BY Donald J. Spero, Esq.

INTRODUCTION

Employers are well advised to pay close attention to the overtime requirements of the FLSA. In actions brought by employees for unpaid overtime compensation the employer may be liable for unpaid wages that go back as far as three years from the date the suit is filed. There is additional potential liability for liquidated damages equal to the amount of unpaid overtime compensation. Employees may file suits for unclaimed minimum wages or overtime. They may sue on their own behalf as well as on behalf of other similarly situated employees who consent in writing to become parties to the suit. Employers may be liable for the employees' attorneys' fees in addition to unpaid wages and liquidated damages. The Secretary of Labor may also file injunction actions on behalf of all affected employees to recover minimum wages or required overtime compensation. The FLSA also prohibits retaliation against one who has made a complaint or caused any action to be instituted under the statute. There is some authority allowing plaintiffs who have proved retaliation to recover for emotional distress and punitive damages. Travis v. Gary Community Health Center, Inc., 921 F. 2d 108 (7th Cir. 1990)

There are pages upon pages of reported decisions dealing with practically every key phrase relating to the overtime compensation requirements of the statute and the exemptions from those requirements. Each of the reported cases represents costly attorney's fees, time taken away from the essential business of the employer and rancorous employer/employee conflict. Where the judgment has gone against the employer, there has been the cost of paying the judgment to contend with. That judgment may have included liquidated damages in addition to the cost of the unpaid compensation and the employees' attorney's fees. The burdens of proof on many of the key issues lie with the employer.

With the foregoing in mind certain precautions are in order. The first is for the employer to avoid being penny-wise and pound foolish. Imposing conditions that may compromise the exemptions from overtime pay or claiming exemptions for employees whose duties do not justify them can prove quite costly. If the question is close, it is prudent to err on the side of the employee. Carefully examine the duties and compensation of those for whom one of the exemptions from overtime is claimed to determine that they fulfill the requirements of the regulations. Finally, in close cases, it may be advisable to obtain a letter of opinion from the Department of Labor.

The requirement for an employer to pay overtime is set out in Section 7(a) of the Fair Labor Standards Act, 29 U.S.C.A. §207(a).

The statute bases overtime compensation on a forty hour work week. With most employers it is a work week based on a calendar week of Sunday through Saturday. However, the FLSA does not require that the work week begin on any given day of the week. It is merely necessary that the starting day remain consistent so that the employees do not work more than forty hours within a 168 hour week without receiving overtime compensation. The FLSA does not limit the number of hours that one can be employed in a given day without receiving overtime pay nor does it limit the days in the week or total amount of hours in the week that an employee may be required to work. The FLSA does not require rest periods. State statutes should be consulted for coverage of these questions. The FLSA merely requires that overtime must be paid for hours in excess of forty in a work week.

Two key phrases on which to focus in Section 7(a) of the statute are "no employer shall employ" and "regular rate."

The phrase "no employer shall employ" might require p ayment for "off the clock" work by the employee that is not specifically authorized by the employer. The statute gives a broad definition to the term "employ." It provides in 29 U.S.C. §203(g) that "employ includes to suffer or permit to work." When an employer demands production standards that cannot be met within the forty hour week, the employer may be found to have suffered or permitted the employee to work overtime hours. In such a case, the employer must pay for off the clock overtime work the employee performs to meet the employer's demands. The employer will be said to have "constructive knowledge" if not actual knowledge that the employee was working off the clock overtime hours. Knowledge of a lower level supervisor that the employee is working off the clock may be imputed to the employer. Where an employee complains that the expected productivity cannot be met in the allotted time, the employer should determine the validity of the complaint. However, the employer may avoid liability for off the clock work in excess of forty hours where it has specifically prohibited employees to work overtime without special permission or if the employer truly lacks knowledge and did not consent to the off the clock work.

The "regular rate" on which time and one-half calculations must be based is "...the hourly rate actually paid the employee for the normal, non-overtime work week for which he is employed." The regular rate is an hourly rate. It is permissible for employees to be compensated on some basis other than an hourly rate such as a piece rate, salary or commission. However, overtime compensation must be calculated on an hourly rate derived from such other means of compensation. If the employee is paid a fixed wage the regular rate for the employee is the wage divided by the number of hours the wage is intended to compensate.

