Major Change in the Interpretation of FLSA Exemptions

In what presents as a game changer for employers, the Supreme Court has rejected the long-standing mandate that “exempt” status for wage and hour purposes be construed narrowly and applied only sparingly.

The Fair Labor Standards Act (FLSA) requires employers to pay employees overtime pay (time and a half) for every hour (or increment thereof) worked over 40 hours in a given week. As we all know, however, the FLSA carves out several exceptions, known as “exemptions,” to the overtime requirement depending on what type of employee you have. For instance, certain executive employees, administrative employees, professional employees, outside sales employees and others are “exempt” from the law’s overtime requirements.

Of course, nothing is ever simple. Job titles alone are not enough to determine exempt status and exemptions only apply if all the requirements of the regulations apply. Oftentimes, whether a requirement for exempt status is met is not clear given the unforgiving ambiguity of some passages in the law. For instance, to qualify an employee for the administrative exemption, the employee must exercise discretion and independent judgment “with respect to matters of significance.” What, really, is a matter of significance? The answer: it depends on the employer, the job and the judge.

Accordingly, there has been much uncertainty and much litigation over exempt vs. non-exempt status classifications. To perhaps provide some guidance while taking into account the FLSA’s purpose of protecting covered workers from oppressive working hours, courts have employed a “narrowly construed” concept to FLSA exemptions. For example, the Seventh Circuit (which covers Illinois, Indiana and Wisconsin) has held that “the burden is on the employer to prove that an employee is exempt under the FLSA, and such exemptions are to be narrowly construed against the employer seeking the exemption.” Schmidt v. Eagle Waste & Recycling, Inc., 599 F.3d 626, 631 (7th Cir. 2010) (citations omitted). Hence, exemptions are “applied only where it ‘plainly and unmistakably comes within the statute’s terms and spirit’ to deny the employee overtime.” Jackson v. Go-Tane Servs., 56 Fed. Appx. 267, 270 (7th Cir. 2003) (quoting Arnold v. Ben Kanowsky, Inc., 361 U.S. 388, 392, 80 S. Ct. 453, 4 L. Ed. 2d 393 (1960)).

This narrow application of the law has shaped the reality for employers across the country for decades, and would have continued to do so but for a recent, months-old U.S. Supreme Court case – Encino Motorcars, LLC v. Navarro, 138 S.Ct. 1134 (2018). In Encino, the Court considered whether service advisors at a car dealership met the sales employee exemption for overtime purposes. The exemption covers “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, trucks or farm implements.” 29 USC 213(b)(10)(A). In holding that service advisors do in fact meet the exemption, the Court examined at length statutory context, legislative history and the ordinary and disjunctive meaning of the word “or,” among other items. For most employers, though, the proverbial meat of the decision was the Court’s discussion on the practice of narrowly construing exemptions under the FLSA.

On this point, the Court noted that the “narrow-construction” principle relies on the flawed premise that the FLSA ‘pursues’ its remedial purpose ‘at all costs.’ Further, the Court noted, since the FLSA gives no “textual indication” that exemptions should be interpreted narrowly, there is no reason to give it anything other than a fair reading. Indeed, legislation is the “art of compromise [and] the limitations expressed in statutory terms often the price of passage.” Accordingly, the Court flatly rejected the narrow-construction principle and took a case that perhaps applied to a subset of employees in one industry to a case that overturned decades of jurisprudence at the federal level.

For employers, this decision gives clarity and assurance that the FLSA exemptions will only be given, in the words of the Court, a “fair reading” in their application, and that employers will not be burdened with having exemptions narrowly construed against them. In litigation, this means employers have substantial grounds to challenge attempts to limit the scope of FLSA exemptions beyond what the statutory text provides. Be aware, however, that this applies to the federal law. Interpretation and application of wage and hour exemptions under state law may be different, even after Encino. You will always be well served by discussing any wage and hour issue with an experienced employment lawyer who is familiar with the law in your jurisdiction.

This article is a publication of MWH Law Group LLP and is intended to provide general information regarding legal issues and developments to our clients and other friends. It should not be construed as legal advice or a legal opinion on any specific facts or situations. For further information on your own situation, we encourage you to contact the author of the article or any other member of the firm.

CONTACT ATTORNEY WARREN B. BULIOX

WARREN B. BULIOX
Partner, Milwaukee
735 N. Water Street, Suite 610, Milwaukee, WI 53202
P: (414) 436-0353 / F: (414) 436-0354
E: warren.buliox@mwhlawgroup.com
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