When it comes to determining which employees are exempt from overtime pay, the U.S. Department of Labor has maintained the power to “define” and “delimit” the terms of the Administrative, Executive, and Professional (“EAP”) white collar exemptions within the Fair Labor Standards Act for decades, including the controversial power to set a minimum salary requirement for qualification. In a recent decision involving the 2019 Final Rule, which increased the salary threshold for exemptions to $684 per week, the Fifth Circuit Court of Appeals ruled the DOL had the authority to establish this particular threshold.
Robert Mayfield, a Texas-based business owner, challenged the DOL’s 2019 Final Rule on overtime time – specifically, the salary basis threshold set forth in that Rule. Mayfield argued that the FLSA itself did not authorize the DOL to establish salary requirements, only substantive job duties relevant to the EAP exemptions. As a result, he argued the DOL lacked the statutory authority to include a salary threshold as a requirement for the EAP exemption. The Fifth Circuit disagreed and upheld the salary requirements in the 2019 Rule as a lawful exercise of the DOL’s delegated authority.
Applicability to the 2024 Final Rule
In its latest version of this rule – the 2024 Final Rule – the DOL increased the minimum salary threshold to qualify for potential overtime exemption to $844 per week ($43,888 annually), effective July 1, 2024. The 2024 Rule includes an automatic increase of the minimum salary requirement to $1,128 per week ($58,656 annually) in January 2025. It then provides for an additional to-be-determined increase to take effect July 1, 2027, with additional increases to occur every three years going forward.
That rule has been challenged in numerous courts. A federal court in Texas has ruled that the DOL exceeded its authority, with the result that the salary increase to $844 per week is not (as of the date of publication) effective to the State of Texas, as a government employer. The ruling did not apply to private employers in Texas.
Takeaways and next steps
While Mayfield was ultimately unsuccessful, the decision by the Fifth Circuit may provide some insight as to how the Court will resolve the pending appeal of the 2024 Final Rule. Here are some key takeaways:
- The DOL’s authority to “define” and “delimit” the terms of the EAP exemptions by the FLSA extends to the establishment of a minimum salary requirement, which is generally viewed as a reasonable indicator of job status. In other words, an employee’s salary is often synonymous with the level of professional duties they have.
- While the FLSA may not specifically mention a minimum salary requirement, this does not necessarily prevent the DOL from establishing one. Congress has consistently updated the FLSA without contesting the DOL’s authority to set salary thresholds, implying an acceptance of the practice.
- While the judicial doctrine of deference to agency interpretations has been challenged and perhaps partially eroded in recent years, the DOL’s long history of setting minimum salary requirements without significant opposition reinforces its power to do so.
In its recent decision, the Fifth Circuit was clear that the power to assign a minimum salary threshold should be upheld, as long as it serves as a proxy for job duties. In other words, the Fifth Circuit appears to believe there must be some nexus between the minimum salary requirement and the importance of job duties performed by those paid equal to or in excess of the established salary requirement. The Fifth Circuit warned that the power to establish a salary threshold is not limitless – specifically, the practice may not continue if it “yields different results than the characteristic Congress initially chose [In the FLSA].”
Whether the 2024 Rule, with its increased minimum salary requirements, exceeds the DOL’s authority remains subject to potential further legal challenges, and it is possible that anticipated salary threshold increases may be revised or rescinded under the second Trump Administration.
For now, employers should continue adhering to the DOL’s latest minimum salary rule when it comes to overtime exempt employees under the EAP exemptions.
Mayfield, et al. v. U.S. Department of Labor, et al., No. 23-50724 (5th Cir. Sept. 11, 2024)
