Exempt or Non-Exempt: The Risk of Misclassifying Employees

I once handled a wage-and-hour investigation in which the employer, before retaining my services, hired an HR consultant to help classify its employees as exempt or non-exempt. The Department of Labor, however, disagreed, and reclassified half of the company’s employees (with corresponding back pay awards for unpaid overtime for those employees moved from exempt to non-exempt).

Fair Labor Standards Act exemptions are highly fact specific and highly subjective. One person’s exempt manager is another’s non-exempt clerk. Case in point? Little v. Belle Tire Distributors (6th Cir. 10/23/14) [pdf].

Little concerns a first assistant manager at a tire store. As a “manager,” the employer had the employee classified as exempt under both the executive and administrative exemptions. The employer’s written job description defined the first assistant manager position as requiring proficiency in “Professional Selling Skills,” “inventory control and pricing,” and “knowledge of location payroll control.” The job description further states that the employee have “necessary supervisory skills” and “managerial skills,” and be “fully knowledgeable” of “hiring and termination procedures.”

The court of appeals concluded that the employer’s determination that this employee was exempt was not dispositive, and sent the case back to the district court for trial on the issues of whether the employee qualified as exempt under either the executive or administrative exemption:

Belle Tire seeks to paint Little as influential in hiring and as actively leading employee training and other management tasks. Little, on the other hand, seeks to characterize himself as a salesman who provides clerical-type assistance to his store manager….

Though it is clear Little played some role in interviewing job candidates, preparing work schedules, and conducting training, questions remain concerning the exact nature of the work Little performed and the level of discretion that Little exercised. Such questions are suitable for a factfinder’s determination….

Although Little engages in office and non-manual tasks such as typing up the schedule and preparing purchase orders, Little testified that he spends eighty to ninety percent of his time engaged in sales duties. Time spent on a task is not the sole determinant of a primary duty, but the fact that Little spent the vast majority of his time on tasks he could not do concurrently with administrative tasks creates a genuine dispute as to whether his administrative responsibilities were his “primary duty.” Additionally, Little’s deposition—the most detailed account of his day-to-day activities—suggests that Little’s discretion was highly constrained.

The lesson here is not a happy one. No matter how reasonable or rational you think you are being in classifying employees, a court may second-guess you down the road. In close cases, err on the side of caution and classify as non-exempt. You will end up paying more overtime as you go, but will avoid the windfall (and related legal fees) if a court later re-classifies an employee or group or employees.