A Fair Reading For Exemptions: The Supreme Court Changes the Rules for Interpreting Exemptions Under the FLSA

They say big things come in small packages. Never was this adage more true than of the Supreme Court’s recent decision in Encino Motorcars, LLC v. Navarro.  In one paragraph, the High Court announced a change in how courts should interpret exemptions from the Fair Labor Standards Act’s (FLSA) requirements that will likely have broad implications for FLSA cases involving exemptions going forward; and may even stem the seemingly endless tide of FLSA lawsuits.

As background, the FLSA generally requires covered employers to pay employees at least minimum wage for all hours worked and overtime at a rate of one and one-half the employee’s regular rate for hours worked over 40 in a workweek.  However, the FLSA contains numerous exceptions – known as “exemptions” – to its minimum wage and overtime requirements.  For example, many employers claim that their salaried “administrative,” “executive,” or “professional” employees are exempt from the FLSA’s minimum wage and overtime requirements.

Given that the FLSA’s exemptions are often ambiguous, it is sometimes difficult for employers to determine whether an employee or group of employees meets a particular exemption.  In court, employers faced an uphill battle when defending their classification decisions because courts routinely held that the FLSA’s minimum wage and overtime requirements were the rule and that exemptions should be “narrowly construed” against the employer.  In effect, this meant that, whenever a court was in doubt about whether an exemption applied, it would rule against the employer and find the employee non-exempt; meaning the employer was liable for back wages, liquidated (double) damages and attorneys’ fees.  Indeed, in some courts, the “narrow construction” amounted to a judicial thumb on the scale in favor of employees’ arguments that an exemption did not apply.  Given that exemptions often covered numerous employees, the principle that FLSA exemptions should be construed narrowly has made FLSA actions extremely attractive to plaintiffs and their attorneys. Not surprisingly, the number of FLSA lawsuits has grown in recent years (though there is some indication they may have recently levelled-off).

In Navarro, the Supreme Court made a fundamental change in how courts are to construe exemptions to the FSLA.  The Supreme Court expressly disavowed the familiar “principle” that “exemptions to the FLSA should be construed narrowly.” It held that such a “narrow-construction relies on the flawed premise that the FLSA ‘pursues’ its remedial purpose ‘at all costs.’”  Instead, the Court held that exemptions “are as much a part of the FLSA’s purpose as the overtime-pay requirement.” Thus, the Supreme Court directed that courts give exemptions “a fair reading.”

The significance of the Court’s holding on this issue is difficult to overstate. The Supreme Court’s directive to give exemptions a “fair reading” seriously undermines the reasoning of countless FLSA decisions issued during the last sixty years.  After Navarro, courts should no longer apply the FLSA’s minimum wage and overtime requirements generously while construing exemptions sparingly.

The full impact of the Supreme Court’s ruling in Navarro will take years to determine.  Clear violations of the FLSA by an employer will remain an attractive target.  But FLSA plaintiffs’ attorneys and their clients will now have to think as hard about filing close cases involving exemptions as the employer did when it made the classification decision.

The St. Louis employment attorneys at McMahon Berger have been representing employers across the country in labor and employment matters for over sixty years, and are available to discuss these issues and others. As always, the foregoing is for informational purposes only and does not constitute legal advice regarding any particular situation as every situation must be evaluated on its own facts. The choice of a lawyer is an important decision and should not be based solely on advertisements.