Many employers are under the common misconception that simply paying an employee on “salary” means they are exempt from the overtime requirements pursuant to federal, state, or local laws. However, there 
are many considerations for determining exempt status, including not only whether the employee is paid on a salary basis as defined by applicable law, but also the job duties that the employee performs. 
If each element of the exempt status analysis is not satisfied, then the employee is not exempt from receiving the overtime premium.

Confirming that employees are properly classified as exempt from overtime and taking proactive steps to ensure compliance with applicable wage and hour laws are key steps to avoiding the many risks of wage and hour litigation. In 2022 alone, the U.S. Department of Labor (DOL) recovered $32,913,795 in back wages for 17,127 employees in the construction industry.

This article discusses common exemptions in construction and other wage and hour issues to provide a foundation for employers to take proactive steps for minimizing the risk of facing a lawsuit and/or incurring damages following an investigation by the DOL or similar state-based department. The exemptions discussed in this article generally do not apply to employees covered by a collective bargaining agreement but may apply in narrow situations. Even so, it is important to remember that collective bargaining agreements cannot waive or reduce wage and hour protections, such as those set forth in the Fair Labor Standards Act (FLSA).¹

Fair Labor Standards Act

The FLSA is the federal law that requires employers to pay most employees at least the federal minimum wage for all hours worked, including overtime (time and a half of the regular rate of pay),  for all hours worked over 40 in a given work week.

The FLSA also provides exemptions from overtime requirements; the most commonly disputed exemptions in the construction industry are the executive and administrative exemptions. However, employers that improperly classify employees as exempt are at risk of facing legal claims under the FLSA and a variety of other state and local counterpart laws.

Cases in the construction industry involving misclassification of employees as exempt (or as independent contractors) are on the rise, and many states have increased penalties for employers that violate these laws. As such, employers that misclassify employees as exempt are not only at risk of paying years of alleged unpaid compensation (usually overtime) but are also subject to a variety of often severe penalties. Under the FLSA, employees can recover up to three years of back wages and an equal amount of liquidated damages for any unpaid overtime. Further, it is common that FLSA claims are brought in conjunction with a state claim and for the penalties (under the state law claim) to exceed the amount of the alleged unpaid wages.

While a two-year statute of limitations generally applies under the FLSA, it can extend to three years in cases where a willful violation is alleged and proven, meaning the employer knew it was violating the FLSA or showed reckless disregard for whether its conduct was prohibited by the FLSA. In addition, some states have longer statutes of limitation — for example, Florida allows employees to recover unpaid wages up to five years in the past (F.S. §95.11(2)(d)).

Example

To fully understand how the potential monetary damages can quickly multiply beyond any alleged unpaid wages, here is an example:

Construction Employer A — located and performing work in Illinois — improperly classified inspector Jane Doe as exempt from overtime requirements under the FLSA and the Illinois Minimum Wage Law.

After being terminated for violation of company policy, Jane brought a claim against Construction Employer A for the last three years of uncompensated overtime allegedly totaling $10,000.

Exhibit 1 includes a non-exhaustive list of penalties that Construction Employer A may be subject to under Federal and Illinois law, should Jane prevail on her claims. As shown in this example, misclassifying even one employee and failing to pay even the smallest amount of overtime can have an enormous financial impact on a business.

Additionally, wage and hour cases (e.g., Rossman v. EN Eng’g, LLC, 19-CV-05768, 2020 WL 5253861 (N.D. Ill. Sept. 3, 2020)) are often brought as class and collective actions, grouping similarly 
situated employees in a single action, which multiplies potential damages.

While most employers think of the monetary risk involved in misclassifying employees as exempt, there are other potential risks including, but not limited to, time and effort spent on defending claims, low employee morale, and damage to reputation as litigation is public.

Overview of Exempt & Non-Exempt Status

The FLSA exempts certain categories of employees from its overtime requirements. There are five main categories of exemptions: administrative, executive, professional, computer employee, and outside sales.

This article focuses on the administrative and executive exemptions, which are common (and the most likely to be disputed) in the construction industry (Exhibit 2).

Employer Coverage

The FLSA provisions do not apply to all employees, as there are several threshold requirements that must first be satisfied.

As a summary, an employee must establish that they work for an employer that is an enterprise engaged in commerce (enterprise coverage) or that the employee is personally engaged in interstate commerce on behalf of the employer (individual coverage).

Enterprise Coverage

An enterprise engaged in commerce includes employers that have:

• “Employees engaged in commerce or in the production of goods for commerce, or employees handling, selling, or otherwise working on goods or materials that have been moved in or produced for commerce by any person”
• At least two employees
• An annual dollar volume of sales or business done of at least $500,000

If an employer does not fall under enterprise coverage, then employees may still be entitled to FLSA protections if they are individually engaged in interstate commerce on behalf of the employer.

