Wikipedia says that déjà vu is the phenomenon of feeling as though one has lived through the present situation before. Last Friday, a Texas federal judge vacated a U.S. Department of Labor 2024 Rule that raised the minimum salary level to be exempt from the Fair Labor Standards Act overtime rules on July 1, 2024 (and would have done so again on January 1, 2025).
If this sounds familiar, it should. In 2016, a Texas federal judge did the same thing.
In both instances, the plaintiffs claimed that the Department had exceeded its authority because the federal agency increased the minimum salary for the so-called “EAP Exemption” to a level that effectively displaces the duties-based inquiry required by the FLSA’s text with a predominant salary-level test. The “EAP Exemption” provides that the FLSA’s minimum wage and overtime requirements apply to “any employee employed in a bona fide executive, administrative, or professional capacity,” as those terms are “defined and delimited” by agency regulations.
So why did the court nix the Department’s 2024 attempt to raise the salary level to qualify for an overtime exemption?
The FLSA does not specify an employee’s minimum salary or compensation level to qualify for the EAP Exemption.
But, wait a minute, Eric! Hasn’t the Department been using salary levels to help define overtime exemptions for many, many, many years?
Yes, even the judge couldn’t deny that. However, the court noted that the “fundamental aspects of the salary-level test” involve setting the salary so low that it will “exclude only obviously nonexempt employees.”
Indeed, the focus of the EAP Exemptions lies elsewhere, with the court noting that “the terms ‘executive,’ ‘administrative,’ and ‘professional’ are each consistent with a functional, duties-based inquiry…It’s their duties and not their dollars that really matter.”
Therefore, because Congress elected to exempt employees based on the capacity in which they are employed, the Department exceeded its statutory authority by raising the salary level to the point where millions more salaried Americans would have become overtime-eligible.
And a Texas judge again dropped the hammer, “As was true of the 2016 Rule, the minimum salary level imposed by the 2024 Rule ‘effectively eliminates’ consideration of whether an employee performs ‘bona fide executive, administrative, or professional capacity’ duties in favor of what amounts to a salary-only test.”
Consequently, the judge vacated the 2024 Rule — not just for Texas businesses but for companies nationwide.
So, now what?
Suppose your business raised salary levels in July to comply with the now-scrapped 2024 Rule or announced pay raises in anticipation of January 1, 2025. Technically, your business can reverse course prospectively (i.e., don’t ask for repayment) under the FLSA. But what about a morale hit? Well, I’m a cold-hearted management-side employment lawyer. Don’t ask me. I’ve never been “hit in the feels.”
Just don’t forget about state and local laws that may be more employee-friendly. And this decision may get appealed. Although between the Fifth Circuit and a new presidential administration, the odds of a reversal are slim and none. Still, with all the attention that this decision may draw, it could be a good time to audit your employee classifications generally.
But don’t rely on a free post for legal advice. If you have wage-and-hour questions, call your employment lawyer.