On September 11, 2024, the 5th Circuit Court of Appeals issued a ruling confirming that the U.S. Department of Labor (DOL) has the authority to set salary thresholds for white collar exempt employees under the Fair Labor Standards Act (FLSA). The ruling means that, for now, the DOL’s proposed rule to increase the salary threshold to approximately $59,000 will become effective on January 1, 2025.
How did we get here?
The FLSA sets out various standards and protections for workers, including minimum wage and overtime requirements for work exceeding forty hours per week. It also includes several exemptions excluding certain workers from its protections, including employees working in a bona fide executive, administrative, or professional capacity (the white-collar exemptions). Over the years, the DOL has issued several minimum-salary rules that prevent workers from qualifying for white-collar exemptions if their salary falls below a certain level.
Recently, the DOL issued a new minimum salary rule raising the minimum salary required to qualify for white-collar exemptions from $684 per week ($35,568 annualized) to $844 per week ($43,888 annualized), which became effective on July 1, 2024. The rule will also raise the minimum salary threshold again to $1,128 per week ($58,656 per year) on January 1, 2025.
The Supreme Court Weighs In
While the DOL has enjoyed significant deference in establishing salary thresholds, the Supreme Court recently limited the power historically afforded to federal agencies. In Loper Bright Enterprises v. Raimondo, the Supreme Court overturned the decades-old Chevron doctrine, which required courts to defer to an agency’s interpretation of ambiguous statutes in implementing and enforcing regulations. Under Loper, the Court created a new standard favoring judicial interpretation, which allows courts to exercise their own judgment in interpreting the law and to strike down agency regulations.
The 5th Circuit Decision
In Mayfield v. United States Department of Labor, the 5th Circuit considered a challenge by an Austin, Texas small-business owner, Robert Mayfield, to the DOL’s authority to set salary thresholds for white-collar exemptions. Mayfield claimed that the new minimum salary rule exceeded the DOL’s statutorily conferred authority because, according to Mayfield, the DOL lacks the authority to define the white-collar exemptions in terms of salary level.
The 5th Circuit noted that Congress delegated to the DOL the discretionary authority to “define[] and delimit[]” the terms of the white-collar exemptions. The court concluded that promulgating the minimum salary rule was both an exercise in defining the exemptions (by defining the amount of money an individual must earn to fall within the exemption) and in setting a limit on the scope of the exemptions. In so ruling, the 5th Circuit joined four other federal circuits in holding that the DOL has the statutory authority to promulgate minimum salary rules.
What’s Next?
Because other court challenges to the January 1 salary threshold hike are pending, it is still possible that another federal court could issue a nationwide injunction against the upcoming increased salary threshold. If that happens, the issue of whether the DOL has the authority to issue new minimum salary threshold rules could be taken up by the Supreme Court.
In the meantime, as employers continue to prepare for the next salary threshold bump on January 1, 2025, they may wish to conduct a privileged review with counsel of all job classifications to evaluate whether employees are properly classified as exempt or nonexempt under federal and state law (since some states may have different salary thresholds for exempt employees), including:
- the impact of the upcoming salary threshold increase on exempt employees currently earning less than $1,128 per week ($58,656 per year) and whether to raise salaries or reclassify to non-exempt status; and
- the impact of reclassifying employees to non-exempt status, including the application of overtime rules and budgetary impacts.
We will continue to monitor these important developments and will provide updates as appropriate. Meanwhile, if you have any questions, please contact Margaret Scheele at mscheele@outsidegc.com.
Margaret Scheele (Washington D.C. team) is an employment law attorney with almost 30 years of experience. Margaret has represented a range of clients in a variety of industries, including aviation, food service, telecommunications, health care, and government contracting. Her practice includes the full range of advice and counseling work that arises within the employment context, including most recently COVID-related matters.