Great Lakes Wire

Earlier this year, the U.S. Department of Labor (DOL) issued final regulations setting a new salary level test for determining job exempt status. To classify a job as exempt from overtime and certain record-keeping compliance requirements, a job typically must meet three tests:

1. The job must be paid on a salary basis.

2. It must meet the duties test of the Executive, Professional, or Administrative exempt classifications.

3. Be paid at the requisite salary level as prescribed by regulation.

The last test is central to the recent Fifth Circuit decision.

The regulations issued this year increase the salary level test from $684/week ($35,568/year) to $884/week ($45,968/year) as of July 1, 2024. Beginning January 1, 2025, it will rise further to $1,128/week ($58,656/year). This rate will then increase every three years through an indexing method applied by the DOL.

The DOL argues that many jobs in sectors such as hospitality and retail exploit workers by classifying them as exempt to avoid paying overtime. Increasing the salary level test forces employers either to pay more or change exempt employees to non-exempt status and pay overtime if they work more than 40 hours per week.

Historically, the DOL has periodically adjusted exemption tests. During the Obama administration, an attempt was made to significantly increase the salary level test; however, a Texas court blocked it, ruling that it overstepped authority under the Fair Labor Standards Act (FLSA). The Trump administration later implemented a more modest increase to $644/week.

With new regulations published on April 23, 2024, aiming for substantial increases again faced immediate challenges in Texas federal court. This time, however, the court ruled that the DOL had authority to promulgate such rules. When appealed to the Fifth Circuit Court of Appeals, this decision was affirmed.

Observers had hoped that recent judicial trends might influence this case similarly to previous rulings where courts found agency overreach in setting higher salary levels than authorized. Particularly notable is a recent Supreme Court decision overturning precedent that granted regulatory agencies judicial deference (Chevron USA v. Natural Resources Defense Council), specifically when deciding cases involving agency administrative authority around law (Loper Bright Enterprises v. Raimondo).

The Fifth Circuit opinion stated: “Using salary level as a criterion for [executive, administrative or professional (EAP)] status has a far stronger textual foundation than [the plaintiff] acknowledges. As the 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.” (Mayfield et al. v. U.S. Department of Labor et al.)

For now, employers must adhere to the prescribed salary level test noted above unless successfully appealed to and overturned by the U.S. Supreme Court.

ASE Connect will offer a virtual training course titled "FLSA Changes and Working with Exempt/Non-Exempt Classification Analysis" on December 11, 2024.

By Michael Burns

Source: LAW360 Employment Authority

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