Section 7(e) of the FLSA defines the regular rate "...to include all remuneration for employment paid to, or on behalf of, the employee..". That section contains seven specific exclusions from the regular rate. The exclusions consist of types of compensation such as gifts, pay for vacation or illness absences, discretionary bonuses and profit sharing contributions. These items do not have to be added to the employee's wages to determine the regular rate. Certain other payments are not only excluded from the employee's regular rate, but they also may be counted as overtime paid to the employee. They are premium pay for work in excess of eight in a day or for work in excess of the employee's normal working hours and weekend or holiday premium rates. Also excluded from the regular rate and creditable toward overtime pay are extra compensation such as premium pay paid under a contract or collective bargaining agreement for work in excess of the employee's normal workday or work week. In such cases, the contract must provide compensation of at least one and one-half times the rate established in the contract for like work during the regular workday or work week.

In calculating the regular rate employers should carefully consider all other types of compensation and fringe benefits paid to the employees. If the compensation does not fit into one of the specific statutory exclusions it must be included in the regular rate. Some examples of types of compensation that must be included in the hourly rate in addition to wages are:

1. Premiums paid for productivity .

2. Commissions paid to the employee.

3. The fair value of payments made to the employee other than in cash such as lodgings.

4. Tips.

Some industries employ persons whose jobs may require them to work varying hours from week to week. Possible examples are outside service technicians, insurance adjusters, newspaper reporters and photographers. It is to the advantage of these employees to provide them minimum guaranteed weekly earnings so that they will not receive low paychecks in weeks when the work declines. Section 7(f) of the Act permits an employer to pay the same total compensation each week to employees who are subject to working overtime and whose hours of work, both regular and overtime hours, vary from week to week. This type of compensation arrangement is known as a "Belo Plan." The name is derived from a 1942 Supreme Court decision in the case of Walling v. A.H. Belo Corporation In the Belo case, the court authorized the establishment under certain conditions of a predetermined guaranteed rate. Congress amended the FLSA in 1949 to incorporate the reasoning in the Belo decision by adding Section 7(f).

The requirements of a Belo Plan are as follows:

1. It is available only for employees whose regular time and overtime varies from week to week because of the demands of the particular industry or type of work. The irregular hours must be necessitated by the requirements of the job.

2. The employees must be compensated at a fixed weekly rate predetermined either by individual contracts or in a collective bargaining agreement. The fixed rate may not be determined retroactively. The employee must be informed in advance of any period in which he or she is compensated under a Belo plan.

3. The fixed rate must be no less than the legal minimum wage for the first 40 hours and compensation for one and one-half times that rate for a fixed number of hours over forty. When the employees' hours exceed the number of hours for which the fixed rate is calculated, the employees must receive extra compensation at the specified overtime rate.

A Belo Plan might, for example, fix a regular rate of $10 for the first 40 hours. Therefore it must provide at least $15 per hour for hours over 40. If 50 hours is the basis for the compensation, the employee must be paid no less than $550 each week (40 x $10 plus 10 x $15), even in work weeks of fewer than 40 hours. The employee would be entitled to no additional pay until his working hours exceeded 50. Work in excess of 50 hours would be compensated at the rate of $15 per hour.

An employer may pay an employee who works a fluctuating workweek a fixed salary with the advance understanding that the salary constitutes the employee's straight time hourly rate for all time worked. Under such an arrangement the employer pays the employee one-half that regular rate for hours over forty as the employee has already received the regular rate for those hours. Consider for example an employee who receives a fixed wage of $450.00 per week and who works 45 hours in one week and 50 hours in the next week. In the first week the individual's regular rate is $10.00. ($450.00 divided by 45) The employee is entitled to receive $5.00 per hour (one-half his regular rate) for the five hours worked in excess of 40 since he has already received his straight time of $10.00 per hour for those hours. In the next week the employee's regular rate is $9.00. ($450.00 divided by 50) In that week the employee is entitled to receive $4.50 for each of the 10 hours worked in excess of 40.

A special provision of the Act allows public employees to accumulate leave time in place of being compensated in money for work in excess of 40 hours per week. This accumulated leave is called "compensatory time" or "comp time." The requirements for comp time are set out in Section 7(o) of the FLSA. The leave accumulated for comp time must be at least one and one-half hours for each hour of work for which overtime is required.

