Stage two of the Department of Labor’s (DOL) rule increasing the salary threshold for “white collar” employee exemptions is fast approaching. Employers have already weathered the first jump. On July 1 of this year, the minimum salary threshold for the executive, administrative, and professional exemptions from overtime pay requirements under the Fair Labor Standards Act (FLSA) rose from $684 per week ($35,568 annually) to $844 per week ($43,888 annually), and the minimum salary threshold for the “highly compensated” employee exemption rose from $107,432 per year to $132,964. The second hurdle is on the horizon. On January 1, 2025, the minimum salary threshold for the executive, administrative, and professional exemptions will rise again, from $844 per week to $1,128 per week ($58,656 annually), and, for highly compensated employees, will increase from $132,964 to $151,164 per year. As of this date, no court has stepped in to prevent this significant impending change.

Does implementation of the July increase mean that the new rule has survived its legal challenges? Not completely. We previously discussed Mayfield v. U.S. Department of Labor, a case before the Fifth Circuit Court of Appeals. Mayfield challenged the DOL’s authority to order any minimum salary for the white-collar exemptions. Although that case began in response to a 2019 Trump Administration salary increase, it was anticipated that the court’s ruling could block the new 2024 rule as well.

Anyone hoping to see an end to the DOL’s salary thresholds was disappointed to see the Fifth Circuit’s September 11, 2024, holding that the DOL has authority to set a minimum salary requirement for the white-collar exemptions. That decision has not been appealed. The Court noted, however, that the DOL’s authority is “not unbounded,” as any exemption requirement it imposes must have a “rational relationship to the text and structure” of the FLSA. The rule must serve to further Congress’ intent, not replace it. This leaves open the possibility of successful challenges to the DOL’s 2024 rule and future increases on grounds not raised in Mayfield.

With Mayfield resolved, all eyes are on Texas. As previously reported, the Plano (Texas) Chamber of Commerce and other business and industry groups filed a challenge to the rule in May. The Texas Attorney General filed a companion lawsuit in June, and the two cases were consolidated before the U.S. District Court for the Eastern District of Texas. Texas successfully moved for a preliminary injunction that temporarily prevented enforcement of the new rule, but the Court’s decision only granted the preliminary injunction as to the to the State of Texas as an employer. In other words, it did not halt the rule for any other employers. The other plaintiffs in the case did not seek a preliminary injunction.

In granting an injunction to the State of Texas, the Court reasoned that the salary changes likely exceed the DOL’s authority by excluding a substantial number of otherwise bona fide white-collar employees from exemption. The Court’s reasoning could very well foreshadow its final decision as to whether to permanently enjoin the rule. The State of Texas has moved for summary judgment on its challenges to the DOL rule, requesting that the Court convert the preliminary injunction to a final disposition on the merits, declare the overtime regulation unlawful, and award permanent injunctive relief to Texas and nationwide.  It is unknown whether the Court’s decision will come before January 1. Even if the Court does permanently strike down the rule, the scope of its ruling may not reach employers nationwide.

What does this mean for employers? Although there is still time for the rule to be enjoined by January 1, employers should begin making plans for the pending salary increase. That means identifying any employees who would be affected if the rule goes into effect and deciding whether to increase their salaries or change their status from exempt to non-exempt, taking into account cost, employee morale, and administrative burdens of time tracking and overtime calculation.

 If you have any questions about how to prepare for the January 1 increases, please contact Rachel Mattingly Phillips or any member of the Workplace Solutions Practice Group. We will continue to track the status of existing challenges to the rule and keep you updated.