Clarification of the Administrative Employee Exemption of the FLSA

Recently in a Seventh Circuit Court of Appeals case, Verkuilen v. Mediabank, LLC, the court analyzed the administrative employee exemption to the Fair Labor Standards Act (“FLSA”). 646 F.3d 979 (7th Cir. 2011). Penny Verkuilen was an account manager for Mediabank, which “provides computer software to advertising agencies.” An account manager’s job is to “go out, understand [the customer’s requirement], build specifications, [and] understand the competency level of [the] customers.” Penny spent much of her time on the customers’ premises, training their staff on the software and answering any questions that came up.

The Seventh Circuit stated that to be considered to work in an administrative capacity, the employee needed to be paid more than $455 a week (Penny satisfied this requirement) and her “‘primary duty’ must require both ‘the exercise of discretion and independent judgment with respect to matters of significance’ and ‘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.'” Judge Richard Posner indicated that the “primary duty” requirements were vague, but he saw what the provisions were getting at: paying someone overtime wages does not coincide with an employee that works significantly “off the employer’s premises, where he can’t be supervised and so if entitled to overtime would be tempted to inflate his hours.” Id. at 981. Put another way, Judge Posner felt that the purpose behind this provision, prohibiting overtime wages for employees who (1) spend much of their time off work premises and (2) who receive little employer supervision, was to prevent employees from being tempted to inflate the amount of hours worked (hours which the employer likely could not verify one way or the other). This capacity as an administrative employee also may involve an employee’s need for independent judgment relating to the business.

The court found Penny to be the “picture perfect example” of someone not intended to receive overtime pay. She spends much of her time away from Mediabank’s office overseeing the software that clients receive. In finding that Penny’s job should be considered that of an administrative employee, in which FLSA’s overtime wage requirement would not apply, the Seventh Circuit found that her “primary duty was directly related to the general business operations both of her employer (in a consulting role) of the employer’s customers.” Id. at 982-83.

For employers, this has several implications. When an employee exercises independent judgment and discretion, has fluctuating hours, is paid above the required wage of $455 a week, and spends a significant amount of time away from the employer’s office performing non-manual work, that employee may be performing as an administrative employee in the eyes of FLSA, for which overtime pay is not required. Before making a decision whether or not a work is entitled to overtime as an administrative employee, employers need to examine the FLSA’s requirements carefully to avoid employee lawsuits for unpaid wages.

Jeremy Fetty is a partner in the law firm of Parr Richey Obremskey Frandsen & Patterson with offices in Lebanon and Indianapolis. He often advises businesses and utilities (for profit, non-profit and cooperative) on organizational, human resources, and transactional matters and drafts and reviews commercial contracts.

The statements contained herein are matters of opinion and general information only and are not to be considered legal advice and should not be construed to form an attorney-client relationship. If you have any questions regarding this article, please contact an attorney.