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How Downsizing or Restructuring Can Impact the Executive Overtime Exemption

    Client Alerts
  • August 23, 2019

In recent months, we have had several situations where clients were assessed back wages for overtime relating to misclassification of managerial employees. Under 29 C.F.R. §541.104, employees eligible for the executive exemption to the overtime provisions of the Fair Labor Standards Act must supervise at least two or more full-time employees or their equivalents.

In our cases, the managers started off meeting this requirement, but due to reductions in force or departmental restructurings, employees supervised by them dropped under the 80 hours per week cumulative work requirement. The employers did not realize that these changes meant that the managers needed to be reclassified as non-exempt and paid overtime for hours worked over 40 in any given workweek.

Employers undergoing downsizings or reorganizations should determine the effects of personnel changes on FLSA overtime exemptions. Revised supervisory or other job duties may result in an inability to continue claiming exempt status. The failure to realize this impact can result in assessment of back wages, liquidated damages, attorneys’ fees, and civil monetary penalties.