EMPLOYMENT LAW

Administrative Exemption of FLSA - Will the Litigation Ever End?

February 2006

By Anne G. Scheer*

The United States Department of Labor's 2004 overhaul of its regulations on the Administrative exemption to the Fair Labor Standards Acts ("FLSA") minimum wage and overtime laws was intended to clear up confusion surrounding who qualifies for this exemption. However, continued litigation in this area shows that these new regulations have not provided the intended clarity.

In a nutshell, the administrative exemption provides that individuals who are paid on a salary or fee basis of at least $455 per week whose primary duty is office or non-manual work directly related to the management or general business operations of their employer or their employer's customers, and whose primary duties include exercise of discretion and independent judgment with respect to matters of significance are exempt from the Fair Labor Standards Act minimum wage and overtime requirements. Primary difficulties with this exception continue to be what constitutes utilization of independent judgment, what constitutes matters of significance, as well as whether the employee's primary duties are work directly related to management or general business operations of the employer or the employer's customers. In recent months, the Department of Labor has issued a number of advisory opinions on these issues.

In August of this year, the Department of Labor responded to an inquiry from a company that performs background investigations of potential government employees being considered for security clearances, as to whether its investigators came within the administrative exemption of the FLSA. In responding to this inquiry, the DOL noted that employees whose job is to produce a commodity, "whether goods or services," that the company exists to produce and market, do not meet this exemption because their primary duties are not directly related to the administrative functions of their employer or the employers customers. The Department of Labor in this case further rendered the opinion that although the investigators had great discretion in prioritizing their caseloads and assessing what leads to follow and what documents to review these job duties did not constitute exercising discretion and independent judgment with respect to matters of enough significance to qualify for this exemption. The Department of Labor contrasted this position with a human resource manager, who in formulating employment policies, setting minimum standards and making ultimate hiring decisions does qualify for this exemption.

In contrast, during the same month, the Department of Labor issued an opinion letter stating that some, but not all, claims adjusters employed by a company that provides claims adjusting services to insurance companies, insurance brokers and self-insured companies do qualify under the administrative exemption. In this case, the Department of Labor found that individuals providing claims adjustment for their employers' customers were involved in work directly related to the management/general operations of the employers' customers and therefore so long as their job duties include the exercise of discretion and independent judgment with respect to matters of significance, do qualify for the administrative exemption. In looking at this second issue, the Department of Labor determined that in this case the lower level of claims adjusters' duties did not include enough independent judgment and/or decision making with respect to matters of significance to quality for the exemption, but that some of higher level claims adjusters' duties did require exercise of enough discretion and independent judgment in matters of significance to qualify.

In other cases presented to it this fall, the Department of Labor found that a museum curator who formulated the museums operating practices and developed its educational materials did qualify for this exemption, as did academic advisors and intervention specialists at a community college, but that a maintenance supervisor, whose primary duty was to maintain the equipment and supervise one employee, did not qualify for this exemption, nor did a bookkeeper/office manager.

The administrative exemption to the Fair Labor Standards Act is a very fact specific exemption. Determining whether or not a job does or does not qualify under this exemption requires looking very specifically at the actual job duties performed in the position at issue. Job titles are of very little use in making this determination. It is the duties the individual actually performs that is determinative of whether or not they come within this exemption.

Given that litigation on this exemption continues to flourish, as well as the amount of confusion that continues around this exemption, it is probably safe to say that whether or not an individual job qualifies for this exemption remains as murky as it ever. When in doubt as to the applicability of this exemption you should seek an outside opinion as mistakenly classifying a non-exempt employee as exempt can be costly.

You may contact Anne G. Scheer at 800.528.1181.

*Anne G. Scheer is admitted to practice in New Hampshire and Massachusetts.

 

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