which is most Idaho employers), the salary basis test for exemptions returns to $684 per week and the annual salary basis requirement for the Highly Compensated Employee returns to $107,432. Outside of Idaho, some states have enacted laws that may set a different floor for one or both of these.
Another big take-away from the decision is that the salary basis test is just one part of the two-part exemption evaluation for most exemptions – and the Texas Court’s ruling highlighted the relative importance of the “duties test” when evaluating whether a position is or is not exempt. In short, it remains essential that employers ensure that employees in exempt positions perform the primary duties that justify the applicable exemption. Employers should consistently (at least annually) evaluate the actual duties of your exempt employees, along with the salary basis test ($684 per week), to ensure that the positions qualify for an exemption.
Employers who increased salaries for exempt positions in alignment with the July 2024 rule can technically roll those increases back to $684. However, there are several implications for doing so – including other potential legal issues and the obvious impact on employee morale. Likewise, Employers who reclassified positions to non-exempt, rather than raising the salary basis, can evaluate (based on salary basis and the duties tests) whether the position would again qualify for an exemption. However, there are also potential implications for quickly reclassifying a role again, particularly given the original rationale for reclassification. Finally, Employers can also leave the changes made in anticipation of the July 2024 rule in place – provided those changes did, in fact, meet the standard of the July 2024 rule. Regardless of the approach, it is best to seek legal counsel based on the specific circumstances and desired course of action.
In terms of what’s next, like we saw between 2016 to 2019, the overtime exemption rule is likely to remain in a state of flux with the new Presidential administration. While it’s possible that the new administration may choose to appeal (or continue with any appeal of) the Court’s ruling, the new administration also could withdraw the prior rule and pursue its own rulemaking modifications to the overtime exemption requirements. This could involve a new proposal for a salary basis number, and/or could also include a reevaluation of the “duties test” as well. In short, employers should continue to stay tuned.