Less than two months before the full effective date, a rule that was set to dramatically boost the salary threshold for the “white collar” overtime exemptions was just halted by a federal judge. On November 15, 2024, the U.S. District Court for the Eastern District of Texas, in a 62-page decision, vacated and set aside the U.S. Department of Labor’s (DOL) final regulation holding that each of the three components of the rule exceeded the DOL’s statutory authority under the Fair Labor Standards Act (“FLSA”). Due to the nationwide scope of the rule, the judge struck down the rule on a nationwide basis. The judge not only struck down the phase-two increase to $59K set to take effect on January 1, 2025, but also knocked down the first increase that took the salary floor to $44K in July and the automatic three-year adjustments. As a result, the threshold reverts back to roughly $35K for now.
Here is the interesting twist, while it is expected, the DOL will appeal the ruling, it is also hard to imagine the incoming Trump administration will pick up the legal battle in January 2025. After all, if history is any indication, in 2017, the Trump administration effectively ensured that President Obama’s proposed changes to the salary threshold rules never saw the light of day. It then issued a new OT rule expanding overtime pay obligations but to far fewer workers than what the Obama rule would have done.
As a result, employers have a decision to make, and that decision is what now? The answer to the question depends on where you are in the process of implementing the new salary thresholds. Employers should consider the following:
- Did You Already Make Key Changes? If you have already made changes to your employees’ compensation and exemption status, it’s going to be very unpopular and deal a blow to employee morale if you reverse course now, despite the fact that you have the legal right to do so. If you do decide to undo the changes, you should clearly communicate any changes before they take effect.
- What if I Did Not Make Changes? If you have said nothing about the potential increase, say nothing. If you have already forecasted the increase, you might consider communicating to your employees that the expected changes are going to be delayed given the court’s ruling and let them know that you will continue to monitor the situation and make adjustments if and when appropriate. It is important to tailor your communications based on what you have already told your employees.
- Are You Ready to Move Forward as Planned? If you’ve already factored all the changes into your compensation plan for 2025, you can move forward and raise compensation levels on January 1 (or whatever date you choose). Remember, the salary threshold is a minimum level, and employers can always opt to pay exempt employees more.
- Should You Consider an Alternative? Your plan might vary depending on the work unit or job type. One size fits all solutions can be dangerous. Remember, to use objective criteria and to be consistent when applying changes so you are not vulnerable to discrimination claims.
Regardless of what happens, it is always a good time to review the classification of all of your employees to make sure they are properly classified as this decision is sure to get a lot of publicity and attention from Plaintiff’s attorneys, your employees and the media.
Written By:
Scott M. Zurakowski, Esq.
Krugliak, Wilkins, Griffiths & Dougherty Co., L.P.A.
330-497-0700
szurakowski@kwgd.com