Construction employers must understand federal Fair Labor Standards Act (FLSA) requirements or risk being on the wrong side of a lawsuit. Recently, some construction project supervisors sued their employers, claimingthey are entitled to overtime pay under the FLSA, a federal law that governs employee pay issues. The number of these lawsuits is expected to rise as more project supervisors lose their jobs during the construction downturn.
The FLSA generally requires employers to pay employees overtime pay (at the rate of one and one-half times their regular rate) when they work more than 40 hours in a workweek. However, some FLSA exemptions exist. When an exemption applies to an employee, the employer may lawfully pay the exempt employee a set salary, with no overtime pay.
Employers sometimes try to apply either the executive exemption or the administrative exemption to the law, with mixed results in convincing courts these exemptions apply.
Executive Exemption
The FLSA defines an executive employee as an employee with a salary of not less than $455 per week whose “primary duty is management of the enterprise in which the employee is employed or of a customarily recognized department or subdivision, who customarily and regularly directs the work of two or more other employees; and [w]ho has the authority to hire or fire otheremployees or whose suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees are given particular weight.”
In Jones v. Riggs Distler & Co., Jones worked for Riggs Distler as a safety supervisor. After his employment ended in 2007, Jones filed a lawsuit, contending the company violated the FLSA by failing to pay him overtime. The company argued Jones fit under the executive exemption and therefore was not entitled to overtime pay. The court rejected the company’s argument.
While Jones had authority over all employees on the project, his authority was “limited to the area of safety.” The court held such limited authority was not enough to satisfy the executive exemption’s requirement that the manager customarily and regularly direct the work of two or more employees.
On the other hand, in 2007, the Department of Labor (DOL), which enforces the FLSA, issued an opinion letter regarding a company that performed environmental engineering and consulting on government sites. The company’s construction project superintendent earned a weekly salary of more than $455, supervised day-to-day activities of the construction project (overseeing subcontractors or at least two supervising temp/union/company personnel), met with clients to discuss the scope of the project, made purchasing decisions and made decisions regarding hiring and firing. Therefore, the DOL found the construction project superintendent qualified as an exempt executive.
Administrative Exemption
The FLSA defines an administrative employee as an employee with a salary of not less than $455 per week whose primary duty consists of office or non-manual work directly related to management policies or general business operations of the employer or the employer’s customers, and includes work requiring the exercise of discretion and independent judgment with respect to matters of significance.
In Gottlieb v. Construction Services & Consultants, Inc., Gottlieb was hired by CSSI as a project supervisor in December 2001. Throughout his employment, Gottlieb was paid strictly on a salary basis. After his termination in 2005, Gottlieb sued CSSI, claiming he was entitled to be paid for all the overtime he worked during employment. CSSI defended the case by asserting Gottlieb had been properly classified as an administrative employee; therefore, he was not entitled to overtime.
The court disagreed with CSSI, determining that Gottlieb’s work overseeing CSSI’s construction sites was not directly related to management policies or general business operations of the employer or the employer’s customers.
Moreover, the court found that because Gottlieb had little authority to make important decisions without checking first with his supervisors, his work did not require the exercise of discretion and independent judgment with respect to matters of significance.
For both reasons, the court found Gottlieb was not an exempt administrative employee, and the court imposed damages against CSSI.
In contrast, in Reyes v. Hollywood Woodwork, Inc., the court found that Reyes, an estimator for an architectural woodwork company, engaged in work directly related to general business operations and exercised discretion and independent judgment, and thus was covered by the administrative exemption. This case turned out differently than the Gottlieb case because Reyes was an integral part of the company’s leadership team and regularly made important decisions about its projects and operations.
Executive and administrative exemptions from overtime pay have strict, fact-specific requirements. Never assume project managers are exempt from overtime pay. To ensure compliance with the law, seek guidance from a lawyer who is knowledgeable about the FLSA.
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Friday, September 3, 2010