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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As we focus in this ongoing podcast series on wage and hour, today we’re going to look at the exemption for executive employees under the Fair Labor Standards Act.
This Executive Exemption is one that often is referred to as the managerial or management exemption. It probably would be thought of as the primary exemption under the Fair Labor Standards Act and certainly the most prominent of the “white collar” exemptions.
Today our focus is: what are those elements of an executive exemption—of a managerial exemption—that permits an employer, a company, to have a person in a management/executive role and not be paid overtime? Well, as you know from prior discussions, there must be a certain salary basis that’s met. And we’re going to speak about that critical element in a separate segment of our podcast series.
Today we’re going to focus on duties because to qualify for any of the white collar exemptions that are the primary exemptions of executive, administrative and professional, there must be both the qualification with respect to salary and the qualification with respect to duties.
So what are those duties and how are they best viewed? Well, within the Fair Labor Standards Act, there is an exemption for any employee employed in a bona fide executive capacity, and that is set forth in 29 U.S.C. § 213(a)(1). But further within the authority of the United States Department of Labor, the Wage and Hour Division has provided regulations that provide a great deal of detail concerning this executive exemption. And in particular, if one were to look at 29 Code of Federal Regulations, CFR §§ 541.100 through 541.106, a variety of areas would be covered. And then, of course, the case law is legion in terms of the various twists and turns that come into play with respect to the Executive Exemption.
With respect to the Executive Exemption, as we look at the duties, the employee’s primary duty must be managing the enterprise, or managing a customarily recognized department of the enterprise. The employee must customarily and regularly direct the work of at least two or more full-time employees or their equivalent. And the employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to hiring and firing, advancement, promotion, or other change in status of other employees must be given particular weight.
Let’s look at some of those components as we think through this together.
Primary duty—what do we mean by primary duty as it relates to this Executive or Management Exemption? Primary duty is typically defined as the principal, main, major or most important duty the employee performs. And that determination of the employee’s primary duty as a manager, as an executive, must be based on all the facts in a particular case, and the major emphasis focuses on the character of that job as a whole.
When we say management and management duties—what do we mean by that? And here we’re looking at those kinds of things that you might think of as interviewing, selecting, training employees, setting and adjusting their rates of pay and hours of work, directing and guiding the work of employees, maintaining discipline, planning the work, determining the techniques to be used, apportioning the work, planning and controlling the budget, and monitoring or implementing legal compliance measures.
What about “customarily and regularly”? This is a major issue in this area. And to say “customarily and regularly,” that means that much, much greater than occasionally, but less than constant, would be the work normally done every work week. It doesn’t include isolated or one-time tasks. It’s customary, it’s the regular kind of work of the manager or the executive.
Now, two other aspects to mention and highlight. One must direct or manage two or more employees. And that means two or more full-time employees or their equivalent. So, for example, one full-time and two half-time employees are equivalent to two full-time employees. So, one full-time employee, two half-time employees, that’s the equivalent of two full-time employees. The supervision, in that regard, would be in place and would meet the requirement. Now, in many, many cases, that is a huge issue. And there are a number of cases we have now throughout the country, many on the East and West Coasts, where frankly, looking at the numbers and doing the statistics with respect to the hours allocated to a given manager becomes critical in determining whether, in fact, that manager or executive customarily and regularly supervises and guides and directs two or more full-time employees or their equivalence.
But what about recommendations, the decision—the ability to make decisions? Well, here we’re told—in the regulations, we’re guided that there must be particular weight to that, which means that those recommendations have more importance, have more substance, are really considered in a way that would make one meaningfully a participant in the decision-making process. Of course, if the manager or executive makes the decision themselves, so be it. That certainly would meet that standard. But to be given particular weight, to consider what a person has to say in a meaningful way, that would justify it as well.
Now, there are many distinctions here with respect to how about if you have several managers and a number of associates who are employees and how does that work in the sense of two or more equivalent employees? And frankly, that’s where the facts of a particular situation come into play. That’s where questions, for example, about concurrent duties. So we see in 29 CFR 541.106, some detail about concurrent duties, and in pertinent part it notes that concurrent performance of the exempt and non-exempt work does not disqualify an employee from the Executive Exemption, if the requirements are otherwise met.
That’s an area we’ll save for another occasion, because this whole question of how much time do you spend as a manager—how much time do you spend doing ordinary work—that becomes a factual focus in so many cases where a jury is asked to determine: was the primary duty truly executive/management functions, or was this person an ordinary employee who happened to have a few managerial duties?
We’ll save for another occasion the focus on state laws and how much certain state laws, most prominently California, look at the percentage of time spent in management responsibilities. But under the Fair Labor Standards Act—under the federal law—we’re speaking about primary duty, the primary duty, the principal duty, is one of management and supervising two or more employees.
Well, thanks so much for this time. Very, very interesting as we delve in it together. And we will conclude with an understanding of how challenging these laws are to apply in a given factual context. A law passed in 1938 and, frankly, not revised or amended all that much with respect to these fundamental considerations.