Biden’s Overtime Rule Faces Trouble Despite Fifth Circuit Nod

Federal courts weighing challenges to the US Labor Department’s overtime pay rule still have to decide how far the Biden administration can stretch its authority, despite the Fifth Circuit’s decision upholding an earlier version of the regulation.

The US Court of Appeals for the Fifth Circuit Sept. 11 gave the DOL the greenlight to continue using a worker’s salary as a factor in determining their eligibility for overtime pay, in a case involving the Trump administration’s version of the rule.

The court warned, however, that the agency doesn’t have unlimited authority in determining the salary threshold. The decision shows that even when judges determine agencies are acting within the law, they may still rein in regulators if they think a rule goes too far.

“DOL can enact rules that clarify the meaning of those terms or, as in the case of the Minimum Salary Rule, impose some limitations on their scope,” Judge Jennifer Walker Elrod, a George W. Bush appointee, wrote for the court in the Sept. 11 decision. “By contrast, DOL cannot enact rules that replace or swallow the meaning those terms have. It is true that the Exemption’s text does not provide a precise line for what is permissible and what is not.”

The ruling is likely to be used as ammunition by business groups who have sued over the DOL’s 2024 overtime rule in multiple federal courts, arguing that the new Biden rule’s salary threshold of $58,656 is so high that it improperly replaces other language in the overtime exemption requiring employers to consider a worker’s job duties.

While the Fifth Circuit panel didn’t “lay out their cards” on what may happen with the challenges to the new Biden rule, they also weren’t exactly silent, Jeffrey Brecher, an attorney with Jackson Lewis P.C., said.

“They’re saying, look, you have the right to impose a salary requirement, but if that salary requirement is so high that it doesn’t serve as a proxy for the duties then it may be invalid,” Brecher said, “Because it’s no longer defining or delimiting the exemption. It is replacing it.”

White Collar Exemption

The Fair Labor Standards Act includes language known as the white collar exemption, which carves out certain “executive, administrative, professional and outside sales” employees from overtime pay requirements. That provision explicitly grants the Secretary of Labor the authority to “define and delimit” the exemption.

For years, the department has used a three-part test to determine if workers are subject to the exemption, including not only whether a worker has certain job duties, but is salaried and earns more than a certain amount annually.

The Trump administration rule that the Fifth Circuit considered set the salary threshold at $35,568, low enough to be largely accepted by the business community.

The appeals court challenge didn’t focus on the rule’s salary level, but instead argued that the agency couldn’t consider a worker’s earnings at all, because the text of the FLSA only mentioned a worker’s “executive, administrative, or professional” job duties.

While the appeals court disagreed with Robert Mayfield, the business owner who brought the suit, they noted that he raised a salient question.

“Mayfield’s argument nevertheless raises an important point: adding an additional characteristic is consistent with the power to define and delimit, but that power is not unbounded,” the court wrote.

Loper Bright

The appeals court decision is among the first to uphold a federal agency rule after the Supreme Court’s June 28 decision in Loper Bright Enterprises v. Raimondo.

In Loper Bright, the high court directed federal judges to use their own judgment when determining the meaning of a law, instead of deferring to a federal agency’s interpretation of unclear provisions.

In cases involving an express delegation of authority, like with the overtime provisions of the FLSA, the high court directed judges to “identify and respect such delegations of authority, police the outer statutory boundaries of those delegations, and ensure that agencies exercise their discretion consistent with the APA.”

The Fifth Circuit concluded that “setting a minimum salary level for the EAP Exemption is within DOL’s power to define and delimit the terms of that Exemption” and “that power is guided by the FLSA’s purpose and the text of the exemption itself.”

The appeals court also noted that the agency would be entitled to due Skidmore deference—the legal doctrine that says judges can give weight to agency interpretations based on their persuasiveness—but that the court didn’t need to use that standard to decide the case.

“If Skidmore deference does any work, it applies here,” the Fifth Circuit said, based on the rule’s consistency over the past 80 years, and Congress’ failure to address the issue when amending the FLSA.

Watching Texas

The open question over how far DOL’s authority goes when setting rules around the overtime exemption is likely to come to a head in the trio of challenges pending against the new Biden administration rule in Texas and District of Columbia federal courts, attorneys say.

“In terms of the size of the increase, the court does talk about a rational relationship of the criteria for these statuses: It has to be reasonably related,” said Jane Jacobs, a partner at Tarter Krinsky & Drogin LLP. “So they’re saying, for example, that salary is a reasonable proxy, but that if you had a completely irrelevant criteria, you could attack that. And I think that that’s probably analogous to saying the increase is too high.”

That same issue doomed a 2016 overtime rule issued during the Obama administration, which was set aside by the US District Court for the Eastern District of Texas after a federal judge found that the department exceeded its delegated authority and ignored Congress’s intent “by raising the minimum salary level such that it supplants the duties test.”

That now-defunct rule had set the salary threshold at $47,476, and scheduled updates to that level every three years.

The new Biden rule will eventually raise the salary piece of that test to $58,656 in January, making an estimated 4 million workers newly eligible for time-and-a-half-pay. It would also automatically update every three years.

The value of the US dollar has shifted since 2016. According to the Bureau of Labor Statistics, $47,476 in 2016 amounts to $63,083 in terms of buying power in 2024, adjusted for inflation.

One of the legal challenges filed against the 2024 rule is before the same federal court that set aside the Obama rule in 2017.

“The plaintiffs in those cases are going to point out that the Fifth Circuit here expressly discussed the fact that you can impose a requirement, but if the requirement is such that it swallows up the definition and makes the definition itself irrelevant, then that would be invalid,” Brecher said. That’s where the heart of the argument is going to be on the Texas cases.”