NEW ORLEANS – The U.S. Court of Appeals for the Fifth Circuit has upheld a Texas federal court’s ruling to grant summary judgment to the U.S. Department of Labor, in response to litigation which had challenged the Department’s authority to define the so-called “White Collar Exemption” in the Fair Labor Standards Act to include a minimum-salary requirement.
In a Sept. 11 memorandum opinion written by Fifth Circuit Judge Jennifer Walker Elrod, alongside colleague judges Jacques L. Wiener Jr. and Cory T. Wilson, the trio handed down such an opinion in a case brought by Robert Mayfield and R.U.M. Enterprises, Incorporated versus the Department and its Secretary, Martin Walsh.
Mayfield, a second-generation owner of more than a dozen fast food restaurants in and around Austin, Texas, filed suit against the Department in August 2022 to stop a rule that he argued limited his ability to offer his managers the kinds of compensation packages he thinks best.
Mayfield paid well above the minimum wage, starting at $15 per hour to attract top talent. And when elevated to management roles, his employees received a guaranteed salary, which means more predictability in pay, as well as opportunities for bonuses based on company profits.
But Mayfield argued that these management-employees would stand to earn more in bonuses if Department regulation allowed more flexibility for employers in setting compensation structures.
Mayfield’s suit continued that the Fair Labor Standards Act expressly exempts “bona fide executive, administrative, or professional (EAP) employees” – such as managers for his restaurants – from its default hourly pay rules. Regardless, the Department has put forward regulation denying Congress’ exemption for employees performing executive, administrative or professional duties unless they are paid $35,568 annually. This constituted a 50 percent increase in 2019, from $23,660 annually.
Mayfield did not argue that the Department “lacks the authority to raise the minimum salary, nor does he maintain that the particular salary level [the Department] chose is invalid…rather, he argues that [the Department] lacks, and has always lacked, the authority to define the EAP Exemption in terms of salary level.”
Both Mayfield and the Department filed cross-motions for summary judgment, but the U.S. District Court for the Western District of Texas granted the Department’s motion and denied Mayfield’s motion in September 2023, leading Mayfield to appeal to the Fifth Circuit.
“On Mayfield’s view, the Minimum Salary Rule arbitrarily imposes a new requirement that lacks a textual basis because the statute only speaks of duties. Any classification based on a characteristic other than duties, then, would exceed the Department’s authority. In support of this view, Mayfield points to the fact that many FLSA exemptions are defined in terms of job duties and that other exemptions explicitly reference salary level, demonstrating that Congress knows how to impose such a requirement when it wants one,” Elrod stated.
“We are not persuaded. Using salary level as a criterion for EAP status has a far stronger textual foundation than Mayfield acknowledges. As the Department 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. Indeed, the EAP Exemption is also frequently referred to as the ‘White Collar Exemption.’ Distinctions based on salary level are also consistent with the FLSA’s broader structure, which sets out a series of salary protections for workers that common sense indicates are unnecessary for highly-paid employees.”
Elrod said that the District Court correctly noted there are at least two principles that guide and confine the authority delegated to the Department: 1) The FLSA’s statutory directive to eliminate sub-standard labor conditions that are detrimental to the health, efficiency and general well-being of workers, and 2) The text of the Exemption itself.
Under that standard, Elrod said, “both the FLSA’s purpose and the text of the Exemption itself provide at least some guidance for how DOL can exercise its authority. Therefore, they are each independently sufficient to satisfy the non-delegation doctrine’s requirements.”
“True, the Minimum Salary Rule determines which workers are protected by the FLSA. By contrast, the FLSA’s purpose speaks to what workers should be protected from. But it nevertheless provides guidance. The Department can look to whether a particular group of workers is subject to the very problems the Act seeks to remedy to determine whether the Exemption should be clarified to include or exclude that group of workers. The Department is also constrained by the qualification that the FLSA should improve working conditions ‘without substantially curtailing employment or earning power.’ So while the FLSA’s purpose speaks to what workers should be protected from, it nevertheless guides and limits the Department’s authority to enact a rule determining which workers require protection,” Elrod stated.
“So too with the text of the Exemption itself. The words ‘executive,’ ‘administrative,’ and ‘professional’ each have meaning. That meaning both guides and limits DOL’s power to ‘define and delimit’ them. The Department 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. By contrast, the Department 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. As we have discussed, a rule that uses a proxy to determine whether something falls within the Exemption poses the difficult question of how accurate the proxy must be to be permissible. And a rule imposing a new characteristic raises the question of whether that characteristic is sufficiently connected to the existing definition. But an intelligible principle is a guide, not a definitive guide, to what can and cannot be done. As such, the Exemption itself provides an intelligible principle for the power to define and delimit its terms.”
Elrod concluded, “The lack of clarity in both intelligible principles raises reasonable concerns, but they are concerns that are only legally relevant under a test that has been floated but never grounded in law. To require more is to ask for a level of specificity that the law does not currently demand. Thus, we join two of our sister circuits in finding that, under the existing test, the Department’s authority to define and delimit the terms of the EAP Exemption is guided by an intelligible principle.”
U.S. Court of Appeals for the Fifth Circuit case 23-50724
U.S. District Court for the Western District of Texas case 1:22-cv-00792
From the Southeast Texas Record: Reach Courts Reporter Nicholas Malfitano at nick.malfitano@therecordinc.com