Top Court Makes It Easier for Employers to Dodge Overtime Claims

A new US Supreme Court ruling will boost companies’ ability to defeat claims they wrongly exempted workers from federal overtime pay, putting them on equal footing with other civil defendants who use a more lenient evidentiary standard.

The justices unanimously ruled Wednesday that the Fair Labor Standards Act doesn’t define the burden of proof required to show workers shouldn’t qualify for overtime, so employers relying on an exemption can use the “preponderance of the evidence” standard commonly found in civil litigation.

The FLSA has multiple overtime exemptions covering a range of roles, from administrative and executive workers to outside sales and computer employees. The high court’s decision means employers need only convince a trial judge or jury that their evidence for why a worker is exempt is most likely correct, attorneys said.

But while it resolves a circuit split and provides clarity to employers, lawyers added it’s unlikely to stymie overtime litigation.

“It certainly levels the playing field,” said Jason Tremblay, vice chair of Saul Ewing LLP’s labor and employment practice. “The Supreme Court is putting a little bit of brakes on what facts and circumstances are sufficient to raise that burden of proof and deviate from what normally is the standard of proof in a normal” employment litigation.

The ruling, authored by Justice Brett Kavanaugh, reverses a 2023 US Court of Appeals for the Fourth Circuit order requiring “clear and convincing evidence” that an overtime exemption applies. Had the Fourth Circuit’s test been upheld, it would have heightened employers’ liability and given workers an advantage when pursuing overtime pay claims involving one of the FLSA’s nearly three dozen exemption statuses.

Rachhana T. Srey, a partner at worker-side law firm Nichols Kaster PLLP, said the ruling “will have no impact on workers’ litigation methods in FLSA cases given that employers still have the burden to prove their exemption defense as they always have.”

“The ruling simply maintains the existing standard that most courts had already been using,” she said.

Several justices during November oral arguments expressed doubts about endorsing the Fourth Circuit’s ruling, an outlier from other federal appellate courts. The Biden administration also submitted an amicus filing at the justices’ request, urging them to adopt the preponderance of evidence standard applied by the Eleventh, Tenth, Ninth, Seventh, Sixth, and Fifth circuits.

Risk Analysis

Wednesday’s ruling returned the case of three sales representatives from Maryland-based grocery distribution company E.M.D. Sales Inc. back to the Fourth Circuit to apply the correct standard.

In 2021, the workers won a post-bench trial order for overtime wages and damages after a judge found that E.M.D. Sales failed to convincingly demonstrate they were outside salesmen who fell under one of the FLSA’s overtime exemptions. Even under the less stringent standard, the company still would have lost, the circuit court said.

Exempt employees typically perform managerial or specialized duties. Under the FLSA, workers must generally be paid an overtime premium of 1.5 times their regular rate of pay for all hours worked beyond 40 in a workweek unless they fall under an exemption.

The burden of proof for FLSA exemptions is a narrow legal issue. How workers spend their time is a critical factor in many federal overtime lawsuits, as it determines whether their duties render them exempt or non-exempt from overtime pay, attorneys said.

A lenient burden for defending exemption designations gives employers greater flexibility in making such determinations when certain job categories fall into a gray area where it’s not immediately clear whether they qualify as exempt, said Mike Muskat, a founding partner at Muskat Devine. This could be partly attributed to the nuances in job responsibilities.

“It gives them more comfort level to deem them as exempt,” Tremblay said.

But employers must proceed cautiously to avoid potentially costly class and collective action lawsuits as state and federal governments heighten enforcement efforts, said Ted Hollis, a partner at Quarles & Brady LLP.

They must evaluate the risks of classifying positions as exempt, consider the patchwork of state requirements that have greater worker protections than the FLSA, and ensure job postings, descriptions, and compensation align with the relevant exemption criteria, Hollis said.

“That’ll help you with your chances of obtaining summary judgment,” he added. “The bottom line is that the FLSA has been and will remain a favorite of plaintiff employment law counsel, and this decision isn’t going to deter them.”

Indeed, worker-side lawyers already have been operating under the default proof standard in FLSA exemptions litigation, indicating that the decision will have a minimal impact outside the Fourth Circuit.

Consistent with Precedent?

The decision also follows the logic of the Supreme Court’s 2018 Encino Motorcars LLC v. Navarro ruling that FLSA exemptions must be given a “fair reading” because the law “gives no textual indication that its exemptions should be construed narrowly,” management-side lawyers said.

Encino addressed whether service advisers at car dealerships are covered by the FLSA’s overtime exemption for “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles.” The high court ruled 5-4 that the advisers meet the definition.

The Supreme Court is “basically saying again that the fact that the FLSA is primarily intended to protect employees is not a reason to give them an advantage in pursuing overtime claims when those advantages aren’t apparent in the statute itself,” Muskat said.

Employers shouldn’t “be reluctant to assert reasonable exemption arguments because we now have these two cases that are going to help convince lower courts to give those arguments a very fair look,” he said.

But Srey disagreed.

Employers shouldn’t rely on the ruling to change their exemption determination processes, considering that it “simply clarified the long-standing standard that has been applied almost uniformly prior” and “no new principles or significant alteration of the landscape in FLSA litigation occurred as a result,” she said.

The case is E.M.D. Sales Inc. v. Carrera, U.S., No. 23-217, decision issued 1/15/25.