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What you should know about the highly compensated exemption to overtime pay

The Fair Labor Standards Act (“FLSA”) is the federal law governing unpaid overtime compensation. The Act spells out the laws employers must meet when they are paying their employees. However, section 13(a)(1) of the FLSA provides an exemption from both minimum wage and overtime pay. Such regulations contain a special rule for “highly-compensated” workers who are paid annually $100,000 or more.

What is the highly compensated exemption?

An employee is considered highly-compensated if:

  1. The employee earned $100,000 or more, which includes at least $455 per week paid on a salary basis;
  2. The employee’s primary duty includes performing office or non-manual work; and
  3. The employee customarily and regularly performs at least one of the exempt duties or responsibilities of an exempt executive, administrative or professional employee.

An employee can be classified as an exempt, highly-compensated executive if that employee directs the work of two or more employees, even though that worker does not meet all of the other requirements.

How do courts interpret the highly compensated exemption?

Illustrative of this concept is Zannikos v. Oil Inspections, Inc., 2015 WL 1379882 (5th Cir. Mar. 27, 2015). There, the plaintiff who was employed as a marine superintendent, on behalf of all similarly situated employees, filed a FLSA unpaid overtime action in the Southern District of Texas against his employer, Oil Inspections USA. The Plaintiff’s job required him to monitor and observe oil transfer operations where he also served as quality control by inspecting, loading and discharging equipment, and identifying problems with the safety and equipment. Id. The Defendant alleged that the marine superintendent jobs were exempt under the FLSA because they had the same duties as administrative employees. Id. The Defendant further stated that they were exempt because they were considered highly-compensated employees. Id. The District Court entered an order saying that the Plaintiff was exempt from the FLSA because he was highly-compensated. The Plaintiff appealed this rule, but the Court of Appeals affirmed the ruling. Id. 

On appeal, the defendant argued that the marine superintendents fell under the administrative exemption. The Court, having reviewed the requirements above, said that the primary duty of those marine superintendents was inspecting, recommending, and overseeing  management and general business procedures. However, the marine superintendents lacked the necessary discretion and independent judgment because a lot of their work was largely dictated by the Defendant. The employees did not use their own independent judgment; therefore, they are not exempt. As such, the court said that the marine superintendents were not administrative employees, but even after all this, the Court held the the overtime pay requirements did not apply to marine superintendents because they were exempt highly compensated employees. 

The significance of this holding is that employees who earn over $100,000 and who exercise independent judgment or participate in general business operations may not be subject to the FLSA’s overtime laws. However, this exemption is narrowly construed in favor of workers and you should not assume that merely because you make more than $100,000 in a year that you are not owed overtime pay.  Instead, you should talk to an experienced overtime attorney to learn of your legal rights.  Josh Borsellino is an experienced Texas overtime pay attorney who represents oilfield workers. He offers free consultations and only gets paid if you get paid. He can be reached at 817.908.9861 or 432.242.7118.