A recent case highlights the importance of consulting an attorney when classifying an employee as exempt under the FLSA. First, an employment attorney will help a company determine what positions are properly exempt, and second, consulting an attorney is a showing of good faith which helps avoid liquidated damages.
Total Quality Logistics (“TQL”) provides logistics services by acting as a middleman to connect freight carriers with customers. Hendricks v. Total Quality Logistics, LLC, 2023 WL 6255723, *2 (S.D. Ohio, 2023). Hendricks, a former employee, sued TQL under the FSLA on behalf of himself and other similarly situated plaintiffs. Hendricks alleged that TQL improperly misclassified the positions of Logistics Account Executive Trainees (LAET) and Junior Logistics Account Executives (Junior LAE) as exempt under the FLSA’s administrative exemption.
FLSA Exemptions
The FLSA requires employers to pay employees 1.5x rate for all hours worked over 40 per week. However, the FLSA provides for executive, professional, and administrative exemptions.
The executive exemption applies to employees: (1) paid a salary rate not less than $684 per week; (2) whose primary duty is managing the enterprise, or a customarily recognized department or subdivision of the enterprise; (3) who customarily and regularly directs the work of at least two or more other full-time employee; and (4) who have the authority to hire or fire other employees. 29 C.F.R. Part 541
The Professional exemption applies to employees: (1) paid a salary rate not less than $684 per week; (2) whose primary duty is the performance of work requiring advanced knowledge, defined as work which is predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgment; and (3) that the advanced knowledge must be in a field of science or learning and must be customarily acquired by a prolonged course of specialized intellectual instruction. 29 C.F.R. Part 541
Lastly, the administrative exemption applies to employees: (1) paid a salary rate not less than $684 per week; (2) whose 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) whose primary duty includes the exercise of discretion and independent judgment with respect to matters of significance. 29 C.F.R. Part 541
Under each of these exemptions “Primary duty” means the principal, main, major, or most important duty that the employee performs. Determination of an employee’s primary duty must be based on all the facts in a particular case, with a major emphasis on the character of the employee’s job as a whole. 29 C.F.R. § 541.700(a)
Hendricks v. TQL
The primary issue in Hendricks was whether TQL’s LAET’s and Junior LAE’s met the primary duties test for administrative exemptions. The court considered whether these TQL employees main or most important duties were the performance of office work directly related to management the general business operations of TQL, and that those duties required discretion and independent judgment with respect to matters of significance.
TQL portrayed these employees as entrepreneurs operating their own businesses by selecting industries and customers to service and exercising independent judgment in building loads and negotiating rates. However, the Court’s examination of the record detailed significant ongoing oversight by management, and highly specified operational plans. The court rejected TQL’s argument, finding that individuals in these positions lacked sufficient duties related to management or general business operations. Further, the court found that TQL failed to show that the primary duties of employees in these positions “include[d] the exercise of discretion and independent judgment with respect to matters of significance.” Therefore, TQL misclassified LAET’s and LAE’s as exempt under the FLSA.
FLSA Liquidated Damages
The FLSA provides for liquidated damages, which doubles the amount of damages unless the employer proves it misclassified the employees while acting reasonably and in good faith. 29 U.S.C. §§ 216(b); 260. TQL pointed to audits and consultation with trade associations and government officials as evidence of their good faith. However, the Court stated that this was not sufficient. The court highlighted that they never spoke with employment attorneys or government officials about the classification of LAET’s and LAE’s. Ultimately stating that “vague references to FLSA reviews without supporting documentation are not enough to establish that Defendants acted in good faith.” Hendricks, WL 6255723 at *23.
TQL’s failure to consult an employment attorney doubled their liability in this case. Based on the calculations of the number of LAET’s and their estimated overtime, TQL’s liability for misclassifying employees may rise to $200 Million. This highlights the importance of consulting an employment attorney when considering FLSA exemptions. First, an employment attorney will help ensure that employees are properly classified and qualify for exemptions. Second, consulting an attorney is a showing of good faith and reasonable conduct which helps avoid the liquidated damages penalty should lawsuit ever occur. If your business believes some employees may be classified as exempt under the FLSA, or if your employer is not paying you 1.5x for overtime work, it may be prudent to contact an employment attorney.
If you need more guidance or information, contact the employment law attorneys at General Counsel, P.C. today at 703-556-0411, intake@gcpc.com, or use this Contact Us Form. Attorneys at General Counsel, P.C. specialize in labor and employment law and have experience working with businesses, non-profits, and individuals throughout the DC Metropolitan area and across Virginia, specifically in Fairfax County, Arlington, and Loudoun County.