Feels Like Déjà Vu: Increases to the Salary Threshold for Overtime Exemptions Are Blocked (Again)

4 min

Just last week, a court order blocked the implementation of a Department of Labor rule that would increase the salary thresholds for exempt employees. Many independent schools may be wondering what this means for them, especially when they have already made changes to comply with the July 1, 2024 salary threshold increase. In this newsletter, we review how we got here and what next steps may look like.

What Does the FLSA Do?

The Fair Labor Standards Act requires covered employers to pay their employees at least the federal minimum wage and overtime pay to employees who work more than 40 hours in a workweek, unless the employee falls in one of a number of designated exemptions.

The executive, administrative, and professional exemption (EAP) exempts employees from the minimum wage and overtime requirements, provided that the employee performs certain duties in their position (the "duties test") and is paid on a salary basis that meets or exceeds the salary thresholds set by the federal Department of Labor (the "salary test").

An important exception for independent schools to remember in the professional exemption is that teachers – provided their primary duty is teaching, tutoring, or instructing at an educational institution – is subject only to the duties test, and not the salary test.

Why Are the Courts Involved?

In a 2024 Rule, the DOL sought to raise the minimum salary threshold for the exemption in three stages: (1) from $684 per week to $844 per week on July 1, 2024; (2) from $844 per week to $1,128 per week on January 1, 2025; and (3) automatically on a triennial basis, based on contemporary earnings data, on July 1, 2027.

In a lawsuit filed in the Eastern District of Texas ("Court"), the State of Texas and various trade associations argued that the 2024 Rule changes exceeded the federal Department of Labor's power to "define and delimit" the terms of the EAP exemption. In other words, they felt that the DOL had exceeded the authority granted to it by Congress. In June 2024, a preliminary injunction was granted, but only as to Texas. As a result, all other employers across the nation were required to either increase salary levels effective July 1, 2024, or reclassify affected employees.

On November 15, 2024, the Court issued an opinion that applies to all employers, vacating the DOL's salary threshold increase. The Court found that the Rule constituted an "unlawful exercise of agency power," and that the increased salary thresholds effectively displaced an employer's consideration of the duties test. As a result, the salary threshold will not be increased on January 1, 2025, the July 1, 2024 increase is no longer in effect, and future automatic increases are blocked nationwide. While the November 15, 2024 decision may be appealed, such an appeal is unlikely to happen before the Trump administration takes office.

Haven't We Been Here Before?

Yes. This is not the first time that such a rule has been blocked – a permanent injunction was issued regarding a 2016 Rule that also attempted to increase the minimum salary for the EAP exemption. There, too, the Court found that the increase in salary thresholds effectively served to undermine consideration of the duties test.

What Should Independent Schools Do Next?

Given that teachers are generally exempt from the FLSA without regard to their salary levels, much of the workforce of an independent school will not be impacted. However, many employees in independent schools could be impacted.

Certain schools may have already undertaken a review of their classifications and salary levels in anticipation of the July 1, 2024 increase. If employees were given increased salaries to maintain their exempt status, unwinding the salary increases in light of the Court's decision is likely to be an employee relations nightmare. However, if employees were reclassified as non-exempt, it would be permissible to change the classification back to exempt, provided that they meet the expectations of the duties test. Before doing so, conduct a thorough review of their actual, day-to-day duties and make sure to consult with your counsel to understand whether additional notice obligations may be triggered based on state or local law.

In addition, given that the opinion focuses heavily on the importance of the duties test, it is wise to evaluate current classifications of all employees and assess whether they should be classified as exempt or non-exempt. Again, thorough and honest evaluations of an employee's day-to-day duties will be imperative, along with accurate and updated job descriptions.

This is also a valuable moment to take the time to remind non-exempt employees of the importance of accurately recording their time worked and the expectations for overtime payments. Given that the FLSA provides for liquidated damages (i.e., double the amount of unpaid wages if an employee is not properly paid in a timely manner), misclassification errors and errors in recording time can be costly.

The Venable Independent School Law Practice Group is prepared to assist independent schools in ensuring compliance. Independent schools with questions are encouraged to contact Caryn Pass, Grace Lee, Janice Gregerson, or Ashley Sykes for assistance.