There are many reasons an employer may decide to reclassify an employee from exempt to non-exempt: changes in the law; modified court or DOL interpretations of existing law; as a result of an internal audit; or, simply based on changes in the business needs of the company. Does that decision to reclassify create evidence that the employee was “misclassified” as exempt, and that the misclassification was willful? No, said the court in Clarke v. JP Morgan Chase Bank, No. 08-CV-2400 (S.D.N.Y., March 26, 2010), holding that reclassification does not establish that the employee was misclassified, or that any violation was willful.
In Clarke, the employer decided to reclassify various technical computer workers based on the increasing number of FLSA suits. Because one of the plaintiffs who had been reclassified waited over two years after the reclassification to file suit, the FLSA claim was time barred unless he could establish the employer “willfully” violated the law, extending the FLSA statute of limitations to three years.
In support of his claim that he was misclassified and that the misclassification was willful (thus saving the claim), plaintiff argued the decision to reclassify itself demonstrated knowledge that the prior classification was wrong. The court rejected this, and held the decision to reclassify did not establish a willful violation, but just the opposite: a good faith effort by the Company to ensure that the company’s classification complied with the FLSA. The reclassification was likely a conservative measure adopted at a time when FLSA collective action overtime lawsuits were becoming more and more common, the court held. Indeed, the court held “if the mere fact of a reclassification were enough to trigger the exceptional three year limitations period, it [the three year limitations period] would cease to become an exception.”
Additionally, as to a second plaintiff whose claims were not time-barred, the court held the reclassification did not establish that the employee was misclassified. “The mere fact that an employee was reclassified cannot establish an employer’s liability for the period prior to the reclassification,” the court held, reemphasizing that, under the FLSA, it is the duties that control. In fact, despite the reclassification, the court granted summary judgment to the employer finding the employee was exempt under the computer professional exemption—one of only a handful of cases addressing that exemption.
While plaintiffs’ counsel will certainly continue to argue that any decision to reclassify is evidence that the employee was previously misclassified, the reclassification decision alone will not, according to the Clarke court, provide evidence of a willful violation or establish that the employee was in fact misclassified in the first place. This decision provides some comfort to employers who decide to reclassify employees, and will permit employers to reclassify employees in cases where the exempt status is unclear with less fear that the decision to reclassify will be used against the company in a lawsuit challenging the original classification decision.