United States: Wage & Hour Developments: A Year In Review

Introduction

This 2023 Year in Review looks at significant wage and hour developments, including agency action, U.S. Supreme Court developments, important appellate court decisions, and state legislative and regulatory changes, including new state minimum wage rates for 2024.

The U.S. Department of Labor (DOL) was active in 2023, proposing and finalizing regulations and stepping up enforcement activity. A proposed rule sharply increasing the salary threshold for employees subject to the Fair Labor Standards Act's (FLSA) "white-collar" exemptions could have the most significant impact on U.S. workplaces. The DOL has set an April 2024 target date for release of a final rule. The DOL, however, continues to face pushback from the business community on its rulemaking, in the form of ongoing court challenges. Litigation challenging the new rule, once issued, is likely. As the year ended, DOL also put the finishing touches on another long-awaited rule — the regulations addressing independent contractor status under the FLSA. Those regulations are scheduled to go into effect in 2024, but they too will be subject to litigation.

The U.S. Supreme Court issued a decision interpreting the "salary basis" provisions of the white-collar regulations. The Court also granted petitions for certiorari on legal questions that, when resolved, may profoundly affect the authority of all federal agencies, including the DOL. This term, the justices take up the "Chevron" doctrine, under which federal courts grant considerable deference to federal agency regulations. If the Court ultimately overrules the doctrine or limits its reach, DOL's authority to interpret the FLSA and other statutes through rulemaking could be sharply curtailed.

Federal circuit courts of appeal also issued noteworthy precedential decisions on an array of wage and hour issues.

State and local legislatures and regulatory bodies adopted measures imposing new legal obligations on employers, including pay transparency requirements and further erosion of the "tip credit" for employers of workers who customarily receive tips.

Here is an overview of the most noteworthy wage and hour developments from 2023.

U.S. DOL Activity

DOL Issues Proposed White-Collar Exemption Rule

The DOL published a proposed rule on Sept. 7, 2023, which, if adopted, will increase the minimum salary for the executive, administrative, and professional (EAP) or whitecollar exemptions from minimum wage and overtime pay requirements under the FLSA. The rule proposes increasing the salary threshold from $684 per week ($35,568 per year) to $1,059 per week ($55,068 per year), which would be a 55% increase from the current level that became effective in January 2020 during the Trump Administration. The DOL also stated the actual salary threshold could even be higher depending on when the final rule is issued, as it will be based on earnings data as of the date the final rule takes effect. This could lift the operative salary floor to more than $60,000 annually.

The annual compensation level for highly compensated employees also will increase, by 34%, from the current $107,432 per year to $143,988 per year (or even higher, based on earnings data in effect when the final rule is issued).

The DOL also proposed automatic updates to the salary thresholds every three years to reflect current earnings data (but it would be able to temporarily delay a scheduled automatic update if warranted by unforeseen economic or other conditions).

The proposed rule does not make any changes to the EAP duties tests or the salary basis requirement, the two other prongs required under the regulation for the white-collar exemption to apply. According to the DOL, even with its proposed change to the salary threshold, the duties test will remain the determining factor in deciding exempt status for almost three-quarters of salaried white-collar employees.

The DOL estimates that 3.4 million currently exempt employees who earn at least $684 per week but less than the proposed salary level of $1,059 per week would be entitled to overtime pay. In addition, according to DOL, the proposed increase to the highly compensated salary floor would affect 248,900 employees who are currently exempt.

April 2024 target date for final rule. On Dec. 6, 2023, the DOL unveiled its semi-annual regulatory agenda, which sets an April 2024 date for release of the final rule. Whether the DOL will meet its April 2024 target date remains to be seen. The agency will have to review more than 33,000 comments received in response to its notice of proposed rulemaking and address substantive comments in the final rule.

It is also uncertain how closely the final rule will conform to the proposed rule. The DOL's proposed rule stated the rule would become effective 60 days after publication of a final rule (the minimum timeframe mandated for "major" rules under the Congressional Review Act).

Further complicating matters for employers as they seek to evaluate their options for compliance with the rule change is the possibility of a legal challenge (and possible injunctive relief barring enforcement pending the challenge), including questions about the agency's authority to impose the salary threshold increase, as well as its authority to implement automatic updates to those thresholds.

Can DOL even set a salary floor? Meanwhile, pending in the U.S. Court of Appeals for the Fifth Circuit is a lawsuit challenging the authority of the DOL to impose any salary threshold for the white-collar exemptions.

In Mayfield v. Department of Labor, a Texas fast-food franchise operator is challenging the 2020 final rule issued during the Trump Administration setting the salary minimum currently in effect. In enacting the FLSA, Congress directed the DOL to "defin[e] and delimit[]" the scope of the "EAP," or white-collar, exemption and to modify the criteria "from time to time by regulations." U.S.C. § 213(a)(1). The DOL's salary level test has been in place since the original 1938 regulation was issued. The plaintiff argues that the agency lacked statutory authority to impose any salary level requirement for the white-collar exemptions to apply because the statutory text does not include a salary threshold. The plaintiff argues that Congress authorized the DOL only to define the duties that would satisfy the exemption. The plaintiff also contends that if Congress had empowered the DOL to set a salary floor, it would constitute a violation of the nondelegation doctrine because imposing such a threshold is an essentially legislative action assigned solely to Congress.

In a Sept. 20, 2023, decision, Mayfield v. United States DOL, 2023 U.S. Dist. LEXIS 168054, a federal court in Texas awarded summary judgment to the DOL, concluding the agency had authority to adopt a salary floor as a factor in defining the exemption. The court rejected the plaintiffs' challenge under the Administrative Procedure Act, finding that the rule was entitled to "Chevron" deference. That analysis, however, may be on shaky grounds if the Supreme Court overrules Chevron.

The court also rejected the plaintiff's argument that imposing a salary requirement implicated the "major questions doctrine," under which administrative agencies must be able to point to "clear congressional authorization" when they assume power to regulate matters of vast "economic and political significance.'" The U.S. Supreme Court reinvigorated the doctrine as a vehicle for challenging federal regulations in its 2022 decision in West Virginia v. EPA, 142 S. Ct. 2587. (The complaint in Mayfield was filed within weeks of the justices' decision.) The district court in Mayfield concluded the salary level test was not a major question because the matter to be regulated was not of "vast economic and political significance." It also concluded the estimated long-term costs of the rule did not create the kind of stark economic impact that would restrict Congress from delegating the matter to a regulatory agency under the major questions doctrine.

The plaintiff in Mayfield filed an appeal in the Fifth Circuit on Oct. 10, 2023 (No. 23-50724).

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