Employee Survival Guide®

S6 Ep123: The Supreme Court just made it easier for employers to deny overtime pay: EMD Sales, Inc. v. Carrera

• Mark Carey • Season 6 • Episode 25

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This episode is part of my initiative to provide access to important court decisions  impacting employees in an easy to understand conversational format using AI.  The speakers in the episode are AI generated and frankly sound great to listen to.  Enjoy!

The scales of workplace justice have just shifted. In a unanimous decision that has sent ripples through labor law circles, the Supreme Court has lowered the standard of proof employers need to demonstrate when classifying workers as exempt from overtime pay.

At the heart of this groundbreaking case lies EMD Sales, a food distributor whose sales representatives spent long 60-hour weeks stocking shelves, managing inventory, and processing orders at grocery stores across the Washington DC area. These employees, paid only on commission, sued for overtime compensation under the Fair Labor Standards Act (FLSA). EMD claimed they were "outside salesmen" – exempt from overtime requirements – but did their day-to-day responsibilities actually constitute "making sales"? The answer depended heavily on whether they were working at chain stores with pre-established corporate agreements or at independent shops where they had more sales autonomy.

The Supreme Court didn't rule on whether these particular workers deserved overtime. Instead, they focused on a crucial procedural question: what level of proof should employers need to show when claiming a worker is exempt? Previously, in the Fourth Circuit, employers needed to meet a high "clear and convincing evidence" standard. Now, the Court has established nationwide that only a "preponderance of evidence" – essentially just over 50% likelihood – is required. This seemingly technical change could significantly impact millions of workers' overtime eligibility and shift the power balance in workplace disputes across America.

The next time you're wondering whether your job qualifies for overtime protection, remember this watershed case. Understanding your rights has never been more important as the legal landscape evolves. Subscribe to our podcast for more deep dives into the court decisions that directly impact your workplace rights and compensation.

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For more information, please contact our employment attorneys at Carey & Associates, P.C. at 203-255-4150, www.capclaw.com.

Disclaimer: For educational use only, not intended to be legal advice.

Speaker 1:

Welcome to the Deep Dive. Today we're jumping into a pretty significant legal battle, one that actually made it all the way to the Supreme Court.

Speaker 2:

That's right. It revolves around overtime pay, something a lot of people deal with.

Speaker 1:

We're focusing on a food distributor, emd Sales Inc. And this big question should their sales representatives have been getting overtime under the Fair Labor Standards Act? You know the FLSA?

Speaker 2:

Exactly. The core issue was whether these reps qualified for the outside salesman exemption in the FLSA. If they did well, then EMD wouldn't owe them overtime.

Speaker 1:

And these employees they sued right. They argued they were putting in something like 60 hours a week.

Speaker 2:

Yeah, long hours and paid only on commission. No overtime pay. Emd, of course, pushed back arguing no, they fit the exemption.

Speaker 1:

OK, so things kicked off in the courts. The district court initially sided with the employees. They found EMD liable.

Speaker 2:

And, crucially, they said EMD hadn't proven the exemption by what's called clear and convincing evidence. That's a pretty high bar.

Speaker 1:

Right higher than the usual standard in civil cases. The court also gave the employees liquidated damages, kind of like a penalty.

Speaker 2:

But interestingly they didn't find EMD's violation was willful, which meant a shorter two-year time frame for those back wages.

Speaker 1:

So neither side was totally happy. Both appealed.

Speaker 2:

Which took it to the Fourth Circuit Court of Appeals.

Speaker 1:

Yeah.

Speaker 2:

And they largely agreed with the first court.

Speaker 1:

They upheld that decision.

Speaker 2:

Uh-huh, they reinforced that clear and convincing evidence was the standard employers needed to meet for FLSA exemptions, at least in their circuit.

Speaker 1:

But this is where it gets really interesting for anyone following labor law. The Supreme Court stepped in.

Speaker 2:

And they flipped the script. They reversed the Fourth Circuit specifically on that standard of proof. This is the big development we need to unpack.

Speaker 1:

Absolutely. Let's dig into how this all played out, starting back at that first trial. Tell us a bit about EMD.

Speaker 2:

Sure so EMD sales. They distribute food products think Latin American, caribbean, asian foods mostly around the Washington DC area.

Speaker 1:

And they deliver directly to stores.

Speaker 2:

Yeah, a mix of big supermarket chains and smaller independent grocery stores. It's called a direct store delivery model.

Speaker 1:

OK, and what were these sales representatives actually doing all day, according to the trial court? I mean, Right.

Speaker 2:

So they each had assigned routes covering both types of stores. Their jobs involved well, a lot of restocking shelves, making sure products looked good, pulling expired or damaged stuff.

Speaker 1:

So inventory management almost.

Speaker 2:

In large part. Yes, they'd issue credits for removed items and they use handheld devices, pdas to submit orders for more stock.

