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Zannikos and the Fifth Circuit: Highly Compensated Oil Workers May be Exempt from the FLSA

Over the winter, our firm wrote an article about various FLSA exemptions and used the case of Zannikos v. Oil Inspections to illustrate the application of the highly compensated employee exemption. To summarize, 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. Zannikos was employed as a marine superintendent. This job required the Plaintiff 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 some of their duties were administrative and they were highly compensated employees. Both parties moved for summary judgment. On January 30, 2014, the District Court entered an order that Vasilios Zannikos was exempt from the FLSA due to the fact he was highly compensated, however the court did not find marine superintendents to be administrative employees. Both parties filed appeals and the Fifth Circuit Court of Appeals affirmed this ruling. Zannikos v. Oil Inspections (U.S.A.), Inc., 14-20253, 2015 WL 1379882, at *1 (5th Cir. Mar. 27, 2015).

On appeal, 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. The marine superintendents received a 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 Zannikos because he was a highly compensated employee. 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. As stated above, the employee must be compensated over $100,000 annually. The Department of Labor regulations state at least $455 per week should be paid on salary or fee basis, however, the Zannikos court did not inquire into, or find important, what portion Zannikos' compensation was salary. This holding, if followed by other federal circuits, may remove employees who earn over $100,000 in any manner, who demonstrate some independent judgment or engages in general business operations, from the FLSA's overtime requirements.

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