Last Friday, a federal district court in Texas issued a decision blocking both rounds of increases in the minimum salary required to claim the overtime exemption for executive, administrative, and professional employees under the Fair Labor Standards Act. The initial increase in July raised the minimum salary from $684 per week to its current $844 level. The court also blocked increases set to take effect January 1, which would have hiked the required weekly salary to $1,128. The salary would have been automatically increased in future years based on inflation.  

The federal court said that the magnitude of the increases basically results in a salary-only test for the exemption. So many workers who meet the duties test for the applicable exemption fall below the increased salary minimums and that salary would improperly become a proxy for exempt status. The court also concluded that the rule violated federal procedural requirements. 

This decision likely spells the end for the January 1 salary increase. While the Department of Labor could appeal this decision to the Fifth Circuit Court of Appeals, it is likely that the succeeding administration will withdraw the rule or decide not to proceed with the appeal. Whether the portion of the decision throwing out the initial July increase will prevail is a different question. The Fifth Circuit earlier indicated that this increase was lawful, and DOL could have better arguments for reversing this part of the decision if it chooses to pursue the appeal.

With the DOL rule blocked, affected employers can cancel plans to increase salaries or reclassify workers as non-exempt on January 1. They also have the option, at least for now, to reverse salary increases made in July, or to reclassify employees moved to non-exempt status at that time, assuming they still meet the duties test for the applicable exemption.

For more information, please contact me or your regular Parker Poe contact. You can also subscribe to our latest alerts and insights here.