Federal Court Denies FLSA’s Administrative Exemption for Staffing Recruiters

Quick Hits

• A federal district court recently concluded that IT recruiters for a staffing firm qualified for overtime pay because they did not fall within the FLSA’s administrative exemption.
• The court relied on the administrative/production dichotomy, which distinguishes nonexempt workers who produce and sell a company’s goods and services from exempt workers who administer the business.
• The court also concluded that the job duties of the recruiters did not rise to the level of using independent judgment in significant business matters.

The FLSA stipulates that employees are exempt from overtime if they are “employed in a bona fide executive, administrative, or professional capacity.” To qualify as administrative exempt, an employee must:

• be compensated on a salary or fee basis at more than $684 per week,
• primarily perform office or nonmanual work directly related to the management or general business operations of the employer or the employer’s customers, and
• exercise discretion and independent judgment with respect to matters of significance.

Background on the Case

In 2021, recruiters filed a class and collective action against a staffing firm, alleging it failed to pay them overtime wages in violation of the FLSA and certain analogous state laws. The recruiters earned a salary, bonus, and commission based on their work screening and recruiting talent to meet clients’ needs.

The recruiters recommended candidates for clients, but account managers ultimately decided which candidates were sent to clients. The recruiters typically did not have permission to directly contact a client without prior approval. Their job performance was subject to scrutiny from supervisors if they didn’t follow the correct way to do the job as the company defined it.

However, the company argued that the recruiters were administrative employees who used independent judgment by sourcing candidates, evaluating their qualifications, and partnering with sales teams to understand clients’ needs.

The court noted that the determination of an employee’s primary duty must rely on the actual day-to-day tasks, not on job descriptions, job titles, resumes, or performance evaluations. The court concluded that the recruiters filled a production role, not an administrative role.

“The administrative/production dichotomy turns on whether the services or goods provided by the employee constitute the marketplace offerings of the employer, or whether they contribute to the running of the business itself,” the court stated. “An employee is engaged in administrative work when the employee ‘services his employer’s business,’ which ‘denotes employment activity ancillary to an employer’s principal production activity.” Citing additional case law, the court found that the recruiters’ activities were only routine aspects of sales production within the employer’s operation.

The recruiters did not supervise anyone, have the authority to choose which candidate would be placed with a client, or generate any internal corporate strategy or policy.

The court also found that, while the recruiters used some discretion in their sourcing methods, they did not exercise discretion or independent judgment over important matters. Using discretion may include having the “authority to formulate, affect, interpret, or implement management policies or operating practices,” making decisions to “waive or deviate from established policies and procedures without prior approval,” or participating in strategic plans to advance business objectives, according to the court.

For these reasons, the court concluded that the recruiters did not satisfy the administrative exemption.

Finally, the court denied the employer’s motion for summary judgment on the claim that it willfully violated the law, which would extend the FLSA limitations period from two years to three. The court concluded there was enough evidence for a reasonable jury to find a willful violation of the FLSA because the company had settled similar allegations previously without reassessing its practices for classifying workers.

Next Steps

This case highlights the importance of confirming that all aspects of the job duties test are satisfied before claiming an exemption from overtime. Although the recruiters were engaged in office or nonmanual work, the court concluded that their work was not related to the management or general business operations of the employer or the employer’s customers. As such, it was deemed production, not administrative work.

The court also concluded that the workers did not exercise sufficient discretion over matters of significance. When an employer stipulates a correct way to do a job, it is difficult to argue that employees have discretion over important matters.

Employers may wish to identify all workers classified as exempt and ensure that the classification is legally justifiable under the FLSA and state laws. Some states have stricter standards than the federal rule for overtime exemption.

Ogletree Deakins will continue to monitor developments and will provide updates on the Pennsylvania, State Developments, and Wage and Hour blogs as new information becomes available.

Keith E. Kopplin is a shareholder in Ogletree Deakins’ Milwaukee office.

This article was co-authored by Leah J. Shepherd, who is a writer in Ogletree Deakins’ Washington, D.C., office.

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