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March 19, 2014
FLSA: Texas court says no overtime for highly compensated employee

by Mike Maslanka

The regulations implementing the Fair Labor Standards Act (FLSA) were revised several years ago. Here's a little-known provision: If an employee makes $100,000 or more a year, he can, under certain circumstances, be exempt from receiving overtime. A federal court in Houston recently threw out an employee's overtime claim based on that provision.

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'I'm entitled to overtime'

Vinay Karna worked for BP Corporation North America, Inc., managing a sophisticated computer system that tracked the company's financial data. He often dealt with third-party vendors that serviced the system. For part of his employment, he made an annual salary of more than $100,000.

Karna sued BP for violating the FLSA, among other things. He argued that it didn't matter that he made a lot of money; he was still a nonexempt employee entitled to overtime. The court in Houston threw his FLSA claim out.

The court read the regulations and boiled its analysis down to two questions: Did Karna make more than $100,000 a year on a salary basis? Did he customarily and regularly perform one or more of the exempt duties or responsibilities of an executive, administrative, or professional employee? (Note that he didn't need to perform all the exempt duties, just one.) If the answer to both questions is yes, then he is exempt.

The court said it had no doubt that:

[Karna] customarily and regularly performed work directly related to the management or general business operations of BP. . . . [He was responsible] for the system BP uses to access and review financial data. Such a system is an essential part of the business operations of any company. Serving as a liaison between the business users at BP and the third parties responsible for making necessary modifications to [the program] constitutes performing work that is directly related to the general business operations of the [employer].

That's all the company had to show to win. The fact that there was a dispute over whether Karna exercised discretion and independent judgment in matters of significance (another of the criteria that must be met to establish the administrative exemption) mattered zilch.

The regulations state that to determine whether someone falls under the "highly paid employee" exemption, the court need not perform a detailed analysis of his duties. It only needs to determine that one of his duties is an exempt duty. Karna v. BP Corporation of North America, Inc. (S.D. Tex., 2013).

Bottom line

Just because someone makes more than $100,000 a year doesn't necessarily mean he's exempt from overtime. But if he performs at least one exempt task of an executive, administrative, or professional employee in addition to making that much money, he is exempt.

Be careful, though. If an employee is misclassified as exempt, time and a half at $100,000 a year adds up to significant liability. Still, you don't want to pay overtime if you don't have to. The highly paid employee exemption can come in handy. Check with an employment lawyer to zip up the details.

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