Employers confronted with individual or class action lawsuits or government investigations under the federal Fair Labor Standards Act (“FLSA”) have the burden to prove that employees are exempt from the law’s minimum wage and overtime provisions. The United States Supreme Court ruled on January 15, 2025, that the burden of proof on employers should not be heightened and instead the customary preponderance-of-the-evidence standard applies. The decision is a victory for employers, but also a reminder that misclassifying employees as exempt from overtime or minimum wage requirements can result in significant penalties and substantial litigation expense.
The FLSA guarantees a federal minimum wage for covered workers and requires overtime pay for individuals working more than 40 hours per week. Certain employees are exempt from these requirements based on their duties and total compensation. If employees are misclassified as exempt from overtime when their duties and compensation do not meet the FLSA criteria, they may be entitled to pay for overtime that they should have received. Litigation over these types of misclassification claims is rampant, with a large volume of single plaintiff claims and class action claims alleging violations of federal and state wage and hour laws.
Courts have been split on the standard of proof in FLSA exemption cases, with some courts applying the preponderance-of-the-evidence standard for employers to prove that an exemption applies, which is a lower threshold (greater than 50% chance of being correct) and others imposing a more difficult clear-and-convincing standard of proof (highly and substantially more likely to be true than untrue). The Supreme Court’s decision in E.M.D. Sales, Inc. et al. v. Faustino Sanchez Carrera, et al., clarified that the preponderance-of-the-evidence standard of proof applies for FLSA exemptions.
In E.M.D., a grocery distribution company’s sales reps claimed they were misclassified as outside sales employees who were exempt from overtime. The sales reps sued EMD under the FLSA for time and one half pay for weeks when they worked more than 40 hours, plus double damages and legal fees.
The District Court held that EMD was required to prove that the reps’ primary duties involve making sales, and the employee is customarily and regularly engaged in doing so away from EMD’s place of business by the higher clear-and-convincing evidence standard, but EMD failed to do so. The U.S. Court of Appeals for the Fourth Circuit affirmed the District Court’s decision.
The U.S. Supreme Court disagreed. Justice Kavanaugh wrote in the majority opinion that since the enactment of the FLSA, the default standard of proof in civil litigation has always been the lower preponderance-of-the-evidence standard. The Supreme Court has only deviated from that standard in three circumstances: (1) when a statute requires it, (2) when the Constitution requires it, and (3) where the government seeks to take unusual coercive action, such as taking away a person’s citizenship. The Supreme Court held that none of the three scenarios applied to FLSA burdens of proof.
The employees argued that the heightened standard is necessary to carry out the FLSA’s public purpose in a well-functioning economy where workers are guaranteed a fair wage. However, the Justices were not “persuaded by the employees’ policy-laden arguments” and further stated that the public interest in FLSA cases does not fall entirely on the side of employees but “reflects a balance of competing interests.” Therefore, the Supreme Court “must apply the statute as written and as informed by the longstanding default rule regarding the standard of proof.” As a result, the Supreme Court remanded the case back to the Court of Appeals to apply the preponderance-of-the-evidence standard instead of the clear-and-convincing evidence standard that the District Court applied.
Although the Supreme Court’s decision eases the evidentiary burden of proof on employers, businesses still face significant risk if they do not regularly check and update their classification of employees as exempt from overtime, under the “white collar” and other FLSA exemptions. Employers should regularly review and update job descriptions and rectify potential misclassification issues. Many employers have made the business decision to classify “close calls” on exemptions as non-exempt from overtime to seek to avoid the disruption and expense of wage and hour litigation, but even reclassifying can be tricky, as certain employees are resistant to being reclassified as non-exempt and having to track their hours worked. Employers should not undertake examinations of wage and hour issues without appropriate resources and review of recent court rulings on exempt status across all job categories. Ballard Spahr’s Labor and Employment Group regularly assists employers with FLSA and state wage and hour law job classifications, as well as overtime and minimum wage compliance, including for tipped employees, to wade through this complex area of law to avoid expensive litigation and government agency investigations, and to prepare to successfully defend against such claims.