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The executive exemption: classifying managers
March 6, 2012
A Matter of Time: Wage-Hour News You Can Use
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The Fair Labor Standards Act (“FLSA”) exempts from its overtime pay requirements “any employee employed in a bona fide executive, administrative, or professional capacity.” This edition of “A Matter of Time,” which explains the FLSA’s executive exemption, is the first in a series focusing on the application of the FLSA exemptions, which, unfortunately, are not as straightforward as they may seem.

Many assume that determining whether an employee should be categorized as exempt from overtime under the Fair Labor Standards Act (“FLSA”) is easy when an employee is a “manager,” as these positions often fit into the executive exemption. Not all employees with “manager” in their title, however, will be exempt.

To qualify for the executive exemption under the FLSA, an employee must perform office or non-manual work, and the employee’s duties must meet all of the following criteria:

  • The employee must have a “primary duty” of managing the enterprise or a customarily recognized department or subdivision of the enterprise;
  • The employee must customarily and regularly direct the work of at least two or more other full-time employees (or the equivalent); and
  • The employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion, or any other change of status of other employees must be given particular weight.

It is important to note that an employee will not qualify as an exempt executive unless the employee manages a “customarily recognized department or subdivision.” The “department or subdivision” must be a recognized unit within the employer’s organization; it cannot simply be a collection of individuals. The employee must do more than merely supervise two or more employees; he or she must be in charge of and have as his or her primary duty the management of the recognized unit.

Although most salaried “managers” would seem to fall into the executive exemption, some employers have learned the hard way that not all managers are exempt. It is important to remember that simply putting “manager” in a title does not qualify an employee for the executive exemption. As noted by the Massachusetts Supreme Judicial Court, “[a] manager in name does not a manager make.” Goodrow v. Lane Bryant, Inc., 432 Mass. 165, 173 (2000). Management duties must actually be demonstrated. Similarly, the management duties must pertain to other employees. An employee may have “manager” in his or her title, but not actually be responsible for managing people; instead, he or she may manage a function (such as customer service), a project, or accounts. This is not sufficient to qualify for the executive exemption, which requires that the employee direct the work of two or more full-time employees (or the equivalent).

Retail store chains with various levels of management have discovered that it can be difficult to demonstrate that the “primary duty” of the store managers and assistant managers is “managing the enterprise” when the employees spend much of their time performing non-exempt work. This is also the case when almost all discretionary decisions are placed in the hands of an upper-level manager. See Ely v. Dolgencorp, LLC, 2011 U.S. Dist. LEXIS 140882 (E.D. Ark. 2011). In these circumstances, many of the lower-level managers will not have the requisite enterprise management duties to qualify for the executive exemption.

On the other hand, retail store managers who perform some non-exempt work (even those who spend more than 50% of their time performing non-exempt work) have been found to qualify for the executive exemption under the FLSA based upon the nature of the work they perform. Concurrent performance of non-exempt and exempt work will not necessarily disqualify an employee from the exemption. See Grace v. Family Dollar Stores, Inc. (In re Family Dollar FLSA Litig.), 637 F.3d 508, 516 (4th Cir. 2011). In situations in which managers perform both exempt and non-exempt duties, it is critical for employers to examine the work the employee actually performs on a day-to-day basis by the employees at issue to determine whether they qualify for the executive exemption. State laws may evaluate the matter of concurrent exempt and non-exempt work differently. For example, California requires the employee to be performing exempt work more than 50% of the time, and work that is not exempt work or directly and closely related to exempt work is considered non-exempt.

Of course, as with most of the “white collar” exemptions, even if the employee at issue satisfies the duties test for one who qualifies for the executive exemption, the employee must also meet the salary basis test to qualify for the exemption. To do so, the employee must regularly receive a pre-determined amount of compensation every pay period, regardless of the quality or quantity of the employee’s work. The minimum amount required by the FLSA is $455 per week. Some states, such as California, require higher minimum salaries. Certain deductions from the employee’s salary could cause the employee not to meet the salary basis requirement and, therefore, not qualify for the exemption.

In all exempt status determinations, each employee’s actual job duties must be analyzed on a case-by-case basis to determine whether exempt status is appropriate. Employers should also be aware of state analogs to the FLSA, many of which provide different duties requirements or, as in California, require the exercise of independent judgment and discretion for an employee to be exempt from state overtime laws.

Members of Nixon Peabody’s Wage-Hour Team are available to answer any questions you may have about the FLSA exemptions and/or help you navigate any other wage-hour issues your organization may be facing.

The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.