The quote in the title is attributed to the great Yogi Berra and fits perfectly with what employers have just relived. Earlier this year, the federal Department of Labor (“DOL”) increased the salary threshold for the three federal white-collar overtime exemptions (executive, administrative, and professional [“EAP” exemption]) under the federal Fair Labor Standards Act. You can see our previous legal update posted on May 28, 2024, here. The new threshold included a July 1, 2024 increase to $844 per week ($43,888 annually), and a second increase to $1,128 per week ($58,656 annually), set to go into effect on January 1, 2025.
On November 15, 2024, a Federal District Court, in the case of State of Texas v. U.S. Department of Labor, vacated the 2024 DOL final rule and invalidated the 2024 DOL final rule holding that the DOL exceeded its authority. The Court ruled that allowing salary levels to take precedence over the duties test undermined the core principles of the EAP exemption. It also held that the injunction banning implementation of the rule nationwide was necessary because the 2024 DOL final rule impacts “millions of employees and will impose billions of costs to employers.” Additionally, the Court prohibited the rule’s provision that there be automatic threshold increases every three years.
This is not the first time the DOL overstepped its authority in this manner, according to the Courts. An almost identical situation occurred in 2016 during the Obama era. At that time, the DOL also attempted to increase the salary threshold for the EAP exemption from $455 per week to $913 per week (from $23,660 annually to $47,476 annually). 21 states and numerous business organizations challenged that DOL attempt in the case of State of Nevada, et al. v. U.S. Department of Labor. The Federal District Court in that case also vacated the DOL’s final rule, concluding that the rule “makes an employee’s duties, functions, or tasks irrelevant if the[ir] salary falls below the new minimum salary level” and would cause “irreparable harm” if it took effect. Summary judgment was ultimately granted, and the 2016 DOL rule was blocked.
The DOL will almost certainly appeal the ruling (more on this below). For now, however, the federal EAP exemption salary threshold reverts to rates of $684 per week ($35,568 annually). The highly compensated employee exemption also reverts to $107,432, annually. (Please note, this does not mean you can go backward in time to collect on past salary.) Affected employers may roll back any increases going forward in time. The question becomes: If an employer does so, will this negatively impact the morale in the work environment?
For California employers, the federal threshold falls well below the current California minimum EAP exempt salary threshold which, as of January 1, 2025, sits at $68,640 (two times California minimum wage). Because California’s salary basis minimum is higher than the federal threshold, California’s more restrictive law renders the federal salary threshold moot for California employees.
Employers with operations or employees in states other than California, subject to any state or local laws in those other areas, are now permitted to revert to the prior salary threshold for the EAP exemption ($35,568).
The DOL is expected to appeal the District Court ruling to the Fifth Circuit Court of Appeal. Whether that appeal is heard before the January 20, 2025 arrival of the new administration is unknown, but seems unlikely. Even if that occurred, it is also unlikely that the new administration would push to continue the appeal process.
If you have questions about exempt versus non-exempt classification, or any other employment law questions or issues, contact the employment attorneys at LightGabler LLP for assistance.
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