New FLSA Ruling: Supreme Court Delivers Win for Employers

A recent – and unanimous – U.S. Supreme Court ruling is good news for employers. The Court decided that employers are not required to meet a higher standard of proof to show that employees are exempt from certain pay provisions of the Fair Labor Standards Act (FLSA).

The Court’s ruling clarified that the preponderance-of-the-evidence standard applies in such cases and overturned an outlier Fourth Circuit decision that held employers were required to meet a heightened standard to demonstrate that FLSA exemptions apply.

The decision realigns the Fourth Circuit – Maryland, North Carolina, South Carolina, Virginia and West Virginia – with other federal circuits on the issue. 

FLSA Lawsuit: Employees Want OT Pay

A food distributor in the Washington, D.C., area employed sales representatives who managed inventory and took orders from local grocery stores. 

Several sales reps filed a lawsuit alleging the company failed to pay them overtime in violation of the FLSA. 

The employer argued that the sales reps were outside salesmen, which exempted them from the FLSA’s overtime requirement.

After a bench trial, a district court sided with the sales reps, finding the employer “did not prove by clear and convincing evidence that its sales representatives were outside salesmen.”

On appeal, the employer argued that the lower court made the wrong call. It said the district court should’ve used the less stringent preponderance-of-the-evidence standard instead of the clear-and-convincing-evidence standard. 

But the Fourth Circuit was not swayed. It affirmed the district court’s decision.

The employer filed a cert petition, asking the U.S. Supreme Court to review the case.

SCOTUS Agrees to Hear FLSA Dispute

When the case reached the High Court, the Justices looked at the text of the Fair Labor Standards Act.

Congress enacted the FLSA in 1938. Generally, FLSA requires companies to pay employees one-and-a-half times their regular pay for any time worked over 40 hours in a single workweek.

Relevant here, Congress exempted many types of employees from the FLSA’s overtime pay requirement, including outside salesmen who primarily work away from their employer’s place of business. The law places the burden on the employer to show the exemption applies.

Why SCOTUS Sides With Employer

The Court pointed out that the preponderance-of-evidence standard is the default standard in civil litigation. And the Court has only deviated from this preponderance-of-evidence standard on three occasions:

1. A statute specifically requires a heightened standard of proof
2. The Constitution mandates a heightened standard of proof, and
3. In rare situations involving coercive government action.

As to the first item on the list, the FLSA – the statute at issue here – doesn’t specify a standard for proof of exemptions, and when a standard is not mentioned in the statute, “courts typically apply the preponderance standard,” the Court explained.

Regarding the second and third, the Court noted this case did not involve constitutional rights that would require a heightened standard, nor involve the government taking unusual or coercive action. 

In the Court’s view, the employees’ “policy-laden arguments for a heightened standard [were] unconvincing.”

The Court reversed the ruling that held the heightened standard was required and remanded the case with instructions for the Fourth Circuit to determine whether the employees would fail to qualify as outside salesmen under the preponderance-of-the-evidence standard.

What the Ruling Means for Employers

This employer-friendly decision affirms that the preponderance-of-the-evidence standard is sufficient to prove an employee qualifies for an FLSA exemption. This standard is less stringent than the heightened “clear and convincing evidence” standard, making it easier for employers to defend their classification decisions in court.

Even under this lower standard, HR still needs to periodically review employee classifications and verify they have evidence, including well-documented job duties, to support exemption decisions.

Key Takeaways for Finance

This ruling has several implications for labor cost management and compliance strategies, including:

• Lower litigation risk and cost exposure. The Court’s decision makes it easier for employers to defend FLSA exemption classifications. With the preponderance-of-the-evidence standard reaffirmed, businesses face a lower burden of proof in disputes, reducing legal risks and potential financial liabilities.
• More predictable wage and hour compliance. The ruling aligns the Fourth Circuit with other jurisdictions, eliminating an outlier standard that had increased uncertainty for businesses operating in those states. Multistate employers can now apply a consistent standard across multiple regions, making wage and hour compliance more predictable.
• Impact on compensation strategies. With greater clarity on exemption classifications, finance leaders can more confidently structure compensation models for sales reps and other exempt employees. This may influence how companies budget for overtime costs and structure incentive pay plans.