By Lionel Schooler
In Smith v. Ochsner Health System, the United States Court of Appeals for the Fifth Circuit recently addressed comprehensively for the first time the appropriate analysis of the Fair Labor Standards Act’s “highly compensated employee (HCE)” exemption from overtime pay. The Ochsner Health decision provides interpretive clarity to the standards used to evaluate this exemption.
The Highly Compensated Employee Exemption
FLSA regulations contain a special exemption rule for HCEs (29 C.F.R. §§541.601 et seq.). An HCE is deemed exempt under the FLSA if the employee has overall total annual compensation of at least $107,432 (a new floor level increase from the prior $100,000 threshold, effective January 1, 2020), and customarily and regularly performs any one or more of the exempt duties or responsibilities of an executive, administrative or professional employee. The total annual compensation threshold must include at least $684 per week paid on a salary or fee basis. This 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.
Underlying Facts in Ochsner Health
Plaintiff Smith was hired as an organ procurement coordinator for Ochsner Health System, a Louisiana-based nonprofit healthcare provider. Plaintiff never graduated high school, and possessed no advanced degrees, licenses, or certifications. Plaintiff’s job required him to stand as the first line of communication between any hospital and Ochsner Health when donated organs became available. The Fifth Circuit’s opinion enumerated several details of Plaintiff’s role as a coordinator.
Turning to the compensation paid to Plaintiff, the Court recited that Plaintiff was initially paid on a salary basis, with a set hourly rate for on-call time, and a regular (or straight time) hourly rate for hours worked above 40 hours per week. After he had been on the job for a period of time, Plaintiff’s pay changed to a straight salary which essentially paid him the same level of compensation he had previously received. The record indicated that for the last four years of his employment, Plaintiff’s annual salary surpassed $120,000.
Lawsuit Filed for Overtime Pay
After quitting his job, Plaintiff 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. The District Court granted Ochsner Health judgment before trial on the basis that Plaintiff was undisputedly exempt from overtime pay because he qualified as a “highly compensated employee.”
Legal Backdrop to Fifth Circuit Analysis
On appeal, the Fifth Circuit framed the inquiry as a determination of whether this HCE exemption applied to Plaintiff in accordance with the requirements of FLSA exemption pursuant to 29 U.S.C. §213, a statute which it said was to be interpreted by a “fair reading,” that is, by neither a broad nor a narrow reading. In passing, the Court remarked that it had rarely focused upon the HCE exemption, because most prior cases mentioning it actually addressed exempt duties within a different context, such as the so-called “administrative,” “executive” or “professional” exemptions.
Accordingly, the Court applied the statute and the companion regulations enumerated at 29 C.F.R. §§541.200 et seq., to explore Plaintiff’s HCE exempt status under the “duties” criterion, the “customary and regular” criterion, and the “office or non-manual work” criterion.
HCE Duties Test
Concerning the “duties” criterion, the Court noted that to qualify for the HCE exemption, Ochsner Health had to demonstrate that Plaintiff performed one or more of the applicable regulation’s enumerated exempt duties, such as one of the array of duties enumerated for the administrative exemption. The Court also noted that the wording associated with the HCE exemption was quite broad, such that the exemption could exist even if the HCE did not meet each and every duty requirement of the administrative exemption.
Turning to the undisputed facts in the record, the Court concluded that Ochsner Health had demonstrated that Plaintiff undertook at least one enumerated duty that was directly related to Ochsner Health’s management or general business operations, 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.
HCE’s Other Exemption Criteria
The Court next reviewed the evidence in the record, and held that the Plaintiff undisputedly performed this exempt duty work customarily and regularly.
Finally, turning to the “office or non-manual work” requirement that Ochsner Health had to demonstrate, the Court held that Plaintiff had indicated to the District Court in his briefing that much of his work was non-manual. He also never raised the issue of the predominance of manual labor in his work.
Accordingly, the Fifth Circuit held that as a matter of law, the Plaintiff in this case was an exempt highly compensated employee.
The Fifth Circuit’s comprehensive analysis of the highly compensated employee exemption in Ochsner Health reinforces interpretive principles applicable to the exemption. The decision demonstrates the importance to employers of understanding and appropriately documenting the work performed by such an employee so as to qualify for this exemption.
Lionel M. Schooler is a management-side employment lawyer and recognized authority on employment law, federal appellate practice, and arbitration. Lonnie’s employment practice focuses on counseling clients and litigating, on a nationwide basis, claims under all employment laws, wage and hour claims, and investigations by the Equal Employment Opportunity Commission, the U.S. Department of Labor, and the Texas Workforce Commission. Lonnie is also experienced as an arbitrator on the Commercial and Employment Panels of the American Arbitration Association and as an advocate. He was selected for inclusion by the National Association of Distinguished Neutrals and is certified as a Fellow of the Chartered Institute of Arbitrators for international arbitration matters. Since 2017, Lonnie has served on the Board of Directors of the Houston Bar Association. His previous editorial experience includes serving as editor-in-chief of The Houston Lawyer, a bimonthly publication of the Houston Bar Association.
The opinions expressed are those of the author and do not necessarily reflect the views of the firm, its clients, or any of its or their respective affiliates. This article is for informational purposes only and does not constitute legal advice.