Speaker 1:

So the key question at trial was was their main job, their primary duty, actually making sales, as the FLSA exemption requires?

Speaker 2:

Precisely, and the answer seemed to depend heavily on where they were working.

Speaker 1:

Let's talk about the big chain stores first, places like Walmart, safeway.

Speaker 2:

Right For those EMD had corporate level agreements already in place.

Speaker 1:

Yeah.

Speaker 2:

They negotiated which products would be sold, how they'd be displayed using these things called planograms.

Speaker 1:

Planograms Okay, like a map for the shelves.

Speaker 2:

Kind of yeah and testimony from people at those chains suggested the store managers on site. They didn't have much power to change things. They couldn't really order outside of what corporate had agreed to or what the planogram showed.

Speaker 1:

So the sales reps were basically just filling in the blanks based on these pre-existing deals.

Speaker 2:

That seems to be how the district court saw it, especially regarding the making sales part. They felt that just submitting an order to replenish stock based on a preset planogram wasn't really making a sale in the spirit of the exemption.

Speaker 1:

OK, but what about the smaller independent stores? Was it different there?

Speaker 2:

It seems like it was. But what about the smaller independent stores? Was it different there? It seems like it was. The reps apparently had more freedom, more autonomy to actually persuade the store owner, make a sale, maybe even sign up a new store as a customer.

Speaker 1:

But there was a catch there too. Wasn't there Something about storage?

Speaker 2:

Yeah, one plaintiff mentioned that these smaller stores often just didn't have the space for the large quantities EMD preferred to sell, so that might have limited the actual volume of sales they could make there.

Speaker 1:

Interesting. So, weighing all that, how did the district court land on the making sales issue overall?

Speaker 2:

Well, they acknowledged sales were probably happening at the independent shops, but for the chain stores, where the reps spent most of their time, emd just hadn't proven to that clear and convincing standard. Remember that the reps were making their own sales.

Speaker 1:

They were executing sales, not necessarily creating them at the chains.

Speaker 2:

Exactly Filling orders based on existing agreements wasn't enough.

Speaker 1:

So the court concluded their primary duty wasn't making sales Correct.

Speaker 2:

They saw the main job as executing those prearranged deals keeping shelves full, tidy, placing the replenishment orders, even with some sales at Independence. The sheer time span it chains on these other tasks tipped the balance.

Speaker 1:

Got it. And what about those liquidated damages? Why did the court award those?

Speaker 2:

Because EMD couldn't show it acted in good faith or had reasonable grounds to think it was complying with the FLSA. The court even pointed out the CEO seemed unaware of what the reps actually did day to day.

Speaker 1:

Oof but not willful. Why draw that line?

Speaker 2:

The court saw the CEO's lack of knowledge as negligent, maybe careless, but not quite reckless disregard for the law. That difference is why they used the standard two-year statute of limitations, not the three-year one for willful violations.

Speaker 1:

OK, so that sets the stage. Then it goes up to the Fourth Circuit. What was their main focus?

Speaker 2:

Their big focus was that standard of proof. The Fourth Circuit what was their main focus? Their big focus was that standard of proof. They basically doubled down on their existing precedent Cases like Shockley and Desmond.

Speaker 1:

Right. They confirmed that in the Fourth Circuit employers had to meet that higher clear and convincing evidence bar to prove an FLSA exemption.

Speaker 2:

Yep. Now EMD tried to argue things should change. They pointed to a Supreme Court case Encino Motorcars.

Speaker 1:

Ah, the one that said FLSA exemptions shouldn't be interpreted narrowly.

Speaker 2:

That's the one. Emd's logic was sort of like hey, if the exemptions themselves aren't narrow, maybe proving them shouldn't require such a high standard either. Makes some sense.

Speaker 1:

Right, you can see the argument, but the Fourth Circuit didn't buy it.

Speaker 2:

No, they drew a distinction. They said interpreting the scope of an exemption is one thing, but determining the burden of proof needed to show someone fits that scope, that's a different question.

Speaker 1:

And they felt bound by their own prior rulings on the burden of proof.

Speaker 2:

Exactly. They basically said unless our full court revisits this or the Supreme Court tells us otherwise, clear and convincing is the standard here.

Speaker 1:

Which, of course, leads us directly to the Supreme Court stepping in.

Speaker 2:

And they did tell them otherwise. Unanimously they reversed the Fourth Circuit on the standard of proof.

Speaker 1:

Unanimous, wow. And they said the standard should be.

Speaker 2:

The standard civil litigation burden. Preponderance of the evidence.

Speaker 1:

OK, explain that. What's the court's reasoning for lowering the bar?

Speaker 2:

Well, their main point was that preponderance of the evidence, basically meaning more likely than not, is the default standard in civil lawsuits. It has been since like 1938, when the FLSA was enacted.

Speaker 1:

So it's the norm, not the exception.