Please be aware that comp time applies only to public employees, i.e., "employees of a public agency which is a state or political subdivision of a state, or interstate government agency." It does not currently apply to employment in the private sector. There is legislation pending in Congress to amend the FLSA to make comp time available to employees in the private sector. Keep your eyes open for this development.

Comp time may only be paid pursuant to a collective bargaining agreement between the employees' duly authorized bargaining agent and the employer or for those not covered by a collective bargaining agreement pursuant to an understanding between the employer and employee reached before the work is performed. If an employee has unused comp time at the time of termination of employment, the employee must be paid for the unused time at a rate based on no less than the average regular rate calculated over the last three years of employment or the employee's final regular rate, whichever is higher. Employees who do not work in public safety activity, emergency response activity or seasonal activity may accrue no more than 240 hours of comp time. Employees who do work in public safety may accrue as many as 480 hours of comp time. The employee with accrued comp time who requests time off to use it must be permitted to do so within a reasonable time after making the request.

A non-exempt employee is entitled to overtime for hours worked in excess of 40. Some special considerations may have to be taken into account in determining whether certain hours should or should not be counted as time worked. Section 4(a) of the portal to portal act, 29 U.S.C. §254(a), excludes from hours worked time spent walking, riding or traveling to or from the actual place of performance of the principal activity of the employee or activities which occur prior to the beginning or after the end of the workday. A recent amendment to that statute excludes from time worked travel time in an employer's vehicle for commuting if the arrangement is set out in an agreement with the employee or the employee's bargaining representative.

In some cases, time during which the employee is not actually working may be compensable as "on call time." Whether such time is compensable depends the extent to which the employee can use the on call time effectively for the employee's purposes. If the employee is generally free to come and go and engage in personal activities subject to being " beeped" to come to work, the on call time is not compensable. Even on call time during which the employee is required to remain on the employer's premises would not necessarily be compensable where the employee is relatively free to pursue personal interests.

In a recent case an employer was held liable for a large back pay and liquidated damages judgement where it declined to pay outside craftspeople for their 30 minute lunch break during which they were required to remain at their work site when they worked outdoors. (Reich v. Southern New England Communications Corp. 2^nd Cir Nos., 95-6207 and 95- 6239 July 31, 1997) Their presence was necessary at the site to protect the public. The court found that their lunch period was time worked as their presence at the site was for the benefit of the employer. They were actually working during their meal period as by their presence they were providing security services. See also Abendschein v. Montgomery County Md., Civil Action No. -AW 96-3392, Nov. 4, 1997 where prison correction officers who were subject to call during their meal periods were considered to be working. They were required to remain on the premises and to keep their radios turned on in case they were needed for an emergency. The time was compensable they were not completely relieved of their duties during meal breaks.

The good news for employers is that they do not have to worry about paying every employee overtime for hours in excess of forty in the work week. The bad news is that there is an additional set of rules, regulations and precedents to apply to determine the varied categories of employees who are exempted. Exemptions are set out in two sections of the FLSA, Sections 7 and 13, (29 U.S.C., §207 and §213). Section 7 provides special exemptions for certain commission compensated employees of retail or service establishments, medical establishment employees, and those engaged in public fire protection, public law enforcement and public transportation.

Section 13(a)(1) of the Act contains the "white collar" exemptions for those "...employed in a bona fide executive, administrative or professional capacity (including any employee employed in the capacity of academic administrative personnel or teacher in an elementary or secondary school), or in the capacity of outside salesmen." In addition to the white collar exemptions, Section 13 provides certain special exemptions for employees of recreational establishments, religious or non-profit educational centers, employees in husbandry or harvesting certain sea plants or animals and agricultural employees. There are so many specific and obscure exemptions that it is best for employers to peruse Sections 7 and 13 as well as the regulations interpreting those sections issued by the Secretary of Labor, to determine if any of their employees qualify.

Employees Employed in a Bona Fide Executive, Administrative or Professional Capacity.

The FLSA authorizes the Secretary of Labor to define and limit by regulations the requirements for employees to qualify for the executive, administrative and professional exemptions as well as the exemption for outside salesmen allowed in 29 U.S.C. §213(a)(1). To be exempted from the overtime compensation requirements of the FLSA as an executive, administrative or professional employee, the individual's employment must fulfill two requirements. It must meet the "salary test" and the "duties test."

