TEXAS COURT DELIVERS EARLY HOLIDAY GIFT TO MICHIGAN EMPLOYERS

Michigan employers have faced a level of uncertainty in setting their personnel budgets for 2025 due to the United States Department of Labor’s 2024 Rule that increased the minimum salary for employees exempt from overtime under the Fair Labor Standards Act as Administrative, Executive, or Professional employees. The increase was scheduled in two phases: the first on July 1^st setting the minimum salary at $844 per week ($43,888 annually) and the second on January 1, 2025, raising the minimum salary floor to $1,128 per week ($58,656 annually). The Rule was immediately challenged in several Courts but was allowed to go into effect except in Texas, where U.S. District Judge Sean Jordan issued an injunction precluding its application against the State of Texas while the Court considered whether to expand the ruling to the entire country.

As a result of the limited nature of the injunction, Michigan employers had to implement a mid-year change to their budget to comply with the first phase of the rule. Since then, they have faced the possibility of the much more significant change scheduled on January 1^st and have been forced to contemplate ways to manage the financial implications of the change such as reducing hours,  demoting salaried workers to hourly, and cutting jobs to manage costs.

Just in the nick of time to save employers from the significant changes scheduled on January 1^st, Judge Jordan issued a ruling on Friday that vacated the 2024 Rule on the basis that the Department of Labor had improperly substituted the new higher salary thresholds for the traditional duties test regarding which employees are exempt from overtime. As a result, Judge Jordan ruled that the 2024 Rule is invalid and cannot be implemented.

While Judge Jordan’s ruling is likely to be appealed to the Fifth Circuit Court of Appeals it is unlikely that the Court will take any immediate action to set aside Judge Jordan’s ruling and it is possible that with the change in administrations, the Department of Labor may ultimately abandon the rule.  Either way, for the time being,  Michigan employers do not have to change the minimum salary levels paid to employees exempt from overtime as Administrative, Executive, or Professional Employees and can use the salary level established by the Department’s 2019 rule which set the minimum salary for these positions at $684 per week ($35,568 annually). While salaried employees who would have received the increase will view the ruling as a lump of coal in their holiday stocking, employers can go into the holidays without having to make hard decisions regarding hour reductions, demotions, or job cuts that would certainly start the year on a bad note for everyone else.

The Rhoades McKee Employment Law Practice Group will continue to monitor developments in the minimum salary levels required to be paid to exempt employees and will report any changes impacting Michigan Employers.