Perhaps one of the most complex areas of employment law deals with the payment of overtime. Most attorneys and even lay people understand that an employer is required to pay an employee overtime compensation at a rate of 1½ times the employee’s regular hourly rate for all hours worked over 40 in a given work week. However, the confusion occurs in trying to understand which employees are exempt versus non-exempt.
The Fair Labor Standards Act of 1938 provides for the payment of overtime compensation. It also establishes a minimum wage and record keeping standards for employees that all employers must abide by. Employers who fail to comply with the provisions of the FLSA risk civil penalties including the payment of unpaid wages, liquidated damages and payment of the prevailing employee’s attorney’s fees and costs.
In analyzing whether an employee is exempt, we must first consider the type of work the employee is performing. Under the job duties test, workers must perform certain duties as their “primary” duty. There are three main exemptions under the job duties test of the FLSA – the executive exemption, the administrative exemption and the professional exemption.
To fall under the executive exemption, an employee’s primary duty must consist of managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise. Additionally, the employee must customarily and regularly direct the work of at least two or more full-time employees or their equivalent. Finally, the employee must have the authority to hire or fire other employees, or the employee’s suggestions or recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees, must be given particular weight. The executive exemption can be found at 29 C.F.R. §541.100.
To qualify under the administrative exemption, an employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers. In addition, the employee’s primary duty must include the exercise of discretion and independent judgment with respect to matters of signifi- cance. The administrative exemption can be found at 29 C.F.R. §541.200.
The final exemption that we commonly hear about is the professional exemption. To qualify for this exemption, the employee’s primary duty must be the performance of work that requires advanced knowledge in a field of science or learning and must be customarily acquired by a prolonged course of specialized intellectual instruction. The professional exemption can be found at 29 C.F.R. §544.300.
In addition to satisfying one of the above exemptions, an employee will only be considered exempt if the employee is paid on a salary basis and if the employee earns a minimum weekly salary. Currently, the minimum weekly salary is $455 per week which equals $23,660 annually. However, as I mentioned in my last article, the minimum salary requirement was increased to $913 per week or $47,476 per year. The change was scheduled to go into effect Dec. 1, 2016. This dramatic increase occurred after President Obama issued a memorandum directing the Secretary of State to modernize existing overtime regulations. In addition to raising the minimum salary requirement, the final rule was also scheduled to establish a mechanism for automatically updating the salary and compensation levels every three years beginning Jan. 1, 2020.
However, just days before the final rule increasing the minimum salary requirement was scheduled to occur, Texas District Judge Amos L. Mazzant III issued a nationwide preliminary injunction blocking the rule from taking effect. Of course, at this point, most employers had already planned for the change and had promised raises to those employees affected by the salary increase. This eleventh-hour decision put many employers in the uncomfortable position of having to either move forward with the new overtime laws as planned or revoke raises promised to employees.
In his decision, Judge Mazzant, an Obama appointee, held that the Obama administration had exceeded its authority by increasing the overtime salary thresholds and by requiring new increases every three years. The Department of Labor filed a notice of appeal to have the injunction lifted and that appeal is currently pending in the Fift h Circuit Court of Appeals in New Orleans. The Fift h Circuit set a briefing schedule which concludes at the end of January 2017. Oral arguments will be scheduled for the first available sitting after the conclusion of the briefing schedule. However, many are speculating about whether the DOL, under the Trump administration, will continue with its appeal. Although Trump has gone on record as stating that he favors a small business exemption, it remains unclear how the new administration will impact this fluid situation.
In our next article, we will discuss sexual harassment claims and what an employee must prove to have a viable claim. We will also look at what an employer can do to insulate itself from potential liability. Kristen Kraus