As wage and hour attorney, I’ve seen countless ways employers attempt to cheat hardworking employees out of their rightful wages. One particularly insidious method is exploiting exemptions under the Fair Labor Standards Act (“FLSA”) to avoid paying overtime. The case of Gentry v. Hamilton-Ryker IT Sols., L.L.C., No. 22-40219, 2024 WL 2501690 (5th Cir. May 24, 2024), is a prime example of this wage theft through misclassification of employees as exempt. Let’s delve into this case to see how employers manipulate wage laws and how you can protect yourself.
Terry Gentry and Marc Taylor worked for HR-IT, thinking they were getting a fair deal. But behind the scenes, HR-IT had crafted a payment scheme that deprived them of their rightful overtime pay. Exemptions under the FLSA allow certain employees, such as executive, administrative, professional, and highly compensated employees, to be excluded from minimum wage and overtime pay requirements. These exemptions are determined based on specific criteria, including job duties and salary basis, and are intended for roles that typically involve higher levels of responsibility and decision-making authority. Employers must meet all the exemption criteria to classify an employee as exempt correctly. To meet either the highly compensated employees or learned professional exemptions, employees must satisfy three tests: (1) the “job duties” test; (2) the “salary level” test; and (3) the “salary basis” test.
Best Wage Theft Lawyer Blogs on Point:
- Can My Job Cut My Regular Pay Rate To Avoid Paying Overtime?
- Most But Not All Employees Are Entitled To Overtime
- There’s $4 Billion In Overtime Wage Theft Every Year – How Much Of That Is Yours
What is the “job duties” test for highly compensated employees’ exemption under the FLSA?
The “job duties” test for the highly compensated employee (HCE) exemption under the FLSA requires that the employee’s primary duties include performing office or non-manual work. Additionally, the employee must regularly perform at least one of the duties of an exempt executive, administrative, or professional employee. These duties include tasks such as managing the enterprise, directing the work of other employees, exercising discretion and independent judgment on significant matters, or requiring advanced knowledge in a field of science or learning.
The parties did not dispute that this test was met.
Best Wage And Hour Attorney Blogs on Point:
- Is All Work Performed On A Farm Exempt From Overtime?
- Do Independent Contractors Have A Right To Overtime Pay?
- Are Outside Salespeople Exempt Form Overtime Pay Under The FLSA?
What is the “salary level” test for learned professional exemption under the FLSA?
The salary level test ensures that an employee earns a minimum amount of compensation to qualify for an exemption. It sets a specific threshold that the employee’s earnings must meet or exceed. At issue in this case, for the highly compensated employee (HCE) exemption, the total annual compensation must be at least $107,432, which includes at least $684 per week paid on a salary or fee basis. For the learned professional exemption, the employee must earn a salary or fee of at least $684 per week.
The parties did not dispute that this test was met.
Best Overtime Law Firm Blogs on Point:
- Is Overtime Only For Low And Middle Income Employees?
- Can I Be Forced To Work On Christmas?
- Some Delivery Drivers Are Exempt From Arbitration … But Which Ones?
What is the “salary basis” test for highly compensated employee and learned professional exemption under the FLSA?
The salary basis test focuses on how the employee is paid rather than how much they are paid. A salary basis means an employee regularly receives a predetermined amount of compensation each pay period, which is not subject to reduction due to variations in the quality or quantity of work performed. This salary must be a stable and predictable source of income.
This is where the fight over the overtime focused on.
Gentry and Taylor were paid a so-called “Guaranteed Weekly Salary” for eight hours of work and then received hourly wages for any additional hours, including overtime. At first glance, this might seem fair, but it wasn’t a true salary.
HR-IT argued that Gentry and Taylor were exempt from overtime under the “highly compensated employee” and “learned professional” exemptions of the FLSA. To qualify for these exemptions, employees must be paid on a “salary basis.” But as the United States Court of Appeals for the Fifth Circuit held, HR-IT’s payment system did not meet this criterion. Specifically, the Fifth Circuit Court of Appeals held that Gentry and Taylor were not paid on a salary basis, thus making them non-exempt and entitled to overtime pay. The court concluded that HR-IT’s so-called “salary” was illusory and did not provide the stable and predictable income required by the FLSA. As the court noted:
Plaintiffs’ ‘guaranteed weekly salary’ typically accounted for less than 20% of their total paychecks. Because the ‘guaranteed weekly salary’ failed to provide a weekly rate, it was not a true salary but was illusory. …
HR-IT argues its payment scheme satisfies § 602(a) in conjunction with § 604(a). So long as employees receive a minimum, predetermined, and guaranteed sum every week, HR-IT argues any hourly compensation is permissible under § 604(a). We disagree.
Section 604(a) builds upon § 602(a) and makes clear that salaried employees may receive “additional” or “extra” compensation only if “the employment arrangement also includes a guarantee of at least the minimum weekly-required amount paid on a salary basis.” …
And HR-IT’s argument requires that § 604(a) permit hourly compensation for hours worked during the normal work week. It does not. Section 604(a) allows, inter alia, “additional compensation based on hours worked for work beyond the normal workweek.” A straight-forward reading of the text makes clear that § 604(a) does not envision hourly pay for work within the normal workweek.
Gentryat *6-7 (Emphasis is original) (Footnotes omitted).
In simpler terms, Gentry and Taylor were essentially hourly employees that the employer attempted to disguise as salaried ones in a deliberate attempt to evade paying overtime. HR-IT’s pay rigged system then refused to pay time and a half for the hours worked over 40 per workweek because it classified the workers as exempt. In doing so, the United States Court of Appeals for the Fifth Circuit affirmed that HR-IT owed Gentry and Taylor for unpaid overtime wages, ruling that they were not exempt employees under the FLSA.
Best FLSA Lawyer Blogs on Point:
What should I do if my job is misclassifying me as exempt and not paying me overtime?
If you are paid a salary but receive additional hourly pay for extra hours worked, your employer might be misclassifying you to avoid paying proper overtime. The FLSA requires that true salaried employees receive a set salary that isn’t tied to the number of hours worked each week.
Employers may try to obscure the true nature of your compensation to avoid paying overtime. If you suspect you’re being misclassified, it’s essential to consult with an experienced employee rights attorney. Remember, the law is on your side to ensure you receive fair compensation for your hard work.
For any questions or to discuss your specific situation, reach out to our wage and hour attorneys for a free initial consultation. Don’t let your employer shortchange you—stand up for your rights and ensure you’re getting the pay you deserve.
Disclaimer:
The wage and hour information provided in this overtime and FLSA blog is for general informational purposes only and does not constitute legal advice. This wage theft blog should not be relied upon as a substitute for specific legal counsel. While we strive to ensure that the information is accurate and up-to-date, laws and regulations can change. For personalized advice regarding your situation, please consult a qualified attorney. Reading this blog does not create an attorney-client relationship between you and the author or the law firm.