Individual Coverage

Individual coverage covers employees who directly and regularly engage in “commerce or in the production of goods for commerce.”

FLSA coverage (e.g., Fact Sheet #14: Coverage Under the Fair Labor Standards Act (FLSA) and Fact Sheet #27: New Businesses Under The Fair Labor Standards Act (FLSA)) is often interpreted broadly (noting, for example, that even processing credit card transactions can be considered as engaging in interstate commerce for purposes of individual coverage).

According to the regulations interpreting the FLSA (29 CFR §779.103), construction employees are often individually covered by the FLSA, as they engage in interstate commerce or in the production of goods for interstate commerce, which is defined broadly under the FLSA.

For example, the DOL published guidance regarding FLSA coverage for construction activities stating that the FLSA “covers construction work which is closely tied with the process of producing goods for interstate commerce” including, but not limited to:

• “Repair, maintenance, and construction of interstate commerce including railroads, highways and city streets, pipe lines, telephone and/or electrical transmission lines, airports, bus/truck/steamship terminals, radio or TV stations and rivers/streams/waterways over which interstate or foreign commerce regularly moves”
• “Repair, maintenance, reconstruction, redesign, improvement or extension or enlargement of an existing facility engaged in the production of goods for interstate commerce”

Salary Basis Threshold

To qualify for an administrative, executive, or professional exemption under the FLSA, employers must pay employees a salary of $684 or more per week. This amount may be higher under state law. While the DOL has not provided specific details, it is likely that this threshold salary requirement under federal law will increase in 2024 or shortly thereafter.

Even if an employee is paid on a salary basis and performs duties that are considered exempt duties within the definition of the administrative exemption, if they are paid less than a salary of $684 per week (or paid on an hourly basis), then the employee does not satisfy the administrative exemption requirements and would be entitled to overtime.

To be paid on a salary basis not only means that the employee receives at least the guaranteed minimum salary each week, but also that the employer does not take any improper deductions from the employee’s salary.

There are very narrow instances in which an employer can take a deduction from an exempt employee’s salary. For a non-exhaustive example, while benefit deductions such as for 401k contributions or health insurance premiums can be deducted as directed by the employee, employers cannot deduct from exempt employee pay for long meal breaks, partial day absences, jury duty (but may offset any amount received in jury or witness fees), and failure to meet business deadlines (29 CFR §541.602(b)).

Employers that take improper deductions from an employee’s salary risk losing exempt status. For example, in Folta v. Norfork Brewing Co., a court in Arkansas granted summary judgment for the plaintiff (employee) finding that the employer did not satisfy the exempt status requirements because it did not compensate the employee on a guaranteed salary basis during his entire employment where the salary payments varied over time, and in one instance, the employee’s salary was docked due to a violation of company policy.

Safe Harbor Policy

An important tool to help mitigate risk under the FLSA regarding exempt status misclassification is establishing a safe harbor policy. In some instances, a safe harbor policy (29 CFR §541.603(d)) may help mitigate risk where an employer made an improper deduction, if the employer adopts a policy that:

• Clearly communicates the employer’s prohibition of improper salary deductions;
• Includes a procedure whereby an employee may file a complaint regarding an improper deduction;
• Reimburses employees for improper deductions;
• Makes a good faith commitment to comply; and
• Does not willfully violate the policy by continuing to make improper deductions after complaints are made.

Highly Compensated Exemption

Employees who perform office or non-manual work, customarily and regularly perform at least one of the duties of an executive or administrative employee, and are paid at least $107,432 in total compensation (as of 2023) may be also exempt from the FLSA overtime requirements. This test may not apply under state law and/or the threshold salary basis may be higher.

When an employee is highly compensated, the duties portion of the analysis may be easier to satisfy depending on the court’s interpretation of the current rules governing the exempt analysis.

For example, as described in O’Dell v. Alyeska Pipeline Service Co., when applying the administrative exemption, typically an employee must customarily and regularly exercise discretion and independent judgment, whereas a highly compensated employee’s work “must only include work requiring the exercise of discretion and independent judgment to qualify.”

The difference in the analysis may be subtle depending on the case’s facts. Some courts refer to this duties analysis as the “short test”; although, in some circuits, this test is streamlined as part of the regular exemption analysis.

In addition to receiving the overall annual compensation of $107,432, employees must be paid a predetermined weekly amount of at least $684. The remaining portion of the annual requirement for the highly compensated employee exemption may take the form of, for example, commissions and bonuses; however, payments to medical or life insurance, contributions to retirement, and other fringe benefits do not count toward the minimum salary requirements (29 CFR §541.601). Thus, employers should confirm that employees who are classified as exempt using this method are meeting the minimum threshold requirements at the end of the 52-week period.

