Fifth Circuit Reaffirms DOL’s Right to Set OT Salary Threshold

The full U.S. Court of Appeals for the Fifth Circuit on Friday, Feb. 14, reaffirmed its previous stance that the U.S. Department of Labor (DOL) has the authority to create a salary threshold as part of its role in defining overtime exemptions.

The reaffirmation came as the Fifth Circuit rejected an argument from Dairy Queen franchise owner Robert Mayfield, who said the appeals court’s Sept. 11, 2024, ruling in the case Mayfield v. United States Department of Labor conflicts with the U.S. Supreme Court’s June 28, 2024, ruling in Loper Bright Enterprises v. Raimondo (and the affiliated case Relentless v. Department of Commerce) as well as the Supreme Court’s 2018 decision in Encino Motorcars LLC v. Navarro.

The Loper Bright decision served to overturn the Chevron doctrine, a decades-old standard that required courts to give substantial deference to federal agencies and rulemaking bodies. In a post-Loper Bright world, courts are pressed to use their independent judgment to determine the best interpretation of a law, even if a federal agency’s interpretation is reasonable. This grants the judiciary branch more power to review and potentially reject agency interpretations of statutes.

The Fifth Circuit used that independent judgment to side with the DOL in this matter.

The Fifth Circuit’s Take on What the FLSA Provides

Mayfield, the owner of 13 Dairy Queen franchise locations in the Austin, Texas, area, had argued that the September appellate court ruling did not align with recent and previous Supreme Court precedent.

The Fifth Circuit rejected that claim by formally refusing to reconsider its previous decision (no judge indicated an interest in taking up a motion for rehearing). In doing so, it fell back to its determination and reasoning from that case, which affirmed a lower court’s ruling that:

The Fair Labor Standards Act (FLSA) provides the DOL the statutory authority to undertake rulemaking to set a minimum salary level and, specifically, to set a minimum salary threshold for white-collar exemptions.
Under the FLSA, the agency’s exercise of that authority does not violate constitutional principles.

In initially suing the DOL, Mayfield, citing the Loper Bright and Encino cases, had argued:

The overtime exemption language spelled out in the FLSA only mentions a worker’s job duties (and not salary thresholds), and
Salary should not be a prime determinant in whether a person is exempt from overtime pay requirements.

(In the Encino case, the Supreme Court instructed courts to take a broader view of FLSA exemptions instead of a narrow one.)

The Fifth Circuit has called out long-practiced DOL activities and past circuit court decisions as precedents in denying that argument.

“[The] DOL has consistently issued minimum salary rules for over 80 years,” Judge Jennifer Walker Elrod wrote in the September 2024 summary document. “Though the specific dollar value required has varied, [the] 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 [in 1938]. 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. We join four of our sister circuits [the District of Columbia Circuit, Second Circuit, Sixth Circuit and 10th Circuit] in holding that [the] DOL has the statutory authority to promulgate the minimum salary rule.”

In addition, the Fifth Circuit stated the DOL’s rulemaking in the matter was not an unconstitutional delegation of power because Congress provided at least two principles to “guide and confine” the agency.

“Both the FLSA’s purpose and the text of the [e]xemption itself provide at least some guidance for how [the] DOL can exercise its authority,” Elrod wrote last September.

The court determined a minimum salary requirement is “consistent with [the] DOL’s statutorily conferred authority,” both in terms of defining “what it means to work in an EAP [executive, administrative and/or professional] capacity” and determining the scope limits of the EAP exemption.

The Salary Basis Test’s Role in the DOL’s 2024 Final Rule

The salary basis test was foundational in the DOL’s April 23, 2024, final rule that stipulated covered organizations must ensure all employees who are classified as exempt from overtime make at least:

$43,888 in base salary beginning on July 1, 2024 (up from the previous $35,568 annual standard outlined in the DOL’s 2019 final rule), and
$58,656 in base salary beginning on Jan. 1, 2025.

Under the rule, an automatic escalator provision would increase that threshold every three years based on up-to-date wage data. And, such salary thresholds were to be implemented regardless of whether employees in question otherwise perform duties qualifying them for the EAP exemption.

Toward the highly compensated employee (HCE) exemption, the DOL rule mandated that classified workers make at least:

$132,964 in total annual compensation on July 1, 2024 (up from the previous $107,432 outlined in the 2019 final rule), and
$151,164 on Jan. 1, 2025.

The Counterargument Muddying the Matter

On Nov. 15, 2024, the U.S. District Court for the Eastern District of Texas halted national implementation of the DOL final rule by ruling for the plaintiffs in the case State of Texas v. Department of Labor.

In that case, initiated by the State of Texas and more than a dozen business organizations, Judge Sean D. Jordan determined the DOL exceeded its statutory authority and said the agency’s rule was invalid because:

The rule effectively made salaries the determining factor for a vast swath of people.
Existing statute verbiage on employment in a “bona fide administrative, executive or professional capacity” suggested the determining factor should be what the person does — not what the person earns.

Given the opposing stances taken by the Fifth Circuit and the Texas district court, additional legal action, perhaps even including a plea for the U.S. Supreme Court to take up the matter, may be forthcoming.

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