This time of year, the question of who is entitled to overtime and when is near and dear to many employers’ hearts. Many employers do not pay certain employees overtime, because they believe certain positions, particularly those perceived to be “white-collar” positions, to be exempt from overtime requirements. If you are such an employer, you may be right–but if you are not, you are at risk of being found in violation of the FLSA and owing significant amounts in back wages, and maybe some penalties. This week we will examine the Executive Exemption, and see what some of the courts have to say about how to meet the criteria for the exemption.
Many of you may be wondering why I chose to talk about an exemption that probably will not provide you much benefit. After all, the only employees this exemption covers will be senior executives, right? This is one time where I am happy to emphatically say “Wrong!” . While courts tend to construe overtime exemptions narrowly against employers (meaning there is a presumption against exemptions) the executive exemption is actually broader than many think. Here are the four essential elements that an employer must satisfy to take advantage of this exemption:
The employee’s primary duty must be the performance of management functions;
The employee must customarily and regularly direct the work of two or more employees;
The employee must have the authority to hire or fire employees, or at least have the ability to offer suggestions and recommendations as to hiring, firing, advancement, promotion, or other status changes for employees, with the employer giving particular weight to those suggestions. (You can find the actual regulation here.)
What qualifies as “management functions? How much discretion or authority is needed and how much weight must the employer give to the executive’s suggestions in order for the exemption to apply? Let’s look at a few federal court cases to get an idea.
A personnel supervisor in a warehouse setting, whose primary functions include without limitation directing the work activities of 7 to 10 employees within his division and shift, ensuring production, quality and proper equipment operations, dealing with problems as they arise and training new staff was held to be an exempt executive by the US District Court of the Western District of Virginia just last month in Martin v. Yokohama Tire Corp., 2013 U.S. Dist. LEXIS 161228 (W.D. Va. Nov. 12, 2013). This basis for this ruling seems pretty clear. The employee clearly spent the majority of his time performing managerial tasks.
A police lieutenant who performs management functions, however, may not be exempt, according to the US District Court in the District of Maryland. Why? Although the officer in this case was a lieutenant, his primary responsibility was investigating crimes. The fact that he also directed the work of other employees while performing his own work did not qualify him as an exempt executive (See Jones v Williams Civil No. CCB-11-793 Sept. 25, 2012; See also Mastas v Day & Zimmerman, LLC 664 F.3d 822, 829-30 (10th Cir. 2012) (private security “field lieutenant” not necessarily exempt); Mullins v City of New York, 652 F.3d 104, 188-19 (2nd Cir 2011) (police sergeants not exempt). Courts in these cited the lack of authority to hire and/or fire, and lack of evidence that the officers’ opinions regarding hiring and firing are given any particular weight. Having some managerial duties by itself will not automatically render the employee exempt. If the employee’s primary role is to perform non-exempt functions having managerial duties will not exempt that position from overtime requirements.
If we have not confused things enough, consider this: an employee with both managerial and non-exempt functions can still meet the exemption even if s/he does not spent the majority of his or her time fulfilling the managerial role. The best known cases on this point came from the First and Second Circuit Courts of Appeals in 1982, and addressed the question of whether assistant managers at Burger King were exempt executives. Both circuits said that such positions are exempt, even though the assistant managers spent the majority of their time performing the same non-exempt tasks as hourly employees, such as taking orders, preparing food and filling orders to hand to customers. What then, supported a finding that such a position is exempt? While assistant managers were expected to follow well-defined policies (limiting their discretion) they were also expected to ensure that such policies were followed, which, goes to the heart of supervisory work. Also, both courts reasoned that a person in charge of a store has a primary duty of management, regardless of whether s/he may spend the majority of his/her time performing non-exempt work. The cases are Donovan v. Burger King Corp 672 F.2d 221(1st Cir. 1982) — aka “Burger King I” and Donovan v. Burger King Corp. 675 F.2d 516 (2nd Cir. 1982) aka “Burger King II”. Courts continue to follow these two cases.
Bottom Line for the Executive Exemption: Each case is fact-sensitive, but the key factors that courts focus on is ability to hire and fire, which functions would more accurately describe or define the employee’s primary role, and whether, in performing the exempt functions are essential to the operation of the business. If so, a court is likely to find that the employee is an exempt executive, who does not have to be paid overtime.
What if you have employees that you pay on a salary basis to perform non-manual work that is related either to a) management b) your business operations or c) your customers’ business operations that includes the exercise of discretion and independent judgment on significant matters? Do you have to pay them overtime? This type of position may fall under the Administrative Exemption, which we will discuss next week, before this turns into a runaway post! So long until then!
Disclaimer: This post’s contents are for information purposes only, are not legal advice and do not create an attorney-client relationship. Always consult with competent local employment counsel on any issues discussed here.
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