The 52-week period should be predetermined by the employer as calendar year, fiscal year, or 52 weeks from the date of hire. Further, employers can make a catch-up payment to reach the threshold requirement either during the last pay period or up to one month following the end of the 52-week period (29 CFR §541.601). However, the catch-up payment would not be included in the subsequent year for purposes of determining if the minimum exempt salary threshold is met.

How to Utilize This Article: Determining Exemption

When determining if an exemption applies, courts look beyond the position title and focus on the job responsibilities and duties of the individual employee (not the position as a whole) at the time in which the claim is made.

This article details examples where various courts have ruled differently on individuals with the same job title — and even comparable duties. Thus, employers should not determine that their employee is exempt based solely on similar job titles, nor does a “high-level” job title on its own satisfy exempt status.

Instead, employers should review the qualifications for each exemption and analyze each of their employees’ duties and responsibilities while considering the exemption requirements under the FLSA and under the state law of the state in which the employee works — 
ideally with legal counsel.²

Administrative Exemption

To qualify for the administrative employee exemption, in addition to ensuring that the employee’s compensation satisfies the salary-basis test under federal and state law, the employee’s primary duty:

• Must be the performance of office or non-manual work directly related to the management or general business operations of the employer or its customers; and
• The employee must exercise discretion and independent judgment with respect to matters of significance.³

Many exemptions refer to the primary duty of the employee, which under the FLSA means “the principal, main, major, or most important duty that the employee performs” (29 CFR §541.700). In determining an employee’s primary duty, courts look to a variety of factors including, but “not limited to, the relative importance of the exempt duties as compared with other types of duties; the amount of time spent performing exempt work; the employee’s relative freedom from direct supervision; and the relationship between the employee’s salary and the wages paid to other employees for the kind of non-exempt work performed by the employee” (29 CFR §541.700(a)).

“Directly related to the management or general business operations” means an employee must perform work directly related to running or servicing the business including, but not limited to, working in a functional area (29 CFR §541.201(b)) such as:

• Tax
• Finance
• Budgeting
• Auditing
• Insurance
• Quality control
• Purchasing
• Procurement
• Advertising
• Marketing
• Research
• Safety and health
• Personnel management
• Human resources
• Labor relations
• Legal and regulatory compliance

When considering whether an employee exercises discretion and independent judgment, courts consider the following non-exhaustive list of factors:

• Whether the employee has authority to formulate, affect, interpret, or implement management policies or operating practices;
• Whether the employee carries out major assignments in conducting the business’ operations;
• Whether the employee performs work that affects business operations to a substantial degree;
• Whether the employee has authority to commit the employer in matters that have significant financial impact; and
• Whether the employee has authority to waive or deviate from established policies and procedures without prior approval.

Employees can exercise discretion and independent judgment even if their decisions or recommendations are reviewed at a higher level (e.g., Blanchar v. Standard Ins. Co,⁴ Mullins v. Target Corporation, Hall v. Bassett & Assoc.,⁵ and Ho v. Ernst & Young LLP⁶).

Executive Exemption

To qualify as an exempt executive employee under the FLSA, in addition to ensuring that the employee’s compensation satisfies the salary-basis test, the employee must:

• Have a primary duty to manage the enterprise, a customarily recognized department, or subdivision of the enterprise;
• Customarily and regularly direct the work of at least two or more other full-time employees or their equivalent; and
• Have authority to hire or fire other employees or the employee’s suggestions or recommendations as to the hiring, firing, advancement, promotion, or any other change of status of other employees must be given particular weight.

Management

Management (29 CFR §541.102), for purposes of the executive exemption under the FLSA, often focuses on the ability to hire, fire, and discipline employees but also includes activities such as:

• Interviewing, selecting, and training employees
• Setting and adjusting employee pay rates and work hours
• Directing the work of employees
• Maintaining production or sales records for use in supervision or control
• Appraising employees’ productivity and efficiency for the purpose of recommending promotions or other changes in status
• Handling employee complaints and grievances
• Disciplining employees
• Planning the work
• Determining the techniques to be used
• Apportioning the work among the employees
• Determining the type of materials, supplies, machinery, equipment, or tools to be used or merchandise to be bought, stocked, and sold
• Controlling the flow and distribution of materials or merchandise and supplies
• Providing for the safety and security of the employees or property
• Planning and controlling the budget
• Monitoring or implementing legal compliance measures

For example, see also Kotowski v. JGM Fabricators & Erectors, Inc.⁷ For more information about the exemptions under federal law (state laws may differ), see Exhibit 3.

State Exemptions

It is also important to consider and review any applicable state and local laws addressing requirements that must be satisfied to properly classify an employee as exempt from overtime under state law.

Some states — including but not limited to Alaska, California, New York, Maine, and Washington — have increased the minimum salary threshold required for an exemption to apply. For example, in California, to satisfy the minimum guaranteed salary threshold for exempt status, employees must earn at least $1,240 per week ($64,480 annually).

