FLSA Exemption’s 3-Part Test: How to determine whether an employee falls under the administrative employee exemption.

In recent months the U.S. Department of Labor (DOL) has renewed its focus on combating employee misclassification, and there’s been a rise in the number of wage-and-hour lawsuits. The underlying issue: workers are challenging their designation as exempt employees under the Fair Labor Standards Act (FLSA).

In Mullins v. Target Corp. (No. 09-07573, N.D. Ill., 2011), Mullins began working in the Target retail chain’s Assets Protection Division as an assets protection team leader, an exempt position. About two years later, Mullins was promoted to investigator, the position of question in this case. As an investigator, Mullins was responsible for identifying and conducting investigations of fraud and theft at several Target stores. Duties included analyzing information, evaluating potential strategies for approaching investigations, interviewing informants and suspects, and developing case plans.

Unpaid Overtime?
Mullins brought suit against Target for unpaid overtime wages under the FLSA and the Illinois Minimum Wage Law. Target moved for summary judgment on both claims. The point of contention was whether the FLSA exempted Mullins from eligibility for overtime under the “administrative employee” provision.

The verdict: The district court held that Mullins was an “exempt administrative employee” and granted summary judgment for Target.

Employee Classification: FLSA Exemption’s 3-Part Test

The FLSA exempts those employed in a “bona fide executive, administrative, or professional capacity” from overtime pay. There is a three-part test to determine whether an employee falls under the administrative employee exemption:

1. Employee must be compensated on a salary or fee ¬basis at a rate of not less than $455/wk.
2. Employee's primary duty must involve office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers.
3. Employee's primary duty must include the exercise of discretion and independent judgment with respect to matters of significance.

Employers “Must Do’s”
Even though Target prevailed in this case, it serves as a cautionary tale that emphasizes the importance for employers to properly classify their employees.

Employers bear the burden of proving that an employee is exempt under the FLSA in addition, they must be prepared to justify their classifications.

Things to consider...
1.To minimize your potential FLSA liability, it’s wise to carefully review your wage-and-hour practices and policies.
2.Ensure employees are properly classified based on the job duties they actually perform. Failure to do so could lead to significant costs and liabilities for overtime, attorneys’ fees and penalties—in addition to the potential for a class-action lawsuit.

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