While there is variance in the duty requirements for each of these three exemptions, there is one requirement that they all have in common under the regulations. In order to qualify, the employees must be compensated by a salary.

The required salary amounts will vary with the nature of the exemption. They are set out in 29 CFR §541.1(f), 541.2(e) and 541.3(e). However, the definition of salary basis in 29 CFR §541.118(a) is the same, for executive, administrative and professional employees.

This requirement for exemption is known as the "salary basis" test. Compensation is not considered to meet that test where it is subject to certain deductions.

The salary basis test is not met for employees whose compensation is subject to deductions "...occasioned by the employer or by the operating requirements of the business." The employee must be paid if he is "ready, willing and able to work." Deductions are permitted when the employee is absent for a day or more for personal reasons other than sickness or accident. Deductions may be allowed for sickness or disability if they are made in accordance with "a bona fide plan, policy or practice of providing compensation for loss of salary occasioned by both sickness and disability." Unpaid leave given to an employee as required by the Family and Medical Leave Act does not negate the exemption.

The exemption is lost if a deduction is made because an employee is absent due to jury duty, acting as a witness in a judicial proceeding or if the employee was on temporary military leave. However, the employer is permitted to offset compensation the employee receives for performing those services.

Although an employee generally will not be exempt if there are disciplinary deductions from the salary, penalties may be assessed "...in good faith for infractions of safety rules of major significance" without affecting the employee's salaried status. Caution should be exercised in imposing penalties for safety rule violations. The regulation limits those rules for which pecuniary penalties can be imposed to rules:

A nurse who received disciplinary suspensions for abrasiveness to fellow staff members, being argumentative, rudeness to a patient's son and failing to respond properly to a patient who was causing problems was found not to be compensated on a salary basis. She was therefore not eligible for the professional exemption and was awarded overtime compensation. Police officers who were subject to disciplinary deductions for failure to report absences from work were found not to be compensated on a salary basis. The reporting requirement was not a safety rule of major significance. Deductions for tardiness and discourtesy are similarly not violations of safety rules of major significance. An error in the exercise of judgment by state police was not a violation of a safety rule of major significance.

In many cases employees have been found not to be compensated on a salary basis where their pay was docked for missing a fraction of a work day. The regulations allow deductions only for absences of "...a day or more for personal reasons, other than sickness or accident." In one case employees whose compensation ranged from $30,000 to $70,000 per year were found to fail the salary basis test where their pay was subject to deductions for partial day absences. However, since the regulations provide that "....the employee must receive his full salary for any week in which he performs any work without regard to the number of days or hours worked" uncompensated layoff or suspension in excess of one week is not inconsistent with the exemption.

Employees who receive payments of sums in addition to their guaranteed salary may still be considered to be compensated on a salary basis. The regulations provide

It follows that salaried employees who also receive an override or commission may be considered to be compensated on a salary basis. Most courts looking at this question have found that overtime payments are not inconsistent with compensation on a salary basis. However, there is a split of opinion among the Federal Appellate Courts on this issue. When additional compensation is based on the number of hours worked rather than given as an incentive to encourage better performance, there is danger of the practice being found inconsistent with compensation on a salary basis.

The Supreme Court recently gave some relief to employers who subject otherwise exempt employees to disciplinary deductions in Auer v. Robbins. That case involved the complaints of police sergeants and a police lieutenant in the St. Louis Police force. The department's Police Manual contained an extensive list of potential disciplinary actions. The manual covered both exempt and non-exempt employees. The court concurred with the view of the Secretary of Labor that the exemption is lost only if there is an actual practice of making disciplinary deductions or a significant likelihood of such deductions. In the Auer case, it was not established that the policy was actually applied to the plaintiffs except for one instance. Therefore the plaintiffs were found to be paid on a salary basis.

One Plaintiff in the Auer case had accepted a disciplinary pay deduction for violating the department's residency rule in lieu of being discharged for the rule infraction. The court preserved the disciplinary exemption in his case by applying the "window of correction" allowed by the regulations.

