In an expected decision, a Texas federal court struck down the U.S. Department of Labor’s (DOL) proposed increase in the salary threshold for exempt employees under the Fair Labor Standards Act (FLSA). This ruling has significant implications for employers across the country, particularly those who had prepared for the expected salary hike.
Background of the Case
In 2016, the DOL issued a rule that aimed to raise the salary threshold for employees to be classified as “exempt” from overtime pay under the FLSA. The original rule proposed was also blocked by a federal judge in Texas, and the increase was never implemented.
Fast forward to 2024, when the DOL proposed a new rule that would raise the salary threshold in a variety of ways up to $58,656 per year, with automatic increases every few years based on inflation. This would have impacted millions of salaried employees, who could have been reclassified as non-exempt, thus making them eligible for overtime pay.
However, in a recent ruling, the U.S. District Court for the Eastern District of Texas found that the DOL overstepped its authority in implementing this increase. The court ruled that the proposed changes to the salary requirements were inconsistent with the intent of the FLSA and that the DOL did not have the legal authority to set such a high threshold without Congress’s approval.
What Does the Court’s Ruling Mean for Employers?
This ruling temporarily halts the implementation of the DOL’s proposed salary threshold increase. While the DOL has the option to appeal the decision, for now, employers are not required to adjust their exempt employee classifications based on the proposed salary level.
Here are the key takeaways for employers:
- No Immediate Change in Salary Requirements: For the time being, employers do not need to increase salaries for their exempt employees to meet the higher threshold.
- Evaluate Exemption Status: Even though the salary threshold increase is on hold, employers should continue to evaluate their current classification of employees as exempt or non-exempt. This includes ensuring that employees meet both the salary and job duties tests outlined by the FLSA. Misclassification could expose employers to liability for unpaid overtime.
- Focus on Overtime Compliance: Regardless of the outcome of this case, employers must continue to comply with the FLSA’s overtime requirements. Employees who are non-exempt must be paid overtime for hours worked over 40 in a workweek.
