DOL Wins FLSA Misclassification Lawsuit

Takeaway: Employers should take steps to ensure they have actual knowledge of their employees’ daily job responsibilities and evaluate whether their exempt employees meet the job duties requirements of any applicable exemptions under the Fair Labor Standards Act (FLSA) and relevant state laws.

Inside sales representatives (ISRs) of an industrial product wholesaler did not qualify for an overtime exemption under the Fair Labor Standards Act (FLSA) because the company’s core business purpose was to sell its products and the ISRs’ primary duty was to make sales by servicing the company’s customers, the 1st U.S. Circuit Court of Appeals recently ruled.

Acting U.S. Secretary of Labor Julie Su filed a lawsuit in federal district court, alleging that F.W. Webb Co. misclassified its ISRs as exempt under the FLSA’s administrative exemption.

The parties did not dispute that the ISRs met the salary basis test and that they exercised discretion and independent judgment with respect to matters of significance. However, the district court concluded that the ISRs were nonexempt because their primary duty was not directly related to the management or general business operations of the employer. The district court granted summary judgment to Su on the FLSA overtime claims.

On appeal, the 1st Circuit affirmed the district court’s summary judgment ruling. The appeals court explained that it recently clarified that, in analyzing the applicability of the administrative exemption, “it is often useful to identify and articulate the business purpose of the employer,” meaning “the production or provision of the very product or service that the employer ... offers to the public.” F.W. Webb did not dispute that its business purpose was “produc[ing] wholesale sales of its products to its customers.”

The court then conducted a relational analysis, comparing the employees’ primary duty to the business purpose of the employer to determine whether that duty directly relates to the business purpose or to the running or servicing of the business. ISRs do not perform work directly related to assisting with the running or servicing of F.W. Webb, the court ruled. Their primary sales duties “are not administrative in any sense of the word,” and therefore, the employees should be classified as nonexempt.

Su v. F.W. Webb Co., 1st Cir., No. 23-1793 (Aug. 1, 2024), petition for rehearing and petition for rehearing en banc denied (Sept. 4, 2024).

Natalie F. Bare is an attorney in the Philadelphia office of Duane Morris LLP.