Exempt vs. Non-Exempt Employees

Key point 8-17. The Fair Labor Standards Act mandates that employers pay the minimum wage, and overtime compensation, to employees who work for an enterprise engaged in commerce. There is no exception for religious organizations, but there are exceptions for certain classifications of employees.

* A federal court in Maryland addressed the question of whether a secretary is entitled to overtime compensation for hours worked in excess of 40 during the same work week. A former secretary (the "plaintiff") of a charitable organization sued the charity for failing to pay her overtime compensation in violation of the Fair Labor Standards Act (FLSA). In general, the FLSA requires employers to pay compensation at a rate of one and half times a non-exempt employee's regular rate of pay for hours worked in excess of 40 in the same week. The plaintiff worked for the charity from 1982 until 2005, holding a variety of positions, all of which involved secretarial duties. When she began, she was a nonexempt "social services secretary." In 1985, plaintiff's title became " administrative secretary." Later, her title became " executive secretary." During her tenure as "executive secretary" she worked as an assistant to the executive director and exercised some supervisory responsibility over one or more others.

Until 1992, the charity designated plaintiff as a non-exempt employee under the FLSA, and paid her overtime compensation. In 1992, the charity designated her as exempt under the FLSA and discontinued paying her overtime compensation. At that time, the plaintiff signed an employment agreement in which she acknowledged her exempt status.

Plaintiff claims that, in 2002, she began working overtime hours. Upon inquiring about her exempt status, plaintiff was told she was exempt because she "supervised the receptionist." Plaintiff asserts that she did not have this supervisory role, which she says was a minor part of her duties in any event, until more than eight years after the company first designated her as exempt. There was no receptionist position until then.

The charity did not require exempt employees to record daily hours worked but only whether they were present on a particular day, recording eight hours regardless of the actual hours worked. Plaintiff adhered to this policy, and so she had no detailed accounting of her actual hours after 1992.

Plaintiff's employment formally terminated in 2005, and later that year she filed her lawsuit seeking unpaid overtime compensation for the period 2002 through 2005. The charity insisted that she was an exempt administrative employee under FLSA, and therefore it was under no obligation to pay her overtime compensation.

The court began its opinion by noting that defendants in FLSA cases "have the burden to prove by clear and convincing evidence that an employee qualifies for exemption …. Exemptions from the FLSA's overtime pay requirements are narrowly construed … in order to further Congress' goal of providing broad federal employee protection."

Department of Labor regulations define what constitutes employment in an executive or administrative capacity. Under the regulations, to show that an employee is exempt as an administrative employee, an employer must show that its employee is one who is "(1) compensated on a salary or fee basis at a rate of not less than $455 per week; (2) whose primary duty is 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 (3) whose primary duty includes the exercise of discretion and independent judgment with respect to matters of significance." 29 C.F.R. § 541.200(a).

The plaintiff conceded that the charity satisfied the first of these elements. The dispute was over the final two elements. As to the second element, the court noted that "although it is clear that the plaintiff's work was non-manual office work, the issue presented is whether it was directly related to the management or general business operations of her employer. To meet this standard, the charity must show that she engaged in activities such as running the business itself or determining its overall course, not just in the day to day carrying out of business affairs."

The court concluded that "a reasonable jury could easily conclude that plaintiff's work was essentially and predominantly clerical in nature, and not administrative or managerial. Indeed, her former boss described her duties, in part, as 'providing secretarial support across various departments' including scheduling and dealing with vendors. Likewise, plaintiff described at length in her deposition her secretarial duties, which included ordering supplies, taking minutes at company meetings, completing forms, and, under supervision, distributing petty cash."

The charity pointed to the plaintiff's job description, which gave her "authority to delegate assignments" and authority to oversee the receptionist, as evidence that she worked in an administrative capacity. Defendant also argues that plaintiff agreed to this job description. The court was unimpressed, noting that "the job description is not the most important consideration—her actual duties are." It also noted that many if not most of the duties described in the job description "may be viewed as clerical duties that are quite common for secretaries and not essentially managerial. The description includes duties such as having authority from the executive director to delegate assignments to be completed, overseeing all work completed by the receptionist, and directing her in order of priorities, and maintaining special events. Simply speaking, the existence of a hierarchy among clerical staff does not mandate the conclusion that the plaintiff's work was directly related to management or general business operations."

In summary, the court concluded that the charity had failed to prove, by clear and convincing evidence, that the plaintiff's duties qualified for the administrative employee exemption from the FLSA.

The court also concluded that the charity failed to prove the third element of its defense, namely, that her primary duties include the exercise of discretion and independent judgment with respect to matters of significance. It observed: "While it is clear that some of plaintiff's duties entailed the exercise of discretion and independent judgment, e.g., meeting with office equipment dealers and evaluating their prices … those duties were not her primary duties …. Moreover … as to those of her duties classified as among her primary duties, the exercise of discretion and independent judgment in the performance of such duties was not in respect to matters of significance." As a result, the court ruled that the charity had failed to establish that the plaintiff was an exempt administrative employee under the FLSA.

The charity argued that the plaintiff's enjoyment, over many years, of the benefits of exempt employee status should preclude her overtime claim. These benefits included flexible hours, longer lunches, and working less than full days. The court found this defense "interesting," but refused to recognize it.

Finally, the charity argued that the plaintiff's evidence for overtime hours actually worked was too speculative, since no records were kept. The court agreed that this was a problem, but concluded that she "has projected sufficient evidence to get to the jury as to some amount."

Application. This case is important for the following reasons:

First, it provides a helpful interpretation of the "administrative" employee exemption under the FLSA, and confirms that some "executive secretaries" will not qualify for exemption under FLSA. This means that they are entitled to overtime pay, and that a failure on the part of a church to recognize this obligation may lead to a significant unbudgeted and uninsured liability.

Second, it demonstrates that an employer cannot make an employee exempt under the FLSA by simply reclassifying the employee as exempt, or by changing the employee's job description if this does not accurately reflect the actual duties performed.

Third, employers must establish that an employee is exempt under FLSA by clear and convincing evidence. It is imperative for church leaders to understand the significance of this. Clear and convincing evidence is a more difficult burden of proof than the typical "preponderance of the evidence" standard that applies in most civil cases. This makes it more difficult for an employer to establish that an employee is exempt under FLSA. As a result, churches should not presume that an employee is exempt under FLSA without clear and convincing evidence that this is the case. Doubts should be resolved against exemption. If there is any doubt, legal counsel should be consulted. Remember, treating a non-exempt employee as exempt can lead to a significant liability for unpaid overtime compensation. Bertrand v. Children's Home, 489 F.Supp.2d 516 (D. Md. 2007).