I'm An Executive, You're An Executive, We're All Executives! 8th Circuit Lowers The Bar For FLSA "Executive" Exemption

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White Collar 925264.jpgLast month, the U.S. Court of Appeals for the Eighth Circuit issued an opinion that essentially watered down the Fair Labor Standards Act (FLSA) overtime exemption for executives. This decision perhaps makes an unwitting case for President Obama’s intended overhaul of the FLSA’s white collar exemptions that we discussed recently.

An employer must satisfy four elements to take advantage of the FLSA’s executive exemption:

  • The employer must pay the worker a salary of at least $455 per week;
  • The employee’s primary duty must be management;
  • The employee must customarily and regularly direct the work of two or more employees; and
  • The employee must have the authority to hire or fire employees, or at least have the ability to offer suggestions and recommendations as to hiring, firing, advancement, promotion, or other status changes for employees, with the employer giving particular weight to those suggestions.  29 CFR § 541.100

This four-element standard is what remained after the Department of Labor’s 2004 revisions to the FLSA regulations that ditched what were then known as the “long test” and the “short test” under the former regulations. The long test had a lower salary basis and also required the employee to have regularly exercised discretionary powers to have devoted no more than 40% of their workweek to activities not directly and closely related to management. 29 C.F.R. § 541.1 (2003). The short test used a higher salary basis, but only required employees to regularly direct two or more employees and to have a primary duty of management.  Id.

Because there is no objective test for determining what an employee’s “primary duty” is or what “particular weight” means, this has led to substantial litigation, including the Eighth Circuit’s Madden v. Lumber One Home Center decision last month.

In Madden, the plaintiffs, as members of an FLSA collective action, had alleged that Lumber One incorrectly classified them as executive employees. A jury found in favor of Lumber One, but the district judge overturned the jury verdict, finding that all three named plaintiffs could not be executives. On appeal, the 8th Circuit affirmed the district court’s decision on two employees, but reversed the district court’s decision regarding one particular employee, Doug Wortman.

Unlike the other two employees, Lumber One had presented testimony that Wortman was involved in at least one (and perhaps only one) personnel decision. The Eighth Circuit reasoned that Wortman’s “involvement” in this decision was enough evidence for a jury to reasonably conclude that he was exempt. The court explained that the regulations’ “particular weight” requirement could be satisfied by a purported “executive’s” single recommendation to hire just one applicant, as long as the employer could demonstrate that it relied on that recommendation.

Highlighting the extremely fact-based nature of these decisions, the panel held that the two other named plaintiffs did not qualify for the exemption. Lumber One’s witnesses could not recall either of them providing even a single personnel recommendation, meaning that the district court had not erred by finding insufficient evidence to allow a jury to determine that these two employees had satisfied the particular weight clause.

Insights for Employers

As always, it is important to remember that an employee’s ability to qualify for an FLSA exemption is a fact-specific determination. Just because one employee meets the executive exemption does not necessarily mean that another employee in the same position, whether in that location or another, will meet the exemption.

Helpfully for employers, at least in Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota, and South Dakota, the court observed that “many different employee duties and levels of involvement can work to satisfy” the particular weight requirement. Of course, employees must meet the remaining three elements of the test, too. Even the appeals court had its limits, though, commenting that “informal input, solicited from all employees” is not enough to satisfy the “particular weight” test.

Topics:  Executive Compensation, Exemptions, FLSA, Over-Time

Published In: Civil Procedure Updates, Labor & Employment Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Franczek Radelet P.C. | Attorney Advertising

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