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Preserve employees’ exempt status; give explicit ‘discretion and judgment’ power

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in Leaders & Managers,Management Training

Wrongly classifying employees as exempt (not eligible for overtime) when they should be designated as nonexempt hourly workers (eligible for overtime) can be an expensive mistake. A claim can easily snowball if several employees pile on—triggering a class-action suit.

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

Such a misclassification neglects the second part of the administrative-exemption test: that the employee’s “primary duty include the exercise of discretion and independent judgment with respect to matters of significance.”

A legitimate way around the problem: Design the job so the person has a chance to exercise additional discretion and judgment. Write it clearly into the job description.

Recent case: Michael Fenton worked as an investigator for Farmers Insurance. The company classified the investigator job as exempt under the administrative exemption.

Fenton sued on behalf of himself and other investigators, claiming he should be classified as a nonexempt hourly employee and, thus, eligible for overtime pay.

Fenton said his job largely involved gathering information about potential fraudulent claims, but he wasn’t allowed to comment on whether a claim was truly fraudulent. Supervisors made those calls.

The court sided with Fenton, saying 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)

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