Additionally, employers in certain states are subject to additional monetary risk in making exemption determinations because overtime requirements are greater in certain states.

For instance:

• Alaska (Alaska Stat. Ann. §23.10.060(b)) requires overtime to be paid for more than eight hours worked in a single workday.
• Colorado (7 Colo. Code Regs. §1103-1:4) requires overtime to be paid for over 12 hours in a workday or for 12 consecutive hours of work.
• California (Cal. Lab. Code §510; IWC Wage Order No. 4, §3(A)) requires that employers pay one and one-half times the employee’s regular rate of pay for hours over eight and up to 12 hours in any workday. California also requires employers to pay twice the regular rate of pay for any work over eight hours on the seventh consecutive day of work in any workweek and for all hours worked over 12 in a workday.

Other Wage & Hour Requirements

Proper Recordkeeping

Even if an employee is performing exempt duties and their guaranteed salary exceeds the required threshold, if an employee’s paystub references hours worked or the offer letter provides an hourly basis for compensation, it may call into question or hinder the employer’s defenses regarding the employee’s exempt status. As such, it is important that all records reflect exempt status.

For example, in Folta v. Norfork Brewing Co., an Arkansas court granted summary judgment for the employee and found exempt status did not apply in part where the employee’s paystubs reflected pay on an hourly basis of pay, even where the majority of payments were consistent.

Maintaining Complete Records of Hours Worked & Wages Paid

Additionally, under the FLSA, employers must maintain and preserve certain payroll and time records for employees including, but not limited to, hours worked each day, total hours worked each week (predetermined seven day period), and total wages per pay period (29 CFR §516).

According to Fact Sheet #21: Recordkeeping Requirements under the Fair Labor Standards Act (FLSA), the FLSA requires that employers keep payroll records for at least three years given the three-year maximum statute of limitations, but some state laws, such as the Illinois Wage Payment and Collection Act, allow employees in certain situations to recover wages up to 10 years.

Since it is the employer’s burden to establish that an employee’s work hours and compensation are in compliance with applicable wage and hour laws if a dispute arises, a lack of records can not only subject an employer to penalties, but it can also result in increased damages beyond what they would have incurred if the employer preserved complete records. Thus, it is important for employers to maintain and preserve payroll and time records to the maximum recovery time allowed under applicable federal, state, and local laws.

It is also recommended to include some form of certification or verification by employees on each timecard to help minimize risk should an employee come back later and claim that they worked hours greater than those recorded by the employer or more than recorded on their timecard.

Moreover, employers generally assume that they are not required to maintain time records for exempt employees. However, certain state laws require that employers keep records of hours worked and wages paid regardless of exempt status.

For example, according to 56 Ill. Admin. Code 300.630(a), Illinois requires that regardless of exempt status, employers must maintain records for each employee including, but not limited to, name and address, hours worked each day in each workweek, rate of pay, amount paid each pay period, and all deductions.

Tracking Meal & Break Periods

While the FLSA does not guarantee breaks for exempt employees, some state and local laws require meal breaks. Employers are responsible for ensuring employees are taking meal and break periods as required by law.

Non-Exempt Employees

Failure to properly track these periods, such as automatically deducting non-exempt employees’ meal periods without confirming they took their entire meal break, can result in wage claims.

In 2020, the DOL recovered $89,370 from an electric contractor that automatically deducted time for meal breaks from employees’ hours regardless of if they actually took a break and failed to keep records of the hours employees worked in violation of the FLSA. This type of claim is common when an employer automatically deducts pay for a set meal period, such as one hour or 30 minutes, but the employee does not take the full meal period break is required to or does work during a portion of their meal period, and/or simply because the employer does not have actual time records for the meal periods.

Additionally, employers must pay all non-exempt employees for all hours worked, such as responding to emails after hours, even if they were told they cannot do so without permission.

One way to mitigate these risks is to have employees clock in and out during breaks in a time-keeping system that allows records to be kept. Whether this recordkeeping tracks only unpaid meal periods or all breaks should be evaluated based on the state in which the work is performed and with legal counsel.

For example, employers can impose a procedure where employees submit timesheets with their hours worked, including time spent on breaks or meal periods, which contains a clause like the following (tailored to the specific situation and state where the employee works): “By signing below, I certify that the hours recorded on this timesheet are accurate and that I did not perform any work outside of the hours recorded on this timesheet. I understand that falsifying my timesheet can result in disciplinary action up to and including termination of employment. If I become aware of any errors on my timesheet and/or subsequent pay in comparison to this timesheet, then I must contact [Name, Contact Information] immediately.”

Any changes to the timesheet hours, such as an employee’s error, should be documented and communicated to the employee to avoid claims regarding unlawful deductions.

