The number one class action lawsuit for several years running is FLSA claims for overtime pay.

The lawsuits can be based on inaccurately recorded or calculated work hours, work hours before “going on the clock” or after one clocks out.  Employees answering emails after work hours and working at home are often issues.  That the hours were not authorized to be worked is not a defense, if the employer knew or should have known the work was being performed. And then there is the misclassification of workers as exempt employees, and the leading problem is the misuse of the Administrative worker exemption.

The “Administrative”  title is not very helpful in identifying who it covers, so many employers assume the exemption can cover any one who is paid a salary, and thus they misuse the Administrative exemption as a dumping ground.  If you cannot apply any other exemption, and they are salaried, then they must fall under the Administrative exempt, right?   Well, actually, no.

Instructive is the case of Calderon vs. Geico General Insurance Co., No. 14-2111, decided by the United States Court of Appeals for the Fourth Circuit on December 23, 2015.  The Fourth Circuit ruled that insurance security fraud investigators are not covered by the Administrative exemption, and are due overtime pay. The Court began its analysis by making two points employers often forget.  The Fourth Circuit emphasized that the FLSA exemptions are “narrowly construed” and that not only is the burden of proof on the employer to prove the exemption is applicable, but in the Fourth Circuit, the employer must do so with “clear and convincing evidence,” the highest evidentiary bar.

The Court then noted what many employers forget – the Administrative exemption only applies to those who run the business, the overhead functions. The Administrative exemption cannot apply to production personnel – those that make the product or service that the company produces and sells.  At this point, it is noteworthy that the Court shows how hard it is to apply this standard, since the Court makes the questionable observation that claims adjusters (those who handle claims under insurance policies) are NOT production personnel, because insurance companies are in the business of selling insurance and not in processing claims.  That is certainly debatable, since one cannot sell insurance without also processing claims.

The Fourth Circuit, however, still found the security fraud investigators do not qualify for the Administrative exemption because they do not meet the requirement of exercising independent judgment and discretion on significant matters of running the business. That is, to qualify for the Administrative exemption, one must not only not be involved in a production function, but one must also make important decisions in running the business.  The Court noted the investigators have “no supervisory responsibility and do not develop, review, evaluate, or recommend [Geico’s] business policies or strategies with regard to the claims they investigated.”  The Fourth Circuit further noted the “work duties [did not] relate to business policy or overall operational management.”

Some employers for years have gotten away with misclassifying workers, and they now assume that their classifications are proper because they have not been challenged in the past. Unfortunately, often times the reality is the classification are clearly wrong, and it is just a matter of time before a disgruntled employee complains to the Department of Labor or a class action plaintiff lawyer.

Employers should review every job they classify as exempt, and ask two questions; (1) what exemption do you believe the person falls under, and (2) looking at their actual job duties and responsibilities (not an outdated or wish list job description) do they actually qualify for the exemption.  When it comes to the Administrative exemption, the employer must show the worker is not involved in production, not a sales person (and does not perform manual labor) AND that the employee has discretion to make decisions or recommendations on matters of SIGNIFICANT importance to running the business.