The court ruled that the one time deduction from the pay of the sergeant who violated the department's residency rule was "made for reasons other than lack of work" and therefore corrective action was permitted." The court further stated that the window of correction was not defeated where reimbursement was not made immediately.

The Federal Appeals Court for the Eleventh Circuit was recently quite generous in allowing a municipal employer to avoid liability under the salary basis test by applying the window of opportunity in Davis v. Hollywood. In the Davis case, after the suit was filed the city reimbursed the employees who had been given unpaid disciplinary suspensions. The city also adopted a policy prohibiting unpaid suspensions for management employees. The appellate court held that the employer properly applied the window of opportunity and therefore was not liable to the employees.

The types of arrangements made for employees who miss work can raise questions as to whether their compensation meets the salary basis test. In Haywood v. North American Van Lines, a salaried employee challenged his employer's practice of requiring employees to find replacements if they wished to miss a scheduled shift. On occasion the employees would either trade shifts with another employee or pay another employee to work their shift. Failure to find a replacement for a missed would result in non- monetary discipline. The court held that this practice was not inconsistent with the salary basis test. The court found that the employer's requirement that an employee make up missed time did not deprive the employee of the administrative exemption. The court note that even if the employee failed to make up the missed time, the individual's salary would not be docked. The court emphasized that non-monetary penalties for missing work are not prohibited by the regulations.

The volumes of reported cases fairly burst with complex litigation involving the question of whether various deductions could be made consistently with the retention of the exemption. Any practice of making deductions from an exempt employee's salary should be carefully considered. The courts reason that the FLSA is a remedial act and exemptions are narrowly construed by the courts in favor of the employee.

The duty requirements vary for the executive, administrative and professional exemptions from the overtime provisions of the FLSA. An employee for whom any of these exemptions is claimed should perform the type of work that the regulations require for the claimed exemption. Cases, like jobs, are very specific. In each instance the job functions must be closely scrutinized to determine if the duties are consistent with what the regulations require for the claimed exemption.

The executive exemption applies to an employee whose primary duty consists of management of an enterprise or a customarily recognized department or subdivision of it; who customarily and regularly directs the work of two or more other employees; who has the authority to hire or fire or whose recommendation as to hiring, firing or advancement is given particular weight and who customarily and regularly exercises discretionary powers. To qualify for the executive exemption the employee must not devote more than 20% (or if in a retail or services establishment more than 40%) of his working time to the performance of duties not directly and closely related to the previously described executive functions. The percentage limitation does not apply to an employee who is in sole charge of an independent establishment or physically separated branches of an establishment or an owner of 20% of the enterprise in which he is employed. An exempt executive employee is required to receive a salary of no less than $155 per week. There is a short test for employees whose salary is not less than $250 a week and whose primary duty consists of the management of the enterprise or a customarily recognized department or subdivision and who customarily and regularly directs two or more other employees.

For management to be a "primary duty" the regulations provide as a rule of thumb that over 50% of the time of the employee should be spent in management duties. This is not a hard and fast rule. Other factors are considered. The frequency with which the employee exercises discretionary powers, the employee's freedom from supervision and the employee's salary in relationship to that of non-exempt employees who perform the non-exempt work the employee performs may also be considered.

In order to meet the requirement that an executive employee manage a customarily recognized department or subdivision, the individual must be more than a mere supervisor. The department must be more than a non-permanent assembly of employees. The requirement that the executive supervise two employees is fulfilled by the supervision of two full-time employees or their equivalent. For example, if the executive supervises four employees, each of whom works one-half days, the requirement will be met.

The requirement that the executive customarily and regularly exercise discretionary powers is not met where the work is merely routine and the exercise of discretion is only occasional. Discretion must be exercised in day to day performance.

As indicated previously, an exempt executive may spend no more than 20% of his time, or 40% if employed in a retail or service establishment, in work that is not directly or closely related to management. Work that is directly or closely related to management consists of various types of otherwise non-exempt work that the executive performs in support of his or her management functions. In a smaller organization or department it may consist of work that would ordinarily be done by a non-exempt specialist such as a timekeeper or supply room attendant. Directly and closely related work may consist of actually working with or closely observing non-exempt employees performing jobs. It may also consist of non-exempt work that an executive must perform in an emergency. As indicated above the limitation on non-directly and closely related work does not apply to an employee who is in sole charge of an independent establishment or physically separate branch nor to the owner of a 20% interest in the enterprise in which he is employed.

