"Indispensable" May Be Insufficient for Exempt Status

The 4th U.S. Circuit Court of Appeals (covering Maryland, Virginia, West Virginia, North and South Carolina) recently held that an employer could not rely upon the fact that a position was required by law and thus "indispensable" to business operations as justification to qualify to exempt status under the Administrative Exemption of the Fair Labor Standards Act (FLSA).

As you know, employees must be paid at least minimum wage (the higher of federal or state) and overtime of at least 1.5 times the employee's regular rate of pay for time worked over 40 hours in a work week.  Employees who are properly classified as exempt, however, need not be paid minimum wage nor receive overtime pay.  There are generally three exempt categories: Executive, Professional (includes certain creative and computer related duties) and Administrative.

West Virginia law requires certain gaming establishments to employ officials who are responsible for observing races, monitoring activity, reviewing horse identifications and verifying jockey qualifications.  When three officials filed a lawsuit alleging they were improperly classified as exempt employees and were owed back wages for unpaid overtime the employer defended that position asserting that they met the duties test under the Administrative exemption, in part, because their position was required by law, the business could not operate without them, thus they were indispensable to "general business operations." The court disagreed.

To meet the Administrative exemption an individual must have as his or her primary duty "the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer's customers."  The court held that "exempt status is dependent on the type of work performed" and not simply on the fact that a position is required by law to exist.    

The court also noted that the officials were not responsible for duties related to the employer's general business operations but were responsible for the duties necessary to produce the employer's service or product (horse racing). 

Lessons Learned:

• The latter part is key.  The Administrative exemption generally applies to work that is directly related to running the business, not producing the good, product or service.  Activities like accounting, marketing and human resources are common to all businesses, regardless of the industry and focus on keeping the business operating.  Activities that primarily focus of developing the service or product may not qualify for exempt status, no matter how important they seem.
• FLSA analyses should be conducted on an incumbent-by-incumbent basis rather than by job classification or title.  It is possible to have several incumbents in the same job classification with some properly classified as exempt and some not.  This can happen if an employee is, for example, part time and not meeting the minimum salary test or is performing below expectations and thus not regularly exercising discretion and independent judgment.

The U.S. Department of Labor has a helpful on-line video presentation that provides an overview of each of the three exempt categories and the tests to be applied to each: minimum salary, salary basis and duties test.    

Hot Hits!! Education Corner

July's Public Seminars & Presentations

presented by Christine V. Walters, MAS, JD, SPHR

Tuesday, July 21st, "Employment Law," sponsored by Maryland Works, Inc, Columbia, MD, 9:00 - Noon

July's Client Training Programs

"Understanding Gender Differences & Harassment Issues in Today's Workplace" (Executive Coaching)

"Maintaining an Inclusive Workplace" *  "HR & the Law for Managers"

NEXT WEBCAST! "Making the Most of Performance Appraisals"        July 22nd, 10:00 - 11:00 a.m. EST

This program provides an overview of various methodologies and strategies for assessing workplace performance. Should you use an objective or narrative rating methodology? Should you use an even or odd numbered rating scale? Or none at all? What are the legal pitfalls to avoid and the human aspects to consider? How do you emphasize the value of the appraisal separate and apart from any wage increase? What about giving and receiving continuing feedback throughout the year? This program will address these and a variety of other issues. Click here to register or for more information.

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 States' Minimum Wage Set to Increase July 2009

As of this writing there are at least 29 states that require a minimum wage that is higher than the federal rate.  At least 17 states are also set to increase their current minimum wage rate in July 2009; other states have increases scheduled for later this year. Do you know your states' minimum wage rate(s) and when they are scheduled to change?  Visit the U.S. DOL's "Minimum Wage Laws in the States" for the latest.

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