11/18/2024 | Press release | Distributed by Public on 11/18/2024 16:15
As previously reported, earlier this year the DOL issued a final rule increasing the minimum salary threshold for both EAP exempt employees and highly compensated employees. The DOL's 2024 final rule increased this minimum salary threshold for EAP exempt employees from $684 per week to $844 per week (equivalent to $43,888 per year) on July 1 and mandated a second increase to $1,128 per week (equivalent to $58,656 per year) to take place January 1, 2025.
The 2024 final rule also provided for further increases to the minimum salary thresholds for both EAP exempt employees and highly compensated employees on July 1, 2027, and again every three years thereafter.
As we also previously reported, the DOL's 2024 final rule raising the minimum salary thresholds faced numerous legal challenges. Over the summer, the Eastern District of Texas enjoined the implementation of the first increase to the minimum salary threshold in a dispute between the state of Texas and the DOL. This injunction, however, applied only to the state of Texas as an employer. Subsequently, the court consolidated the case between the state of Texas and the DOL with similar legal challenges filed in its district. Recently, the parties briefed and argued motions for summary judgment regarding whether the 2024 final rule exceeded the DOL's authority to "define and delimit" the executive, administrative, and professional exemption.
The court focused its analysis on the impact the new rule would have on those who would otherwise meet the duties test under the EAP exemption. Specifically, the court found that the threshold salary for the EAP exemption was meant to "merely assist in 'distinguishing bona fide executive, administrative, and professional employees from those who were not intended by Congress to come within these categories.'" To further this purpose, in prior changes to the rule, the threshold salary for the EAP exemption was carefully crafted to impact only a small portion of the workers who otherwise met the duties test. However, the court found that the 2024 final rule's impact would increase the number of workers who would otherwise meet the duties test under the EAP exemption by approximately three times that in the prior rule changes.
Accordingly, the court held that the 2024 final rule improperly shifted the determination of whether workers meet the EAP exemption from the workers' duties, as required by Congress, to their salary. Therefore, the court vacated the 2024 final rule as to the July 2024 salary increase and the January 2025 salary increase.
The court also vacated the automatic updates to the minimum salary threshold. In doing so, the court reasoned that, in addition to the constant increase in the number of workers who would be considered nonexempt by the continuous salary threshold increases who otherwise meet the duties test, the automatic increases exceeded the DOL's authority to create rules by circumventing the rulemaking process. In particular, the court found that the automatic update circumvented the notice and comment requirements of the Administrative Procedure Act, effectively allowing the DOL to create regulations without proper input, consideration, and analysis. Accordingly, the court's ruling seemingly precludes the DOL from including automatic updates in any future rule increasing the salary threshold for the EAP exemption.
While the court's decision means that the minimum salary requirement for highly compensated employees has returned to $107,732 per year and the minimum salary requirement for EAP exempt employees under federal law has returned to $684 per week (equivalent to $35,568 per year) and, as it stands, will not increase to $1,128 per week on January 1, 2025, as with any decision at the district court level, the court's ruling is subject to appellate review at the Fifth Circuit and potentially by the Supreme Court of the United States. As a result, while the increases to the minimum salary threshold may not currently be required, employers subject to the Fair Labor Standards Act's requirements should be aware that there is still a possibility that future appellate review may uphold the 2024 final rule and require an increase of the minimum salary threshold for EAP exempt employees to $1,128 per week (equivalent to $58,656 per year). Thus, the plans and preparations that have been made should not be left unfinished or forgotten.
Businesses have a number of decisions to make now that the DOL's final rule has been vacated. These decisions include whether to reduce EAP exempt employee salaries to the previous threshold, whether to increase salaries January 1, 2025, and how to communicate with employees regarding these changes. Before making these decisions, businesses should take into account both legal and nonlegal considerations. BakerHostetler's Labor and Employment team is comprised of dozens of experienced individuals who are closely monitoring the situation and are prepared to assist and advise businesses as they adjust to the ever-changing requirements surrounding the DOL's final rule. Please feel free to contact any one of our experienced professionals as your business works to stay in compliance with the ever-evolving regulatory landscape.