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How to apply FLSA’s administrative exemption

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in Leaders & Managers,Management Training

Employers that want to avoid paying overtime to white-collar workers often invoke the Fair Labor Standards Act’s administrative exemption. For the administrative exemption to be legitimate, all of the following must be true:

  • The employee is paid at a salary rate of not less than $455 per week.
  • The employee’s primary duties involve office or nonmanual work directly related to the management or business operations of the employer or its customers.
  • The employee’s primary duties include the exercise of discretion and independent judgment with respect to matters of significance.

Recent case: Johnson & Johnson pharmaceutical sales representative Patty Lee Smith sued her employer on behalf of all similarly situated sales reps, claiming they regularly worked more than 40 hours per week, and thus were entitled to overtime pay.

Johnson & Johnson claimed its pharmaceutical sales reps were exempt from overtime because they met the administrative exemption.

Smith testified that she received a list of doctors whom she was to target. Her job was to encourage them to either start prescribing or keep prescribing a drug. Smith had wide discretion about how she organized her work. She chose which doctors to visit, made her own appointments, determined the best sales pitch and received bonuses for meeting her goals.

Johnson & Johnson said those responsibilities clearly showed that Smith, whose job was essential to the company’s main business operations of selling prescription drugs, exercised discretion and independent judgment in how she accomplished her goals. Everyone agreed she made more than $455 per week and was paid a set salary.

The 3rd Circuit Court of Appeals said she met the administrative exemption. (Smith v. Johnson & Johnson, No. 09-1223, 3rd Cir., 2010)

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