Fifth Circuit Backs DOL Authority to Set Salary Rules While Latest White-Collar Increase in Limbo
The United States Court of Appeals for the Fifth Circuit affirmed on Sept. 11 that the U.S. Department of Labor (DOL) can impose minimum salary requirements for white-collar overtime exemptions under the Fair Labor Standards Act (FLSA). While the ruling upheld the DOL’s authority related to a 2019 increase, it could also support the latest increase, which took effect in July. The new rule faces legal challenges, including a U.S. district court injunction issued in Texas, and the Fifth Circuit’s ruling leaves more questions for employers about the future of the newest increase.
The background behind the Fifth Circuit’s latest ruling in Mayfield v. U.S. Dept. of Labor began in 2019. The Trump administration’s DOL issued a new version of the “Minimum Salary Rule” which increased the minimum salary to be eligible for exemptions from $455 per week ($23,660 annually) to $684 per week ($35,568 annually), an increase of 50.3%. Under the FLSA, employees can be exempt from overtime under the white-collar exemption (executive, administrative, professional and outside sales), also called the EAP exemption, if they meet certain job duty requirements and the minimum salary amount.
A Texas fast food employer whose store managers became nonexempt under the 2019 rule, and therefore became eligible for overtime pay, sued the DOL in 2022. He argued “that the DOL lacks, and has always lacked, the authority to define the [White Collar] Exemption in terms of salary level, as opposed to the duties-based test in the statute.” The FLSA itself does not impose a statutory salary-level test, but the DOL has used a salary-level test as part of its criteria for the white-collar exemptions since the FLSA became law in 1938.
The U.S. District Court for the Western District of Texas granted the DOL’s motion for summary judgment, finding the agency had the authority.
On appeal, the Fifth Circuit affirmed the district court’s decision. The court relied on Skidmore deference, which determines that “the weight given to the agency’s interpretation ‘depend[s] upon the thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade.’” (emphasis added). Writing for the Fifth Circuit’s three-judge panel, Judge Jennifer Walker Elrod noted that:
| Though the specific dollar value required has varied, DOL’s position that it has the authority to promulgate such a rule has been consistent. Furthermore, it began doing so immediately after the FLSA was passed. And for those who subscribe to legislative acquiescence, Congress has amended the FLSA numerous times without modifying, foreclosing, or otherwise questioning the Minimum Salary Rule. |
The Fifth Circuit joins its sister circuits of the Second, Sixth, Tenth and D.C. circuits in holding that the DOL has the statutory authority to promulgate the Minimum Salary Rule.
While the Fifth Circuit’s ruling involved the Trump administration DOL’s 2019 rule, it also supports the Biden administration DOL’s latest increase to the Minimum Salary Rule and could give it additional support against ongoing legal challenges.
Earlier this year, the DOL increased the minimum weekly salary needed to qualify for the white-collar overtime exemptions. The minimum salary that such white-collar employees must earn to maintain overtime pay exemptions increased significantly on July 1, 2024, from $684 per week ($35,568 annually) to $844 per week ($43,888 annually). The minimum rises again to $1,128 per week ($58,656 annually) on Jan. 1, 2025, and continues to increase every three years. The final rule also raised the annual minimum salary level for highly compensated employees on July 1, 2024, with another increase on Jan. 1, 2025.
The 2024 final rule faced legal challenges immediately after its announcement. Three lawsuits were filed in federal court in Texas to enjoin it. In one suit, the State of Texas sought to enjoin the final rule, claiming that the change would drive up its payroll costs and deplete its budget.
On June 28, 2024, Judge Sean D. Jordan of the U.S. District Court for the Eastern District of Texas granted the injunction as to only the State of Texas as an employer. Judge Jordan reasoned that the white-collar “[e]xemption[s] turn on an employee’s functions and duties, requiring only that they fit one of the three listed, i.e., ‘executive,’ ‘administrative,’ or ‘professional capacity.’” He continued, “[t]he exemption does not turn on compensation.” Judge Jordan’s ruling was similar to a 2016 challenge to an earlier salary level increase, in which a federal court found the DOL had exceeded its authority.
The Fifth Circuit ruling could impact the still-pending lawsuits and the DOL’s defense of its July 1 salary level increase, as well as the upcoming increase in January 2025. Phelps will closely watch these lawsuits and update employers on developments. Contact Mark Fijman or any member of Phelps’ labor and employment team if you have questions or need advice and guidance.
