The upcoming term for the U.S. Supreme Court includes a case that could have significant ramifications for employers: E.M.D. Sales, Inc. v. Carrera (No. 23-217). The Court will address the standard of proof that employers must meet to demonstrate an employee is exempt from the Fair Labor Standards Act's (FLSA) minimum wage and overtime requirements. The Fourth Circuit’s decision, which requires "clear and convincing evidence," is unprecedented and makes it extremely difficult for employers to establish exemption status. The Supreme Court's review offers an opportunity to resolve these concerns and potentially simplify the process for employers facing overtime exemption claims. For more information on the FLSA’s minimum wage and overtime requirements, please refer to our previous article: DOL Releases Final Rule on Overtime Salary Thresholds, Effective July 2024.
For additional information regarding minimum wage and overtime requirements, and to find out how this could impact your business, please contact our Managing Partner, Richard Liu, at richard.liu@consultils.com.
Case Background
The case arose from a decision by the U.S. Court of Appeals for the Fourth Circuit, which ruled that employers must meet a "clear and convincing" standard to establish an FLSA exemption. This higher standard of proof is more demanding than the "preponderance of evidence" standard used by most other circuits.
The dispute began when three sales representatives from a food distribution company sued their employer in Maryland federal court, claiming they were owed overtime pay under the FLSA. The employer argued that the employees were exempt under the FLSA’s “outside sales” exemption, which applies to employees whose primary duty is making sales and who customarily work away from the employer’s place of business.
Legal Proceedings
At trial, the central issue was the burden of proof required to establish the exemption. The plaintiffs argued for the clear and convincing evidence standard, citing the Fourth Circuit's precedent from the 1993 case Shockley v. City of Newport News. The employer countered with the Supreme Court’s 2018 decision in Encino Motorcars, LLC v. Navarro, which emphasized that FLSA exemptions should receive a “fair reading,” implying a preponderance of evidence standard.
The trial court, bound by Fourth Circuit precedent, applied the clear and convincing standard and ruled in favor of the plaintiffs. The Fourth Circuit upheld this decision on appeal, noting the conflict with other circuits and suggesting that the full court should reconsider the standard. However, the full Fourth Circuit declined the employer's petition for review, leading to the Supreme Court's involvement.
Supreme Court Involvement
The Supreme Court’s review will determine whether the standard of proof for FLSA exemptions should be a “preponderance of evidence” or “clear and convincing evidence.” The Fourth Circuit's clear and convincing standard is an outlier among federal appeals courts. Six other circuits have ruled that the preponderance of evidence standard is appropriate for determining FLSA exemptions. The U.S. Department of Justice supports the preponderance standard and has urged the Supreme Court to reverse the Fourth Circuit’s decision.
Potential Impact for Employers
The Fourth Circuit's decision is concerning for employers. The higher standard of "clear and convincing evidence" makes it extremely difficult for employers to establish exemption status under the FLSA, potentially leading to greater liability and increased litigation. This ruling is not only unprecedented but also seen as unfair by many in the business community.
The Supreme Court’s decision will be crucial for employers. If the Court aligns the Fourth Circuit with the majority of circuits, employers will benefit from a unified standard nationwide. This would simplify the process for proving exemptions and reduce the risk of inconsistent judgments and litigation. However, if the "clear and convincing" standard is adopted nationwide, it would pose significant challenges for employers.
Next Steps
The Supreme Court will hear the case during its next term, beginning in October 2024. A ruling is expected by the end of the term. Employers should pay close attention to the outcome, which could shape the landscape of FLSA exemption claims and compliance for years to come. Please follow us on LinkedIn and subscribe to our newsletter to receive further updates.
For additional information regarding minimum wage and overtime requirements, and to find out how this could impact your business, please contact our Managing Partner, Richard Liu, at richard.liu@consultils.com.
Richard Liu, Esq. is the Managing Counsel of ILS. He serves clients as a management-side defense lawyer specializing in employment and business litigation. Richard is also an expert on litigation prevention and compliance. He regularly advises Fortune 500 companies and startups on employment, labor, and commercial matters.
Email: richard.liu@consultils.com | Phone: 626-344-8949
*Disclaimer: This article does not constitute legal opinion and does not create any attorney-client relationship.
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