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Keep exempt status by authorizing discretion

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in Leaders & Managers,Management Training

It’s a serious mistake to wrongly classify employees as exempt when they should be designated as hourly workers eligible for overtime. Such cases can easily snowball if one or two misclassified employees file a class-action lawsuit claiming to represent everyone else who shares their classification.

A case that should have cost just a few thousand dollars in back overtime pay can quickly grow into a multimillion-dollar claim.

Be especially wary of one of the most common errors: Applying the exempt administrative classification to employees just because they perform nonmanual work directly related to the management or general business operations of the company.

Such a misclassification neglects the second part of the test—that those employees also exercise discretion and independent judgment.

A legitimate way around the problem: Design their jobs so they do have the chance to exercise additional discretion and judgment.

Recent case: Michael Fenton worked for the Farmers Insurance Exchange as a special investigator. The insurer classified the job as exempt under the administrative exemption.

Fenton sued on behalf of himself and other special investigators, claiming that he should be classified as an hourly employee.

He explained that his job largely involved gathering information about potential fraudulent claims. However, he said, he wasn’t allowed to comment or express an opinion on whether a claim was in fact fraudulent. Supervisors made those calls.

The court said special investigators didn’t have enough discretion or exercise significant independent judgment to be classified as exempt. (Fenton, et al., v. Farmers Insurance Exchange, No. 07-4864, DC MN, 2009)

Final note: Always run your proposed job descriptions and exemption decisions by your attorney. He or she may be able to suggest ways to strengthen the justification for designating a job as exempt.

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