A decision this month by the U.S. Supreme Court confirmed two things: First, elections have consequences. Second, the 1938 Fair Labor Standards Act needs an overhaul.
When President Trump nominated Neil Gorsuch to the Supreme Court, the balance of power shifted with the addition of a conservative-leaning member.
In the Encino Motorcars v. Hector Navarro, the Supreme Court reversed the 9th U.S. Circuit Court of Appeals in a 5-4 decision straight down ideological lines — with the five conservative-leaning justices ruling in favor of the employer and the four liberal-leaning justices filing a lengthy dissent.
At issue was whether the FLSA exempts service advisors at car dealerships from the law’s overtime-pay requirement. The law exempts “any salesman, partsman or mechanic primarily engaged in selling or servicing automobiles, trucks or farm implements.”
The majority of the court relied upon the Oxford English Dictionary and a complex analysis of “the distributive canon” in concluding that the law’s exemption applied to service advisors because they are “salesm[e]n … primarily engaged in … servicing automobiles.”
The analysis provided by the majority and dissent revealed a stark reality that the FLSA is outdated and too complicated.
It is no wonder that one study speculated that 80 percent of employers were out of compliance with the law, resulting in settlements of thousands — and sometimes millions — of dollars in back pay and damages for violations. It is even more troubling for employers to know that two years ago, relying on the same outdated law, this decision would most likely have gone the other way.
Virtually all public and private-sector employers must comply with the FLSA, which requires non-exempt employees to receive overtime at a rate of time and a half of their regular rate of pay for all hours worked over 40 hours in a workweek.
Given it was passed in 1938, one could reasonably conclude that the provisions are settled law by now. That is not the case.
Employers frequently misclassify employees as exempt, even though they do not meet the complex duties requirements under the law. Employers also are burdened with complex special interest exemptions, which include the one at issue in the Supreme Court case, as well as certain amusement parks, agricultural activities, seamen, rail carrier operators, and “any individual employed as an outside buyer of poultry, eggs, cream, or milk, in their raw or natural state,” to name a few.
Even if an employer believes the employee meets an exemption, there is frequently a slight exception to the exemption that must be considered.
For employers, the frustration over the 1938 law becomes real when the Labor Department demands back pay and sometimes even liquidated damages (for instance, double what is owed) from employers that interpreted the law incorrectly in classifying and paying employees.
The FLSA is an outdated law trying to be relevant in the 21st century. But even a common-sense bill passed by the House of Representatives last year, the Working Families Flexibility Act of 2017, which would have amended the FLSA to let employees in the private sector elect compensatory time off in lieu of overtime pay, was met with irrational and untrue claims that the law would negatively impact employees, even though it actually provided employees with modern-day choice they don’t have now. The House passed it in May, but the Senate has yet to consider the bill.
Employers need to recognize that they are most likely in violation of the FLSA. They should assess all jobs to determine if they are fully complying with the law in classification and on a case-by-case basis determine if they are properly paying nonexempt employees for all hours worked. When in doubt, classify employees as non-exempt and pay them properly under the FLSA.