Paul DeCamp Quoted in “FLSA Administrative Exemption Set for an Overhaul”

The Fair Labor Standards Act's administrative exemption to overtime stands out as a source of compliance headaches and litigation, making it a candidate for reform and exposing fault lines between the FLSA and its regulations, attorneys say.

Under the FLSA, some white collar workers are not entitled to overtime protections if their role meets certain duties tests, and they are paid at least $684 weekly on a salary basis. Much attention has focused on the latter requirements around salary pay in the wake of the U.S. Supreme Court's Helix decision holding a six-figure earning supervisor merited overtime pay because he was not paid on a salary basis.

But the duties requirements of the administrative exemption present distinct challenges for employers and wage and hour practitioners that are not present for the FLSA's other carveouts, such as the executive or learned professional exemption.

To qualify for the administrative exemption, an employee's primary duty 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" and must include "the exercise of discretion and independent judgment with respect to matters of significance," according to the FLSA's regulations.

The administrative exemption defies meaning, said Paul DeCamp, a member of management-side firm Epstein Becker & Green PC and former administrator of the DOL's Wage and Hour Division.

"The challenge with the administrative exemption at its core is that it lacks clear objective, easily applied criteria," he said. "The words that make up the regulatory test for whether someone satisfies the administrative exemption are so ambiguous and amorphous, that they really defy clear, predictable outcomes in applying the test in lots of situations." …

Litigation Magnet

The vagueness of the administrative exemption makes it a prime source of litigation, attorneys said.

Although there are many roles that could be covered by the administrative exemption, many are also caught up in the exemption's ambiguity, heightening the stakes of costly litigation, DeCamp said.

"With the administrative exemption, you end up with a disproportionate amount of positions that end up in the gray zone where maybe it's exempt, maybe it's not," he said. "... When you have an exemption whose test leads to lots of indeterminate outcomes, that's a recipe for disaster and what it really is is a recipe for litigation."

Under the executive exemption, it's relatively easy to determine whether a worker is supervising two or more people and has the authority to make hiring or firing decisions, DeCamp said. Similarly, for the learned professional exemption, it is easier to determine whether the worker has the requisite education, certificate or license to qualify.

"Both sides have a better chance of knowing where they stand, and when you have clear standards, you have a lot less stuff to fight about," he said. "With the administrative exemption, nobody knows what the exemption means. That's a little bit of an overstatement, but not a lot of an overstatement because the words themselves really defy meaning." …

The DOL's Defining Power

The administrative exemption's difficulties raise the need for reform and illustrate tensions between the FLSA's mandate for the DOL to define the exemptions and the resulting regulations, attorneys say. …

Congress "outsourced" legislative authority to the DOL to define a word — administrative, DeCamp said.

"It creates an interesting problem when we're trying to deal with this exemption," he said. "The future of the administrative exemption is partly tied up with that."

Congress intended for certain workers to be exempt from overtime under the administrative exemption but did not provide an explanation as to what that means, DeCamp said.

"If I end up in litigation over the administrative exemption, I will absolutely be challenging the constitutionality of the statute, in that respect," he said. "Not the whole FLSA, but the delegation of essentially complete policymaking authority to the Secretary of Labor to define an exemption that really has no meaning in the statute."