Fair Labor Standards Act (FLSA): Fourth Circuit Clarifies Analysis for Administrative Exemptions

Desmond v. PNGI Charles Town Gaming, L.L.C., 564 F.3d 688 (4th Cir. 2009) – The Fourth Circuit Court of Appeals has held that when determining whether the FLSA’s administrative exemption applies to a position, the focus of the inquiry should be on the type of work performed by the individual, rather than the indispensability of the employee’s position within a business or whether applicable law requires the position to exist.

Several employees who were involved in the staging of horse races were terminated from their employment with PNGI Charles Town Gaming and thereafter filed suit for unpaid overtime under the FLSA. The district court determined that the former employees were exempt under the FLSA’s administrative exemption because: (1) the racetrack could not operate legally without the horse racing officials; (2) the officials were involved in the general business operations of the racetrack (quality control, safety and health, public relations, and legal and regulatory compliance); and (3) they exercised discretion and independent judgment in matters of significance (identifying order of finish after comparing and evaluating the merits of any challenges to the initial posting, ensuring compliance with numerous regulations related to the jockeys and horses participating in the races, and the like). After the district court found the former employees were exempt and not entitled to overtime, the former employees appealed. 

The Fourth Circuit reversed the district court’s decision, finding that the former employees’ positions did not satisfy the administrative exemption requirements and clarifying that the administrative exemption should be applied based on the type of work performed, not whether a business practice or applicable law requires the position to exist. The court provided illustrations of work meeting the “directly related to the management of general business operations” criteria, distinguishing tasks directly relating to the running of a business (such as the work the former employees performed) from work that does not involve the development, review, evaluation, or recommendation of business policies or strategies. Importantly, the court noted that even non-manufacturing employees can be considered “production” employees where their job is to generate the product or service the employer’s business offers – here, the production of live horse races.

Note: This article was published in the October 2009 issue of the North Carolina eAuthority.