Employers should be more cautious about classifying workers as exempt salaried employees, in light of several recent federal court cases.
One of the most common complaints received by the Wage and Hour Division of the U.S. Department of Labor is that an employee has been deprived of overtime wages, due to being misclassified as an exempt salaried worker.
Increasingly, the courts are finding in the employees’ favor in these cases, according to attorney Howard Radzely with the law firm of Morgan, Lewis & Bockius. While some employers believe that they can avoid overtime simply by proclaiming an employee “exempt,” this has not proven to be the case.
The federal FLSA or Fair Labor Standards Act acknowledges five categories of exempt employees:
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Executives
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Salespeople
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Professionals (including doctors, lawyers and creative artists)
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Administrators
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Certain Computer Professionals such as System Analysts and Programmers
However, the courts are increasingly interpreting those classifications very narrowly.
In one recent example, an appeals court ruled that sales reps for pharmaceutical giant Novartis were not exempt employees partly because, by law, they can distribute samples and make a sales pitch, but cannot sell drugs. Only a licensed pharmacist can sell drugs legally.
In another case, appeals courts have turned in different opinions on whether managers of retail stores are genuinely exempt employees. In Morgan v. Family Dollars Stores Inc., the Supreme Court ordered the retail chain to pay $35.6 million in overtime to 1,424 retail store managers. The court found that the “managers” were not exempt executives because they:
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Spent 80% or more of their time manually stocking shelves or working the cash register
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Had no authority to hire, fire or determine salaries for other employees
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Performed no evaluations of other employees
However, retail managers may sometimes be exempt. In Soehnle v Hess, the 3rd Circuit Court of Appeals found that the manager of a Hess shoe store in Lancaster, Pennsylvania was exempt even though she spent 85% of her time working the cash register. The ruling was based upon the fact that the manager hired, trained, supervised and fired employees at the store with minimal supervision.
Still another case in the 3rd Circuit Court of Appeals held that call center employees are not exempt sales persons, in Parker v. NutriSystem Inc.
A court ruling earlier this year all but eliminated the administrator exemption, requiring very significant independent decision-making in order to qualify for that exemption.
