Understanding the Latest Wage and Hour Update: Say Hello to the 'Relational Analysis' Test!

Beth Dean 02.24.23
Nextep Blog Graphic - 2023-02-24 Compliance Alert - relational analysis

Your Guide to the Latest Court Ruling on the FLSA Administrative Exemption

If you’re an employer in Maine, Massachusetts, New Hampshire, Rhode Island, or Puerto Rico, listen up! The 1st US Circuit Court of Appeals has clarified the Fair Labor Standards Act’s (FLSA) administrative exemption, and it could be a game-changer for your business. In the recent case of Walsh v. Unitil Service Corporation, the court introduced a “relational analysis” test for determining whether a worker is an “administrative” employee.

Administrative exemption cheat sheet

So, what does this mean for you? Most employees are entitled to overtime pay for working over 40 hours in a single workweek. However, the “administrative” exemption allows some employees to be exempt from this requirement. To qualify for this exemption, the individual must meet three criteria: 

  1. Salary of at least $684 per week
  2. Primary duty is related to the management or general business operations of their employer
  3.  Exercising discretion and independent judgment over significant matters

Now, the tricky part, and where many employers get it wrong, is figuring out whether an employee’s job duties truly meet all three criteria. The second prong, in particular, can be challenging to navigate. The US Department of Labor (DOL) has issued regulations defining key terms and providing examples of work that might be considered administrative. However, it’s still up to employers to determine whether an employee’s job duties meet the criteria.

Misclassifying employees as exempt when they don’t meet the criteria can lead to severe consequences. For example, the employee could be entitled to back pay for any overtime they worked but didn’t receive. They could also be entitled to liquidated damages, an additional amount equal to the back pay owed.

So how about this new litigation?

The court’s decision in Walsh v. Unitil Service Corporation focused on the second criterion of the administrative exemption, that of the employee’s primary duties. The court clarified that determining whether this criterion is met requires a “relational analysis” between the employee’s job duties and the employer’s business purpose. In other words, the relational analysis must consider whether the employee’s primary duties relate to “running or servicing” the business operations of their employer or its customers and the scope of their role.

The court found that the dispatchers’ and controllers’ duties could be considered “administrative” as they related to the “running and servicing” prong of the administrative exemption. Ultimately, though, the court found that the employee’s “routine” work was not sufficiently high-level to qualify for the exemption under the scope of the role since they were not engaged in the management or impact of general business operations.

This decision is an important reminder to employers that there are gray areas when complying with federal overtime regulations. As an employer, you must tread carefully when designating employees as exempt. Consult with your HR Business Partner or outside counsel when determining whether an employee is exempt from overtime compensation.

If you operate in one of the states mentioned above, paying attention to this ruling is particularly important. However, this decision may also guide employers in other parts of the country. So, take note and ensure that you comply with the FLSA’s administrative exemption and other overtime regulations. Your employees (and company coffers) will thank you for it!

Be aware that where there is overlap between federal, state and/or local law, complying with the law that offers the greatest rights or benefits to the employee will generally apply.

Also on Nextep

Get ready for changes! As of July 1, 2024, a new wave of state laws are set to go into effect across the country. These updates impact everything from worker protections and minimum wage to important regulations for businesses. Whether you’re an employer, employee, or simply a resident staying informed, this article will guide you […]
Read more
Exemptions from Overtime Pay: A Guide for Employers The Department of Labor (DOL) has announced significant changes to overtime regulations for salaried employees exempt from overtime pay. Here’s a breakdown of what you need to know and how to prepare: Key Changes: Increased Salary Thresholds: Currently, salaried workers earning less than $35,568 annually are exempt […]
Read more
A Game Changer for Employers The Federal Trade Commission (FTC) recently made a significant change regarding employers’ use of non-compete agreements. The final rule issued by the FTC prohibits the use of non-compete agreements for many workers, which is a departure from the longstanding practices of many companies. This decision is already facing legal challenges, […]
Read more
Key Points for Employers About the Latest Harassment Guidance The Equal Employment Opportunity Commission (EEOC) has recently updated its guidelines on workplace harassment enforcement. This was the EEOC’s first update in more than 30 years. The updates are intended to clarify and modernize existing standards. These changes take into account recent legal developments and the […]
Read more
What You Need to Know About PWFA The Equal Employment Opportunity Commission (EEOC) recently released the final regulations for the Pregnant Workers Fairness Act (PWFA). These regulations, taking effect on June 18, 2024, update the PWFA rules put into place in 2023 and significantly impact how employers with at least 15 employees accommodate workers with […]
Read more
When Addiction Strikes at Work The issue of addiction in the workplace presents a complex challenge for both employers and employees. The Americans with Disabilities Act (ADA) protects qualified individuals with disabilities, but active addiction itself isn’t necessarily covered. Here’s a breakdown of rights and responsibilities: Employee Rights Under the ADA Generally Not Covered: The […]
Read more
What is Considered “Reasonable”? What happens when an employee with a disability needs an adjustment to perform their job effectively? This is where reasonable accommodations come in. However, the question often arises: what exactly is considered “reasonable” under the Americans with Disabilities Act (ADA)? Striking a Balance The key is to find a balance between […]
Read more
It’s time for an ADA refresher! The Americans with Disabilities Act (ADA) is a cornerstone of civil rights legislation, ensuring equal employment opportunities for people with disabilities. As an employer, understanding your obligations under the ADA is crucial. Here’s a breakdown of the key points: What qualifies as a disability? The ADA defines a person […]
Read more
Forced to listen? Imagine this: Your boss calls a mandatory meeting. Instead of discussing work tasks, they spend the time telling you why you should support a political candidate or a particular religious view. That’s a captive audience meeting, and it’s becoming a hot-button issue. A captive audience meeting is a mandatory work meeting where […]
Read more
At some point during the election cycle, you may encounter employees wanting to display political propaganda at work.  This can range from flags and posters to social media posts and even conversations, and it can create a tense and uncomfortable atmosphere for colleagues with differing viewpoints. So, how do you maintain a respectful workplace while […]
Read more
An Employer’s Guide to Politics in the Workplace The current political climate can be divisive, and tension can easily spill over into the workplace. When employees hold vastly different political views, it can lead to arguments, hurt feelings, and a fractured work environment. So, what’s an employer’s responsibility when it comes to politics in the […]
Read more
An OSHA inspection can feel daunting, but understanding the process can empower you to get through it smoothly. This guide will equip you with the knowledge you need to ensure a collaborative and efficient experience for everyone involved. When might you encounter an OSHA inspector?  Imagine a concerned employee reports a potential safety hazard. Or […]
Read more

Download Our App

Download the Nextep Mobile App in Apple iOS or Google Play