Supreme Court Unanimously Rejects Stricter Standards for Minimum Wage and Overtime Exemptions

 
January 28, 2025

Key Takeaways

  • The United States Supreme Court held that employers seeking to prove an employee is exempt from minimum wage and overtime pay provisions of the Fair Labor Standards Act must only satisfy a preponderance of the evidence standard, and not a more onerous clear and convincing evidence standard.
  • The employer-friendly decision resolved a circuit split and rejected one circuit’s imposition of a heightened evidentiary standard on employers seeking to establish that their employees are exempt from the minimum wage and/or overtime pay provisions of the FLSA.1

On January 15, 2025, the United States Supreme Court ruled unanimously that courts must apply a preponderance-of-the-evidence standard, rather than a more burdensome clear-and-convincing-evidence standard, “when an employer attempts to demonstrate that an employee is exempt” from minimum wage and overtime pay provisions of the Fair Labor Standards Act (“FLSA”).2

Factual Background and Procedural History

The FLSA establishes that many employees are entitled to be paid a minimum hourly wage for all hours worked and overtime pay when they work in excess of 40 hours per week.3  Either or both of these requirements do not apply, however, to employees who meet certain standards for salary threshold, duties, and qualifications. These “exempt” employees “can range from baseball players to seamen to maple-syrup processors to software engineers to firefighters, and so on.”4 The FLSA’s exemptions reflect Congress’ “recogni[tion] that a minimum wage and overtime pay would be impractical or inappropriate for some jobs.”5

E.M.D. Sales, Inc. distributes international food products to independent and chain grocery stores in the Washington, D.C. metropolitan area.6  E.M.D.’s sales representatives are responsible for managing inventory and taking orders at grocery stores that stock E.M.D. products, and spend “most of their time out of the office and traveling their routes.”7   In 2017, three sales representatives, Faustino Sanchez Carrera, Magdaleno Gervacio, and Jesus David Muro, sued E.M.D. and its Chief Executive Officer, Elda Devarie, claiming that they were not paid overtime wages in violation of the FLSA.8 The sales representatives claimed that they worked approximately 60 hours per week, were paid on a commission basis instead of an hourly wage rate, and were not paid overtime compensation.9

E.M.D. did not dispute that the employees worked over 40 hours each week and were not provided overtime compensation.10 Instead, E.M.D. averred that these employees were properly classified as overtime exempt because they qualified for the “outside sales employee” exemption under the FLSA.11

After a bench trial, the U.S. District Court for the District of Maryland found that E.M.D. failed to prove that the employees qualified for the outside sales exemption by “clear and convincing evidence.”12 The U.S. Court of Appeals for the Fourth Circuit affirmed.13 This decision broke with previous rulings of the Fifth, Sixth, Seventh, Ninth, Eleventh, and Twelfth Circuits, all of which have held that the less burdensome preponderance of the evidence standard applies to employers proving applicability of FLSA exemptions.14

Court’s Analysis and Ruling

The Court began its analysis by looking to history. It explained that when Congress passed the FLSA in 1938, the preponderance of the evidence standard was the default standard of proof in civil litigation, as it remains today.15 The Court then discussed the three circumstances in which a departure from this default standard of proof is appropriate:

  1. When required by statute. For example, whistleblower-retaliation claims under the FLSA requires clear and convincing evidence as the standard of proof;16
  2. When required by the United States Constitution, such as in certain First Amendment and Due Process Clause actions;17 and
  3. In certain “uncommon” cases under the Court’s precedent, typically when the government “seeks to take unusual coercive action.”18    

The Court recognized, and the employees acknowledged, that the FLSA does not specify a standard of proof with respect to analyzing overtime exemptions and this question does not implicate any constitutional rights that would necessitate applying a higher standard of proof.19 The Court explained that this issue does not involve the government otherwise seeking to take unusual coercive action against an individual, such as when the government seeks to revoke an individual’s citizenship through expatriation or denaturalization.20

The Court was also not persuaded by the employees’ public policy-centric arguments that the FLSA focuses on the public’s interest in a well-functioning economy in which employees are guaranteed to receive fair wages.21 The Court emphasized that other workplace protections for similar public interests are subject to the preponderance of the evidence standard, such as prohibitions on workplace discrimination under Title VII.22

Practical Advice

Although the Court’s decision is welcome news for employers defending against misclassification claims, employers should continue to review and evaluate their overtime exemption classifications to ensure that they comply with the FLSA’s requirements going forward. Employers may also benefit from conducting an internal review of the classification of their workforce. Employers who had begun preparing to reclassify employees based on U.S. Department of Labor’s regulations on increased salary thresholds that previously went into effect on July 1, 2024 and were scheduled to increase again on January 1, 2025, should note that in November 2024, the U.S. District Court for the Eastern District of Texas vacated the DOL’s final regulation increasing the salary threshold in January 2025, nullifying the July 2024 increase.23 DOL appealed that ruling in December 202424, and DOL’s opening brief is due on February 5, 2025.25


Footnotes

  1. Dechert LLP represented the Chamber of Commerce of the United States of America, the National Federation of Independent Business Small Business Legal Center, Inc., the National Retail Federation, and the Restaurant Law Center as amici curiae before the Supreme Court in this case.
  2. E.M.D. Sales, Inc. v. Carrera, No. 23-217 (U.S. Jan. 15, 2025), Slip Op. at 1.
  3. Id. at 2 (citing 29 U.S.C. §§ 206(a)(1), 207(a)(1).
  4. Id. (citing 29 U.S.C. §§ 213(a)(12), (17), (19), (b)(15), (20)).
  5. Id.
  6. Id.
  7. Carrera v. E.M.D. Sales Inc., 75 F.4th 345, 349 (4th Cir. 2023).
  8. Id.
  9. Id.
  10. E.M.D. Sales, Slip Op. at 2-3.
  11. Id. at 3.
  12. Id. (citing Carrera v. EMD Sales, Inc., No. 17-cv-3066, 2021 WL 1060258 (D. Md. Mar. 19, 2021).
  13. Id. (citing Carrera v. E.M.D. Sales Inc., 75 F.4th 345 (4th Cir. 2023)).
  14. Id.
  15. Id. at 4.
  16. Id. (citing 29 U.S.C. § 218c(b)(1)).
  17. Id. at 5 (citing New York Times Co. v. Sullivan, 376 U.S. 254, 285-86 (1964); Gerz v. Robert Welch, Inc., 418 U.S. 323, 342 (1974); Addington v. Texas, 441 U.S. 418, 425-27 (1979); Santosky v. Kramer, 455 U.S. 745, 747-48 (1982)).
  18. Id. (citing Price Waterhouse v. Hopkins, 490 U.S. 228, 253 (1989) (plurality opinion); Nishikawa v. Dulles, 356 U.S. 129, 137-38 (1958); Schneiderman v. United States, 320 U.S. 118, 122-23 (1943)).
  19. Id. at 6.
  20. Id.
  21. Id. at 7-8.
  22. Id. at 7 (citing Hopkins, 490 U.S. at 253-54).
  23. See Texas v. United States Department of Labor, --- F. Supp. 3d ---, 2024 WL 4806268 (E.D. Tex. Nov. 15, 2024).
  24. See State of Texas, et al. v. United States Department of Labor, No. 24-40777, ECF No. 1 (5th Cir. Dec. 4, 2024).
  25. Id. at ECF No. 15.

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