Department of Labor’s Salary-Threshold Increase Faces New Legal and Political Challenges

PDF

As we previously covered, the United States Department of Labor issued a final rule on April 23, 2024 that increases the minimum salary threshold for the FLSA’s familiar white-collar overtime exemptions. Effective, July 1, 2024, the salary threshold for exempt workers increased from the previous rate of $684 per week (i.e., $35,568 annually) to $844 per week (i.e., $43,888 annually). The changes don’t end there. Under the DOL’s final rule, the salary threshold will again increase on January 1, 2025, up to $1,128 per week (i.e., $58,656 annually). The rule also provides for automatic increases every three years based on up-to-date wage data.

Further, the salary threshold for “highly compensated employees” (“HCEs”) has risen and is set to rise again. Previously, HCEs were required earn a total annual compensation of at least $107,432. On July 1, this yearly minimum increased to $132,964. This yearly minimum is set to increase again on January 1, 2025 to $151,164.

To date, the DOL’s salary-threshold rule has escaped significant legal roadblocks such as those suffered by the Biden Administration in its efforts to vastly limit non-compete agreements and mandate COVID-19 vaccines in many workplaces throughout the country.

Legal Challenge to DOL Rule

Last week, a District Judge in the Eastern District of Texas held a hearing in a case challenging the validity of the DOL rule brought by the state of Texas and private business groups. In June 2024, the Court issued a limited preliminary injunction against the new rule as applied to employees of the state of Texas. The latest hearing concerned the private business plaintiffs’ proposed expansion of that injunction. During the hearing, attorneys for the DOL highlighted the eight-decade-plus history of utilizing the salary test and duties test in tandem to further the ends of the Fair Labor Standards Act.

However, the Court skeptically questioned the government’s counsel during the hearing, showing particular concern for whether the significant salary-threshold increases predominate over the duties tests in a way that renders the duties test a virtual nullity. The Court also showed unease over the sheer practical impact of the rule, which will render nearly five million exempt workers (i.e. nearly 40% of white-collar workers in the United States) nonexempt—irrespective of the duties they actually perform.

Agency Deference

The case arises in a post-Chevron-deference world following the Supreme Court’s June 2024 decision in Loper Bright Enterprises v. Raimondo. Under the “Chevron doctrine,” if Congress had not directly addressed an issue giving rise to a dispute, and a court was asked to review a federal agency’s interpretation of a statute, courts were required to uphold the agency’s interpretation of the statute as long as that interpretation was reasonable. However, in Loper Bright, the Court explained that deference provided under the Chevron doctrine is inconsistent with the Administrative Procedure Act, which directs courts to “decide legal questions by applying their own judgment” and therefore “makes clear that agency interpretations of statutes — like agency interpretations of the Constitution — are not entitled to deference.” Therefore, courts—not administrative agencies—decide what the law means.

Now, under Loper Bright, courts are not required to provide the DOL with the same level interpretive deference in support of its new rules and regulations.

2024 Presidential Election

On November 5, 2024, former President Donald Trump won the United States Presidential election and will return to the White House on January 20, 2025. Even apart from legal hurdles inside the courtroom, the DOL’s new rule now faces political hurdles in the incoming Trump Administration. It is not clear whether a Trump Administration DOL would rescind this rule altogether or seek to issue a less-extensive salary-threshold increase than the current Biden-era final rule.

What’s Next?

The DOL rule remains largely in effect throughout the country. Employers should continue with compliance efforts related to the July 1 and January 1 salary-threshold increases, respectively. However, employers should monitor updates closely. As detailed above, the DOL’s rule faces new, significant challenges—both inside and outside the courtroom. The Court has not set a timeline for its decision, though we expect some ruling before the next effective date for a salary-threshold increase, which is January 1, 2025.