Speaker 2:

Right. They said you only use a higher standard, like clear and convincing in specific unusual situations, like if a law explicitly requires it or there's a constitutional reason, or in rare cases involving serious government action. None of that applied here.

Speaker 1:

And the FLSA itself is silent on the standard of proof for exemptions.

Speaker 2:

Correct. It doesn't specify one. So the Supreme Court said you just use the default, the normal civil standard. They even compared it to Title VII, employment discrimination cases.

Speaker 1:

Which also use the preponderance standard.

Speaker 2:

Exactly.

Speaker 1:

Now, the employees had arguments for keeping that higher standard, didn't they? What were those?

Speaker 2:

They did. They argued one that the FLSA protects a strong public interest, so a higher standard helps ensure those protections aren't easily skirted.

Speaker 1:

OK, what else?

Speaker 2:

Two, they pointed out that FLSA rights generally can't be waived by employees, suggesting they're especially important and should be harder to overcome. And three, they raised a practical point Employers usually control the evidence and employees might lack resources.

Speaker 1:

Those seem like reasonable points. How did the Supreme Court respond?

Speaker 2:

They addressed each one points. How did the Supreme Court respond? They addressed each one. On the public interest point, they noted other laws with public interest goals, like Title VII, still use preponderance. On the non-wavability point, they said waiving a right and the standard for proving something are just separate legal concepts. And on the evidence control employee resources point.

Speaker 1:

Let me guess they pointed back to Title VII again.

Speaker 2:

You got it. They said those same imbalances often exist in Title VII discrimination cases, yet preponderance is still the standard there.

Speaker 1:

So just to really nail this down preponderance of the evidence. That means the employer just has to show it's slightly more likely than not maybe 50.1% likely that the employee fits the exemption.

Speaker 2:

That's a good way to put it. It's definitely a lower hurdle than clear and convincing, which implies a much higher degree of certainty. It makes it easier, potentially, for employers.

Speaker 1:

And, crucially, the Supreme Court didn't actually decide if the EMD reps are exempt right.

Speaker 2:

No, absolutely not. They kicked the case back down to the Fourth Circuit.

Speaker 1:

So the appeals court has to look at the facts again, but this time using that lower preponderance standard.

Speaker 2:

Exactly the ultimate question were these specific employees truly outside salesmen? That's still technically up in the air, pending the Fourth Circuit's review under the new standard.

Speaker 1:

OK, so let's talk impact. What does this mean practically speaking? First, for employers and employees in that Fourth Circuit region Maryland, the Virginias, the Carolinas?

Speaker 2:

Well for them. The immediate impact is clear. Employers arguing for FLSA exemptions now face a lower burden of proof. It should be easier for them to win those arguments than it was under the clear and convincing standard.

Speaker 1:

And does this ripple outwards? What are the broader implications?

Speaker 2:

It certainly could. Supreme Court decisions set precedent nationwide. Other circuits that might have considered a higher standard or were perhaps leaning that way will now look to this ruling. It could make it generally less difficult for employers across many industries to classify workers as exempt.

Speaker 1:

Potentially affecting a lot of workers' eligibility for overtime pay.

Speaker 2:

Potentially yes. It's just the legal landscape a bit in favor of the employer in these specific exemption disputes.

Speaker 1:

And it all still comes down to that definition of outside salesman right Primary, doing making sales working away from the main office.

Speaker 2:

Absolutely, the definition hasn't changed, but how you prove someone meets, it just got well arguably easier for the employer. The factual question of what constitutes making sales got well arguably easier for the employer. The factual question of what constitutes making sales versus, say, merchandising or order taking remains central.

Speaker 1:

Which brings up a tough question for you listening how does this shift maybe alter the balance between, you know, a company's need to operate and an employee's right to get paid fairly for their time?

Speaker 2:

It's a fundamental tension in labor law and this ruling definitely tilts the scale on the proof aspect.

Speaker 1:

OK, so let's wrap this up.

Speaker 2:

The key takeaway the Supreme Court has lowered the standard of proof for employers claiming FLSA exemptions from clear and convincing evidence down to the standard civil preponderance of the evidence.

Speaker 1:

Making it potentially easier for employers to classify employees as exempt from overtime.

Speaker 2:

Right and remember. The EMD case itself isn't finished. The Fourth Circuit needs to reevaluate the facts using this new lower standard.

Speaker 1:

This deep dive really shows the nuts and bolts of how labor law gets interpreted and applied, doesn't it?

Speaker 2:

It really does. If this caught your interest, you might want to look more into those specific FLSA exemptions, not just outside sales, but administrative professional exemptions too. Understanding what counts as a primary duty is key.

Speaker 1:

Definitely food for thought.

Speaker 2:

And maybe one final thing for you to chew on With this change potentially making exemptions easier to prove, what does that mean for employees? Is there a greater responsibility now for you to really understand your pay structure, your job duties and your rights regarding overtime, and what might you need to do to make sure you're being paid correctly?