Court Clarifies FLSA Admin Exemption

The U.S. Court of Appeals for the First Circuit (First Circuit) recently issued a decision regarding the Fair Labor Standards Act’s (FLSA’s) overtime provisions that clarified the FLSA administrative exemption law. The decision affects states and territories under the First Circuit’s jurisdiction. These include Maine, Massachusetts, New Hampshire, Puerto Rico, and Rhode Island. The First Circuit’s decision follows a suit filed by the U.S. Department of Labor (DOL) against an employer that allegedly misclassified employees as exempt from overtime under the FLSA. Notably, federal courts have decided other recent overtime exemption cases. In February 2023, the U.S. Supreme Court ruled on overtime exemptions for highly compensated employees.

Background of the Case and District Court Judgment

The DOL initially filed suit against the employer in the U.S. District Court for the District of New Hampshire (District Court) in June 2019. The lawsuit claimed that the employer misclassified two types of employees as exempt from overtime rules under the FLSA. Specifically, the employees listed under the suit were either electrical distribution dispatchers or gas controllers. According to the suit, the employer classified them as exempt administrative employees under the FLSA. In November 2021, the District Court entered summary judgment in favor of the employer. It concluded that dispatchers and controllers were exempt from overtime under the FLSA administrative exemption provision. Subsequently, the DOL appealed the District Court’s decision to the First Circuit Court. The DOL argued that the District Court failed to apply a relational analysis under the second prong of the administrative exemption test. In brief, the second prong of this test examines an employee’s primary duty in relation to general business operations.

FLSA Administrative Exemption Law

The FLSA is the nation’s primary wage law and one of the major employment laws employers must follow. It establishes minimum wage and overtime pay for non-exempt part-time and full-time employees. Generally, administrative employees are exempt from overtime provisions under the FLSA. Section 13(a)(1) of the FLSA provides specific tests to determine whether an employee qualifies under the FLSA administrative exemption. For the exemption to apply, the following qualifications must be met:

1. The employee must be compensated on a salary or fee basis at a rate not less than $684 per week;
2. An employee’s primary duty must entail performing office or non-manual work directly related to management or general business operations under the employer or for the employer’s customers; and
3. Their primary duty must include exercising discretion and independent judgment in matters of significance.

First Circuit’s Decision on FLSA Administrative Exemption

On January 11th, 2023, the First Circuit vacated the District Court’s decision. In its opinion, the Circuit Court ruled that the earlier court did not show that these dispatchers’ and controllers’ primary duties did not consist of work directly related to management or general business operations. The First Circuit applied a two-part relational test that asked:

• If the employees’ roles related to “running or servicing the business,” and if so,
• What was the scope or “generality” of the employees’ role?

Following this, the employer filed a petition for a rehearing. Finally, on March 22nd, 2023, the First Circuit issued a revised opinion. Again, the First Circuit vacated the District Court’s summary judgment but removed the second question regarding the “generality” of the employees’ role. Currently, the case returns to the District Court for further proceedings.