A federal district court in Texas recently struck down the U.S. Department of Labor’s (USDOL) final rule, issued in April 2024, which had increased the minimum salary threshold necessary for an employee to be considered exempt under the Fair Labor Standards Act (FLSA.) As you may recall, under that rule, the minimum salary requirement was increased to $844 per week effective July 1, 2024, with an additional increase to $1,128 per week scheduled to take effect January 1, 2025.
The court’s decision affects employers nationwide, including municipalities in Vermont. It invalidates the anticipated January increase, and this past July’s increase, as well. It also invalidates the provision that would have provided for automatic updates every three years, based on earnings data.
While the USDOL can appeal this decision to the Fifth Circuit Court of Appeals, it appears likely the incoming administration would withdraw such an appeal. The practical effect of the ruling, therefore, is that the minimum salary requirement for exempt positions under the FLSA likely reverts to the $684 per week in effect prior to July 2024.
What will this new ruling mean for municipalities that made changes based on the prior rules which increased the threshold in July?
If you adjusted certain employees’ salaries upward to maintain exempt status under the higher July 1, 2024 threshold, it makes sense to keep such salaries intact. Pay reductions tend to create multiple issues, such as morale, turnover, and employee disengagement. Always consult with legal counsel before reducing an employee’s pay.
If you reclassified certain employees from exempt to non-exempt status, you might consider returning them to exempt status, provided that the position also meets the “job duties tests.” If you’ve converted a position to non-exempt and the employee now earns some overtime, it is worthwhile to consider the impacts of the classification change. Feel free to reach out for an HR Consultation if you have questions about how to handle this for any current employees.
IMPORTANT REMINDERS
To be classified as exempt from overtime requirements and other FLSA rules, the employee’s job must meet one of the DOL-defined “job duties tests.” There are separate tests for Administrative, Executive, and Professional (EAP) exemptions. Additionally, to qualify for one of these EAP exemptions, employees must earn a minimum salary, regardless of the number of hours worked during the week. Before reclassifying an employee as exempt, it is always wise to review their level of overtime earnings to ensure their pay level would not go down with a switch to exempt status.
Whenever you change an employee’s pay or method of performing work, you should talk to them about it first! And if a labor union is involved, you cannot change a term or condition of employment without fulfilling any relevant bargaining obligations.