Does your Company classify all its Information Technology (IT) employees as exempt under the Fair Labor Standards Act’s computer employee exemption? If the answer is “yes,” then your organization likely operates under what a federal appellate court judge called the “common misperception that all jobs involving computers are necessarily highly complex and require exceptional expertise.”
Martin v. Indiana Michigan Power Co. Contrary to many employers’ policies and practices, the FLSA’s computer employee exemption applies only to a narrow group including “computer systems analysts, computer programmers, software engineers or other similarly skilled workers” who earn more than $27.63 per hour or $455 a week and whose primary duty involves:
- Application of systems analysis techniques and procedures, including consulting with users to determine hardware, software or system functional specifications; or
- Design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications; or
- Design, documentation, testing, creation or modification of computer programs related to machine operations systems; or
- A combination of these duties, the performance of which requires the same skill. 29 C.F.R. § 541.400.
Employees who engage in the manufacture or repair of computer hardware or related equipment are specifically excluded from the exemption. Also excluded are employees whose work is highly dependent on computer software programs and who are skilled in computer-aided design software, but who are not engaged in computer systems analysis or programming. Trainees learning to become proficient in exempt computer work are also not exempt. Of course, computer employees who do not qualify for the computer employee exemption may nevertheless qualify for the FLSA’s administrative, executive or professional exemptions.
In the May 2005 edition of FLSA Focus, we cautioned against assuming that all IT employees (especially Help Desk employees) are exempt under the FLSA. Three years later, the stakes of such a misclassification are growing as plaintiff’s wage and hour lawyers have begun to focus their attention on computer employees. Indeed, plaintiff’s attorneys have had significant recent success challenging the exempt status of large groups of computer employees. For example, IBM settled an overtime class-action lawsuit filed on behalf of 32,000 technical service and IT employees for $65 million; Siebel Systems settled a California state lawsuit filed on behalf of 800 systems engineers for $27.5 million; and EA settled a lawsuit filed by game developers for $14.9 million.
More of these lawsuits are being filed every day. In a lawsuit that could have significant ramifications for employers in the computer and other industries, a former network engineer recently filed a class-action lawsuit against Apple Computers alleging that he and others in the same and similar jobs were misclassified under the FLSA and California law. This lawsuit is particularly noteworthy because employers have long concluded that network engineers comfortably fit within the computer employee exemption. A determination that Apple’s network engineers are nonexempt (or a significant settlement between the parties) could open the fl oodgates to copycat lawsuits.
The lawsuit against Apple is consistent with trends in the last 20 years of wage and hour litigation. A category of employees long considered exempt is the subject of a class action lawsuit contending the employees are nonexempt and owed overtime. The initial highprofile target, in this instance Apple, is just the first in a series of copycat lawsuits challenging the status of employees long thought to be exempt. In the 1990s, plaintiff’s lawyers filed class-action lawsuits against almost every major insurance company challenging the exempt status of claims adjustors. Once all of the insurance companies were hit, lawsuits were filed against the major financial brokerage and mortgage houses challenging the exempt status of stock and mortgage brokers. Most recently, more than 25 lawsuits have been filed against pharmaceutical companies challenging the exempt status of pharmaceutical sales representatives.
One of the primary reasons plaintiff’s lawyers are willing to challenge these long accepted industry practices is that the claims adjustors, mortgage/ financial brokers, pharmaceutical sales representatives and computer employees are highly compensated. Therefore, any judgment or settlement for back overtime wages (not to mention the plaintiff’s lawyers’ fees) likely will be significant. For example, if a misclassified computer employee earning a salary of $80,000 a year worked just four hours of overtime per week for the past three years (the maximum statute of limitations under the FLSA), he would be owed, at a minimum, over $10,000 in overtime wages, plus an equal amount in liquidated damages. If he were just one of a class of 50 similar employees, the class damages could easily exceed $1 million. Tack onto that the fees of the plaintiff’s lawyers and defense costs, and the numbers become even more daunting. It is thus no surprise that plaintiff’s lawyers are foregoing their personal injury practices in favor of wage and hour cases.
Plaintiff’s lawyers are also attracted to these lawsuits because they are generally easier to win than other types of cases. Unlike in personal injury and discrimination cases, the burden of proof rests with the employer to demonstrate that an employee qualifies for a particular exemption. Similar to the other white-collar exemptions, the burden for the FLSA’s computer employee exemption is often difficult to satisfy as it applies only to a narrow group of employees. One plaintiff’s lawyer aptly proclaimed on his website that “the Computer Professional exemption is the one that employers frequently make mistakes on. You will see that it is very difficult to meet.”
Consistent with the DOL’s regulations regarding the computer employee exemption, the courts have interpreted the exemption very narrowly. Unless an employee is engaged in sophisticated computer work such as programming, network design, software development, or determining hardware, software or system functional specifications, the employee likely does not fit the exemption. For example, in Hunter v. Sprint Corp., a federal district court found that a technically proficient help desk employee whose primary duty was customer service was not exempt even though some of the employee’s tasks could be described as “consulting,” “analysis” or “testing” related to computers. However, in Pellerin v. Xspedius Mgmt. Corp. of Shreveport L.L.C., another federal district court determined that a computer programmer was exempt where he maintained and supported pre-existing software applications. Although the employee was instructed by his employer what particular software modifications were needed, the employee chose the computer language and how to code the modifications.
Individual state laws make it even more precarious for employers in classifying computer employees because when state and federal law differ, employers must follow the law more favorable to the employee. California’s computer professional exemption, for example, not only requires employees to meet the federal requirements, but also to be (i) highly skilled and proficient in the theoretical and practical application of highly specialized information to computer systems analysis, programming, and software engineering and (ii) primarily engaged in work that is intellectual or creative and that requires the exercise of discretion and independent judgment. It is therefore not surprising that many of the computer employee class actions are being filed in California under State and Federal Law. Pennsylvania, on the other hand, does not have a computer professional exemption, thus requiring employers to consider whether their computer employees are exempt under the administrative, executive or professional exemptions. Accordingly, prior to making any classification decisions regarding computer employees, employers must consider applicable state laws.
Given the narrow coverage of the FLSA’s computer employee exemption and the recent heightened attention to the exemption by plaintiff’s lawyers, employers should carefully review the classification of their computer employees.