‘Fair reading’ of FLSA exemptions gets a test drive

If you’re determining whether an employee’s position is exempt, take a page from these court cases and start your analysis with the basic functions of the position.

In 2018, the U.S. Supreme Court ruled in Encino Motors v. Navarro that exemptions to the Fair Labor Standards Act should be given a “fair reading,” instead of a narrow construction. Two federal appellate court decisions have put their stamp on just what counts as a fair reading.

Case No. 1: Outside salesperson exemption upheld. A commission-only salesperson was required to report to the office in the morning and attend daily sales meetings, but 75% to 80% of his time was spent selling door-to-door. The company had final approval of his contracts with customers. His employment was terminated and he sued for unpaid minimum wages and overtime, claiming he didn’t qualify for the FLSA’s outside salespersons’ exemption. Employee: The level of the employer’s supervision was contrary to the FLSA exemption.

A federal trial court ruled for the employer and an appellate court, referring to Encino Motors, affirmed the ruling. Court: The employee regularly worked out of the office and his primary duty was making sales. Although he invoked the FLSA’s spirit and purpose to suggest that direct supervision of an outside salesman negated the exemption, the court noted that it was a mistake to think that whatever might further the statute’s primary objective must be the law. The employee, therefore, was an exempt outside salesperson. (Flood v. Just Energy Marketing Corp., No. 17-0546-cv, 2nd Cir., 2018)

Case No. 2: Taxicab exemption upheld. Limousine drivers sued their former employer for unpaid overtime. Employer: No overtime was due because the drivers fell under the FLSA’s taxicab exemption. A federal trial court agreed and the drivers appealed. Drivers’ argument on appeal: Their limos weren’t cabs—they weren’t metered and street hailing was not permitted. Instead, they were dispatched from a central location. The employer advertised itself as a limo service.

A federal appellate court affirmed the trial court’s decision. Court: The FLSA doesn’t define the word “taxicab,” and in line with Encino Motors, words must be given their ordinary meaning. The dictionary defines a taxicab as a motor vehicle designed to seat five or seven persons, with or without a meter, maintained for hire. The employer’s vehicles fit this definition, the court said, so it fit into the FLSA’s taxicab overtime exemption. (Munoz-Gonzalez v. D.L.C. Limousine Service, Inc., No. 17-4838-cv, 2nd Cir., 2018)

Payroll tip: Define your terms by looking in contemporary dictionaries. Remember, although these employers chalked up wins, they still bore the burden of proving their eligibility for FLSA exemptions; Encino Motors didn’t change that.

Recent DOL opinion letters address FLSA questions

You can also gain some insights on exemption through recent DOL opinion letters. After suspending DOL opinion letters for most of the Obama administration, the U.S. Department of Labor is making up for lost time — it has issued a blizzard of them in the last year. Opinion letters offer the DOL’s interpretation of the Fair Labor Standards Act and other laws and regulations it enforces, based on specific questions sent in by employers and other interested parties. It recently issued two interesting letters:

‘Hourly’ salaries

Employers may worry about compromising an employee’s exempt status if they pay a salary computed on an hourly, daily or shift basis. Under the FLSA, that won’t be a problem if two conditions apply:

1. The employee is guaranteed minimum weekly salary regardless of the number of hours, days or shifts worked, and

2. There is a “reasonable relationship” between the guaranteed amount and the amount actually earned.

The new opinion letter defines “reasonable relationship”: the amount actually earned does not exceed 1.5 times the guaranteed amount. For example, an employee receiving $1,500 per week on a guaranteed base of $1,000 meets this test. An employee receiving $1,800 would not.

Tipped workers’ extra duties

The second opinion letter addressed employment in the restaurant industry.

It explained that if a tipped employee for whom the employer takes a tip credit also holds another position that is not tipped, then the tip credit only applies to hours worked in the tipped capacity.

For example, a server who is also a maintenance worker must receive at least minimum wage while doing maintenance work. The tip credit only applies to hours worked as a server.

However, the opinion letter also referred to other DOL guidance clarifying that many tasks not directly related to serving customers still qualify for the tip credit. Example: Performing cleaning duties, such as sweeping or taking out trash.