Misclassifying an employee as exempt from overtime can cost employers potentially huge payouts of past overtime. Last year alone, the federal Department of Labor ordered employers to pay $134 million in back wages to misclassified employees. And that doesn’t count court judgments. Now a new Ninth Circuit Court of Appeals decision may cause you to reconsider how you classify administrative employees, particularly customer service employees, under federal and state wage and hour laws.
Service Engineer Sues For Overtime
Rex Bothell was a field service engineer for Phase Metrics, a robotic equipment manufacturer. He mainly worked on-site for Max Media, one of Phase Metrics’ largest clients.After a year of employment, Bothell sued Phase Metrics, claiming he was entitled to back overtime pay because he frequently worked more than 40 hours a week. Phase Metrics countered that Bothell was properly classified as an exempt administrative employee, thus excluding him from overtime under federal and state law.
The HR Management & Compliance Report: How To Comply with California Wage & Hour Law, explains everything you need to know to stay in compliance with the state’s complex and ever-changing rules, laws, and regulations in this area. Coverage on bonuses, meal and rest breaks, overtime, alternative workweeks, final paychecks, and more.
Administrative Exemption Test
The Ninth Circuit Court of Appeals, which covers California, said that Bothell’s case could go forward. The court applied the following three-prong test to determine whether Bothell qualified for the administrative exemption:
- Salary. The court concluded that Bothell met the minimum salary requirement of not less than $250 per week under federal law or $2,340 per month under state law.
- Primary duties. The employee must perform nonmanual work directly related to the employer’s management policies or general business operations. This meant, the court explained, that Bothell had to participate in running the business or determining its overall policies. Exempt administrative work often includes advising management, planning, negotiating, representing the company, purchasing, promoting sales, and business research.Bothell contended that his job mostly included the nonadministrative tasks of installing, troubleshooting and maintaining Phase Metrics products. Phase Metrics, however, argued that these responsibilities were insignificant and that his primary role was as an account manager, performing duties such as staffing, supervising and billing for Max Media. Phase Metrics also claimed that Bothell had developed its warranty policy and acted as an advisor to the protection department. Because the nature of Bothell’s job duties was in dispute, the court said that a jury would have to decide whether the work was exempt.
- Independent decisions. The employee must customarily and regularly exercise discretion and independent judgment, and the court said that this requirement is satisfied if the employee can compare, evaluate and choose from possible courses of conduct. Because Bothell and Phase Metrics disputed the extent to which Bothell was permitted to make decisions and the importance of the decisions, the court said this issue, too, was for a jury.
Update Job Descriptions
The administrative exemption can be confusing to figure out. But a good place to start is to update your job descriptions to make sure they reflect the employee’s duties and the time spent on them. An inaccurate and outdated job description won’t be much help if you have to justify an employee’s exempt classification.