Pharmacist Was an Exempt “Highly Paid Employee” Not Entitled to Overtime

Today the Second Circuit issued its decision in Anani v. CVS RX Services, affirming a district court decision that a pharmacist was subject to the Fair Labor Standard’s exemption for highly-paid employees.

The employee’s base salary was based on a 44-hour workweek, at all times exceeded $1250 weekly, and was guaranteed.  He also received additional compensation for routinely working more than 44 hours per week, which increased his total yearly compensation to over $100,000.

FLSA § 207(a)(1) provides that employees who work more than 40 hours in a week must be paid time-and-a-half compensation for excess hours except as “otherwise provided,” and FLSA § 213(a)(1) provides an exemption from this requirement for “any employee in a bona fide executive, administrative, or professional capacity.”

“To qualify for this exemption an employee’s work must satisfy both a duties requirement and a salary requirement”; since appellant conceded that the “duties” requirement was met, the court focused on whether the “salary requirement” (defined in 29 C.F.R. §§ 541.600 through 541.606) was met.

The relevant regulations required that the employee must be compensated on a “salary basis” (as defined by 29 C.F.R. § 541.602(a) at a rate of not less than $455 per week.  It was undisputed that appellant’s base salary substantially exceeded $455/week, there were no impermissible deductions, and that his base weekly salary was guaranteed. He was therefore paid on a “salary basis”.

Furthermore, 29 C.F.R. § 541.601(a), entitled “Highly compensated employees,” provides that

An employee with total annual compensation of at least $100,000 is deemed exempt . . . if the employee customarilyand regularly performs one or more of the exempt duties or responsibilities of an executive, administrative or professional employee identified in [the Subparts defining the duties requirement]”.

Furthermore, 29 C.F.R. § 541.601(b) adds “refinements”; for example, “if an employee’s total compensation falls short of an expected total of $100,000 at the end of the particular twelve-month period, the employer may, during the next month, make up the difference through an unearned cash payment.”

Appellant argued that the C.F.R. § 601 exemption is inapplicable because of 29 C.F.R. § 541.604, which governs circumstances where an “exempt employee’s earnings [are] computed on an hourly, daily or a shift basis” and there is a “[m]inimum guarantee plus extras.”  Specifically:

Appellant’s argument is based on [§] 604(b)’s condition that “a reasonable relationship exist[] between the guaranteed amount and the amount actually earned” and “the weekly guarantee is roughly equivalent to the employee’s usual earnings.” Focusing exclusively on that language, he argues that his total earnings so substantially exceeded his guaranteed salary – slightly less than 2 to 1 – that the relationship between the guaranteed salary and his total earnings was unreasonable.

The court rejected this argument, reasoning:

We perceive no cogent reason why the requirements of C.F.R. § 541.604 must be met by an employee meeting the requirements of C.F.R. § 541.601. Indeed, C.F.R. § 541.601 is rendered essentially meaningless if a “highly compensated employee” must also qualify for the exemption under C.F.R. § 541.604 or, to state the converse, would lose the “highly compensated employee” exemption by failing to qualify under C.F.R. § 541.604. To be sure, C.F.R. § 541.604 deals with employees who earn the “[m]inimum [g]uarantee plus extras,” but every employee with a guaranteed weekly amount exceeding $455 who earns over $100,000, and is therefore purportedly exempted by C.F.R. § 541.601, also fits the description of having a “minimum guarantee plus extras.”  Appellant’s interpretation thus renders C.F.R. § 541.601 superfluous. The reading that gives full meaning to both C.F.R. § 541.601 and C.F.R. § 541.604 is that each deals with different groups of employees who receive a “minimum guarantee plus extras.” The first exemption deals with those employees who earn over $100,000 annually while the second exemption deals with employees whose guarantee with extras totals less than $100,000 annually.

It also rejected appellant’s argument that C.F.R. § 541.601 is “intended only to provide a relaxed standard as to determining the duties requirements for employees who earn over $100,000”.

First, it noted that that regulation is found in the “Salary Requirements” Subpart, rather than in the “duties requirements” Subparts, which was not the result of “administrative inadvertence.”

Second,

C.F.R. § 541.601(a) plainly states that it is providing an overall exemption from the time-and-a-half requirement to employees who meet the relaxed duties requirement based on an annual salary of over $100,000. Therefore, the very structure and express language of C.F.R. § 541.601 indicate that its purpose was to relax the duties requirement in order to exempt employees from the time-and-a-half requirement because they earn over $100,000 annually.

The court threfore held that the exemption from the time-and-a-half requirment applied to the appellant.

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