Tip: How can your company avoid the millions of dollars in monetary damages and litigation costs recently experienced by Staples, Merrill Lynch, and Apple Inc. for misclassifying employees under the Fair Labor Standards Act’s (“FLSA”) Administrative exemption?
Two recent decisions by the U.S. Court of Appeals for the Second Circuit provide employers with guidance on the proper application of the Administrative exemption to the overtime pay requirements under the FLSA. The decisions serve as an important reminder to employers that they have the burden of demonstrating an employee’s primary duty meets both substantive prongs of the Administrative exemption test: An employee’s primary duty (1) must include 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) must involve the exercise of discretion and independent judgment concerning matters of significance. To avoid the risk associated with misclassifying employees as exempt from the FLSA’s overtime provisions, employers should make careful exemption determinations in light of the revised 2004 regulations and the evolving case law. In addition, employers should conduct payroll practices and classification audits, every so often, so as not to find themselves among the long list of companies forced to defend themselves in the recent wave of wage-hour litigation.