First Circuit: Use Relational Analysis Test for Administrative Employee FLSA Exemption
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APPLIES TO All Employers with Employees in ME, MA, NH, RI, and PR |
EFFECTIVE March 22, 2023
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Discussion
In Walsh v. Until Service Corporation, the First Circuit Court of Appeals said that in order to successfully designate administrative employees as exempt from the Fair Labor Standards Act’s (FLSA) overtime requirements, employers should use a “relational analysis” between the employee’s job duties and the employer’s business purpose. This means the second prong of the usual three-part test to be considered an administrative employee has two sub-parts. Here, the employer was a public utility holding company that provided administrative and professional services to its subsidiaries. Its dispatchers and controllers argued they regularly worked over forty hours per week. While they could respond independently to some situations and deviate from certain procedures, they disputed the extent of their decision-making authority and the frequency of situations requiring independent decision-making. The employees also argued their primary duties were not directly related to the management or general business operations of their employer and therefore did not meet the FLSA administrative exemption from overtime
The three-part test for determining if an administrative employee is exempt from the FLSA’s overtime requirements is: 1) the employee is paid on a salary basis of at least $684 per week; 2) the employee’s primary duty is directly related to the management or general business operations of their employer or its customers; and 3) the employee’s primary duty includes the exercise of discretion and independent judgement over significant matters. The Court clarified that the second part of the test requires a “relational analysis” between the employee’s job duties and the employer’s business purpose. This means employers must look to: 1) whether the individual’s primary duties relate to “running or servicing” the business operations of their employer or its customers; and if so, 2) what the scope or “generality” of the individual’s role entails.
When the Court applied the relational analysis to the second part of the test, they found that dispatcher and controller duties could relate to running and servicing the business operations of the employer. Operating and monitoring electrical grids and gas pipelines are the very services that the employer is in business to provide. However, the dispatchers’ and controllers’ duties only in a limited or superficial way rose to the level of administrative work or “generality” required by the second part of “relational analysis.” This case should serve as a reminder that employers must be careful when applying the test to determine whether job duties meet the requirements for FLSA exemptions. The First Circuit’s ruling shows employers there are significant nuances in the application of the tests.
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