Two recent decisions by the U.S. Court of Appeals for the Second Circuit provide employers with helpful guidance on the proper application of the Administrative exemption to the overtime pay requirements under the Fair Labor Standards Act (“FLSA”). See Whalen v. J.P. Morgan Chase & Co., 587 F.3d 529 (2d Cir. 2009); Reiseck v. Universal Commc’ns of Miami Inc., 591 F.3d 106 (2d Cir.), aff’d in part, No. 09-1632 (CV), 2010 WL 75343 (2d Cir. Jan. 11, 2010). In each case, the Appeals Court overturned the lower court’s grant of summary judgment in favor of the employer on the issue of whether the employee was exempt from overtime under the FLSA’s Administrative exemption, reasoning, that neither employee performed work “directly related to the management or general business operations” of the employer, one of the two key substantive elements necessary for satisfying the Administrative exemption from overtime.

The decisions serve as an important reminder that both substantive prongs of the exemption test must be satisfied for an employee to qualify as a bona fide Administrative employee, meaning that the employee’s primary duty must include: (1) the performance of office or non-manual work directly related to the management or general business operations of the employer or its customers; and (2) the exercise of discretion and independent judgment concerning matters of significance. All too often, employers inadvertently misclassify employees by focusing on the latter prong exclusively, or fail to appreciate that the performance of exempt Administrative duties must be in functional areas of management, running or servicing the employer’s business operation itself, and not simply be administrative work supporting the employer’s service or production functions. By misclassifying employees, employers open themselves to enforcement actions by the U.S. Department of Labor, private civil suits by misclassified employees, actions by state agencies, and a host of monetary penalties and litigation costs that can result in significant expense.