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4th Circuit Decides FLSA Administrative Exemption Case

Published by on May 11, 2009

In Desmond v. PNGI Charles Town Gaming, L.L.C., the U.S. Court of Appeals for the Fourth Circuit reversed the district court and held that certain former employees were entitled to overtime compensation under the Fair Labor Standards Act (“FLSA”) because they were not exempt employees within the administrative exemption of the FLSA.  More after the […]

In Desmond v. PNGI Charles Town Gaming, L.L.C., the U.S. Court of Appeals for the Fourth Circuit reversed the district court and held that certain former employees were entitled to overtime compensation under the Fair Labor Standards Act (“FLSA”) because they were not exempt employees within the administrative exemption of the FLSA.  More after the break.

The employees were employed as Racing Officials for Charles Town Races & Slots in West Virginia.  Their duties included assisting with the staging of live horse races and serving as judges.  The employees were also responsible for performing some clerical duties, including the noting of rider changes and completion of racing entries.  In September 2006, the employees were terminated for “gross violation of procedures” after they posted an incorrect finishing order for a race.  The employees subsequently filed actions in the district court alleging they were denied overtime pay.

The district court entered summary judgment for the employer, holding that the employees’ position fell within the administrative exemption under the FLSA.  The court found that the employees’ primary duty was non-clerical and non-manual work related to the production of horse races, which was “directly related to the management or general business operations” of the company.  The court found it significant that West Virginia law regulates Racing Officials’ positions, and so the company was dependent on these positions because it could not legally conduct its business without them.  The court also found that the employees exercised independent judgment in matters of consequence to the company.

Under the FLSA, employees are entitled to overtime pay if they worked over forty hours a week.  Employees who are employed in a “bona fide executive, administrative, or professional capacity,” however, are exempt from overtime pay.  There is a three-part test for determining whether an employee falls under this exemption:  (1) the employee must be compensated at a rate of no less than $455 per week; (2) the employee’s primary duty must consist of the performance of non-manual work directly related to the management or general business operations of the employer; and (3) the employee’s primary duty must include the exercise of discretion with respect to significant company matters.  Further, the employer bears the burden of demonstrating that employees fall within the exemption. 

On appeal to the Fourth Circuit, the employees argued that the district court erred in finding that the position of Racing Official fell within the administrative exemption under the second and third prongs of the test.  The Fourth Circuit agreed, stating that the district court misinterpreted the second requirement as hinging upon the “indispensability” of the employee’s position.  The court found that “indispensability” is not determinative of whether the position is related to the company’s general business operations; rather, it is the nature of the work performed that is dispositive.  The court concluded that the position of Racing Official did not entail the “running or servicing of” the company’s management or general business operations.  Because the court found that the second requirement was not satisfied, it declined to express an opinion on whether the position satisfied the third prong of the test.

Contributed by Claudia L. Guzman

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