MBJ CLIENT Victory: First Circuit Affirms Dismissal of FLSA Action
Morgan, Brown & Joy, LLP and its client, The Saint Consulting Group, Inc. (“Saint”), have obtained a significant victory in a collective action overtime lawsuit before First Circuit Court of Appeals. On November 4, 2014, in Litz v. The Saint Consulting Group, Inc. et al., the First Circuit held that the Fair Labor Standards Act’s (“FLSA’s”) highly compensated employee exemption did not require Saint to pay its highly-paid employees overtime premiums on top of their six-figure earnings. Affirming the entry of summary judgment by the U.S. District Court for the District of Massachusetts, the First Circuit dismissed the suit in its entirety. MBJ attorneys Sean P. O’Connor, Robert P. Joy and Daniel S. Field represented Saint throughout the litigation.
Saint provides political consulting services to land use campaigns throughout the country and in the U.K. The Plaintiffs, Crystal Litz and Amanda Payne, are former Project Managers who earned close to $200,000 per year with Saint. They sought additional overtime pay through this collective action lawsuit, claiming that Saint had misclassified them as exempt employees.
The FLSA generally requires that employees be paid overtime for all hours worked beyond 40 in a given workweek. However, there are a number of exceptions that exempt employees from the overtime requirements, including those for executive, administrative and professional employees. These exemptions contain multipart tests which must be satisfied in order for employees to qualify as exempt. In 2004, the U.S. Department of Labor also established an exemption with less-demanding requirements for employees who earn more than $100,000 per year.
Addressing the FLSA’s highly compensated employee exemption for the first time, the Court concluded that the Project Managers satisfied each of the exemption’s requirements and were properly classified as exempt employees under the FLSA. Of particular import, the Court held that the Project Managers’ $1,000 guaranteed minimum weekly salary (called a “stipend”) constituted payment on a “salary basis” even though a Project Manager typically earned substantially more each week. As the Court explained, “[t]he fact that the pay was usually – but not always – high enough to render the guaranteed stipend unnecessary hardly means that the guarantee was not part of the employee’s compensation.”
The First Circuit rejected the Plaintiffs’ contention that the $1,000 weekly stipend needed to be reasonably related to their total compensation – a requirement for certain other FLSA exemptions. The Court also rebuffed the Plaintiffs’ other arguments, including their reliance on certain communications and paystubs which did not reference their weekly salaries. The Court found that the full context of the evidence did not support Plaintiffs’ contentions and held that that their arguments “elevate[d] form over substance, and simply ignore[d] the economic reality of the guarantee.”
The First Circuit also found that the Plaintiffs’ claims for unpaid overtime would have similarly failed under Massachusetts state law. Early in this case, MBJ successfully defeated Plaintiffs’ attempt to add a class action claim for unpaid overtime under Massachusetts state law based upon Saint’s presence in the Commonwealth. The Plaintiffs appealed the District Court’s decision on this issue; however, the First Circuit held that this aspect of their appeal was moot because its ruling on their FLSA claims doomed their state law overtime claims as well.
This decision is an important victory for employers in Massachusetts and throughout the First Circuit. For the first time, the First Circuit has confirmed that employees may be exempt from the overtime requirements under the FLSA and Massachusetts law based upon the highly compensated employee exemption where they regularly perform exempt duties, earn more than $100,000 annually and are paid, at least in part, on a salary basis.
Based on the Court’s ruling, employers may have significantly more flexibility in assigning job responsibilities and designing compensation for their highly-paid exempt employees. Still, it is important to note that a high level of compensation alone is not enough to satisfy the exemption. Employers should contact their MBJ attorney to discuss the implications of this decision and the highly compensated employee exemption on employee classification issues.
The decision, which can be accessed here, has been the subject of various publications including the Bloomberg BNA Daily Labor Report (subscription required).
Sean P. O’Connor is an attorney with Morgan, Brown & Joy, LLP and may be reached at (617) 523-6666 or at soconnor@morganbrown.com. Morgan, Brown & Joy, LLP focuses exclusively on representing employers in employment and labor matters.
This alert was published on November 10, 2014.
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