Opinion ID: 4540298
Heading Depth: 1
Heading Rank: 1

Heading: FLSA Exemption Principles1

Text: For an employer such as Falcon Jet, the FLSA exempts from its overtime requirements “any employee employed in a bona fide executive, administrative, or professional capacity . . . as such terms are defined and delimited from time to time by regulations of the Secretary [of Labor].” 29 U.S.C. § 213(a)(1); see Fife v. 1 The parties agree that the FLSA exemption analysis applies to Plaintiffs’ claims under the AMWA as well. See Ark. Code R. § 010.14.1-106(B)(1)(a); Ark. Dep’t of Veterans Affairs v. Okeke, 466 S.W.3d 399, 403 (Ark. 2015). -2- Harmon, 171 F.3d 1173, 1175 (8th Cir. 1999). A separate regulation governs each exemption. See 29 C.F.R. §§ 541.100 (executive), 541.200 (administrative), 541.300 (professional).2 To establish any exemption, an employer must establish that the employee’s “primary duty” is the performance of exempt work, 29 C.F.R. § 541.700; that he is paid not less than the minimum salary level, § 541.600; and that he is paid on a “salary basis,” § 541.602, the issue on this appeal. See Grage, 813 F.3d at 1054 (employer’s burden of proof). The regulations provide that an employee is paid on a salary basis “if the employee regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of the employee’s compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed.” 29 C.F.R. § 541.602(a). The Secretary first adopted this general definition in 1944. It is subject to numerous interpretive rules: - “An exempt employee’s earnings may be computed on an hourly, a daily or a shift basis, without losing the exemption or violating the salary basis requirement, 2 Although the parties and the district court refer to a “highly compensated employee exemption,” this is a less burdensome way to prove an executive, administrative, or professional exemption, not a separate exemption. “A high level of compensation is a strong indicator of an employee’s exempt status . . . . Thus, a highly compensated employee will qualify for exemption if the employee customarily and regularly performs any one or more of the exempt duties or responsibilities of an executive, administrative or professional employee . . . .” 29 C.F.R. § 541.601(c); see generally U.S. Dep’t of Labor, Wage & Hour Div., Defining & Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees, 69 Fed. Reg. 22122, 22172-75 (April 23, 2004) (hereafter cited as Defining and Delimiting the Exemptions). Whether one or more Plaintiffs qualified as highly compensated employees may be an issue on remand but is not relevant to the threshold “salary basis” issue on appeal. -3- if the payment arrangement also includes a guarantee of at least the minimum weekly required amount paid on a salary basis regardless of the number of hours, days or shifts worked . . . .” § 541.604(b). - “[T]he exemption is not lost if an exempt employee who is guaranteed [the minimum weekly salary amount] also receives additional compensation based on hours worked for work beyond the normal workweek. Such additional compensation may be paid on any basis (e.g. . . . straight-time hourly amount . . .), and may include paid time off.” § 541.604(a). - Employers “may take deductions from [salaried employee] leave accounts” and may require exempt employees “to record and track hours,” so long as the employee’s predetermined salary is not reduced. Ellis v. J.R.’s Country Stores, Inc., 779 F.3d 1184, 1200 (10th Cir. 2015). Exempt status “is only affected by monetary deductions for work absences and not by non-monetary deductions from fringe benefits such as personal or sick time.” Schaefer v. Ind. Mich. Power Co., 358 F.3d 394, 400 (6th Cir. 2004); see Defining & Delimiting the Exemptions, 69 Fed. Reg. at 22178. Employers can “make deductions for absences from an exempt employee’s leave bank in hourly increments, so long as the employee’s salary is not reduced.” U.S. Dep’t of Labor, Wage & Hour Div., Opinion Letter on FLSA (Jan. 16, 2009), 2009 WL 649020, at  (emphasis added). Several circuits have applied this guidance. See, e.g., McBride v. Peak Wellness Center, Inc., 688 F.3d 698, 705 (10th Cir. 2012). - “Deductions from pay may be made when an exempt employee is absent from work for one or more full days for personal reasons . . . .” § 541.602(b)(1); see Guerrero v. J.W. Hutton, Inc., 458 F.3d 830, 835-36 (8th Cir. 2006). But reductions for partial day absences are inconsistent with a salary that is “not subject to reduction because of variations in the . . . quantity of the work performed.” See Defining & Delimiting the Exemptions, 69 Fed. Reg. at 22176. -4- - “An employer is not required to pay the full salary for weeks in which an exempt employee takes unpaid leave under the Family and Medical Leave Act [FMLA].” § 541.602(b)(7). - Deductions from pay of exempt employees may be made for infractions of safety rules of major significance and for infractions of workplace conduct rules. § 541.602(b)(4)-(5). - “An employer who makes improper deductions from salary shall lose the exemption if the facts demonstrate that the employer did not intend to pay employees on a salary basis. An actual practice of making improper deductions demonstrates that the employer did not intend to pay employees on a salary basis.” § 541.603(a).3 This is a complex, intricate regulatory scheme, one that has changed relatively little in the last 80 years. In Auer v. Robbins, the Supreme Court noted that the FLSA “grants the Secretary broad authority to ‘defin[e] and delimi[t]’ the scope of the exemption.” The regulation requiring that an exempt employee be paid on a “salary basis” -- now found in 29 C.F.R. § 541.602(a) -- was the Secretary’s “chosen approach” to exercising that authority, and “we must sustain the Secretary’s approach so long as it is ‘based on a permissible construction of the statute.’” 519 U.S. 452, 456-57 (1997), quoting Chevron U.S.A. Inc. v. Natural Resources Defense Council, 3 This 2004 regulation altered the Secretary’s prior position that an exemption was lost if there was a “significant likelihood” of improper deductions. See Defining & Delimiting the Exemptions, 69 Fed. Reg. at 22180. Under the present regulation, the significance of improper deductions is determined by objective facts, not by speculating whether the employer had reduction authority it did not use, a position adopted by the Ninth Circuit in Abshire v. Cty. of Kern, Cal., 908 F.2d 483 (9th Cir. 1990), cert. denied, 498 U.S. 1068 (1991). We rejected the Ninth Circuit’s “strict interpretation of the salary basis test” as it applied to public sector employees in McDonnell v. City of Omaha, Neb., 999 F.2d 293, 297 (8th Cir. 1993), cert. denied, 510 U.S. 1163 (1994). -5- Inc., 467 U.S. 837, 842-43 (1984). The Secretary promulgated revised salary basis regulations in 2004 after full notice and comment rulemaking, which must be given the force and effect of law in deciding FLSA exemption issues. See generally Mayo Found. for Med. Educ. & Research v. United States, 562 U.S. 44, 55-58 (2011). Courts must rely on these regulations, considered in the context of the Department’s lengthy preamble in the Federal Register, “when ruling on the potentially ambiguous concept of intent to pay a salary.” Ellis, 779 F.3d at 1199.4 These issues may not be decided on the basis of what a judge concludes is the “plain meaning” of a common term like “salary” that is obviously ambiguous in the context of the statute or regulation at issue. See Mayo Found. for Med. Educ. & Research v. United States, 568 F.3d 675, 679-80 (8th Cir. 2011), aff’d, 562 U.S. at 52-53.