FLSA Administrative Exemption Requires Showing that Employees Meet the Criteria

By Robert S. Teachout, SHRM-SCP September 13, 2022
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Takeaway: The classification of employees as exempt or nonexempt under the Fair Labor Standards Act (FLSA) is one of the most complex and difficult issues in federal wage and hour law. When classifying an employee under the FLSA, it is the employee's job duties, not title, that determine whether the employee qualifies for an exemption. Those duties must strictly meet the criteria of the exemption being claimed. Use care when making a classification determination, and consider seeking the advice of a qualified employment law attorney. 

​An employer failed to show that the Fair Labor Standards Act's (FLSA's) administrative exemption applied to two former employees who were suing for unpaid overtime, the 11th U.S. Circuit Court of Appeals ruled. Although the employees' investigative duties were important to the employer's business, that did not make the workers administrative employees, the court said.

The employer investigated damage to broadband service providers' infrastructure and then tried to collect money on the providers' behalf from the party responsible for the damage. The employees worked as property damage investigators. After their employment ended, the employees brought FLSA claims against the company for unpaid overtime wages.

The FLSA requires employers to pay overtime to covered employees who work more than 40 hours a week but exempts certain categories of employees from that requirement. To apply the administrative exemption, an employer must prove that workers are "employed in a bona fide executive, administrative or professional capacity" by meeting the requirements set out in the U.S. Department of Labor's (DOL's) wage and hour regulations.

Specifically, an employer must show that an employee's primary duty:

  • Is office or nonmanual work.
  • Directly relates to the management or general business operations of the employer or the employer's customers.
  • Includes the exercise of discretion and independent judgment with respect to matters of significance.

The employees argued that they were not administrative employees but instead were production employees who performed the core service that the company sold to its clients: investigating damage to property. The employer said that the employees fit within the FLSA's overtime exemption for administrative employees. The district court agreed with and granted summary judgment to the employer, and the employees appealed.

Because it was undisputed that the workers' primary duty—conducting property damage investigations—was nonmanual, the appeals court focused on whether their investigative work was directly related to the employer's management or general business operations and, if so, whether the employees exercised discretion and independent judgment with respect to matters of significance when doing the work.

The court found that the employees' duties consisted of conducting investigations, determining liability for the damage and calculating the cost of repairs using cost sheets provided by the client. They were required to follow standard operating procedures, and the employer did not permit them to omit any steps. They would write their findings into a report and submit it to their manager for review and approval. After approval, the report was sent to the next department for collection. The employees did not participate in settling claims or recovering damages.

The appeals court reviewed DOL regulations and guidance and determined that the employees did not fit any of the examples of categories of employees whose work generally meets the administrative exemption duty requirements. The court did find that their duties matched a regulation that provided examples of workers whose duties generally do not qualify for the exemption: employees who do "ordinary inspection work" using "well-established techniques and procedures" often derived from manuals.

The court noted that the regulations draw a line between administrative employees, who help run the business by setting standards, and production employees, who help the business run by following the standards that have been set for them. The court found that DOL guidance indicated that "when a fact-finding investigator works for a company whose business is to provide investigative services, that investigator is likely a production employee and not an administrative one."

Production employees who perform the core function of the business are not transformed into administrative employees just because the work they do is essential to what the company sells—its marketplace offerings, the court said.

The court vacated the grant of summary judgment and sent the case to the district court for further proceedings.

Fowler v. OSP Prevention Grp. Inc., 11th Cir., No. 19-12277 (June 27, 2022).

Robert S. Teachout, SHRM-SCP, works in the Washington, D.C., area and is a legal editor for XpertHR, a service helping HR build successful and purposeful workplaces.

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