Reviewing FLSA Exemptions Michigan employers recently received a favorable Fair Labor Standards Act (“FLSA”) ruling. This decision also provides guidance when it comes to evaluating whether particular categories of employees may be administratively exempt from the FLSA’s overtime requirements.

Procedural Background Leading up to the FLSA Ruling

The decision arose out of the case Lutz v. Huntington Bancshares, Inc., (3/2/16). This started in an Ohio federal district as a class action. The class was made up of underwriters who worked with residential loan products. The district court eventually granted summary judgment to the bank concluding the underwriters were overtime-exempt employees under the FLSA.

On appeal, the employees did not fare any better. Specifically, a divided U.S. Court of Appeals for the Sixth concluded that the residential loan underwriters employed by Huntington Bancshares were administrative employees who were not eligible for overtime compensation under the FLSA.

The FLSA’s Administrative Exemption

Under Section 207(a)(1) of the FLSA, employers are required to pay overtime to employees who work more than 40 hours in a week. However, overtime protection does not extend to an “administrative” employee who is:

  1. Compensated on a salary or fee basis at a rate of not less than $455 per week;
  2. Whose primary duty is the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and
    Whose primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.
  3. An employee who satisfies all three elements falls within this “administrative exemption.” The parties did not dispute that the underwriters met the first element of the exemption. But the plaintiff employees contend that they do not satisfy the second and third elements.

The first element was not disputed. The majority opinion of the Court found the plaintiffs met both the second element (the “duties” requirement) and the third element (“exercised sufficient discretion and independent judgment) to fall within the FLSA’s administrative exemption.

Interestingly, in addressing the “discretion and independent judgment” element, the majority opinion acknowledged that Huntington’s underwriters in performing their jobs reviewing the loan files of residential applicants must follow written materials that “span thousands of pages” and include manuals, policies, and procedures. Even so, the Court said underwriters have the discretion to rely on their personal experience or judgment in making risk assessments about loan applications. Further, they have the authority to recommend that customers consider alternative loan products when they don’t qualify for the loans they originally sought.

The dissenting judge, Hon. Helene N. White, however, highlighted what she believed to be a flaw in this conclusion:

[Plaintiffs] make no such independent discretionary decisions. Rather, [Plaintiffs] must follow Defendants’ very explicit and detailed manuals and guidelines … Because [Plaintiffs] are evaluated based on the number of files reviewed, and the default rates of loans they approve are not even tracked, much less used as a basis of performance evaluations, a reasonable fact finder would likely infer that [Plaintiffs] do not exercise discretion and independent judgment concerning ‘matters of significance.’

Take Away for Employers

To be sure, the decision discussed above is very fact specific, as are most FLSA cases. Even so, a finding that employees who are subject to very detailed (thousands of pages in this case) of written guidelines may still exercise “independent judgment” required for the FLSA administrative exemption to apply is a significant development.

For this reason, employers should carefully audit their exempt and non-exempt overtime classifications. This audit should focus on employee job descriptions and corresponding internal policies, procedures, and guidelines for those positions to consider if they accurately reflect the exercise of judgment and discretion in that position such that the FLSA’s administrative exemption may be appropriately applied.

For more information about the Fair Labor Standards Act, including auditing exempt and non-exempt positions, contact employment attorney Jason Shinn.