Further, it is important to keep in mind that if employees work outside of business hours or their scheduled shift (e.g., for a pre-shift meeting), employers are still responsible for tracking and ensuring that employees are paid for that time.

Exempt Employees

Employers cannot deduct pay from exempt salaried employees for breaks or meal periods. As discussed previously, there are only limited circumstances that allow employers to make deductions for exempt employees.

Travel Time Between Jobsites for Non-Exempt Employees

Typically, time spent traveling between jobsites during the workday is compensable time and must be counted as hours worked, according to Fact Sheet #22: Hours Worked Under the Fair Labor Standards Act (FLSA). In FLSA2020-16, the DOL provided an opinion on what travel time is compensable in construction and stated that where a company required a foreperson to drive a company truck from the principal place of business to and from the jobsite, the travel time was compensable.

Similarly, employees who repair equipment, check tools or equipment in and out from the workplace prior to going to the jobsite, transport equipment or tools to jobsites, stock and assemble work materials, and conduct safety checks should generally be compensated for that time.

Remote Working

There are many factors to consider when allowing employees to work remotely. If you have remote workers in states other than your principal place of business, then you are also generally required to comply with those states’ employment laws, including any specific overtime laws and any variations in the exempt status requirements.

Another common issue for employers that have employees working remotely is tracking hours worked. Employers that assume employees only worked during set business hours and only pay for those hours may violate wage and hour laws including a failure to keep records for all hours worked and a failure to compensate for all hours worked for non-exempt employees.

Exempt & Non-Exempt Construction Industry Workers

The DOL directly addressed exemptions under the FLSA as applied to certain positions in the construction industry, and the DOL’s opinions vary greatly based on the duties performed by the employee.

As is often easy to determine, the DOL is clear in Fact Sheet 17P: Construction Workers and the Part 541 Exemptions under the Fair Labor Standards Act that the following workers (who are often also union employees) are generally not exempt and thus, must be paid overtime:

• Manual laborers “including non-management construction workers, who perform work involving repetitive operations with their hands, physical skill and energy.”
• “Non-management employees in production, maintenance, construction, and similar occupations” including:
  • Carpenters
  • Electricians
  • Mechanics
  • Plumbers
  • Iron workers
  • Craftspeople
  • Operating engineers
  • Longshore workers
  • Construction workers
  • Laborers

For the remaining construction job duties that are not expressly excluded from exempt status, courts look to a variety of factors in determining exempt status.

As stated previously in 29 CFR §541.2, “job title alone is insufficient to establish the exempt status of an employee. The exempt or nonexempt status of any particular employee must be determined on the basis of whether the employee’s salary and job duties meet the requirements” of the claimed exemption.

According to 29 CFR §541.700(b), to ascertain an employee’s primary duty, an employer must analyze all aspects of an employee’s job “with major emphasis on the character of the employee’s job as a whole.” The amount of time an employee spends “performing exempt work can be a useful guide in determining whether exempt work is the primary duty of the employee” but does not definitively resolve the issue.

The following is a non-exhaustive overview of DOL opinions and court rulings on the exempt status of common positions in the construction industry.

Project Managers

The position of project manager (PM) is common in construction and related industries in which the duties vary just as much.

The scope of project management duties varies by company and by level of the position, including the level of independent judgment on matters of significance that each individual employee exercises. Due to the fact-specific nature of the analysis, many disputes settle before a court can render a binding opinion.

Exempt

Courts have found in certain situations that the duties of some PMs fall under the administrative exemption. For example, in Black v. Colaska Inc., a Washington federal district court found that a PM was administratively exempt where he:

• Engaged in non-manual work directly related to management and/or business operations including, but not limited to, signing subcontracts on behalf of the company, signing change orders, supervising and directing the work of employees, determining the number of employees needed at the jobsite, creating project schedules, and purchasing jobsite materials.
• Exercised discretion and independent judgment in duties including, but not limited to, directing crews, binding company on significant matters, and providing consultation on preparing bids.

Similarly, in Markle v. Drummond Advisors, LLC, et al., an Illinois federal district court found that a PM/field superintendent also qualified for the administrative exemption where the employee assisted in selecting subcontractors, scheduled when subcontractors worked, was responsible for managing the project budget and timeline, and could ask workers to leave for scheduling and/or safety reasons.

In Self v. Meritage Homes Corp.⁸ a federal district court in Texas found that a home building company’s construction managers were administratively exempt where their primary duties included, but were not limited to, monitoring and overseeing the construction of new homes, determining when to proceed in the next phase of construction, dealing with customers and trades, and providing recommendations regarding which trades to use.

