The Fifth Circuit Examines the Highly-Compensated Employee Exemption Under the FLSA

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Attorney Harrison Oldham

The Fifth Circuit recently examined the job duties required to qualify as a highly compensated employee under the FLSA.  Smith v. Ochsner Health Sys., No. 18-31264, — F.3d –, 2020 WL 1897186 (5th Cir. Apr. 17, 2020).  The Fair Labor Standards Act (“FLSA”) exempts certain highly-compensated employees (“HCEs”) from the requirement that they receive overtime pay for hours worked over 40 in a workweek.  To be considered highly compensated, the employee must receive both (1) at least $684 per week paid on a salary or fee basis; and (2) at least $107,432 in total annual compensation.  The regulation goes on to state that a “high level of compensation is a strong indicator of an employee’s exempt status, thus eliminating the need for a detailed analysis of the employee’s job duties,” but goes on to state that the exemption only applies to HCEs whose primary duty includes performing office or non-manual work.

In April 2001, Daniel Smith was hired as an organ procurement coordinator at Ochsner Health System, a nonprofit health care provider in Louisiana.  As a procurement coordinator, Smith acted as the first line of communication between the hospital and the Louisiana Organ Procurement Agency when organs became available. His job duties included responding to calls at any time of the day or night regarding organs being offered to the hospital for transplant purposes, evaluating the medical charts and medical history of the donors, verifying the donors’ consent, communicating pertinent information to the surgeons, preserving and arranging for the organs’ transportation, and completing any associated reports for filing.

During the last 5 years of his employment with Ochsner, Smith was paid a flat salary rate that exceeded $120,000 per year. He was not paid overtime or on-call pay. In September 2017, Smith sent Ochsner a demand letter for all “of his owed wages and overtime.” Ochsner did not respond, so after quitting his job, Smith sued Ochsner Health in 2017, seeking to recover for its failure to pay him at the overtime rate for hours worked in excess of 40 hours per week.

Ochsner moved for summary judgment on its affirmative defense that it was not required to pay Smith overtime because Smith was statutorily exempt as a “highly compensated” and “administrative” employee. The district court concluded that Ochsner did not carry its burden to establish Smith was an “administrative” employee, but the court determined Smith was a “highly compensated” employee. Consequently, it granted summary judgment in favor of Ochsner.

Smith appealed the matter to the Fifth Circuit. The Fifth Circuit ultimately agreed with the lower court, finding that Smith’s procurement duties were an exempt administrative duty directly related to Ochsner’s management or general business operations and, thus, Smith met the duties portion of the HCE exemption.  The Fifth Circuit affirmed the lower court, ruling that as a matter of law, Smith was an exempt highly compensated employee.

In the decision, the Fifth Circuit’s spent significant time discussing the HCE requirements, stating that, “to qualify for the HCE exemption, Smith must have performed ‘any one or more of the exempt duties or responsibilities of an . . . administrative . . . employee.’”  29 C.F.R. § 541.601(c). Section 541.601(a)(1), which defines the exemption, lays out two types of exempt duties. The first of which 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.”

On appeal, Ochsner argued the facts were undisputed that Smith regularly performed several administrative duties that were “directly related to management or general business operations.” § 541.201(b).  According to the regulations, duties that are directly related involve “work directly related to the assisting with the running or servicing of the business” as opposed to production-focused work. § 541.201(a). The regulations go on to state that, “Work directly related to management or general business operations includes, but is not limited to, work in functional areas such as tax; finance . . . procurement.”

As such, the Fifth Circuit’s analysis started and ended with Smith’s procurement responsibilities. Although the court conducted a fairly extensive review of Smith’s responsibilities, the Fifth Circuit ultimately emphasized the “breadth of the HCE exemption,” explaining that an employee may be exempt even if he or she does not meet all of the other requirements for the underlying administrative, executive, or professional exemptions.  In crafting the highly compensated employee exemption, the Court explained, “the Department of Labor made it easier on both employers and courts.” A court need not conduct a particularly “detailed analysis of the employee’s job duties.” Instead, “Smith’s level of compensation is the principal consideration. . . In addition, [Smith] performed one of the specifically enumerated exempt duties.

Said another way, the Court concluded that Smith undertook at least one enumerated duty that was directly related to Ochsner management or general business operations; namely, the procurement of organs for use in transplant surgeries. To the Court, the presence of one exempt duty sufficed to satisfy this criterion of HCE exemption analysis.

Although the Fifth Circuit’s decision in Smith v. Ochsner recognizes the breadth of the HCE exemption, employers should still carefully examine their employees who make at least $107,432 annually to ensure that these employees satisfy both the compensation and job duties requirements of the HCE exemption.

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About Harrison Oldham

Harrison grew up in Mansfield, Texas. He attended Texas A&M University for his bachelor’s degree, where he met his wonderful wife, Kelsey. After graduating magna cum laude from Texas A&M, he attended SMU Dedman School of Law, graduating with honors in 2012. Today, Harrison and his wife live in Dallas, Texas with their son, Teddy.

Since graduating from SMU Law, Harrison has worked exclusively in the field of business law. He has spent time in private practice and in-house, working with clients of every size; from single person startups to Fortune 250 companies. Today his practice focuses on serving the diverse needs of businesses and individuals throughout Texas. You can learn more about Harrison by visiting his website, at: http://lonestarbusinesslaw.com/.

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