On November 15, a federal district court ruled that the U.S. Department of Labor’s (DOL) overtime rule — which raised the salary threshold for the Fair Labor Standards Act (FLSA) overtime exemption — exceeded the DOL’s authority under the FLSA and, therefore, must be set aside and vacated.
As previously reported, on April 26, 2024, the DOL published its final rule expanding overtime eligibility by establishing a new weekly salary threshold for exempt employees, which would take effect on July 1, 2024. Employers had to meet these salary thresholds to maintain an employee’s administrative, executive or professional exemption — the so-called “white-collar” exemptions — from minimum wage and overtime rules under the FLSA. The salary threshold for exempt employees under the FLSA’s “highly compensated” exemption also increased.
Specifically, the new federal overtime rule increased the minimum white-collar exemptions salary to $844 per week (equivalent to $43,888 per year) and was set to increase again on January 1, 2025, to $1,128 per week (equivalent to $58,656 per year) followed by automatic increases every three years. However, the district court’s recent ruling should reduce the threshold to the DOL’s 2019 rule level — which is $684 per week (equivalent to $35,568 per year) — at least for now.
If you’re getting a sense of déjà vu, it’s because the DOL’s 2024 rule was very similar to the rule proposed in 2016 under the Obama administration, which sought to significantly increase the salary threshold for white-collar exemptions and the highly compensated employee exemption with automatic increases over time. When 21 states and a business coalition challenged the 2016 rule, it was ultimately struck down.
Subsequently, the DOL adopted a less drastic rule in 2019 under the Trump administration. The 2019 rule was also challenged, but in September 2024, the Fifth Circuit Court of Appeals upheld it.
This time, the State of Texas and a coalition of trade organizations challenged the 2024 overtime rule in federal court, arguing it exceeded the DOL’s authority under the FLSA — and history essentially repeated itself.
In the November 15 ruling, the court, noting the similarities between the unlawful 2016 rule and the new 2024 rule, generally came to the same conclusion it did regarding 2016 rule — the substantially higher salary level imposed by the 2024 rule “effectively eliminates” consideration of duties in favor of a salary-only test for exempt employees. The court noted that the law requires an employee’s status depend on duties — not salary — and because the 2024 rule’s changes “make salary predominant over duties for millions of employees, the changes exceed the Department’s authority” under the law.
The DOL may appeal the district court’s ruling, but it’s unclear whether an appeal would be resolved before the January 1 salary threshold increase. Additionally, it’s likely the rule won’t fare well under the incoming Trump administration, which may significantly scale it back or scrap it altogether.
For California employers, these developments don’t change their current obligations. California’s white-collar exemption salary threshold is different than the FLSA, and California law doesn’t have a “highly compensated” employee exemption standard. California employers should continue to apply California’s exemption standards, which requires employers to pay two times the current applicable statewide minimum wage, which is higher than the FLSA salary threshold.
James W. Ward, J.D., Employment Law Subject Matter Expert/Legal Writer and Editor, CalChamber
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