The Fair Labor Standards Act is the federal law governing overtime. The law requires payment of one and one-half a worker's regular rate for hours worked in excess of forty in a work week. Certain categories of workers are exempt from overtime provisions, including workers employed in a bona fide executive, administrative, or professional capacity. Recently, in Zannikos v. Oil Inspections (U.S.A.), the Fifth Circuit Court of Appeals addressed the administrative exception to the FLSA overtime requirement and whether it applied to certain marine superintendents in the oil industry.
The Administrative Excemption from the Overtime Requirement
Employees fall within the administrative exemption if they meet the following criteria: (1) Compensated on a salary or fee basis at a rate of not less than $455 per week; (2) Whose primary duty is 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; and (3) Whose primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.
A non-exhaustive list of factors courts consider when determining an employee's primary duty include: (1) "the relative importance of the exempt duties as compared with other types of duties," (2) "the amount of time spent performing exempt work," (3) "the employee's relative freedom from direct supervision," and (4) "the relationship between the employee's salary and the wages paid to other employees for the kind of nonexempt work performed by the employee."
In Zannikos, the plaintiffs/employees who were denied overtime worked as marine superintendents. Their duties included monitoring the loading and unloading of ship cargo, including oil transfers, to ensure regulatory compliance, document losses, equipment inspections, and suggesting remedial measures to ship personnel or Oil inspections. They also oversaw independent inspectors, performing inspections, and overseeing line blending (blending onshore components such as oil and gas, for shipping).
The workers won summary judgment on the issue of the applicability of administrative exemption, but the defendant prevailed with respect to one plaintiff who was exempted as a “highly compensated employee” and the court found that the violation was not willful. The workers conceded that their employment satisfied the first element of the administrative exception because they all earned more than $455/week. However, they argued that their work was more in line with someone working a production line than implementing, creating, or administering policies.
The court rejected this argument, ruling that the plaintiffs' work primarily included supervision, quality control, and ensuring compliance with applicable standards, and that work was directly related to the management of the company's customers. The court also noted that the workers' primary duties included work in several functions explicitly listed as administrative including quality control, safety, and legal and regulatory compliance, and concluded that the workers' duties fell within the second element of the administrative exemption to the overtime requirement.
Exercise of Discretion and Independent Judgment
Having determined that the plaintiffs' jobs satisfied the first two elements of the overtime exemption, the court turned to the third factor: whether the employee exercised discretion and independent judgment with respect to matters of significance. The court analyzed this element in light of federal regulations interpreting the FLSA, which urges that the phrase “discreition and independent judgment” should be applied “in the light of all the facts involved in the particular employment situation in which the question arises.” This element involves the “comparison and the evaluation of possible courses of conduct, and acting or making a decision after the various possibilities have been considered”. It does not require that an employee exercise final decision-making authority, but does require more than use of skill in applying well-established techniques, procedures or specific standards. The court rejected the company's argument that the workers interpreted and implemented policies, noting that the record suggested the workers are required to confer the company before making recommendations when they found noncompliance. The court concluded that the workers did not formulate, affect, interpret, or implement management policies or operating practices.
The court also ruled that employees do not exercise discretion and independent judgment “merely because their work bears financial significance” and also found that the workers did not have the authority to commit the company in matters of significance. It analyzed several more factors provided in the regulation in light of the arguments and evidence alleged by the company, and concluded that the district court ruling was correct: that work performed by marine superintendents did not extend beyond the application of skill in applying specified standards and thus did not satisfy the “independent judgment” element of the administrative exemption.
The FLSA statute of limitations is three years for willful violations, and two for non-willful. This is significant because a willful violation can increase the available damages by one third! In this case, the court cited precedent that an employer's violation is willful only if it “knew or showed reckless disregard for the matter of whether its conduct is prohibited by statute.” The court ruled that the workers did not provide any evidence that the company knew it was violating the FLSA or recklessly disregarded a possible violation, so the statute of limitations is only two years.
Cases alleging that employees are miscategorized as exempt from the Fair Labor Standards overtime requirement can be factually complicated, and depend on weighing a number of factors. Other FLSA overtime or minimum wage cases can be more simple, and in all cases a prevailing plaintiff can recover attorney fees. The North Carolina employment law attorneys at Edelstein & Payne are experienced successfully litigating FLSA overtime and minimum wage claims and are available for consultation or representation regarding these and other issues faced by workers.