Two Recent DOL Opinions Illustrate The Administrative Exemption
The U.S. Department of Labor (DOL) recently issued two opinion letters providing guidance to employers on how to apply the Administrative Exemption under the Fair Labor Standards Act. The opinions highlight the need for employers to regularly review the exempt status of their employees who may fit the administrative exemption following the 2004 amendments to the FLSA. Of all the exemptions, the administrative exemption presents the most challenging analysis given its broad regulatory framework and the wide range of jobs that can qualify. A close, objective and candid review of the primary duties of the jobs with questionable exempt status may yield surprising results as the 2004 FLSA amendments are applied to real world cases and scenarios.
The first opinion relates to purchasing agents who order materials, negotiate prices with vendors, maintain records and can stop or start the production line based on their purchasing decisions. The agents, who in this case work in the mobile home industry, have purchasing authority of up to $25,000.
Among the qualifications to meet the Administrative Exemption is that the agents must perform work directly related to management or general business operations of the company. The agents must also exercise discretion and independent judgment with respect to matters of significance. According to the DOL, the agents satisfy these requirements because their duties, such as ensuring that materials, equipment and supplies are ordered and delivered, as well as participating in the vendor selection process, directly relate to the functional areas of purchasing and procurement. Moreover, the agent's principal areas of responsibility require the necessary exercise of discretion and judgment in that they research and request quotes from potential vendors, negotiate with vendors and recommend which vendors to select. According to the DOL, the authority to place purchase orders of less than $25,000 without manager approval demonstrates that the agents have the authority to commit the employer in matters that have significant financial impact (DOL Opinion Letter FLSA2008-1).
In its second opinion this year on the Administrative Exemption, the DOL concluded that certain application and marketing analysts meet the exemption and are not entitled to overtime premium pay for work in excess of 40 hours in a work week. The analysts' employer provides products and services to prevent soil erosion and strengthen retaining walls and foundations of parking lots, bridges and buildings. The analysts at issue develop tests to measure the performance of new products and judge the feasibility of novel uses of current products. According to the DOL, this responsibility directly relates to the functions of quality control and research, and as a result meets the requirement that the work relate to management or general business operations. In addition, the analysts "exercise discretion and independent judgment" because they evaluate product performance, make recommendations based on their conclusions and, as a result, assist the sales staff to secure sales (DOL Opinion Letter FLSA2008-3).
Purchasing agents and analysts are positions typical to many industries. However, not all such positions necessarily meet the Administrative Exemption. As stressed in these recent opinion letters, the DOL expects employers to look at the degree of discretion, judgment and the employee's contribution to the running of the business in order to determine exempt status.
DOL Enforcement Actions On The Rise
Recent figures released by the DOL show that the pace of FLSA claims continues to rise. For example, according to the DOL's latest statistics, in 2007 more than 311,000 employees received over $180 million in minimum wage and overtime back wages as a result of Fair Labor Standards Act violations. This represents almost a four percent jump over prior years. The DOL also assessed employers $3.9 million in FLSA civil money penalties.
Of these back wages nearly $16 million was collected on behalf of employees for violations of the so-called "Overtime Security" regulations related to the administrative exemption from overtime. The violation most frequently cited was one in which the employee's primary duty was not "the performance of office or non-manual work directly related to the management or general business operation of the employer or the employer's customers." Significant awards - $4.5 million - were made to misclassified employees whose primary duty did not include management.
The DOL also targeted, and will continue to target in 2008, industries it considers "low wage" - restaurants, guard services, healthcare organizations, hotels and motels, temporary help and others. In all, 11,382 "low wage" cases netted almost $53 million in back wages last year alone.
Turning to private FLSA enforcement, wage and hour lawsuits filed by employees surged nationwide. According to the most recent statistics from the Administrative Office of the U.S. Courts, 4,389 wage and hour lawsuits were filed in federal district courts through March 2006, representing an increase of almost 1,000 cases over the prior year. Matching this pace is the increased number of collective actions, in which large groups of similarly situated current and former employees join in a single claim for unpaid wages or overtime.
These figures suggest the need for constant vigilance on the part of all employers to ensure compliance with the FLSA. Proactive wage and hour audits, either performed internally or with the assistance of counsel, continue to be the best way to identify compliance issues, conduct necessary remedial measures and limit exposure for compliance missteps.
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