"White collar" does not define an exempt or a non-exempt employee

by on March 30, 2009 · 0 Comment POSTED IN: HR Info Center

How to avoid the new wave of FLSA overtime lawsuits from ‘managers’

Ah, for the time when white-collar and blue-collar meant something. Those were the days… It used to be pretty simple to tell if an employee was an exempt employee or not under FLSA regulations. Now? Not so much. And it can mean big trouble if you make the wrong call.

Source of confusion: As the economy evolves away from manufacturing, more people in service industries – although they may wear white shirts – do the kind of job that can be considered blue-collar. That’s to say, a job that’s repetitive and doesn’t require a lot of initiative.


It doesn’t help that the law covering exempt vs. non-exempt, the Fair Labor Standards Act (FLSA), is 70 years old. Although it’s been amended many times – and DOL’s latest implementing regs date back only three years – the FLSA in many ways still reflects the old economy. So for HR pros, deciding when a “white-collar” employee has to be paid OT can be dicey, even if you’ve checked the regs.


Upping the stakes: Employees and plaintiffs’ lawyers have figured out that FLSA overtime claims are a legal goldmine. It’s an especially rich one when an organization employs large numbers of white-collar people in repetitive jobs.


The FLSA overtime and state wage-hour laws make it easy for these lawyers to file class action suits representing a handful or hundreds of employees.

If you’re hit with a FLSA overtime class action lawsuit, it may not matter how strong your case is: The expense of defending such maxi-suits pushes many companies to settle and cut their losses.

These settlements are enough to make a stone weep: $18 million for Starbucks store managers; $98 million for brokers at Smith Barney; $27.5 million for software engineers at Siebel Systems. Some of the biggest settlements occur in California, whose laws are extra-favorable to OT claims.

But class action suits alleging unpaid OT are cropping up all over the country. Some – but not all – of the positions likely to cause trouble:

  • store managers and assistant managers
  • mortgage consultants
  • insurance claims adjusters
  • professional firm staff,
  • pharmaceutical sales reps.

So how do you protect your company? Let’s look at the FLSA overtime regulations and draw some conclusions.

White-collar exemptions fall into five categories: executive, administrative, professional, sales and computers. Of these, the first two are the most likely to give you exempt/non-exempt headaches, as their definitions are most debatable.

The executive exemption – the one for managers – applies to people who make more than $455 a week, are salaried, supervise two or more other employees, and have the “primary duty” of managing a department or function. “Primary duty” is the tricky part.

Calling an employee a manager without giving her managerial tasks – such as hiring, evaluating and disciplining employees, planning and scheduling work, monitoring safety, etc. – is likely to create a false exemption. Conversely, a manager can devote substantial time to non-managerial activities, as long as he has managerial duties, without forfeiting his exemption.

Rule of thumb: Ask yourself to whom a phone call for “the boss” would be directed if it arrived in a department or during a shift.

That person is likely, although not certain, to be exempt. For administrative employees, the issue is slightly different. They still must make more than $455 a week and be salaried, but they also must exercise “independent judgment and discretion about matters of significance.”

That means ordinary clerical workers wouldn’t qualify for the administrative exemption.

Ask yourself:

  1. Does this employee buy paper clips or $10,000 office equipment?
  2. Does she formulate company policy?
  3. Can she deviate from policy without prior approval?

These three questions are the crux of the exempt non-exempt debate.


Above all, don’t:


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