There are two general categories of administrative employees, based on the amount of their salaries.

The Long Test for the Administrative Exemption

The "long test" administrative exemption applies to employees whose primary duty consists of (1) the performance of office or non-manual work directly related to management, policies or general business operations or (2) who work in the administration of a school system or educational establishment in work directly related to the organization's academic instruction or training. This exempt administrative employee must customarily and regularly exercise discretion and independent judgment. Additionally, the exempt administrative employee must either (1) regularly assist a proprietor or an executive or administrative employee; or (2) perform work under general supervision along specialized or technical lines requiring special training or (3) execute special assignments under only general supervision. To qualify for the administrative exemption the employee must spend no more than 20% of his work time (or 40% if employed in a retail or service establishment) in activities not directly or closely related to the foregoing activities. Additionally, the employee must receive a salary of no less than $155 per week or if qualifying for the academic administrative exemption the employee must be compensated at no less than the entrance salary for teachers in the school system.

The administrative employees who perform only under general supervision work along specialized technical lines might be advisory specialists to management such as experts, like insurance experts, sales research experts, wage rate analysts, investment consultants, foreign exchange consultants or statisticians. They may also be heads of functional departments such as credit managers, purchasing agents, buyers, safety directors, personnel directors and labor relations directors.

The exempt administrative employees who perform special assignments might include inside employees such as brokers in stock exchange firms or account executives in advertising firms. Various field representatives would fall into this group However it should be remembered that the job title is not a yardstick by which the employee's function is measured. The exemption is based on the nature of the work performed.

A frequent source of controversy in cases involving the administrative exemption is what constitutes "work directly related do management policies or general business operations of [the] employer or .[the] employer's customers." The meaning of the term is not immediately obvious. The regulations provide that work directly and closely related to major policies or general business operations consists of activities relating to the running of the business as distinguished from "production" or sales in a retail or service establishment. Additionally the work must be of substantial importance to the employer. Such functions as advising management, planning, representing the company, purchasing, promoting sales and business research may be directly related to management policies or general business operations. Clerical employees, couriers, operators of expensive machinery and inspectors are not performing work directly related to management policies or general business operations.

In Haywood v. North American Van Lines, supra, the court found that the plaintiff's duties met the directly related test where her job consisted of being in contact with the company's customer's to assure satisfaction where there were claims relating to billing, damages or delay. Her duties included negotiating with customers and adjusting their claims. In Reich v. John Alden Insurance, Co., the primary duties of the company marketing representatives were found to be work that was directly related to management policies or general business operations. The court took into account the fact that they dealt with the independent licensed insurance agents who the company relied on to sell its products. The representative recommended products to the agents, informed them of developments in the company's product line and generally provided the agents with the knowledge they needed to sell the company's products. The court also found that the representatives' work was "of substantial importance to the management or operations of the business" as their work was a key element in the success of the company.

Among the types of employees that have been considered production as opposed to administrative are inside wholesale salespersons of electrical supplies and field inspectors for a carpenters cooperative whose job was making onsite visits to report labor law violations of contractors on public works.

What constitutes the exercise of discretion and independent judgement is another difficult question that must be answered to determine whether an employee meets the administrative exemption. The regulations offer some guidance.

In general the exercise of discretion and independent judgement involves the comparison and evaluation of possible courses of conduct and acting on or making a decision after various possibilities have been considered. The term as used in the regulation...moreover, implies that the person has the authority or power to make an independent choice, free from immediate direction or supervision and with respect to matters of significance.

The regulations admonish not to confuse the exercise of discretion and independent judgement with the mere use of skill by an employee who applies knowledge in determining which of a variety of predetermined procedures to follow. The regulations also point out that the term "...does not apply to the kind of decisions normally made by clerical and similar employees." The "...discretion and independent judgement must be real and substantial, that is they must be exercised with respect to matters of consequence." Decisions such as those made by a truck driver as to which route to take, by the shipping clerk as to what mode of packing and shipping will be used and the bookkeeper as to which ledger will be posted first do not qualify. However the decision of the exempt administrative employee does not need to be final. The fact that it is subject to review does not mean the individual is not exercising independent judgement.

