Episode 3: Big Three Exemptions

Hear how a decades-old landmark law guides today’s employers on some of the most pressing issues facing companies. Bill Martucci, who leads Shook, Hardy & Bacon’s national Employment Litigation and Policy Practice, shares insight in these bite-sized podcasts focusing on the Fair Labor Standards Act. Whether you’re a seasoned general counsel or just finding your way through the myriad of state and federal wage and hour laws, listening to Bill’s soothing discourse is time well spent.

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TRANSCRIPT

You’re listening to “A Window into Wage and Hour,” a podcast series that shines the light on time and money laws impacting your business today.

Thanks so much for joining us.  This is Bill Martucci with Shook Hardy & Bacon. And the practice that we are focused on is national employment litigation and policy. This is our ongoing podcast on wage and hour issues.

Today we are going to focus on what are often referred to as the white collar exemptions. We are going to hit the highlights just to introduce the white collar exemptions and then, in future podcasts, we’ll go through each one in some detail. 

When we step back just a moment, we of course recognize that the Fair Labor Standards Act was passed in 1938. And at the heart of the Act was the idea that there would be a minimum wage and there would be overtime, or premium pay—time and a half, if you will—for all hours worked in excess of 40. With that as the framework, the Department of Labor is, of course, the agency that is given the responsibility for the enforcement of the wage and hour laws. Within the Department of Labor, there is the Wage and Hour Division, which provides a great deal of guidance concerning the laws. And as we know, in the last good number of years, plaintiff’s lawyers have been ever thoughtful and ever vigilant in their efforts for fair wages and for compliance with the Fair Labor Standards Act. So have all that as a background.

But there are exemptions to the requirements of overtime, to the requirements of premium pay.  And at the heart of those exemptions are what are referred to as the white collar exemptions.  Now, we should keep in mind that the Supreme Court in prior cases has made it clear that these exemptions are to be narrowly construed and their application is to be limited to those establishments, to those situations, that plainly and unmistakably speak to these exemptions.

With that in mind, what are these white collar exemptions? Well, in this context, we often think of the Executive Exemption, the Administrative Exemption, the Computer and Outside Sales Employees Exemption, and the Professional Exemptions. And, in fact, when we think about the white collar exemptions, we typically think primarily of the Executive, Administrative and Professional exemptions. Now, within that context, to be exempt, there are many details, and today we are simply providing some highlights. In each circumstance, the exemption must meet a salary or fee arrangement process. So, think about that as a salary of monetary requirement. We will have another focus session in the future where we will talk in some detail about the salary requirement, because it is an essential component in this context.

The other aspect are certain duties—there are certain duties that must be met to qualify for the exemptions. Today we are going to focus on Executive, Administrative, and Professional Exemptions. We are mentioning, of course, the Outside Sales Exemption and the Computer Exemption, but really, our focus today, even in a fashion that is rather brief, is going to be on these first three.

The Executive Exemption is sometimes more informally referred to as the management exemption, and the essential requirements here with respect to duties are that management is the primary duty. That there is the direction and guidance of the work of two or more employees and that the executive or manager has the authority to hire, to fire or to effectively recommend such matters—that this manager customarily and regularly exercises discretionary authority. So there you have what is formally referred to as the Executive Exemption and more informally thought of as the Management Exemption.

The next exemption of these big three, if you will, of the white collar exemptions, is the Administrative Exemption. This one is often misapplied, understandably so. And yet here, the focus is on the employee’s primary duty, which must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers. Here you have a context where typically you find administrative employees at a high level who are performing those functions that are essentially critical to the general business operations of the employer. It could be human resources, it could be marketing, it could communications. Another aspect is the employer’s primary duty that is this employee on behalf of the employer. The primary duty includes the exercise of discretion and independent judgement with respect to matters of significance. Well, as you listen to those words and think about the Administrative Exemption, you can understand why the application of that exemption in a given context is fact-specific and lends itself to a variety of interpretations. 

The final white collar exemption we are going to speak of today is the Professional Exemption. And this can be one of two kinds. To start out, it may be wise to think of the word professional in the world that we live in today as used rather broadly. But within the context of the Fair Labor Standards Act, recalling that it was passed in 1938, the concept of professional is rather narrowly defined. So there is the “learned professional” and there is the “creative professional.”

The learned professional must have the primary duty that requires advanced knowledge.  Knowledge which is defined as primarily—predominantly, if you will—intellectual in character. And it includes work requiring consistent exercise of discretion and judgment—consistent exercise of discretion and judgment. The knowledge must be advanced in a field of science or recognized learning, and the advanced knowledge must customarily be acquired by a prolonged course of specialized intellectual instruction. So, often with the learned professional, you are thinking of the traditional professions and you are thinking of advanced degrees that would come into play, giving rise to consistent exercise of discretion of judgment of matters predominantly intellectual in character.

The creative professional is a different focus. And here, the person’s primary duty must be the performance of work requiring invention, imagination, originality or a talent in a recognized field of artistic or creative endeavor. So the creative professional is one who truly demonstrates that imaginative originality talent in connection with their work.

Well, there are other exemptions to speak of, but the big three, if you will, in connection with white collar are, as we have discussed, the Executive or Managerial Exemption, the Administrative Exemption, and the Professional Exemption. If you qualify for one of these exemptions, you are exempt from the requirements of overtime. This is significant in the workplace. It is significant to the work of management and to business planning and strategic considerations.

Thanks so much. We will be together again soon, and we will look ever more carefully at the Executive or Managerial Exemption.