This article originally appeared in Law360 on August 12, 2022. It is republished here with permission.
Determining whether to classify an employee as exempt from entitlement to overtime pay requires a complex assessment of job duties and functions. A recent federal appeals court case serves as a good reminder of the factors that must be taken into account when classifying a worker as an exempt administrative employee.
Although the Fair Labor Standards Act has been in effect for nearly 85 years, employers should remain apprised of changes to it in light of evolving job duties and labor standards. Failing to comply with the FLSA may result in agency audits, lawsuits over unpaid wages and, in some instances, additional damages including attorney fees.
In fact, whether property damage investigators constituted administrative employees under the FLSA was recently decided by the U.S. Court of Appeals for the Eleventh Circuit in Fowler v. OSP Prevention Group Inc. and Marbry.
While the job title "property damage investigator" alone may suggest that the administrative exemption would apply to these employees, as the court explains, the FLSA administrative exemption requires a fact-specific inquiry.
Based upon that fact-specific inquiry, and as further discussed below, the three-judge panel unanimously concluded that property damage investigators were not overtime-exempt administrative employees under the FLSA.
Under the FLSA, employers are generally required to pay employees who work more than 40 hours a week time-and-a-half overtime pay. However, there are certain statutory exceptions, or exemptions, to the FLSA overtime requirement that employers have the burden to prove.
One such exemption is the administrative exemption,1 which applies when the following criteria are satisfied:
Stated differently, if an employee qualifies for the administrative exemption, that employee is exempt from the FLSA's overtime pay requirements. With this set of criteria in mind, employers frequently classify nonmanual workers who exercise discretion over significant matters as exempt.
While such a practice is common, the case at issue provides a reminder that simply having the authority to conduct investigations may not be enough to satisfy the administrative exemption's criteria.
In this particular case, the company, OSP Prevention Group Inc., provides services related to property damage to broadband service providers' infrastructure.
The employees who filed the lawsuit were property inspectors tasked with investigating the damage to OSP's client's broadband infrastructure, determining the source of the damage and who was liable, and calculating the cost of repairs.
The employees would then follow OSP's prescribed procedures to write a report based on their independent investigation and submit the report to their managers. Because the investigators were classified as administrative employees under the FLSA, they were not paid extra for the overtime they worked.
The lower court initially sided with the company, concluding that the employees were properly classified as FLSA-exempt administrative workers, and further held that the plaintiffs performed work that was "important and significant to the management or general business operations of OSP."
In coming to this conclusion, the initial court likened the plaintiffs' duties to those performed by insurance claims adjusters, who are generally considered administrative employees.
On appeal, however, the Eleventh Circuit disagreed. Notably, the court determined that the workers' fact-finding investigations did not include any authority to make higher-level business decisions. The investigators did not have the authority to recommend litigation, negotiate settlements or otherwise shape company policy.
To this point, the appellate court specifically distinguished between production and administrative work, explaining that production employees who perform the core service that an employer offers to its clients do not satisfy the administrative exemption.
That is because such individuals are not performing work directly related to the management or general business operations of the employer or the employer's customers.
Drawing on case law and administrative guidance, the Eleventh Circuit concluded that the investigators were employed as property damage investigators for a company that specifically provides property damage-related services.
As such, the individuals were not performing work directly related to management or general business operations. Instead, they were production employees, carrying out their employer's core property damage-related services.
The court further distinguished the investigators' duties from that of insurance claims adjusters, noting that while insurance adjusters "have significant, policy-infused, decision-making authority," there was "no evidence that [the investigators'] duty to conduct fact- finding investigations involved any authority to make higher-level business decisions." The case was thus revived and sent back to the district court for further proceedings.
This Eleventh Circuit decision highlights the importance for employers to critically consider all required factors for an FLSA exemption. Not all employees who are paid on a salary basis qualify for an FLSA exemption, just as not all administrative staff in a company will qualify for the FLSA administrative exemption.
To this point, determining whether an employee qualifies for a FLSA exemption requires careful consideration on a case-by-case basis, and scrutiny of the actual responsibilities of the employees.
This case further illustrates that when determining whether an employee is exempt, it is not sufficient to satisfy some duties requirements of the exemption. In the OSP case, even if the workers were deemed to exercise sufficient discretion over their matters, they still would have been unlikely to qualify for the administrative exemption.
That is because — as the court explained — their property damage inspection work was core service production work, not directly related to the company's management or general business operations.
Further, to the extent that an employee performs some nonexempt work and some exempt work, employers should carefully consider whether the employee's primary duty relates directly to the management or general business operations of the employer or employer's customers.
The employee's primary duty must also include the exercise of discretion and independent judgment with respect to matters of significance.
Also important to note is that this case was decided by the Eleventh Circuit, covering the Florida, Georgia and Alabama federal district courts. When determining exemption criteria, employers should be mindful of state laws and local guidance that may alter the salary and duties requirements set forth in the FLSA.
As such — and as highlighted by this recent case — exemption status is a nuanced analysis, and multiple factors must be considered in determining whether an employee is properly classified.
To the extent an employee is misclassified, the FLSA allows employees to recover unpaid wages — including overtime; liquidated damages, which allows employees to recover twice the actual back wages in certain circumstances; and attorney fees.
Depending on the jurisdiction, misclassification can also result in treble damages, class action lawsuits and/or U.S. Department of Labor or state agency audits.
Given the consequences of misclassifying an employee, and because employers have the burden of proving employees are properly classified, employers are encouraged to critically review the duties of their employees before making any exemption determinations.