What Employers Need to Know About the “Executive” Exemption Under the Federal Fair Labor Standards Act (FLSA)
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The Fair Labor Standards Act (FLSA) provides important protections for American workers, ensuring they receive fair compensation for their labor. However, not all employees are covered by the minimum wage and overtime pay provisions of the FLSA. Enter the concept of “exempt employees,” a term referring to those who are exempt from these specific protections. One common category of exempt employees is the “executive” employee, who maintain certain managerial roles and responsibilities.
In this blog post, we’ll delve into the details of the executive exemption, exploring the criteria set forth by the Department of Labor (DOL) and a notable court case, Calvo v. B&R Supermarket, Inc., 63 F. Supp. 3d 1369 (S.D. Fla. 2014), that exemplifies the application of these criteria in determining exemption status. Understanding the executive exemption is crucial for employers and employees alike, as it impacts the legal rights and responsibilities in the workplace.
Defining the Executive Exemption
Being an “executive” employee exempt from the FLSA means that the employee is not entitled to the minimum wage and overtime pay protections provided by the FLSA. This exemption applies to employees who have certain job responsibilities and meet certain criteria set forth by the Department of Labor (DOL).
In Calvo, the assistant-store-manager-plaintiff was deemed exempt from the overtime wage requirements of the FLSA based on the executive exemption. To qualify for the executive exemption, the court explained that an employee must meet both the “salary basis” test and the “primary duties” test as defined by the DOL regulations. Those tests are utilized in practice via the evaluation of four (4) elements of the subject employee’s employment:
- The employee must be compensated on a salary basis, meaning they receive a fixed salary that is not subject to reduction based on the quantity or quality of work performed, of not less than $684 per week.
- The employee must have the primary duty of managing the enterprise or a customarily recognized department or subdivision of the enterprise.
- This includes supervising and directing the work of at least two or more other full-time employees.
- The employee must have the authority to hire or fire other employees, or have the power to make recommendations that are given particular weight in the hiring or firing process.
Calvo, at 1379; 29 CFR § 541.100(a)(1) (2020).
Analyzing Exemption Criteria
To analyze whether the plaintiff’s primary duty was “managing the enterprise or a customarily recognized department or subdivision of the enterprise,” the court analyzed the time spent on exempt work, relative freedom from direct supervision, and the relationship between the plaintiff’s salary and the wages paid to non-exempt employees. Although the plaintiff performed some non-exempt tasks, the court determined that her primary duty was management, given her substantial responsibilities in supervising and directing store employees, making decisions related to hiring and firing, and handling various management tasks. More specifically, the court noted the following activities:
- Plaintiff was the sole on-site employee with authority over store operations.
- Plaintiff supervised 20 to 30 store employees and assigned their tasks.
- Plaintiff set the weekly work schedule for all front-end employees.
- Plaintiff monitored and adjusted employee time-cards.
- Plaintiff was responsible for finding substitute employees in case of absence.
- Plaintiff enforced and advanced the store’s employment policies and goals.
- Plaintiff played a central role in hiring store employees.
- Plaintiff trained, evaluated, and coached employees.
- Plaintiff disciplined employees to enforce store policies.
- Most of Plaintiff’s responsibilities were managerial, focusing on store operations and employee supervision.
- Plaintiff maintained a daily checklist, reported accidents, and prepared sales reports.
- Plaintiff closed the store, reconciled daily receipts, and calculated day-end sales figures.
- Plaintiff participated in meetings with management to discuss various issues.
- Plaintiff had access to the store’s office, safe, computer, and confidential information.
Calvo, at 1382-83. With respect to a compensation comparison, the court noted that “Plaintiff’s salary was significantly higher than—close to double—those of the non-management employees she supervised. In addition, Plaintiff, along only with the Store’s other management team, was eligible for a year-end incentive-based bonus.” Calvo, 1385.
Overall, based on the analysis of the plaintiff’s duties and responsibilities, the court concluded that she met the requirements for the executive exemption. As a result, the plaintiff was deemed exempt from the FLSA’s overtime wage requirements, and defendant’s motion for summary judgment was granted.
Understanding the executive exemption under the FLSA is essential for employers seeking to ensure compliance and mitigate legal risks. As we’ve explored in this blog post, the executive exemption applies to employees holding critical managerial roles and meeting specific criteria outlined by the DOL. The Calvo case highlights many factors that indicate whether an employee qualifies for the executive exemption, but of course all factors do not need to be present in order for the employee to be exempt. With the help of competent and qualified legal counsel, employers can navigate the intricacies of labor law and confidently classify their employees to safeguard their business from potential legal disputes and costly penalties.