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Employers Consider Switching Exempt Employees to Non-Exempt to Avoid Legal Risks

    Client Alerts
  • May 24, 2019

Over the past decade, EmployNews has chronicled waves of class and collective action litigation based on claims that employees have been misclassified as exempt from the overtime requirements of the Fair Labor Standards Act. In recent years, some employers have decided to reclassify employees as non-exempt who arguably meet the requirements for the overtime exemptions. Why would companies make the choice to pay overtime when they have a strong argument that they are not required to do so?      

The answer usually lies in risk management and administrative simplicity. For companies in the retail and hospitality industries, the standards for claiming exemption for managers and assistant managers are murky enough where no structuring of those employees’ duties can guarantee immunity from misclassification claims. Given the potential back wages, liquidated damages, and attorneys’ fees that flow from such lawsuits, reclassifying these workers as non-exempt and carefully managing overtime can be a more economical decision.

Just because an employee may qualify for an FLSA overtime exemption, there is no legal requirement that the company claim that status. Given the impending increase in the minimum salary for the FLSA white collar exemptions, additional employers may decide that the benefits of not paying overtime are outweighed by the burdens and risks associated with maintaining this status.