Not Exempt

In contrast, some courts have found that construction managers and PMs are not exempt. For example, in Smith v. Overland Contracting, Inc., a California federal district court denied the employer’s motion for summary judgment where the construction manager testified that he performed routine clerical duties and did not perform work of substantial importance to the management or operations of the business or work that allowed the exercise of discretion and independent judgment including, but not limited to, completing a prioritized list of tasks and retrieving information requested by the regional construction manager.

Similarly, in McCullough v. Lennar Corp, a California federal district court denied summary judgment for the employer finding that there was a genuine issue of material fact as to whether the offsite-
construction manager was administratively exempt where the employee claimed he was given specific directions for all duties including being in charge of implementing subcontractors schedules and implementing schedule adjustments predetermined by the PM.

In addition, in Zeleznik v. Universal Restoration Servs. Se., Inc., a Georgia federal district court denied summary judgment for the employer finding that there was a genuine issue of material fact on the exempt status, where it remained unclear whether the PM had discretion over matters of significance where he could not adjust the project scope to accommodate repairs, did not provide expert advice to management, and did not resolve complaints but 
simply passed them along.

However, it is important to note that sometimes the job duties of PMs are comparable to the job duties of field superintendents, which is also hotly 
contested as an exempt position.

Superintendents & Supervisors

Similar to PMs, whether superintendents and supervisors are exempt depends 
not only on satisfying the guaranteed salary basis analysis, but also on their job duties and responsibilities. Courts have ruled both for and against exempt status regarding these positions depending on the specific job duties performed by the employee in question.

Not Exempt

In Gottlieb v. Construction Services & Consultants, Inc., No. 05–14139–CIV, 2006 WL 5503644, at *6 (S.D. Fla., 2006), a Florida federal district court found that a project supervisor was not exempt where his primary duty involved producing the company’s product rather than administering the business’ affairs.

Yet, in Giarrusso v. Your Plumber, Inc, No. 06-cv-914, 2007 WL 9710184 at *5 (W.D. Tex. Oct. 22, 2007), a Texas federal district court found that a jobsite supervisor was exempt under the administrative exemption where he was in charge of “configuring crew assignments, creating punch lists, [and] conversing with builders[.]”

The distinction between producing the company’s product and administering its business affairs is “often referred to as the administrative/production dichotomy” — and can be a blurry line (e.g., Williams-Bell v. British Standards Institution, Inc.⁹ and Markle v. Drummond Advisors, LLC), et al.).

For example, as the court noted in Markle v. Drummond Advisors, LLC, et al. “an employee who works on the manufacturing line or who sells an employer’s products would not qualify as administratively exempt, whereas an employee tasked with keeping the business running and in good order may.”¹⁰ However, while the administration/production dichotomy is an analytical tool for evaluating the administrative exemption, despite often being the turning point in many cases, it is arguably not determinative unless the “employee is engaged unequivocally in production” (Schaefer-Larose v. Eli Lilly & Co.). As such, employers must look at each employee’s duties to determine if they are exempt and do so considering the nature of the employer’s business.

Exempt

In contrast, the DOL opined in FLSA2018-4 that a project superintendent’s duties fell under the administrative exemption where they were “responsible for overseeing a commercial construction project from start to finish” and exercised discretion and independent judgment, including securing, hiring, and overseeing subcontractors.

The same year, the DOL published FLSA2018-10 wherein it determined a project supervisor was exempt under the administrative exemption where he managed, scheduled, and paid subcontractors; reviewed and modified home plans as necessary; reviewed budgets; interacted with building inspectors; and acted as a safety inspector for the company.

Additionally, some supervisors may qualify for the executive exemption. In Ramos v. Baldor Specialty Foods, Inc., the Second Circuit found that employees holding the position of “captain,” who oversaw teams in a warehouse, were properly classified as exempt under the FLSA executive exemption. In contrast to laborers, who would generally not qualify for the executive exemption, the “captains” were responsible for overseeing employees and overall performance and efficiency including, but not limited to, assigning slower team members to other tasks and inspecting the warehouse.

Similarly, in Beauchamp v. Flex-N-Gate LLC, a Michigan federal district court found that a production supervisor at an automobile plant qualified for the federal executive exemption where he assigned employees duties, trained employees, conducted yearly reviews of the production department’s hourly employees, adjusted work procedures to meet production needs, maintained time and production records, handled employee complaints including disciplinary action, and enforced company policies and safety regulations.

While courts look to a variety of factors in determining executive exemptions, the most common distinction is whether the employee’s responsibilities are limited to manual work or if they are responsible for supervising and managing employees and exercise considerable
discretion in management, including hiring, firing, and disciplining employees. Even if an employee performs some duties involving manual labor, it is still possible for a court to hold that they are exempt assuming their primary duties fall under the required qualifications of the exempt status (e.g., Black v. Colaska Inc.¹¹).

