The Fair Labor Standards Act establishes the national minimum wage and governs payment for overtime work, recordkeeping requirements, and standards for youth employment. These standards apply to Federal, State, and local government work and the private sector. Generally, the U.S. Department of Labor is responsible for and has authority over the governance of these standards. While the responsibility has not shifted, the authority of the courts is such that deference to the agency’s decision is no longer a given.
In this blog, Fee, Smith & Sharp LLP discusses a recent decision from the Eastern District of Texas Court issuing a nationwide injunction on the U.S. Department of Labor Salary Threshold Rule. This decision impacts minimum salary thresholds through the issuance of a nationwide injunction. Individuals and businesses nationwide are affected by these rapid changes.
What Happened?
On April 26, 2024, the U.S. Department of Labor issued a rule that finalizes its September 8, 2023, Notice of Proposed Rulemaking, “Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees.” The rule was effective July 1, 2024, with many substantive provisions going into effect on January 1, 2025. It served to revise the Federal regulations that implemented the exemption for certain wage and overtime pay requirements as related to employees in executive, administrative, and professional categories.
On November 15, 2024, the U.S. District Court for the Eastern District of Texas vacated the rule through a nationwide injunction. This decision required the Department of Labor to revert back to the 2019 levels for both minimum salary level and total annual compensation for “highly compensated employees.” The court ruled against the U.S. Government based on a finding that it exceeded its statutory authority when changing the basis for which an employee is exempt from the longstanding requirement to pay overtime.
This decision puts the Department of Labor on additional notice that Federal courts will not give full and automatic deference to agency decision-making. Courts will instead continue to apply the precedential reasoning of the June 2024 U.S. Supreme Court decision in Loper Bright Enterprises v. Raimond, 144 S. Ct. 2244 (2024). This decision has many immediate impacts, including:
- Businesses planning for increases to wage and salary budgets.
- Approximately 4 – 5 million people for whom overtime eligibility would have changed.
- Non-exempt employees who retain their unique status regarding overtime pay.
The rule had provided for additional incremental increases beginning in 2027. Those increases are no longer valid while the rule is enjoined.
What Is an “Exempt” Employee?
Being an exempt employee, specifically an executive, administrative, or professional employee, under the FLSA means that businesses are not required to pay overtime to those categories or employees and are not required to pay the minimum wages associated with non-exempt employees, who can earn “time and a half” for any hours more than 40 worked in one week. Exempt employees include individuals in specific categories, including:
- Executives
- Administrative professionals, including those in academics
- Professionals
- Outside sales workers
- Teachers
- Those in certain information technology occupations
Remember that It is not a worker’s title that determines whether they are exempt from FLSA. Rather, the specific job duties and salary an employee receives must meet Department of Labor regulatory requirements so each employee is properly categorized, is aware of their categorization, and has an understanding of the structure of their pay. Exempt employees must:
- Receive a salary that is fixed and determined in advance of regular payments not based on quality or quantity.
- Receive a specified weekly salary level, even if paid other than weekly.
- Perform executive, administrative, or professional duties as described in Department of Labor regulations.
Under this injunction, states may begin to implement increases to minimum wages and salary exclusions, so it is important to stay informed on this topic. Some States have higher thresholds for executive, administrative, and professional employees. Any adjustments to rates due to the injunction must be made with appropriate care to avoid violations of State laws.
What Does This Mean for My Business?
A group of businesses filed the complaint with the Texas court, alleging that the Department of Labor was illegally expanding its authority when it issued its final rule. In advance of the provisions going into effect on January 1, 2025, the businesses sought an injunction that basically places the rule on hold, further advancing the judicial branch’s independent judgment as applied to the analysis of an agency’s exercise of statutory authority.
The nationwide injunction means that the increases that had gone into effect on July 1, 2024, and those scheduled to go into effect on January 1, 2025, are invalid. The Government’s pursuit of the reserved appeal is unlikely at this time. Employers need to evaluate the impact on their workforces and any applicable State laws regarding notice of wage and salary changes before reverting wages and salaries back to the pre-rule levels.
Employers may also want to use this opportunity to review the employee categories that are currently classified as exempt and non-exempt for compliance with the FLSA and the associated payment requirements. Further, even in States in which notice to employees is not required, employers may find it useful to communicate with the workforce about the change. Such communication early on can reduce confusion, upset, and morale reduction.
Fee, Smith & Sharp LLP Is Here to Assist
Our team is ready to advise you and your business about legal shifts and the impact those changes have on you, your company, and your workforce. Our dedicated team can advise and support you on matters including:
- Wages and salary
- Employee benefits
- Workplace injury and compensation
- Insurance
- Construction defects and injury
- Transportation
- Intellectual property
- Products liability
- Professional liability
- Business and commercial litigation
- Government and municipal defense
- Labor and employment
and more. If you need an attorney to help you with recent changes to Federal wage and salary standards or other corporate needs, contact us in Dallas at 972-934-9100, Austin at 512-479-8400, or Houston at 713-362-8300, or by email at info@feesmith.com.