The court in Mayer v. Board of Chase County Commissioners,ruled that the Director of Emergency Medical Services for the county exercised discretion and independent judgement. She scheduled herself and volunteer emergency medical technicians to cover on-call shifts. She also made budgetary, policy, procurement and appropriation recommendations to the county commissioners. Additionally she was in charge of day to day operations, recruiting volunteers, procuring routine supplies, and making billing and collection decisions. The marketing representatives in Reich v. John Alden Insurance Co., supra, exercised independent judgement in determining which agents to contact on any given day and what products to discuss with each agent. Additionally they needed to know what products to recommend for competitive reasons.

The Short Test for the Administrative Exemption

The short test exempts those administrative employees who receive a salary of no less than $250.00 per week. The "high paid" administrative employees qualify if they merely perform office or non-manual work directly related to management policies or general business operations of the employer or the above described administrative functions in a school system or educational establishment. For the short test to apply, the employee must also perform work which includes work requiring the exercise of discretion and independent judgement. This requirement is distinguished from the long test requirement that the employee customarily and regularly exercises discretion and independent judgement. The category of administrative employee who regularly and directly assist a proprietor or an executive or administrative employee includes such individuals as an executive assistant to the general manager of a retail establishment, an assistant manager or an assistant buyer.

Professional Employee.

The professional exemption is available to persons whose primary duty consists of any of four types of work:

1. Work requiring knowledge of an advanced type in a field of science or learning that is acquired by a course of study more extensive than a general academic education, or

2. Original and creative work in a recognized field of artistic endeavor, the result of which depends primarily on the invention, imagination or talent of the professional employee, or

3. Teaching, tutoring, instructing or lecturing as a teacher in a school system or educational establishment, or

4. Computer systems analyst, computer programer, software engineer or other similarly situated skilled worker in the computer software field whose work requires theoretical and practical application of highly specialized knowledge in computer system analysis, programming and software engineering.

Additionally, to be exempt the employees must consistently exercise discretion and judgment in their work, their work must be predominantly intellectual and varied in character, and they may not devote more than 20% of their time to work that is not an essential part of and necessarily incident to the foregoing. They also must receive a salary of no less than $170 a week. The minimum compensation requirement does not apply to licensed, practicing lawyers or physicians, medical interns or residents. Employees engaged in computer related work meet the salary requirements if they are compensated at a rate in excess of six and one-half times the minimum wage.

The learning required for the learned professions exemption consists of knowledge that cannot be obtained at the high school level. It is customarily acquired by a prolonged course of specialized intellectual instruction and study. Among the professions whose study requirement place them in this category are law, medicine, nursing, accounting, actuarial computation, engineering, architecture, teaching, physical, chemical and biological sciences including pharmacy and medical technology. "...[I]n these professions an advanced academic degree is a standard (if not a universal) prerequisite."

Commonly newspaper reporters, photographers and editors will not be exempt. In most circumstances the work does not entail the required level of inventiveness or creativity. These individuals may also be found to fail to qualify as learned professionals on the basis that no particular academic degree is required for entry to the field or if they do not need mastery of a specific body of knowledge.

The fields that qualify for the artistic endeavors exemption include music, writing, theater, classic and graphic arts. The work must be original and creative. The regulations concede this exemption to musicians, composers, conductors and cartoonists but not to animators of motion picture cartoons or retouchers of photographs. Newspaper writers, photographers and reporters except in certain highly technical fields are ordinarily not exempt as learned professionals.

There is a short test for professional employees who receive compensation of not less than $250 a week. To be exempt, individuals in the first, third and fourth categories described above must merely perform work which includes work requiring the consistent exercise of discretion and judgment. The short test for employees in the second category above requires only that they perform work which includes work requiring invention, imagination or talent in a field of artistic endeavor. Such work need not be their primary duty. The short test in this category also eliminates the requirement for the work to be original and creative. In all categories the short test eliminates the requirement that the work be predominantly intellectual and varied in character and the 20% time restriction on work not essentially related to their exempt function. Jobs that have been found to qualify for the professional exemption under the short test include television news writers/editor, television producer and television field producer.

