Appellate Court Upholds DOL Authority Behind Recent OT Final Rule

A U.S. appellate court on Wednesday, Sept. 11, upheld the authority of the Department of Labor (DOL) to consider salary level as the basis for determining exemption eligibility under federal overtime pay requirements.

The decision came courtesy of the U.S. Court of Appeals for the Fifth Circuit, which delivered a unanimous three-judge panel verdict for the defense in the case Mayfield v. U.S. Department of Labor.

This marks a major victory for the DOL in its attempt to provide overtime protections for millions of additional American workers. The salary basis test is foundational in its April 23 final rule, which stipulated that 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 April 2024 rule, that threshold would increase every three years based on up-to-date wage data.

The Case’s Origin and Outcome

Robert Mayfield, the plaintiff in Mayfield v. U.S. Department of Labor, is a fast-food chain owner based in Austin, Texas. In August 2022, he sued the DOL over the 2019 final rule, arguing:

The overtime exemption language spelled out in the Fair Labor Standards Act (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 making its ruling, the Fifth Circuit considered historical precedent in the form of long-practiced DOL activities and past circuit court decisions.

“[The] DOL has consistently issued minimum salary rules for over 80 years,” wrote Judge Jennifer Walker Elrod, an appointee of then-President George W. Bush, in the 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 in holding that [the] DOL has the statutory authority to promulgate the minimum salary rule.”

Those sister circuits and related case rulings include:

District of Columbia Circuit, Prakash v. American University, 1984
Second Circuit, Fanelli v. U.S. Gypsum Company, 1944
Sixth Circuit, Walling v. Morris, 1946; certiorari ruling in Morris v. McComb, 1947
10th Circuit, Walling v. Yeakley, 1944

In addition, the Fifth Circuit stated in its decision that 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 Exemption itself provide at least some guidance for how [the] DOL can exercise its authority,” Elrod wrote.

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 [executive, administrative and/or professional] capacity” and determining the scope limits of the EAP exemption.

What About Loper Bright and Chevron?

To an extent, the court’s interpretation runs counter to that in the case of Texas v. U.S. Department of Labor, decided June 28 in the U.S. District Court in Eastern Texas. In the latter, a federal judge blocked the DOL’s 2024 overtime rule as it applied to the State of Texas as an employer. In his ruling, U.S. District Judge Sean Jordan stated the rule improperly bases eligibility for overtime pay on workers’ wages rather than their job duties. As such, he pointed his decision to the tangentially related U.S. Supreme Court case of Loper Bright Enterprises v. Raimondo (and the affiliated case of Relentless v. U.S. Department of Labor), which was decided earlier on June 28. In Jordan’s interpretation, the court must follow “Loper Bright’s controlling guidance and the APA [Administrative Procedure Act]” — meaning, in Jordan’s view, an injunction in Texas is appropriate.

At its core, Jordan’s decision sided with the State of Texas’ lawsuit that the DOL’s 2024 changes to the EAP exemption within the FLSA were “arbitrary, capricious, an abuse of discretion or otherwise not in accordance with law” as related to the Administrative Procedure Act.

The Loper Bright decision overruled the 1984 decision in Chevron v. Natural Resources Defense Council, which triggered what was known as the Chevron doctrine. Under that doctrine, if Congress has not directly addressed the question at the center of a dispute, a court was required to uphold the agency’s interpretation of the statute as long as it was reasonable.

Judge Elrod called out Loper Bright in her summary document for Mayfield, writing, “In Loper Bright, the Supreme Court explained that ‘courts may ... seek aid from the interpretations of those responsible for implementing particular statutes.’” She then stated the Fifth Circuit examined whether the DOL should be afforded the so-called Skidmore deference (from the 1944 case Skidmore v. Swift & Company), which allows a federal court to yield to a federal agency’s interpretation of a statute administered by the agency according to that agency’s ability to demonstrate “persuasive reasoning.”

“Under Skidmore,” Elrod continued, “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.’ The last factor, persuasiveness, is the touchstone in determining how much to defer to an agency interpretation.”

Elrod went on to write, “One might ask what work Skidmore deference can do given the Supreme Court’s statements that (1) statutes have a ‘best reading ... the reading the court would have reached if no agency were involved,’ and (2) ‘in the business of statutory interpretation, if it is not the best, it is not permissible.’ Taking these statements together, it seems that either the agency’s interpretation is the best interpretation (in which case, no deference is needed) or the agency’s interpretation is not best (in which case, it lacks persuasive force and is not owed deference). We need not address that issue here because [the] DOL’s interpretation of the statute is ‘best’ based on traditional tools of statutory interpretation and without reliance on deference of any kind. We note, however, that if Skidmore deference does any work, it applies here.”

What Comes Next?

What are the next steps following the Fifth Circuit ruling?

Mayfield may request a rehearing and/or a review by the Supreme Court. But as long as the decision stands, it clears one pothole for the DOL’s rulemaking. Other challenges are still being litigated that focus on other elements of the 2024 rule.

For now, legal experts are advising employers to continue preparing for the next salary threshold deadline, on Jan. 1, 2025.

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