What’s next? The Potential Impact of the Fifth Circuit’s Mayfield Decision on the 2024 DOL Minimum Salary Rule

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On September 11, 2024, the U.S. Court of Appeals for the Fifth Circuit joined four other federal courts and held that the U.S. Department of Labor (DOL) has statutory authority to impose a minimum salary threshold to qualify for the executive, administrative, and professional overtime exemptions (EAP Exemption) under the Fair Labor Standards Act (FLSA). Mayfield and R.U.M. Enterprises, Inc. v. U.S. Dep’t of Labor, No. 23-507-24 (5th Cir. Sept. 11, 2024).

The Fifth Circuit’s decision was in response to a legal challenge related to the 2019 DOL Final Rule on overtime pay, which increased the minimum salary requirement for the EAP Exemption. While seen as a win for the DOL in its effort to enforce its more recent 2024 Final Rule, the ruling does not address the validity of the 2024 Final Rule, and leaves open other possible challenges to the 2024 Final Rule.

Overview of the DOL Minimum Salary Rules

In 2019, the DOL promulgated a new version of its “Minimum Salary Rule,” raising the minimum salary required to qualify for the EAP Exemption from $455 per week to $684 per week, an increase of 50.3%.

Subsequently, in 2024, the DOL issued another Final Rule, revising the Minimum Salary Rule and again increasing the minimum salary for the EAP Exemption. The 2024 Final Rule, which took effect July 1, increased the minimum salary from $684 per week ($35,568 per year) to $844 per week ($43,888 per year). The rule also includes another automatic increase, effective January 1, 2025, which would raise the minimum salary to $1,128 per week ($58,656 per year). (See Department of Labor Issues Final Rule Expanding Overtime Eligibility and Clarity in a Shifting Landscape: Answers to Remaining Wage-and-Hour Questions are Coming). The increase in January 2025 would result in an approximately 60.6% increase from the 2019 minimum salary, and would likely result in the removal of a far larger number of workers from coverage by the EAP Exemption.

The Mayfield Decision and Its Impact on the 2024 Rule

A business owner, operating thirteen fast-food restaurants in Texas, filed suit in response to the 2019 Final Rule, alleging the DOL lacked authority to issue a rule imposing a salary requirement for the EAP Exemption. The district court ultimately granted the DOL’s motion for summary judgment, finding the DOL had authority to impose a minimum salary requirement.

The Fifth Circuit affirmed the district court’s ruling, holding “the 2019 Minimum Salary Rule” falls within the DOL’s authority “to define and delimit the terms” of the EAP Exemption, and “that power is not an unconstitutional delegation of legislative power.” Notably, this ruling was specifically limited to the DOL’s authority to define the EAP Exemption in terms of a salary threshold. The Fifth Circuit stressed that such authority “is not unbounded,” and noted that a requirement with “no rational relationship to the text and structure” of the FLSA would “raise serious questions.” The Fifth Circuit’s opinion suggests that larger increases or a two-stage increase, as promulgated under the 2024 Rule, may exceed the DOL’s authority.

Employers will likely see questions about the 2024 Final Rule, which the Fifth Circuit has not addressed, play out in ongoing legal challenges. For example, in June 2024, a Texas federal district court, in State of Texas v. U.S. Dep’t of Labor, issued a preliminary injunction narrowly enjoining the 2024 Rule for Texas state employees. The district court judge reasoned the 2024 Rule was “likely unlawful” and suggested that the significant salary threshold increases in the 2024 Rule likely would “not comport” with the DOL’s authority under the FLSA. While narrowly tailored to Texas state employees, this case signals the potential for broader challenges to the 2024 Final Rule in other litigation.

Takeaways

The 2024 Final Rule remains in effect for now. As such, employers are subject to and must continue to comply with the new salary threshold, which went into effect July 1, as well as prepare for the increase on January 1, 2025. Now is a good time for employers to consider conducting internal audits that confirm FLSA-compliant designations of non-exempt and exempt employees and review company compensation and payroll policies, procedures, practices, and documentation. Audits done at the direction and under the control of legal counsel can remain confidential and protected (where appropriate) and/or may help defend against future misclassification claims (or other claims) under the FLSA.

Our Maynard Nexsen team stands ready to assist employers in evaluating the impact of the DOL’s 2024 Final Rule, including in light of ongoing litigation, assisting and providing legal advice with respect to internal audits, and otherwise providing guidance on all wage-and-hour issues you may face.  Please contact us for additional information or guidance.