The percentage limitation on work which is not an essential part of and not necessarily incident to the professional's work recognizes that the professional may perform some routine tasks like those performed by non-exempt employees. No more than 20% of his work can include this type in combination with his actual work as a professional.

This outside sales exemption applies to people who customarily and regularly work away from their employer's place of business making sales or obtaining orders or contracts for services or use of facilities and whose other work does not exceed 20% of the hours worked in the work week. Work performed incidental and in conjunction with the outside sales person's sales or solicitation is not regarded as non-exempt. Such work may include incidental deliveries and collections, writing sales reports and preparing sales presentations and attending sales conferences.

Generally the outside sales person is one who makes sales at the customer's place of business as opposed to one who sells by mail or telephone. Individuals who promote a product rather than participate directly in the making of sales contracts are not exempt as outside salesman. A pharmaceutical detailer who merely promotes a product with doctors rather than making sales of the product is not an outside salesman.

Many industries employ driver-salesmen who sell such products as carbonated beverages, beer, bottled water, food and dairy products. Whether these individuals qualify as outside salesmen depends on the facts of the individual case. Mere delivering of products to customers to whom he did not make initial sales does not qualify the driver-salesman as exempt. If the drivers actually obtain or solicit sales at their stops, they are more likely to be found to be exempt.

The regulations permit the "tacking" of exempt work under one section to exempt work under another section. A person who performs a combination of executive and professional work may qualify for exemption. Where a combination exemption is invoked the employee must meet the stricter requirements of salary and performance of non-exempt work.

Employee compensation is one of the many legal minefields facing employers. Obviously decisions relating to calculations of compensation and application of exemptions may present very close questions. The Act and regulations are detailed, wordy, and not always easy to comprehend. It is possible for an employer acting in the very best of faith to accumulate considerable potential liability.

As in other cases it is often judicious to reach a settlement with the complaining employee making a wage claim. However, where an employee's claim is being pursued by the employee individually or with the aid of a private attorney, there is a serious obstacle to reaching a compromise settlement. The United States Supreme Court has held that the rights created by the FLSA are in the public interest. These rights may not be waived by a protected employee. The employee cannot release his rights to minimum wage, overtime compensation or liquidated damages.

Consider the situation where the employer and employee come to an agreement as to the amount of hours that were worked, the amount of the regular rate and whether or not the employee is entitled to liquidated damages. They then incorporate their understanding into a settlement agreement and release. If the employee subsequently chooses to ignore that settlement and release and sues claiming there is additional compensation due to him under the FLSA, his suit can go forward.

While there is no absolutely certain way to avoid this pitfall in a private or "non-supervised" settlement, the employer should at least insist on a representation in the document that the employee has truly stated the facts on which the settlement is based and that there are no additional hours for which he is due minimum wages or overtime compensation.

This problem of the non-waivability of the claim by the employee can be avoided where the employee's rights are being pursued by the Department of Labor. To help overcome the restriction on private settlements the FLSA was amended to allow the Department of Labor to supervise payments and to enter into a binding settlement agreements on the employees' behalf.

Arbitration of FLSA Claims

Although public policy bars an employee from relinquishing substantive rights under the FLSA, the employee may give up the right to a trial before a judge an a jury where the individual is bound by a properly drafted arbitration agreement. Impetus to enforcement of agreements between employers and employees to arbitrate employment disputes was given by the Supreme Court in Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991). There the court held that an agreement to arbitrate does not give up a substantive right. It merely changes the forum in which the right is adjudicated. This decision has encouraged some employers to incorporate an arbitration clause into their employment agreement with their employees. Some consider arbitration a quicker and less expensive way to decide employment disputes than a judicial trial. Arbitration also avoids the uncertainty that many associate with trials before a jury.

The Federal Appellate Court for the Eleventh Circuit approved the arbitration of FLSA claims in Montes v. Shearson Lehmen Brothers, 4 WH Cases 2d 385 (11th Cir. 1997). In that case the employee disputed the employer's claim that she was covered by the administrative exemption. The employer's counsel urged the arbitration panel to disregard the requirements of the FLSA. The appellate court decided that the panel did just that. The court reversed the arbitration decision and ordered that the case be retried before a new panel. The court found that it could not reverse an arbitration decision if it was merely erroneous, but that it could set aside a decision that was in "...manifest disregard of the law."

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