How Would Your Overtime Exemptions Fare in Court?

By Robert G. Chadwick, Jr., Managing Member, Seltzer Chadwick Soefje & Ladik, PLLC.

On May 30, 2017, a three-judge panel of the U.S. Court of Appeals for the Fifth Circuit, in Dewan, et al. v. M-I, LLC, said a jury should decide whether two oil field workers were entitled to overtime pay under the Fair Labor Standards Act (“FLSA”).  Accordingly, the Court reversed a summary judgment ruling by the District Court which found the workers were exempt from the FLSA’s overtime requirements because they worked “in a bona fide … administrative capacity.”  Absent a settlement, the fate of the exemption for the two old field workers is now in the hands of a federal jury.

The employer’s experience in Dewan underscores five realities of a suit alleging improper reliance on a FLSA overtime exemption. First, FLSA litigation is often prolonged, costly and unpredictable. The suit in Dewan was initially filed on December 14, 2012. Nearly 4½ years later, the dispute is now going back to the District Court and to an uncertain timetable for resolution.

Second, most FLSA suits are filed by former employees, not current employees. While he was still employed, the named plaintiff in Dewan may have regarded exempt status a badge of pride. After his employment ended, the exempt status became the basis for a monetary claim. The absence of complaints by current employees is thus not a barometer for determining the viability of an exemption. Such a complaint may still be filed after separation and reach back two or three years, depending upon the applicable statute of limitations.

Third, it is not the burden of an employee to disprove a FLSA exemption; rather, it is the employer’s burden to prove such an exemption. Dewan shows this burden can be a formidable one, especially if the goal is to avoid an uncertain jury trial. Meeting this burden requires conclusive evidence. If the evidence to support the exemption is lacking or inadequate, the burden may not be met.

Fourth, “it is the actual day-to-day activities of … employees that determine whether the employee is exempt, not the labels the employer or employee place on those duties.”  Even though each of the oil field workers in Dewan held the title of “mud engineer”, it was their actual work in the field which determined whether they were properly classified as exempt.

Finally, employers are not the final arbiters of who is exempt and who is not exempt under the FLSA.  The Act leaves that final determination to judges and juries.  Whether an employer is comfortable with its employee classifications, therefore, is not the most pertinent question in managing the risk of suit. Until the May 30th ruling by the Fifth Circuit, M-I, LLC was likely comfortable that its oil field workers were classified properly. Rather, the most pertinent question is whether the employer can prove (and/or sell) the exemption to a judge and jury.

Dewan provides a wake-up call to employers who have not conducted any review of their employee classifications, or who have not conducted such a review recently.  Periodic reviews and adjustments provide the type of evidence needed to effectively manage the risk of scrutiny by a federal court or the U.S. Department of Labor.  The alternative can be that experienced by M-I, LLC, the meter for whom is still running as to legal fees.