Exemptions to the requirement to pay overtime under the Fair Labor Standards Act, known as the FLSA for short, are difficult to establish. Typically, the exemption has to be established when disgruntled former employees maintain claims that they had been entitled to receive overtime pay before they were terminated.
The administrative exemption is the most difficult one to establish. Three requirements must be met. First, the employee must be paid a salary of not less than $455 per week. Second, the employee must have, as his/her primary duty, the performance of office or nonmanual work directly related to the management or general business operations of the employer or the employer's customers. Finally, the employee must be required to exercise discretion and independent judgment with respect to matters of significance when performing the primary duty.
Consider these facts. The employer operated a horse racing facility. As part of its operations, it employed racing officials to perform various duties relating to its horse racing operations. According to state law, the employer was required to employ these racing officials and could not lawfully do business without them.
Three racing officials were discharged for posting an incorrect order of finish to a race. After their discharges, and jockeying for a recovery, the employees filed lawsuits, alleging they had worked in excess of 40 hours per week without overtime compensation. The employer hugged the rail, arguing the terminated racing officials were exempt from overtime compensation as "administrative" employees. Specifically, it argued the former employees were exempt, because they were indispensable to the operations of the employer's business.
The employer lost the race and by more than a nose: the administrative exemption did not apply. The fact that the employees were indispensable was not determinative; this is not an element of the exemption.
Additionally, the duties of the officials did not support the exemption.
Since the employees were responsible for carrying out the day-to-day duties needed to produce the employer's product (here, horse races), their primary duties could not relate to the employer's "general business operations".
The administrative exemption, which employers use most often, is the most difficult to establish. The actual tasks of the job must be crosschecked against the "duties test" of the exemption. At the risk of being a nag, employers must always keep this in mind.
Opinions are solely the writer's. James Jorgensen practices law at Hoeppner Wagner & Evans in Valparaiso.
