Chevron deference is gone, but battles with regulatory agencies are here to stay.

When the Supreme Court overruled Chevron deference in Loper Bright Enterprises v. Raimondo earlier this year, a new era of jurisprudence began. Critics of the Loper decision lamented that regulatory agencies may not have their expertise heeded by judges, and supporters of the Loper decision lauded the apparent end to the reign of unelected employees at executive agencies. The reality, as illustrated by two recent Fifth Circuit decisions, is in neither of those two extremes. Courts may and do still side with agency interpretation of federal statutes, even though they are not required to give those agency decisions Chevron deference. 

The end of Chevron deference means courts do not have to defer to an agency’s interpretation.

In the first case, Restaurant Law Center v. United States Department of Labor, the Fifth Circuit held that the Department of Labor’s (“DOL”) 2021 final rule was both contrary to the Fair Labor Standards Act’s (“FLSA”) clear statutory text and was arbitrary and capricious under the Administrative Procedure Act (“APA”). One of the main issues presented was whether the “80/20 guidance” which has been “effectively codified” into a final rule was lawful. The 80/20 guidance refers to regulatory guidance from the DOL on the “dual-jobs regulation,” which is implicated when an employee regularly engages in distinct occupations for the same employer. For example, an employee might work as a maintenance man and a server at the same hotel. This regulation prevents employers from potentially abusing the “tip-credit,” which allows an employer to pay a tipped employee less wages when that employee regularly earns tips as part of the occupation. The “tip credit” allows an employer to pay a tipped employee less than the minimum wage, provided that the employee makes enough in tips to cover the difference between the lower wage and the minimum wage. 

The now vacated 2021 DOL final rule said that employers could take a “tip credit” for tipped employees (restaurant servers, for example) when they were engaged in “directly tip-producing work” (e.g., providing table service to customers), but when the employee was engaged in other aspects of their job, limitations applied. If an employee spent more than 20 percent of the workweek, or more than 30 consecutive minutes at any given time in “directly supporting work” (e.g. sweeping tables clean and rolling silverware), then the employer could not take a tip-credit and had to pay at least minimum wage. The Fifth Circuit rejected that rule.

The Court determined that “dual really means dual” and the dual-jobs regulation envisioned “two unrelated and separate occupations.” The vacated DOL final rule tried to make one occupation (e.g., restaurant server) into multiple occupations by parsing out component tasks. 

This has major implications for how any employer who tipped employees operates. This may also result in a decrease in certain types of wage and hour litigation.

While the final rule is vacated, employers of tipped employs may not be out of the woods just yet, and it may depend on where geographically your business is located. We encourage all employers to review their pay policies and consult legal counsel before making any operational changes.

Even though Chevron deference is gone, courts can still agree with regulatory agency interpretations.

In the second case, Mayfield v. United States Department of Labor, a business owner challenged another DOL rule that raised the minimum salary necessary to fall within the “White Collar Exemption” for overtime requirements under the FLSA. The FLSA sets out protections for workers, including minimum wage and overtime regulations. These protections do not apply equally to all employees, and the FLSA provides a framework for determining which employees are eligible for certain mandatory overtime benefits. Employees who do not have to be paid a premium wage for overtime (1.5 times the regular pay) are known as “exempt” employees. One of those exemptions applies to “any employee employed in a bona fide executive, administrative, or professional capacity,” also known as the “White Collar” exemption.  Importantly, the FLSA itself gives the Secretary of the Department of Labor the power to define and delimit the terms of any exemption.

While many criteria exist to determine if an employee is exempt, the DOL has repeatedly used a salary basis test a to the White Collar exemption. This means that if an employee’s salary falls below a certain threshold, they cannot be exempt. In 2019, the DOL issued a new rule defining what the minimum salary is for exemptions, and raised the salary basis from $455 per week to $684 per week, an increase of over 50%. The business owner in Mayfield challenged this rule, arguing the DOL acted beyond the authority granted to it by congress; specifically, that the DOL lacked the authority to define the White Collar exemption in terms of salary level. The court disagreed. Citing to Loper Bright, the Fifth Circuit sided with the Department of Labor and their interpretation of the statute. The Fifth Circuit joined four other circuits in holding that the DOL has the authority to promulgate and enforce the rule. 

This ruling, especially in the aftermath of overturning Chevron deference, demonstrates that agency decisions may still be upheld. Future increases to the minimum salary requirement are forthcoming. In light of Mayfield, challenging these increases may prove to be a formidable task. However, the Fifth Circuit did note that just because the DOL has the power to define and delimit the terms of an exemption, that power is not unbound. This indicates that, depending on what future agency decisions and rules provide, these challenges may be revisited.

In light of forthcoming increase to the minimum salary threshold[1], we encourage all employers to ensure positions are properly classified.

[1] See: https://www.koleyjessen.com/insights/publications/dol-salary-threshold-changes-round-two-loom

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