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Zannikos v Oil Inspections USA: Highly Compensated Employees and the FLSA

Recently, there has been a surge in FLSA litigation. Employees will often join in a suit challenging their status as exempt from the overtime requirements of the FLSA. A thorough knowledge of how employees are required to be compensated in accordance with the FLSA is an incredible cost saving asset for today's employer. An illustrative and helpful case in this area is Zannikos v. Oil Inspections. In 2012, Vasilios Zannikos, on behalf of all similarly situated employees, filed suit in the United States District Court for the Southern District of Texas against his employer, Oil Inspections U.S.A. He alleged his employer failed to pay him overtime wages pursuant to the Fair Labor Standards Act. Oil Inspections U.S.A. specializes in loss control operations in connection with oil cargo transfers. The company's primary function is to oversee and monitor transfers of oil between containers, to ensure it was transferred in accordance with the specifications of their customers. Zannikos was employed as a marine superintendent. This job required the Plaintiffs to monitor and observe oil transfer operations, ensuring they were performed accurately, legally and safely. Plaintiffs served as quality control by inspecting loading and discharge equipment, identifying problems with equipment, safety or calibration, and then recommending remedies to the customers or Oil Inspections. Oil Inspections responded to this suit by filing for summary judgment, alleging marine superintendents were exempt from the requirements of the FLSA because their duties were administrative and they were highly compensated employees.

 

On January 30, 2014, the court entered an order finding marine superintendents were exempt from the FLSA due to the fact they were highly compensated employees, however the court did not find marine superintendents to be administrative employees.

The Fair Labor Standards Act applies to all employees, unless they fall into a one of the law's exceptions. Employees with administrative or executive roles are not required to be compensated under the FLSA's requirements. Employees who receive a high level of compensation may also exempt from the legislation. In order to establish a certain class of employees is exempt, the burden of proof is on the employer. These exceptions tend to be narrowly drawn, in favor of the employees and against employers. This threshold of evidence is high, and often it can be difficult for an employer to prevail in proving their employees were exempt.

Oil Inspections argued marine superintendents fell into the administrative exemption. In order for an employee to be administratively exempt, the employer must prove: 1) the employee needs to be compensated on a salary basis of no less than $455.00/week; 2) the employees' chief duty needs to be the performance of the office or non-manual work which is directly related to the management or general business procedures of the employer or employers customers; and 3) whose primary duties include the exercise of discretion and independent judgment regarding matters of significance.[1] The marine superintendents received a salary of more than $455.00 per week. The court found that their primary duty of inspecting, recommending and overseeing was related to the management and general business procedures of Oil Inspections. However, marine superintendents lacked the necessary "discretion and independent judgment" for the administrative exception. The work of the marine superintendents was largely dictated by Oil Inspection's employee manual. The superintendents worked along standardized lines involving well established techniques. Employees who are bound to these prescribed procedures are not using independent judgment and are not exempted. Accordingly, the court held marine superintendents were not administrative employees.

Even though the court found that marine superintendents did not demonstrate enough independent judgment and discretion to be administratively exempt, the Court found the FLSA did not apply to these workers because of their status as highly compensated employees. A highly compensated employee is one who receives a total compensation of at least $100,000 per year, and customarily and regularly performs any one or more of the exempt duties of an executive, administrative or professional employee.[2] As stated above, the employee must be compensated over $100,000 annually. At least $455 per week must be paid on salary or fee basis.[3] Next, the employee must satisfy the duties test which requires that the employee regularly perform duties that qualify as administratively or executively exempt according to the FLSA. [4] Additionally, the high level of compensation is a strong indicator of an employee's exempt status, eliminating the need for a highly detailed inquiry of an employee's job duties. [5]Marine superintendents were compensated at a salary over $100,000 annually. It was already established that they regularly performed administratively exempt duties of non-manual work related to the general business operations. Accordingly, the court correctly found that marine superintendents were exempt from the FLSA because they were highly compensated employees.

Although not discussed directly in Zannikos, employees may also be exempt under the executive exception. In order to be exempt from overtime compensation as an executive employee: 1) Employees were compensated on a salary basis of more than $455 per week; 2) Employee's primary duty is management of the enterprise in which the employee is employed or of a customarily recognized department or subdivision thereof; 3) Employee's customarily and regularly direct the work of two other employees; 4) Plaintiff has the authority to hire or fire other employees or their suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees were given particular weight.[6] Moreover, even non-traditional white collar workers may be found executively exempt if their duties include the ability to hire or fire and they direct the work of over two or more employees. [7]

Administrative, executive and highly compensated employees, as defined by the FLSA, are not required to be paid overtime. An employer must use careful consideration of the related laws, cases and policy in formulating compensation schemes to suit their business needs, as well as comply with the Fair Labor Standards Act.


[1] 29 C.F.R. § 541.200

[2] 29 C.F.R. § 541.601(a)

[3] 29 C.F.R. § 541.601(b)

[4] Sarviss v. Gen. Dynamics Info. Tech., Inc., 663 F. Supp. 2d 883 (C.D. Cal. 2009).

[5] 29 C.F.R. § 541.601 (c).

[6] 29 CFR § 541.100.

[7] Ramos v. Baldor Specialty Foods, Inc., 687 F.3d 554 (2d Cir. 2012).

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