In a case closely watched by the business community, a federal judge recently struck down a Biden administration rule that raised the salary threshold for the “white-collar” overtime exemption, saying the U.S. Department of Labor had exceeded its authority.
The Nov. 15 decision vacates the DOL’s rule nationwide, including the $43,858 salary threshold that took effect on July 1, 2024. The ruling also blocks a second increase set for Jan. 1, 2025, which would have raised the white-collar exemption threshold to $58,656, as well as the automatic threshold increases that would have been made every three years.
Had that $58,656 threshold for the Fair Labor Standards Act’s (FLSA) white-collar overtime exemption been allowed to take effect Jan. 1, an estimated 4 million additional executive, administrative and professional workers would have had to be paid overtime if they worked more than 40 hours per week.
As a result of the court’s ruling, the overtime salary threshold now reverts to the $35,558 standard that was in effect in 2019 during the first Trump administration. While the Biden administration could appeal, it is considered unlikely that president-elect Donald Trump’s administration would continue the court case after he takes office on Jan. 20.
“With the upcoming change in presidential administration, we predict that under new leadership the DOL would likely abandon any appeal and allow the lower court’s decision to stand,” wrote Littler Mendelson attorneys who represented the coalition of businesses and trade associations that challenged the final rule in the case before U.S. District Judge Sean Jordan for the Eastern District of Texas.
“Going forward, it is less clear whether the Trump administration will revisit some or all of the rule, repealing it entirely, or perhaps adopting a different formulation,” the Littler Mendelson attorneys said in their Nov. 15 analysis of the court’s decision.
Employers now have critical decisions to make on how they move forward with their compensation plans, according to attorneys Kathleen McLeod Caminiti and T. J. Hagood Tighe of the Fisher Philips law firm.
“Your strategy moving forward may depend on the steps you’ve already taken in anticipation of the OT rule coming online,” Caminiti and Tighe wrote said in their Nov. 15 insights post about the court’s decision.
“You may have worked through your decision tree, reclassified some employees to non-exempt, raised salaries for others to meet the July 2024 threshold, and communicated your plan to comply with the major salary hike set for January 1,” Caminiti and Tighe said.
“Although you may have the legal right to revert to the status quo depending on your circumstances, rolling back the changes now could result in a blow to employee morale. Moreover, before making any major moves, you may want to see what happens with a potential appeal and how the new administration will respond.”
