On November 15, 2024, the United States District Court for the Eastern District of Texas, in State of Texas v. Plano Chamber of Commerce, struck down, on a nationwide basis, a Department of Labor (DOL) ruling which took effect earlier this year that increased the salary threshold for so-called white collar exemptions for executive, administrative, and professional employees.

The ruling was scheduled to take effect in two phases – an increase in the salary level from $684 per week to $844 per week (or from $35,568 annually to $43,888 annually), which took effect on July 1, 2024, and a second phased increase in the salary level from $844 per week to $1,128 per week (or from $43,888 annually to $58,656 annually) scheduled to start on January 1, 2025.

The District Court struck both of these salary increases, as well as the automatic indexing component of the regulation, the effect of which would increase the threshold on a going forward basis every three years.  The fundamental grounds for the decision were that the DOL, in issuing the 2024 and 2025 salary threshold increases, exceeded its authority by, for all practical purposes, eliminating consideration of the substantive duties test for determining whether the exemption should apply for executive, administrative and professional employees.

With regard to the provision automatically increasing the minimum salary thresholds every three years, the District Court held that the DOL not only exceeded its authority but also violated applicable notice and comment rulemaking requirements.

On November 26, 2024, the DOL filed a Notice of Appeal of the District Court’s decision. Although the matter is still fluid, it seems likely that the new administration will either withdraw the appeal, or consider issuing new salary thresholds.

Pending Decisions for Employers in Light of the District Court’s Decision

In the meantime, the District Court’s ruling leaves employers with a series of decisions to consider, including the following:

• Whether to proceed with scheduled salary increases on January 1, 2025 regardless of the District Court’s decision. In response to the DOL ruling, many employers, in the spring or early summer of 2024 increased the salary thresholds of otherwise exempt employees in order to maintain their exempt status.
  
  Similarly, in preparation for the second phase of the salary threshold scheduled to take effect on January 1, 2025, some employers have either planned for a scheduled increase in the salary thresholds or already communicated that decision to staff. In considering whether to proceed with any scheduled increases on January 1, employers will want to evaluate the financial impact of a salary increase; whether the decision to increase salaries has already been communicated to staff and, if so, would create significant morale issues if it was subsequently withdrawn; and whether the withdrawal of any promised salary increase could have other ramifications, such as raising the likelihood of discrimination or retaliation claims.

• Whether to reduce salary thresholds to the pre-July 1, 2024 figures. The import of the District Court’s decision is that employers may be able to change the salary thresholds of employees whose salaries were increased prior to July 1, 2024 in order to address the first phase of the DOL ruling.
  
  In considering this decision, employers will want to evaluate any notice requirements which must be complied with before employers can reduce the salary of an employee; whether there are applicable state or local law overtime requirement which exist independent of the federal Fair Labor Standards Act (FLSA); and, perhaps most importantly, the impact of such a decision on employee morale.
  
  Employers who are perceived as hop-scotching between salary ranges based upon the vagaries of court rulings may lose credibility in the eyes of employees (and applicants) in the short term and in the long term. Further, reductions in salary, if made at a time when an employee, for example, has complained about alleged unlawful or wrongful treatment, may be viewed as retaliatory.

• The impact of the decision on future hiring decisions. Depending upon how employers resolve the prior two questions may impact future hiring decisions, both in terms of whether to hire individuals in the first instance and, if so, whether to allow them to work overtime if they are otherwise non-exempt.

What the District Court Decision Did Not Do

The District Court’s decision is also significant for what it does not address. Specifically, the District Court’s decision does not address or impact the substantive duties tests of the white collar exemptions for executives, professionals and administrative employees under the FLSA.

Second, the District Court decision does not impact state and local law overtime requirements.

Third, as noted, the decision does not impact any notice requirements to employees which employers must satisfy under applicable state or local law if they are considering reducing the salary of an employee.

Overarching Issues and Next Steps

Time will tell what, if anything, the new administration will decide to do in response to the District Court’s sweeping decision. In the meantime, attorneys advising employers would do well to consider a series of associated, overarching issues which are far too frequently left unaddressed (or only partially addressed).

• Centralizing decisions regarding the characterization of individuals as exempt or non-exempt.
  
• Evaluating whether any conforming changes will need to be made to employment documents if a decision is made, for example, to recharacterize an individual as exempt or to reduce the salary of an individual.

• Training managers on how to respond to inquiries about the exempt/non-exempt nature of positions.

• Train managers on how to respond to inquiries regarding when and under what circumstances employees can work overtime.

• Using the decision as an important reminder to review existing Employment Practices Liability Insurance (EPLI) policies to determine whether coverage exists for wage and hour — and specifically overtime — claims and, if so, the nature and extent of such coverage.

• Using the decision as an impetus to review existing job descriptions to determine whether positions are in fact still exempt and, even if so, whether there are certain revisions to the job descriptions which should be made in order to attempt to fortify the exempt nature of these positions.

• Consideration of the issues outlined above should be done with and under the direction of counsel in order to maintain, to the greatest extent possible, the privileged nature of these considerations.

Wage and hour matters and, specifically, overtime issues have challenged and frustrated employers for decades. Further complicating matters, these issues have become something of a political football as well. Regardless of the ultimate disposition of the DOL ruling, wage claims – and overtime claims in particular — show no signs of abating any time soon.

Employers that commit to addressing these issues proactively, including by undertaking the considerations and analysis discussed above, will enhance their ability to prevent such claims in the first instance, and improve their ability to defend them should they arise.

For more information, contact Marc at 301-657-0184 or at mrengel@lerchearly.com.