A recent ruling by the U.S. Court of Appeals for the Fifth Circuit strengthens the Department of Labor’s (DOL) authority to use salary levels to determine exemptions from federal overtime pay requirements.

Background

The case stems from a challenge to a 2019 overtime rule, which set the salary threshold for exempt workers at $35,568 per year. The FLSA salary threshold basically means that in order for an employer to avoid paying an employee overtime, the employee must, among other things, earn the minimum salary threshold. Workers earning less must be paid overtime, regardless of their job duties. The FLSA, requires employees to be paid overtime (1.5 times their regular pay) for hours worked beyond 40 in a week unless they fall under certain exemptions—commonly referred to as “white-collar” exemptions, which apply to executive, administrative, professional, and outside sales employees. In addition to job duties, the DOL regulations require these exempt employees to meet a minimum salary threshold.

The Legal Challenge

Robert Mayfield, a fast-food franchise operator, challenged the rule, arguing that the FLSA’s exemption criteria should only consider an employee’s job duties, not their salary. Mayfield’s lawsuit questioned the DOL’s authority to set any salary threshold at all, claiming it went beyond the powers granted by Congress. His case was buoyed by a recent Supreme Court ruling that limited the authority of federal agencies like the DOL to interpret laws expansively, especially when Congress has not explicitly granted such powers.

The Court’s Decision

Despite the challenge, the Fifth Circuit Court of Appeals upheld the DOL’s authority to define and set salary thresholds. The court pointed out that the DOL has consistently exercised this authority since the FLSA’s passage in 1938. Congress has amended the FLSA several times without questioning or modifying the DOL’s use of salary-level tests. The court ruled that this authority was constitutionally sound, providing guidance from Congress to ensure the agency’s actions were appropriate under the FLSA.

The ruling buttresses the DOL’s defense of the new, more expansive overtime rule, which seeks to increase the salary threshold to $58,656 by 2025.

Implications

For now, the Fifth Circuit’s decision prevents a major shift in the world of labor and employment law. Undoing the salary threshold would have been a monumental change. For now, it’s status quo. We’ll see what happens on appeal.