Employer Win on FLSA Exemption Issue – Heightened Pleading Standard Rejected by High Court

The United States Supreme Court recently held in E.M.D. Sales, Inc. v. Carrera that the “preponderance of the evidence” burden of proof applies in determining whether an employee is exempt under the federal Fair Labor Standards Act (FLSA). In issuing its unanimous opinion, the Supreme Court rejected the employee’s argument that the higher “clear and convincing” evidence standard should apply.

Background

The FLSA generally requires that employers pay employees a minimum wage for each hour worked along with overtime pay when they work in excess of 40 hours in a workweek. However, the FLSA exempts certain employees from this general requirement. Among the most common exemptions that employers attempt to utilize are the so-called “white collar” exemptions (i.e., the executive, administrative, and professional exemptions), though employees may also fall under other exemptions such as the outside and inside sales employee exemptions, the computer employee exemption, or the exemption for highly compensated employees. 

Importantly, the employer has the burden of proving that the applicable exemption applies to its employee. And the employer’s burden to make that showing was at issue in Carrera. There, the employer attempted to apply the “outside sales” exemption to certain categories of its workers. That exemption requires, among other things, that the employee’s primary duties be involved in making sales or obtaining orders and that the employee’s work be performed outside of the employer’s business (i.e., customarily and regularly away from the employer’s business). The lower court found for the employees finding that the employer failed to prove “by clear and convincing evidence” that the exemption applied. The 4th Circuit Court of Appeals agreed.

Supreme Court’s Opinion

But the Supreme Court said a different, lower standard should apply – a “preponderance of the evidence” standard and not a “clear and convincing evidence” one. In issuing its opinion, the Supreme Court explained that there are only limited circumstances when the default “preponderance of the evidence” standard would not be utilized in favor of the heightened “clear and convincing evidence” standard: (1) when a specific statute requires a heightened standard; (2) where the Constitution requires a heightened standard (e.g., first amendment rights); and (3) in “rare” situations that involve coercive government action (e.g., taking away a person’s citizenship). Given that the FLSA itself, i.e., the language of the statute, does not specify a heightened standard, that there is no Constitutional issue present in an FLSA claim, and no government coercion is in play, the Court held the default “preponderance of the evidence” standard applies. 

The employees had argued that well-established public policy, i.e., proper pay for employees, warranted the heightened evidentiary standard, but the Court rejected those arguments, stating “the public interest in Fair Labor Standards Act cases does not fall entirely on the side of employees. Most legislation reflects a balance of competing interests. So it is here.” The Court also noted that “other workplace protections that vindicate important public interests remain subject to the preponderance standard,” expressly stating that Title VII discrimination cases apply the preponderance of the evidence standard.

The Carrera decision is in line with another relatively recent win for employers on FLSA matters at the Supreme Court: Encino Motorcars, LLC v. Navarro (2018), where the Court held that FLSA exemptions are to be afforded a “fair reading,” and rejected employee arguments that FLSA exemptions should be narrowly construed.

Takeaways

The Carrera decision is a win for employers, but with limitations. Employers still need to carefully consider whether an employee is exempt under the FLSA because misclassifying employees, particularly large groups of employees, can have significant monetary consequences. And employers must also ensure that they comply with any state minimum wage and overtime laws, some of which apply their exemptions more narrowly or which do not recognize certain exemptions included under the FLSA. When in doubt, employers should seek external guidance from counsel on assessing compliance with the various trends and nuances of classification issues. 

Mintz’s Employment team is here to assist employers in determining how to respond to these developments.

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