administrative exemption

Our colleague David M. Prager at Epstein Becker Green has a post on the Wage and Hour Defense Blog that will be of interest to our readers in the hospitality industry: “Overtime: DOL Proposes to Raise Salary Level for Overtime Exemption to $35,308.

Following is an excerpt:

The U.S. Department of Labor has released a proposal to update the overtime rules under the federal Fair Labor Standards Act. Employers should be prepared to raise salaries to meet the minimum thresholds, pay overtime when appropriate, and otherwise adhere to the new rules if they go into effect.

Federal overtime provisions are contained in the Fair Labor Standards Act (“FLSA”). Unless exempt, employees covered by the FLSA must receive overtime pay for hours worked over 40 in a workweek. To be exempt from overtime (i.e., not entitled to receive overtime), an exemption must apply. For an exemption to apply, an employee’s specific job duties and salary must meet certain minimum requirements. The “salary test” presently requires workers to make at least $23,660 on an annual basis to be exempt from overtime. …

Read the full post here.

By Peter M. Panken, Michael S. Kun, Douglas Weiner and Larissa Lalor-Rosado

Hotels, restaurants and private clubs all rely on sponsored events, banquets and social soirees for the profitability of their operation.  Most employ one or more “managers” to solicit the business, work with the clients, detail the services to be provided, prepare the contract and even negotiate a price.  In most instances higher management must approve the terms the managers propose including the financial arrangements.  In other cases the basic terms are set forth in directions which can only be varied if approved by higher management. There have been a rash of recent lawsuits by such administrative employees who claim they are not exempt from overtime but must be paid time and one half for the hours they work each week over 40 hours plus liquidated damages which double the exposure.

Misclassification of employees as exempt from overtime compensation has become a cottage industry for plaintiff’s lawyers and for the United States Department of Labor (“DOL”) in the Obama years. One of the most difficult issues is whether employees meet the so-called administrative exemption to the Wage Hour laws. In Hines v. State Room , the United States Circuit Court in New England offered some clarity and help to beleaguered employers holding that former  banquet sales managers were exempt from overtime requirements under the Fair labor Standards Act (“FLSA”).

The FLSA requires overtime pay at the rate of one and one half times the regular rate of pay for all hours worked in excess of 40 hours in a seven day period unless the employee is exempt. The three pronged test for exemption for administrative employees is whether the employee is (1) salaried (paid a regular amount of at least $455 for all hours worked in a workweek) , (2) the employee’s 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 (3) the employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

Plaintiffs were banquet sales managers whose job included seeking potential customers for events at the employer, developing the elements of the party or other event and submitting the proposed contract terms for approval by senior officials of the Banquet Halls.

The Court found that Plaintiffs met the first two prongs for exemption: Plaintiffs were paid on a salary basis, and their work was primarily administrative because it was ancillary to the employer’s actual business of providing banquet services.

Plaintiffs claimed that they did not meet the third prong for exemption because they lacked the authority to make any decisions of financial consequence, supervisory authority or policy-making authority.

The Court found that while the plaintiffs’ discretion in matters having significant financial impact was subject to managerial approval, such restrictions did not detract from the judgment exercised in developing a proposal for the client. Plaintiffs’ duties included maintaining primary contact with a client, tailoring an event to their needs, and overseeing the event through to execution. The Court ruled that plaintiffs exercised adequate discretion as sales people to be designated as exempt.

Other Factors Considered for Exemption

The preamble to the current DOL regulations identifies a host of factors that courts have found sufficient to demonstrate that employees exercise independent judgment. 69 Fed. Reg. at 22144. Such factors include:

·                     the ability to exercise discretion and independent judgment,

·                     freedom from direct supervision,

·                     personnel responsibilities,

·                     trouble-shooting or problem-solving activities on behalf of management,

·                     use of personalized communication techniques,

·                     authority to handle atypical or unusual situations,

·                     responsibility for assessing customer needs, primary contact to public or customers on behalf of the employer, the duty to anticipate competitive products or services and distinguish them from competitor’s products or services,

·                     advertising or promotion work, and coordination of departments, requirements or other activities for or on behalf of employer or employer’s clients or customers.

Unfortunately these factors are very fact intensive and do not provide a bright line test for exemption, But the Hines case does offer some useful precedent and guidance for employers. In any event, care must be taken to be sure that the law in a particular state or in a particular circuit does not impose a stricter limitation on the discretion and independent judgment issue.


An employer may retain the right to review an employee’s ability to create financial and contractual obligations and still properly classify the employee as exempt. Requiring managerial approval for these purposes does not necessarily detract from the judgment exercised by the employee at arriving at the proposal in the first place. In addition, as set forth above, there are numerous other factors that courts can consider in determining whether an employee should be designated as exempt.

By: Kara M. Maciel and Forrest G. Read, IV

The U.S. Court of Appeals for the Eleventh Circuit’s recent decision in Diaz v. Jaguar Rest. Group, LLC underscores the importance for hospitality employers to know which job duties their employees are performing in order to assert every potentially applicable affirmative defense when answering an employee’s FLSA lawsuit for non-payment of overtime. In Diaz, the Eleventh Circuit reversed the trial court’s decision that a restaurant, which failed to raise the administrative exemption to the overtime requirement at any point until shortly before trial, was permitted to amend its Answer and include that defense at the close of its case at trial.

The jury determined that Diaz, a formerly employed bookkeeper, “was an administrative employee” who “performed numerous administrative tasks in addition to her bookkeeping duties.” Diaz “managed the cash register, distributed tips, opened bank accounts, maintained menus, processed new employees into the system, ran errands, managed liquor orders, and occasionally opened the restaurant.” However, the Eleventh Circuit concluded that those facts could not help the restaurant in the absence of its earlier assertion of the administrative exemption.

Hospitality employers should carefully track which duties their employees are performing. Armed with that knowledge, they can better assess whether a bookkeeper, a bartender, a bellhop, or any other employee who may “wear different hats” can be deemed to have performed duties involving the management of some part or function of the hotel’s operations. They should also remember that the administrative exemption is subject to a fact-intensive inquiry into job duties and not applicable based merely on job title. Even if at first blush an employee’s job title may not seem administrative, it is wise to assert the administrative exemption when answering an overtime complaint under the FLSA if the job duties actually performed can be construed as managerial or involving discretion. Otherwise, the hotel may be left wondering “what might have been?”