Superintendents may also qualify for the learned professional exemption. To qualify as a learned professional, an “employee’s primary duty must be the performance of work requiring advanced knowledge, defined as work which is predominately intellectual in character and which includes work requiring the consistent exercise of discretion and judgment; the advanced knowledge must be in a field of science or learning; and the advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction.”

In Stevins v. Provident Construction Company, a Florida district court found that a custom home building company properly classified their construction superintendent as professionally exempt where he had a bachelor of science degree in civil engineering and construction and a builders license, which required continuing education and directly related to his primary duties as a construction superintendent.

However, in most cases, such as in Young v. Cooper Cameron Corp., courts have found the professional exemption will not apply in cases where “most or all employees in a particular job lack advanced education and instruction.”

Inspectors or Inspection Duties

Another common construction industry position is the inspector, or if not a stand-alone position, then many construction positions include inspector duties.

Ordinary inspection work is presumptively non-exempt because “inspectors normally perform specialized work along standardized lines involving well-established techniques and procedures” and work only within closely prescribed limits (29 CFR §541.203(g)).

Not Exempt

For example, in Blotzer v. L-3 Communications Corp., an Arizona federal district court found that the Quality Control Field Inspector, whose primary duties included inspecting work and verifying adherence to specifications, did not qualify for the administrative exemption because he did not exercise discretion or independent judgment in performing his duties.

Similarly, in Gottlieb v. Construction Services & Consultants, Inc., No. 05–14139–CIV, 2006 WL 5503644, at *7 (S.D. Fla., 2006), a Florida federal district court found that a project supervisor was not exempt where his primary duty involved inspecting the work of subcontractors to ensure work was being completed according to schedule and in compliance with the builder’s specifications was ordinary inspection work, which is not the type of work that requires the exercise of discretion and independent judgment to meet the requirements of an administrative exemption.

In Cotten v. HFS-USA, Inc., another Florida federal district court found that a company that provided home finishing services misclassified one of its field supervisors as administratively exempt where their job duties entailed completing preprinted inspection forms and ensuring work was completed in accordance with set standards, as opposed to performing work directly related to management or operations such as budgeting, signing subcontractors, creating project schedules, creating work orders, or any responsibilities that would impact the profitability of the project.

Exempt

One can see the varying outcomes in exempt status cases as other courts have found that individuals in an inspector position were exempt. For instance, in O’Dell v. Alyeska Pipeline Service Co, an Alaskan federal district court found that a field inspector was exempt where he was highly compensated and had duties of a quality control inspector including working without supervision and rejected work that was deemed unacceptable; thus, showing he exercised discretion and independent judgment to qualify for the highly compensated administrative exemption.

Similarly, in Brock v. On Shore Quality Control Specialists, Inc., No. CIV. A-84-CA-603, 1987 WL 31308 (W.D.Tex. Sept. 29, 1987) remanded from 811 F.2d 282 (5th Cir. 1987), a Texas federal district court found that inspectors were properly exempt where their primary duties involved exercising discretion and independent judgment by making recommendations that employees of the contractors should be dismissed, shutting down jobsites with unsafe conditions, and making decisions regarding if the contractor was performing in accordance with the contract.

Drafters & Designers

To provide another example, construction or construction-related companies often employ designers and drafters, in addition to engineering employees. However, even with an engineering degree, these “lower”-level positions are often non-exempt.

Not Exempt

As explained in Young v. Cooper Cameron Corp., when reviewing and citing the applicable regulations of the FLSA, the “field of ‘engineering’ has many persons with ‘engineer’ titles, who are not professional engineers, as well as many who are trained in the engineering profession, but are actually working as trainees, junior engineers, or drafts[people].” Thus, “technical specialists must be more than highly skilled technicians to be eligible for the professional exemption.”

For example, in Arasimowicz v. All Panel Systems, LLC, a Connecticut federal district court granted summary judgment for the employee and found that a “Project Detailer/Fabrication Shop Coordinator” whose duties included “drafting plans for building panels and drawing elevation layouts for panels” was not exempt under executive, administrative, learned professional, or any other applicable exemption.

Similarly, a product design specialist who had years of experience as a draftsperson, detailer, and designer was not professionally exempt where his work did not require knowledge customarily acquired by a prolonged course of advanced intellectual study such as that of an engineer (e.g., Young v. Cooper Cameron Corp.).

Exempt

While general drafters and designers are generally not exempt, certain professions such as architects and engineers may qualify for the professional exemption.

For example, an engineer with advanced education in chemical engineering whose duties included, but were not limited to, supervising draftspeople and giving recommendations regarding projects, was exempt as an executive and professional (e.g., Phillips v. Federal Cartridge Corporation).

However, other courts have found that employees that meet the requirement of advanced education may still not apply if their duties do not require such education. For example, in Zubair v. Entech Eng'g P.C., an inspector with an engineering degree was not exempt under the learned professional exemption where his position did not require an advanced degree.

