‘Highly compensated exemption’ not as simple as it sounds

by McAfee & Taft
Contact

McAfee & Taft

Theoretically, the highly compensated exemption should simplify an employer’s Fair Labor Standards Act classification inquiry. After all, if an employee meets the highly compensated monetary threshold, that employee must only meet one duties test, right? No so fast, friend.

Let’s take a trip back in time to the Obama administration in 2016. The revisions to the FLSA white collar exemptions had been announced and were set to take effect December 1, 2016. These included an increase in the highly compensated salary requirement from $100,000 to $134,004. A Texas federal judge issued a nationwide injunction prohibiting the revisions from going into effect. The judge’s order very specifically enjoined the implementation and enforcement of the all regulations relating to the white collar exemptions. Guess what? 29 C.F.R. 541.601 – the regulation setting the salary level for highly compensated employees – was not mentioned. Perhaps this was a deliberate omission; perhaps it was merely oversight; perhaps it was a scrivener’s error. The result was that employers were left uncertain as to whether the salary threshold for highly compensated employees had increased to $134,004.

On August 31, 2017, the same federal judge issued a summary judgment order finding the proposed white collar regulations were invalid. Yet again, the highly compensated salary requirement was not mentioned. In the midst of this confusion, however, the U.S. Department of Labor (DOL) asked the public for comments and informed employers of its rulemaking efforts to revise the wage and hour regulations located at 29 C.F.R. Part 541. The DOL made it clear that, until it issues its final rule, it will enforce the Part 541 regulations that were in effect on November 30, 2016, which include the $455 per week salary threshold. Whew.

Given the DOL’s recent clarification, an employee will be considered highly compensated, and therefore exempt under the FLSA, if (a) he performs the duties described under the regulations establishing the “executive” or “administrative” exemptions, (b) he receives an annual salary of at least $100,000, and (c) he meets a salary-basis test requirements.

Seems pretty simple, right? Well, maybe not. A recent Sixth Circuit Court of Appeals decision has made things more complicated – for at least some employers. In Hughes v. Gulf Interstate Field Services, Inc., decided on December 19, 2017, the Sixth Circuit found that welding inspectors who were paid more than $100,000 annually and who performed job duties consistent with those required for an FLSA exemption may not meet the highly compensated exemption because of how they are paid.

Remember, for purposes of exemptions from the overtime requirement, a “salary” is a predetermined amount of pay, received on a weekly, or less frequent basis, that is “not subject to reduction because of variations in the quality or quantity of the work performed.” In the Hughes case, the welding inspectors were paid a day rate of $337 per day worked. They worked “six 10s,” i.e., six days per week and 10 hours per day. They were admittedly paid in a manner and at a rate consistent with being exempt, and clearly met the salary level amount for the highly compensated exemption.

However, the welding inspectors argued that the FLSA regulation requires their salaries to be guaranteed. They claimed that because their salaries were not guaranteed, the highly compensated exemption was not met and they were owed overtime pay. The Sixth Circuit found conflicting evidence as to whether the day rate payments “were matter of grace rather than right.” While there was evidence of verbal assurances to the employees that they would receive six days of pay per week without variation, and no evidence of deductions for days missed, the Sixth Circuit found that an employer must provide its employees with a guaranteed weekly salary, protected from possible reduction as a result of reduction in the number of days worked – or else forego the exemption. The case was remanded to resolve the factual dispute.

Even the Sixth Circuit recognized the irony of the case. It said, “It may seem strange, on its face, that employees who earned an annualized rate of more than $100,000 did not necessarily qualify as ‘highly compensated employees.’” Nevertheless, the court determined that it must follow the legal meaning of the terms rather than the intuitive sense of the words used.

The upshot of this case is that employers who pay by day rates may need to be more careful to document they do not intend to reduce the days paid. In Hughes, the offer letters simply referred to the day rate; there was no reference to a guaranteed amount to be paid on a weekly or other basis. If an employee paid a daily rate is highly compensated, the employer should nevertheless consider fixing part of his compensation as a guaranteed weekly salary. And remember, non-exempt employees must be paid for hours worked in excess of 40 in any workweek – even if working on a day rate basis.

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.

© McAfee & Taft | Attorney Advertising

Written by:

McAfee & Taft
Contact
more
less

McAfee & Taft on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.