E-Alerts
Supreme Court Rejects Heightened Evidence Standard For FLSA Classification Disputes
In a unanimous decision, the U.S. Supreme Court recently settled a Circuit split regarding the legal standard applicable to overtime exemptions under the Fair Labor Standards Act (“FLSA”).
In a victory for employers, the Court held, in E.M.D. Sales Inc. v. Carrera et al., that fact finders should apply the typical “preponderance of the evidence” standard in evaluating such claims. Consistent with Fourth Circuit precedent, the plaintiffs had argued that the more stringent “clear and convincing” standard should apply.
Background
Under the FLSA, employees are considered either non-exempt or exempt. Employers must pay non-exempt employees at least 1½ times their normal rate of pay for all hours worked over 40 in a week.
Employees who meet certain criteria, codified in the FLSA and its regulations, are exempt from federal overtime protections. The three most common exemptions – executive, administrative, and professional – are the so-called “white collar” exemptions. Other exemptions also exist, including for certain “highly compensated,” seasonal, and outside sales employees.
Misclassifying employees as exempt can have serious consequences for employers under the FLSA. Employees who prove that they have been improperly classified as exempt may be awarded compensatory damages for a three-year lookback period, as well as liquidated damages (which double the compensatory damages), and, in certain cases, attorneys’ fees.
The E.M.D. Sales Decision
Three employees who worked for food distribution company E.M.D Sales Inc. sued the company for unpaid overtime. E.M.D. argued that the employees were not entitled to overtime pay because they met the requirements for the outside sales exemption.
The case hinged on whether the employees’ job duties constituted outside “sales” for purposes of the FLSA exemption – specifically, whether the employees made their own sales to chain grocery stores, as opposed to simply submitting orders to restock shelves in connection with sales that had previously been made by other E.M.D. employees.
A Maryland U.S. District Court judge held that the employees were entitled to overtime pay, concluding that while E.M.D. had proven that there was a “possibility” that the employees had made the “sales,” the company had not established by clear and convincing evidence that the outside sales exemption applied. On appeal, the Fourth Circuit affirmed the ruling, likewise applying the “clear and convincing” evidentiary standard.
Supreme Court’s Ruling
The Supreme Court vacated the Fourth Circuit’s decision, holding that an employer need only prove by a preponderance of the evidence that an employee qualifies for an FLSA exemption in order to prevail in a misclassification suit.
In support of its ruling, the Court explained that the preponderance-of-the-evidence standard is the default evidentiary standard in federal civil litigation, and that courts may apply a higher standard of proof in only three instances:
• When required by statute;
• When required by the Constitution; or
• When the government seeks to impose an unusually coercive action against an individual (e.g., stripping a person of their citizenship).
The Supreme Court noted that the “preponderance” standard likewise applies in other employment-related cases that “vindicate important public interests,” such as employment discrimination claims.
The Court remanded the E.M.D. Sales case to the district court to consider the employees’ claims applying the preponderance-of-the-evidence standard.
Takeaways For Employers
The E.M.D. Sales decision ensures that the same evidentiary standard will apply to cases involving federal FLSA exemptions in all federal judicial circuits, and that employers will not face a heightened level of scrutiny in such cases.
At the same time, E.M.D. Sales should serve as a reminder to employers of the importance of properly classifying employees as exempt or non-exempt by looking closely at the job duties actually performed by each employee and evaluating these duties in light of the applicable exemption standards. Employers should periodically and systemically reevaluate their classification decisions in order to minimize the risk of time-consuming and costly litigation.
Finally, employers should bear in mind that more stringent legal standards may apply to classification decisions under some states’ overtime laws.
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If you have questions about the E.M.D. Sales decision or need assistance with worker classification issues, please reach out to one of our experienced employment law attorneys.