Conclusion

It is important to be mindful and informed when classifying employees as exempt from overtime. As shown, the application of an exemption pursuant to both federal and state law involves a highly fact-specific analysis, more than simply whether the employee is paid a salary or the employee’s job title. The same job title can be both exempt and non-exempt depending on the specific job duties and responsibilities.

As discussed, there is a great deal of risk to employers in misclassifying employees as exempt. Not only do these claims cost companies financially but also in time, reputation, and employee morale.

Employers can start mitigating these risks by auditing the exempt status of their employees (ideally with legal counsel), implementing and training management in proper timekeeping and recordkeeping procedures, and implementing and enforcing policies discussed previously that may help minimize the company’s risk in facing common wage and hour claims.

Prior to classifying employees as exempt, employers should consult with legal counsel and as duties change conduct internal audits (with counsel) of exempt employees to correct any existing misclassifications. 

Endnotes

1. It is important that employers also evaluate state and local paid leave and paid sick leave laws — as such laws generally apply to all employees, including those who are both exempt and non-exempt, and also in some instances those who are governed by a collective bargaining agreement. For instance, the City of Chicago’s new paid sick leave and paid leave ordinance mandates that employers provide paid sick leave and paid leave to eligible employees. However, the City of Chicago’s paid sick leave and paid leave does not apply to any “Employee working in the construction industry who is covered by a bona fide collective bargaining agreement.” In other industries, the City of Chicago paid sick leave and paid leave requirements may be waived “only if the waiver is explicitly set forth [in a bona fide collective bargaining] agreement in clear and unambiguous terms.” See Chicago Paid Leave and Paid Sick and Safe Leave Ordinance, §6-130-040.
2. Employers that can show that its actions were taken in good faith or that it had reasonable grounds for believing it was not violating the FLSA may be able to utilize the good-faith defense, which allows a judge to reduce or eliminate the award of liquidated damages (29 U.S.C. §260). As such, it is beneficial for employees to actively analyze exempt employee status to not only avoid these claims but also to preserve potential defenses such as the good faith defense.
3. See also Hall v. Bassett & Associates, Inc., which granted a summary judgment for the employer where the construction site superintendent was found to have exercised discretion and independent judgment where he was responsible for tasks including scheduling the subcontractors and directing and inspecting work completed, and he had the authority to kick employees off the site for safety violations, make certain purchases, and authorize documents (over $1,000 in change orders) — despite spending a 
   significant amount of time in the field.
4. Blanchar v. Standard Ins. Co. granted summary judgment for the employer and finding that an “employee need not have final decision-making authority with respect to matters of consequence, acknowledging that a reversal by higher level management of an employee’s decision does not indicate that the work did not require the exercise of discretion and independent judgment.”
5. Hall v. Bassett & Assocs found that the construction site superintendent had discretion because he failed to cite any instance where he wanted to exercise discretion but was forbidden to do so and despite the fact that he was limited in what decisions he could make without prior approval.
6. Ho v. Ernst & Young LLP notes the fact that an employee’s decisions are subject to review does not preclude the exercise of discretion and judgment.
7. Kotowski v. JGM Fabricators & Erectors, Inc. found that executive exemption applied where the plaintiff’s duties were almost exclusively in the executive capacity, even though he spent 70% of his time in the field.
8. Self v. Meritage Homes Corp. found that a construction manager, who managed the building of homes — even those built according to a limited number of plans; managed, scheduled, coordinated, and oversaw the work of subcontractors on site; and performed work in areas including budgeting, purchasing, procurement, and inspection — was administratively exempt.
9. Williams-Bell v. British Standards Institution, Inc., in granting summary judgment, found that the plaintiff who performed ISO 9001 audits was administratively exempt, as the duty of conducting ISO assessments is directly related to the management or business operations of the employers’ clients and thus satisfies the administrative exemption, whether or not a core component of the employer’s business — or product — was conducting ISO audits.
10. See also Haywood v. North American Van Lines, Inc., which concluded that the plaintiff’s representation of her employer in its discussions with customers was a “classic administrative function,” and rejected the suggestion that she was involved in production. See also Verkuilen v. Mediabank, LLC, which found an employee administratively exempt, where although she alleged she was a production employee, her work focused on serving the employer’s customers and problem solving onsite, which directly related to the general business operations of employer. This involved the exercise of independent judgment in making decisions about how to handle customer’s problems, which affected employer’s relationships with its customers.
11. Black v. Colaska Inc granted summary judgment for the employer and found that construction manager was administratively exempt where his duties and responsibilities were sufficient to show that he engaged in non-manual work directly related to management and/or business operations.   

Copyright © 2023 by the Construction Financial Management Association (CFMA). All rights reserved. This article first appeared in November/December 2023 CFMA Building Profits magazine.