Nonprofit and other employers continue to grapple with myriad implications of the U.S. Department of Labor’s (DOL) April 2024 rule increasing the minimum salary threshold for the “white-collar” exemption effective July 1, 2024, and with future increases starting in January 2025. This article addresses related legal developments through Mayfield v. U.S. Department of Labor, in which the Fifth Circuit Court of Appeals recently upheld the salary threshold as a requirement of such exemption per the DOL’s 2019 Rule.
Background Context
Our firm has written extensively on this topic, including the definition and scope of the white-collar exemption (sometimes known as the “EAP” exemption, for “executive, administrative, and professional”). The DOL’s April 2024 rule and related strategies in light of the increased salary threshold, and a federal trial court’s July 2024 ruling that enjoined the DOL’s April 2024 rule for the State of Texas as an employer.
The Mayfield decision was issued in September 2024 by a federal appellate court, with jurisdiction only in Texas, Mississippi, and Louisiana. But as a court just below the U.S. Supreme Court ruling on a federal law of nationwide application, its ruling is worth careful attention – especially as a bellwether of how the high court or other federal courts may view the salary threshold’s future.
Notably, some important changes may be required if the increased salary threshold is here to stay, such as (a) changing some employees’ status from exempt to non-exempt, (b) consequently paying such employees overtime for hours worked over 40 per week, (c) restricting such overtime work, (d) requiring record-keeping related to such requirements, and (e) paying such employees higher amounts in order to keep them as exempt (and therefore not eligible for overtime pay). Employers are also evaluating the extent to which other exempt categories may apply instead, such as the ministerial or teacher exemption.
Mayfield
In this decision issued September 11, 2024, the Fifth Circuit held that the DOL holds the power to set a salary threshold for the white-collar exemption pursuant to its executive branch authority.
In support of its ruling, the court found that the DOL may use the salary amount prong of the exemption’s three-part test to screen for such EAP status, particularly to help reflect the prestige consistent with higher salaries. The court further observed that the Fair Labor Standards Act (FLSA)’s own statutory language supports the use of a salary threshold in this manner:
Using salary level as a criterion for EAP status has a far stronger textual foundation than [the employer] acknowledges. As DOL correctly points out, the terms in the EAP Exemption, particularly “executive,” connote a particular status or level for which salary may be a reasonable proxy.
Slip Op. at 9. Also relevant for the court was the fact the DOL has continuously set a salary threshold since the FLSA’s enactment in 1938. Slip Op. at 7. The court further rejected the employer’s argument that the FLSA unconstitutionally delegates legislative power to the DOL.
Significantly, the court did not hold that a salary threshold would be valid no matter what. The court signaled that a DOL Rule that sets the salary threshold too high (whatever that may be) could be problematic: “While a particular minimum-salary rule could raise issues because of its size, Mayfield’s argument is that any consideration of salary is improper.” Slip Op. at 7 (emphasis added). The court additionally reasoned that a salary threshold bearing “no rational relationship to the text and structure of the statute would raise serious questions,” as would a salary level that “frequently yields different results than the characteristic Congress initially chose” such that it effectively replaces the terms of the statute. Slip Op. at 10.
Now What?
The appellate court in Mayfield did not address whether the DOL’s 2024 Rule is valid. On the other hand, the trial court in State of Texas has ruled that the DOL’s 2024 is invalid, at least as applied to the State of Texas as an employer, and in terms of the DOL’s limited power to modify the salary threshold. But the State of Texas and Mayfield decisions contain key similarities: they acknowledged that salary thresholds are legally permissible; they recognized that the salary threshold level is important; and they agreed that when that salary level displaces the EAP duties test, it is likely impermissible.
Notably, the State of Texas court addressed the salary threshold prong similarly in terms of proxy aspects, but expressed doubt as to whether such approach is authorized by the FLSA at all:
The application of a salary threshold for the EAP Exemption only comports with the Department’s authority under the FLSA, if at all, to the extent such threshold serves as a plausible proxy for the categories of employees otherwise exempted by the duties test. To understand why this is so, one need only look to the FLSA’s unambiguous text. Congress created the EAP Exemption for “any employee employed in a bona fide executive, administrative, or professional capacity.”29U.S.C.§213(a)(1)(emphasis added).
And as the Court has already explained, . . . the terms and phrasing of the FLSA-authorized duties test make clear it has nothing to do with compensation, only the tasks, duties, and functions of the employee. That means a Department-invented test, untethered to the text of the FLSA, that systematically deprives employees of the EAP Exemption when they otherwise meet the FLSA’s duties test, is necessarily unlawful.
This observation may be particularly meaningful for nonprofits, which may not have the financial means to employ executive staff at higher salaries.
At this point, the State of Texas decision still stands. The trial judge has not vacated his injunction or taken any other court action. Oddly now, the affected employer – the State of Texas - is not subject to the DOL’s 2024 rule but is subject to the DOL’s 2019 rule. Notably too, the 2019 Rule raised the minimum salary from $455 to $684 per week. The 2024 Rule raised the minimum salary from $684 to $844 per week effective July 1, 2024, and it provides for an additional increase to $1,128 per week as of January 1, 2025.
Broadly, the DOL’s salary threshold increase remains in effect. Other courts may possibly follow the Mayfield court’s ruling and similarly uphold the DOL’s power regarding the salary threshold – although, per Mayfield, not too high. Employers should therefore develop a plan to comply with the DOL’s 2024 rule as applicable, to correctly classify and pay their employees, as exempt or non-exempt. With January 1, 2025, fast approaching, the time is now to make adjustments for resulting financial and other operational implications of the salary threshold changes.
