A September 11, 2024, ruling from the Fifth Circuit Court of Appeals upheld the Department of Labor’s (DOL’s) authority to determine the salary threshold used to decide whether an employee is exempt or non-exempt and entitled to overtime pay.
The Fair Labor Standards Act (FLSA) established the executive, administrative, or professional (EAP) exemption, which states that the FLSA exempts “any employee employed in a bona fide executive, administrative, or professional capacity.” To determine whether an employee fits into one of the EAP exemptions, the DOL looks at the duties and the salary of the employee. The DOL has justified the use of a salary-level test on the grounds that it is effective as a screen for an employee’s actual duties.
At issue in the Fifth Circuit case, Mayfield v. U.S. Department of Labor, was whether the DOL had authority to change the salary threshold used to determine exemption status. The DOL argued that passing the 2019 Minimum Salary Rule, which raised the minimum salary threshold required to qualify for the EAP exemption from $455 per week to $684 per week, was permissible. A small business owner of 13 fast-food restaurants in Austin, Texas, sued the DOL, claiming the 2019 Minimum Salary Rule exceeded the authority of the DOL. The DOL argued that the FLSA granted the DOL the authority to “define” and “delimit” the terms of the EAP exemption, which includes the salary threshold.
The Fifth Circuit, which provides appellate review of cases tried in U.S. District Courts in Louisiana, Mississippi, and Texas, agreed that the DOL is permitted to use an employee’s salary as a factor in determining their eligibility for the EAP exemption. Judge Jennifer Walker Elrod wrote, the “DOL can enact rules that clarify the meaning of those terms or, as in the case of the Minimum Salary Rule, impose some limitations on their scope.”
The Fifth Circuit indicated that the DOL’s authority to define and delimit the salary threshold for the EAP exemption is not unbounded and the “DOL cannot enact rules that replace or swallow the meaning those terms have.” Further, the Fifth Circuit hinted that larger increases or multi-stage increases found in the 2024 rule may exceed the authority of the DOL.
In April 2024, the DOL published a final rule, again raising the salary threshold required to qualify for an EAP exemption. As a reminder, the first phase of the new rule, which became effective July 1, 2024, increased the minimum salary level from $684 per week ($35,568 annualized) to $844 per week ($43,888 annualized). This final rule will also raise the minimum weekly salary required to qualify for the EAP exemption to $1,128 per week, or $58,656 annually, starting January 1, 2025.
The Fifth Circuit decision comes after a judge in the Eastern District of Texas granted a preliminary injunction in favor of the State of Texas blocking the 2024 Minimum Salary Rule. This decision applied only to Texas government employees and did not affect private employees in Texas or public or private employees outside of Texas. Judge Sean Jordan, of the Eastern District of Texas, reasoned that the DOL exceeded their authority by changing the method the DOL uses to determine minimum salary ranges and by establishing a mechanism to automatically increase salary levels every three years “based on contemporary earnings data.”
The question left unanswered by the Fifth Circuit’s September 11, 2024, decision is whether the 2024 Minimum Salary Rule continues to define or delimit the EAP exemption or if the DOL has exceeded their authority with the July 1, 2024, salary increase and the upcoming January 1, 2025, salary threshold increase.
Takeaway for Employers
While the 2024 Minimum Salary Rule may see further challenges in court, employers should prepare as if it will remain in effect. Employers Council will keep members updated on any developments.
Starting January 1, 2025, employers will need to either raise the salary of current exempt employees to $58,656 annually or classify those employees as non-exempt subject to overtime compensation to comply with the 2024 Minimum Salary Rule. This new increase will impact nearly four million employees nationwide, potentially subjecting them to overtime requirements. Though the 2024 Minimum Salary Rule increased the federal standard under the FLSA, states may still impose a higher minimum salary threshold requirement for exempt employees.
Please contact Employers Council if you have questions about how this may impact you.
Edward Encinias is an attorney for Employers Council.