4th Circuit: Court Interprets FLSA's 'Combination Exemption'

Relying on the Secretary of Labor’s opinion letters and amicus brief, the 4th U.S. Circuit Court of Appeals found that an employer may rely on the “combination exemption” set forth in Department of Labor (DOL) regulations to satisfy the “primary duty” test, but must also satisfy the other requirements of the applicable exemption for the employee to be exempt from the requirements of the Fair Labor Standards Act (FLSA).

Baback Habibi filed a claim against his employer that he was not paid the minimum wage in violation of the FLSA. The district court found that Habibi was nonexempt, and the employer appealed.

The FLSA provides that any employee employed in a “bona fide executive, administrative or professional capacity,” or the capacity of an outside salesman, is exempt from the minimum wage and overtime pay requirements. The DOL regulations also provide for a hybrid exemption, referred to as the “combination exemption.”

Each exemption is defined by the employee’s primary duty, which is, according to the regulations, the “principal, main, major or most important duty that an employee performs.” Each exemption has additional requirements. For example, employees must be paid on a salary or fee basis and receive compensation of at least $455 per week. (The outside sales exemption does not contain a salary test.)

On appeal, the court addressed whether Habibi was exempt under the “combination exemption” even though he could not satisfy the requirements of the applicable statutory exemptions. The language of the “combination exemption” does not address the other requirements of the individual exemptions, such as the salary basis or minimum compensation tests. There was no dispute that Habibi was not exempt under any individual exemption. Habibi did not meet the salary requirements and did not qualify for the outside sales exemption because he did not “customarily and regularly” make sales outside the place of business.

The court agreed with the Secretary of Labor’s interpretation that “the combination exemption addresses the situation that exists when an employee does not meet the primary duty requirement of any individual exemption.” Although the “combination exemption” allows the blending of exempt duties for purposes of defining an employee’s “primary duty,” it does not relieve employers of their burden to independently establish the other requirements of the applicable exemption.

Therefore, for Habibi to fall under the “combination exemption,” with administrative duties constituting part of his primary duty, the employer must also prove that Habibi met the administrative exemption’s salary requirements. Because Habibi did not meet the salary requirements, he did not qualify for the exemption under the FLSA.

Intercomm, Inc. v. Bajaj, 4th Cir., Nos. 06-1516, 06-1539 (July 5, 2007),

Professional Pointer: According to this ruling, there is no “catch-all” exemption under the FLSA. An employer must demonstrate that an employee meets the individual requirements of the applicable exemption, even if the employer is asserting that the employee’s “primary duty” constitutes a combination of the duties under multiple exemptions. Employers must be certain that exempt employees meet all of the requirements of the applicable exemption, regardless of the employee’s primary duty.

Eric A. Welter is an attorney in the Welter Law Firm P.C. in Herndon, Va.