The United States Supreme Court issued an important decision for employers on January 15, 2025, where It held that employers do not have a heightened standard of proof to show that an employee is exempt from the “white collar” exemptions from minimum wage and overtime under the Fair Labor Standards Act (“FLSA”).
In E.M.D. Sales, Inc. et. al. v. Carrera, et. al., the Court was asked to determine an employer’s standard of proof when classifying an employee as exempt under the FLSA’s white collar exemptions. Employers will recall, generally, that the FLSA allows employers to exempt certain employees from the FLSA’s minimum wage and overtime requirements if those employees receive a predetermined amount, regardless of the quality or the quantity of work, and they perform certain job duties. Although this case involved the FLSA’s outside sales exemption, the Court’s decision makes clear the employer’s burden of proof with respect to all of the FLSA’s white collar exemptions.
E.M.D. Sales, Inc. is a food distributor, where its sales representatives manage inventory and take grocery stores orders. Carrera and other sales representatives alleged that E.M.D. misclassified them as exempt from receiving overtime under the outside sales exemption recognized by the FLSA. During the trial at the U.S. District Court level, the Judge found E.M.D. did, indeed, misclassify the sales representative as exempt because E.M.D. did not prove by clear and convincing evidence that Carrera and other sales representatives met the duties test for the exemption provided under the Department of Labor’s (“DOL”) regulations to the FLSA. E.M.D. appealed the decision to the Fourth Circuit Court of Appeals, claiming that the U.S. District Court applied the wrong burden of proof, i.e. clear and convincing, compared to the less stringent (and much more typical) preponderance of the evidence standard. The Fourth Circuit Court of Appeals agreed with the U.S. District Court that the heightened clear and convincing evidence standard applies.
Following an appeal by E.M.D., the Supreme Court reversed the Fourth Circuit Court of Appeals’ decision, holding in a unanimous decision that the preponderance of the evidence standard applies when employers seek to show that employees are exempt from the minimum wage and overtime provisions under the FLSA. The Supreme Court first looked at the FLSA to determine if Congress had identified a heightened standard, as opposed to the standard more generally applicable in civil cases and found Congress did not establish any specific burden of proof. The Court then looked at whether a constitutional right was at issue or the Government was taking unusual or coercive action against an individual, such that a heightened standard should apply to the employer in proving application of a white collar exemption. The Court did not find either situation in this case. As a result, similar to Title VII cases, the Court applied the more commonly used standard in civil cases, which is the preponderance of evidence standard.
This is an important decision because employers only need to show that it’s more likely than not that the employee is exempt, compared to showing by clear and convincing evidence that an employee is exempt. To better understand this concept, think about a football field. Under the preponderance of evidence standard, the employer only needs to run the ball over the 50-yard line to meet its burden. Under the clear and convincing standard, the employer would need to run the entire length of the football field—which is much harder.
Even though the U.S. Supreme Court has now clarified how difficult it is for an employer to prove that an employee is exempt under the white collar exemptions from the FLSA’s minimum wage and overtime requirements, the fact remains that it is an employer’s burden to demonstrate that it has properly classified its employees under the FLSA—a task that has been made more difficult given continued litigation related to the DOL’s regulations. Currently, under most of the white collar exemptions provided by the FLSA (although not the outside sales exemption at issue in E.M.D. Sales), an employer is required to pay an exempt employee a salary that meets the minimum salary identified by the DOL. In April of last year, the DOL issued a new regulation increasing the minimum salary level for these exemptions to $844 per week beginning July 1, 2024, $1,128 per week beginning January 1, 2025, and thereafter by a formula identified in the regulation.
That final regulation also increased the minimum salary for the “highly compensated employee” (“HCE”) exemption. In November, however, the regulation was vacated by a United States District Court. By setting aside the regulation, a number of questions/concerns arose for employers who had increased salaries to meet the July increase, announced increased salaries in anticipation of the January increase, and/or decided not to claim an exemption because of the inability to increase compensation to the required minimum salary levels. In light of that decision and other pending litigation related to the DOL’s authority to identify certain requirements for the exemptions, many questions remain for employers regarding what requirements, exactly, they must be able to prove (by a preponderance of the evidence based on the E.M.D. Sales decision) in order to utilize the FLSA’s white collar exemptions.
During this period of continued litigation and uncertainty, employers should conduct audits on their exempt workers in order to be able to carry the ball over that 50-yard line. Otherwise, the employer may be stopped on its 49-yard line.