Employers who gave raises to supervisory personnel to meet the new wage levels that went into effect last July that were set by the Department of Labor (DOL) to meet new federal minimum wage standards are likely to be stuck with them although a federal court has struck down the rules, according to attorneys analyzing the decision.
Last April DOL issued the final rule making the changes, which were declared illegal in their entirety on Nov. 14 by a federal district court in Texas. The state government in Texas had mounted a challenge to their legality in a lawsuit that also gathered support from major employer groups. The initial new supervisory minimum salary levels officially went into effect on July 1 of this year for employers nationwide.
Under federal wage law, employees do not have to be paid for overtime if they perform executive, administrative or professional (EAP) duties as are defined by the law and DOL regulations, and who are paid at least a certain minimum designated salary. The 2024 regulation adopted by DOL did not change the defined duties for supervisory personnel but instead simply set a new salary amount to expand the number of employees who are covered.
The final rule resulted in a 65% increase in the minimum salary requirements for the EAP exemptions to take effect in two phases. On July 1, the threshold rose from $684 per week ($35,568 a year) to $844 per week ($43,888 a year). It was then slated to increase to $1,128 per week ($58,656 annually) on Jan. 1, 2025.
Also increased under the rule was the total annual compensation level for application of the “highly compensated employee” exemption from $107,432 to $132,964 per year on July 1. That threshold would have risen to $151,164 per year on Jan. 1, 2025.
In addition, the DOL rule established that future automatic increases were scheduled to take place every three years, with the amounts of those hikes to be based on inflation data at that time.
After the final rule was issued, attorneys encouraged employers to consider the implications of the new rule and prepare for any necessary adjustments to their compensation plans and exempt classifications. Many employers did just that, including raising the minimum salary threshold for supervisory employees. It is not expected that many will seriously consider going back and eliminating or reducing those wage increases already in place, which would obviously be a blow to morale for those people.
In striking down the rules, the court stated, “the minimum salary level imposed by the 2024 rule ‘effectively eliminates’ consideration of whether an employee performs ‘bona fide executive, administrative, or professional capacity’ duties in favor of what amounts to a salary-only test.”
Given that there are only two months left in the Biden Administration, it is unlikely that the current DOL will choose to appeal the Texas decision to a higher court, although it could. It is hard to imagine that the new Trump Administration would take a similar action.
Although it is also unlikely that employers will choose to dial back increases granted earlier this year to meet the July 1 deadline, they may want to reconsider increases already scheduled for Jan. 1, 2025, suggest attorneys Justin Barnes and Jeffrey Brecher of the Jackson Lewis law firm.
“Employers also could reduce employees’ salaries if the salaries had been increased due to the first July 1, 2024, bump and still maintain the exemption,” they admit, but warn that “most employers will find that very unpopular with their employees.” The attorneys note that an employer cannot recover any increases that already have been paid to the employees who received the salary boost.
Barnes and Brecher say employers should also be aware states may impose higher salary requirements than federal law and employers must comply with those states’ higher requirements to obtain those exemptions. Among the states that already impose higher requirements are Alaska, California, Colorado, Maine, New York and Washington State.
