Bloomberg Law: Department of Labor Oversteps Authority With Salary Rule

The Department of Labor proposed an audacious rule that will dictate salary level requirements for 3.4 million employees without any clear authority. The rule would require employers to pay salaried employees at least $55,068 in annual compensation, which is an over 60% increase from the DOL’s current mandate that salaried employees must be paid $35,568 annually. But as Justice Brett Kavanaugh noted in a recent opinion, “it is questionable” whether the DOL has any business dictating salaries at all. The Fair Labor Standards Act gives the DOL limited authority to decide whether a worker is employed in an executive, administrative, or professional capacity because Congress deemed those employees exempt from the hourly wage and overtime requirements.

But in Kavanaugh’s words, the FLSA’s exemption “focuses on whether the employee performs [the proper] duties, not how much an employee is paid or how an employee is paid.” Nonetheless, in the DOL’s view, Congress gave an open-ended authority to “define and delimit” compensation requirements.

As with the Biden Administration’s ill-fated attempt to cancel half a trillion dollars in student debt, the Executive Branch claims Congress has given the agency authority to write whatever rules it deems fit.

This isn’t the first time the DOL has courted controversy with dubious expansions of its authority. The Obama Administration attempted to dramatically change its methodology for setting salary level rules in 2016. With its new approach, the department tried to raise the minimum salary level to $53,872 annually.

Remarkably, in that very rulemaking, the department admitted there’s no “specific Congressional authorization” for imposing salary level requirements for exempt employees. But the agency pushed forward. Ultimately, an Obama-appointed federal judge ruled that the agency had exceeded its authority. While courts of the past might have indulged agencies bent on pursuing their own regulatory aims without regard to the words Congress wrote into law, today’s judiciary takes law more seriously. As Justice Elena Kagan put it, “we’re all textualists now.” And looking to the text, Judge Amos Mazzant noted that Congress was clear in defining the exemption “with regard to duties, which does not include a minimum salary level.”

Undeterred, in 2020 the DOL finalized a rule raising the then applicable salary level by 50%. But even this comparatively modest rule is under fire.

Last summer, a Texas businessman and his Dairy Queen franchise — represented by me and my colleagues at Pacific Legal Foundation — filed a lawsuit arguing that the law clearly exempts employees based on their duties and not their salary, and, therefore, the DOL may not add a salary floor as a precondition for the exemption.

Robert Mayfield believes his employees would be better off if his company was free to pursue creative compensation structures. He contests the department’s authority to dictate salaries because he wants freedom to start managers at salaries competitive for the Austin market, and the flexibility to provide greater opportunities for bonuses and other incentives. Now, while the Mayfield case is pending, the department seeks to dramatically raise minimum salary requirements yet again. If finalized, this new rule will force Mayfield, and many other employers, to make painful restructuring decisions.

Many companies will be forced to eliminate previously “exempt” positions, or to demote once-salaried employees to part-time hourly roles. Ironically, this rule will harm the very employees that the DOL claims to be helping. Of course, there’s always trade-offs to consider with any major rule. But in our system, Congress should decide the important issues—not the Department of Labor. Congress alone speaks for the American People. Yet the Department—under an acting secretary who has not yet been and may never be confirmed by the Senate—seeks to bypass Congress to dictate its own compensation requirements for salaried employees.

With this heedless new rule—like Icarus flying too close to the sun—Acting Secretary Julie Su may come to regret pushing her luck so far. Even she must know that the department is tempting fate because we now have a Supreme Court that takes separation of powers seriously. No one should be surprised when the Court clips her wings.

This op-ed was originally published at Bloomberg Law on September 13, 2023.