2016 All Over Again: Texas Judge Rejects FLSA Exemption Salary Hike, Restores $35,568 Minimum

Seyfarth Synopsis: A federal district judge has vacated the entirety of the U.S. Department of Labor’s 2024 rulemaking increasing the minimum salary that employers must pay to exempt executive, administrative, and professional employees. That minimum now reverts to an annualized threshold of $35,568, and $107,432 in total compensation for the highly compensated employee exemption. While current DOL leadership may appeal, it is highly unlikely that the incoming Administration would continue that fight come January.

On Friday, Judge Sean Jordan, a federal judge in the Eastern District of Texas, vacated the Biden DOL’s 2024 revisions to the minimum salary for employees to satisfy the FLSA’s executive, administrative, and professional (“EAP”) exemptions, as well as the highly compensated employee (“HCE”) exemption. The court ruled the DOL exceeded its statutory authority by raising the salary level too high and rejected its addition of an auto-increase feature to the rule.

Flashback to 2016

This story may feel familiar to many employers.

In 2016, the Obama DOL instituted a rule increasing the EAP exemption salary threshold and adding an inflation-based, auto-increase feature to the rule. But that rule was challenged in a Texas federal court, which halted the rule just days before it was set to take effect.

In the earlier case, the court said the increased salary threshold was too high because it “makes an employee’s duties, functions, or tasks irrelevant if the[ir] salary falls below the new minimum salary level.” The court also found the auto-increase feature violated statutory rulemaking requirements because, among other things, it circumvented notice-and-comment.

The Obama DOL quickly appealed the Texas court’s ruling, but the Trump Administration later pulled out of that fight and focused on new rulemaking. That effort led to the 2019 institution of a new earnings threshold: a salary of $684/week (or $35,568/year) for EAP employees, and total earnings of $107,432 for HCE employees.

The Biden Rule

In April 2024, the Biden DOL picked up the mantle to narrow the group of workers who may be classified as exempt under the federal wage law. It issued a new rule that made three changes, including a sizeable salary level increase that was set to take effect in just six weeks:

Effective July 1, 2024, it increased: (a) the minimum weekly salary to qualify for the EAP exemptions from $684/week (or $34,568/year) to $844 per week (or $43,888/year); and (b) increased the HCE’s annual earnings threshold to $132,964, up from $107,432.

Effective January 1, 2025, it would have further increased: (a) the EAP salary threshold to $1,128 per week (or $58,656 per year); and (b) the HCE annual earnings threshold to $151,164 per year.

It called for these earnings thresholds to be automatically increased every three years.

Like the 2016 rule before it, the 2024 rule was promptly challenged in federal court in Texas. It was actually challenged in multiple lawsuits, several of them overseen by Judge Jordan. Earlier this year in one of those cases, Judge Jordan enjoined the rule, but only with respect to one employer: the State of Texas (i.e., employees who worked for the State of Texas as an employer).

Meanwhile, this separate litigation—calling for the same relief, but on a nationwide basis—moved forward on the judge’s docket.

The End of the 2024 Rule

All eyes were on the pending litigation when Judge Jordan delivered a Friday afternoon knockout blow to the 2024 rule. As a result, the salary threshold returns to $684/week (or $35,568/year) for EAP employees, while the annual earnings threshold for HCE employees returns to $107,432.

In his late afternoon ruling, Judge Jordan “set[s] aside and vacate[s]” the entirety of the 2024 rule, including the portion that went into effect earlier this year, the portion that was set to take effect in January 2025, and the automatic inflation adjustment feature. Judge Jordan made clear that his ruling had nationwide impact and was not limited to the litigants before him.

For guiding principles, Judge Jordan examined the FLSA’s text, which refers to the exempt status of “employee[s] employed in a bona fide executive, administrative, or professional capacity…” The judge explained that the terms “executive,” “administrative,” and “professional” all relate to duties. While the court noted that the qualifying term “bona fide” introduces some leeway for the DOL to use a minimum salary level, he found that this leeway is limited to where the salary is a reasonable proxy for an employee’s exempt status.

Stated differently, “a salary test cannot displace the duties test.”

Under these principles, Judge Jordan rejected the 2024 rule in its entirety—not just the January 2025 increase, but the increase that took effect in July 2024 and the auto-adjustment feature that would have raised the minimum salary level every three years. The court explained that earlier increases to the EAP salary threshold had rendered no more than 10% of employees who meet the duties test as non-exempt, but that the 2024 rule would have rendered a third of otherwise exempt employees non-exempt based on salary alone.

What Now?

While the DOL will likely appeal to the Fifth Circuit Court of Appeals, it is highly unlikely that the court will rule on the matter before the arrival of a new administration on January 20, 2025. And it is even less likely that a Trump DOL, upon its return, would care to continue an appeal or restore the 2024 rule. Indeed, those connected with the prior Trump Administration have signaled they believe that the pre-2024 rule sets the appropriate threshold for exemption.

So what do employers do now?

Many planned on making changes on January 1, 2025 as a result of the now-vacated rule, whether to reclassify exempt employees making less than $58,656 per year, or to hike their salaries to or above that level to maintain their exempt status. Federal law no longer requires them to do so, and near-term developments are highly unlikely to change that.

Even the July 1, 2024 salary threshold increase exits the picture of what employers are required by federal law to do. Employers that made changes as a result of that increase—which, again, lifted the EAP salary threshold from $684/week to $844/week—have the option, if they want, to roll back their changes. Doing so, however, could be very difficult as a practical matter, and would require weighing the impact on employee morale, retention, and recruiting.

Further, employers must consider state laws, which are untouched by this ruling. Many states have their own overtime laws, and some (e.g., Alaska, California, Colorado, Maine, New York, and Washington) contain EAP exemptions that are narrower than the FLSA’s, including higher minimum salary levels. For example, effective January 1, 2025, the minimum threshold in New York City and certain other New York counties will be $64,350/year; in California, it will increase to $68,640/year; and in Washington State, it will increase to $77,968.80/year for employers with more than 50 employees (or $69,305.60/year for smaller employers). It would not be surprising to see additional states enact higher minimum salaries for exempt employees. Employers should consult with counsel before deciding what changes to make or unwind as a result of these developments. In addition to being here to assist with those considerations, we will continue to monitor these important developments and keep our readers informed.