Issues
Are employers seeking to invoke an FLSA exemption required to meet the preponderance of the evidence standard or a clear and convincing evidence standard?
This case asks for the Supreme Court to decide which standard of proof applies when an employer asserts an FLSA exemption as an affirmative defense from liability: preponderance of the evidence or clear and convincing evidence. Petitioners, E.M.D. Sales, Inc., et al. (“E.M.D.”), argue that the clear and convincing evidence standard applies only in limited circumstances, not to mere monetary disputes between private parties. Further, E.M.D. asserts that the risk of erroneous decision is equal between the parties. Respondents Faustino Sanchez Carrera et al. (“Carrera”), argue that a clear and convincing evidence standard applies because the FLSA protects important interests. Further, Carrera argues the clear and convincing evidence standard is necessary to allocate the unequal risks among employers and employees. The outcome of this case has serious implications for labor law.
Questions as Framed for the Court by the Parties
Whether the burden of proof that employers must satisfy to demonstrate the applicability of a Fair Labor Standards Act exemption is a mere preponderance of the evidence or clear and convincing evidence.
Facts
Congress enacted the Fair Labor Standards Act (“FLSA”) in 1938 to protect employees from unfair labor practices. Brief for Petitioners, E.M.D. Sales, Inc. et al. at 4–5. The FLSA requires that an employee work no more than 40 hours per week without receiving overtime pay. 29 U.S.C. §§ 206, 207. For any work done over the 40-hour threshold, the employer must compensate the employee at 150% of the employee’s regular pay rate. Id. However, certain employees fall within exemptions, whereby employers are not required to pay overtime rates. Carrera v E.M.D. Sales, Inc. at 3; see also 29 U.S.C. § 213. One such exception is for “outside salesmen.” 29 U.S.C. § 213(a)(1). As defined by the Department of Labor, an “outside salesman” is an employee whose primary duty is to make sales for their employer and who mostly works away from their employer’s place of business. See 29 C.F.R. § 541.500(a).
Respondents, Faustino Sanchez Carrera, Jesus David Muro, and Magdaleno Gervacio were employed as sales representatives by Petitioners, E.M.D. Sales, Inc. and Elda Devarie (“E.M.D.”). Carrera at 2. Carrera, Muro, and Gervacio (collectively “Carrera”) were all compensated on a commission basis; each employee set their own working hours and made money based on their individual sales. Id. at 3–5. Each employee regularly worked over 40 hours per week but was not paid any overtime pay, prompting Carrera to file suit against E.M.D. in the United States District Court for the District of Maryland. Id. at 1.
At the district court, E.M.D. argued that the FLSA did not require it to pay Carrera overtime because Carrera fell within the FLSA’s “outside salesman” exemption. Carrera at 2. Carrera disputed the applicability of the exemption. Id. After considering the parties’ respective evidence, the district court ruled in favor of Carrera on the issue of overtime pay, holding that E.M.D. failed to demonstrate that Carrera qualified under the “outside salesman” exemption by clear and convincing evidence. Id. The district court awarded liquidated damages equivalent to two-years’ worth of overtime pay but found that E.M.D. had not “willfully violated” the FLSA. Id.
Both Carrera and E.M.D. appealed to the United States Court of Appeals for the Fourth Circuit. Carrera at 2. E.M.D. argued that the district court improperly applied the clear and convincing evidence standard and asked for a lower preponderance of the evidence standard instead. Id. Conversely, Carrera disputed the district court’s finding that E.M.D. had not “willfully violated” the FLSA. Id.
The United States Court of Appeals for the Fourth Circuit affirmed the district court’s ruling. Carrera at 2. The Fourth Circuit ruled first that the lower court did not err in awarding Carrera only two years of due overtime pay. Second, and at issue here, it found that the lower court did not err in requiring E.M.D. to prove Carrera was within the “outside sales” exemption by “clear and convincing evidence.” Id. at 12–14.
E.M.D. petitioned to the United States Supreme Court which granted certiorari on June 17, 2024.
Analysis
LEGLISLATIVE DIRECTIVE
E.M.D. asserts that the district court erred in applying the “clear and convincing” evidentiary standard, and that a lower burden of proof applied instead. See Brief for Petitioner, E.M.D. Sales, Inc. at 15. Specifically, E.M.D. contends that unless the statute states otherwise, preponderance of the evidence is the default standard in civil cases. Brief for Petitioner at 14. E.M.D. invokes various provisions of the United States Code where Congress expressly requires clear and convincing evidence, and argues that the FLSA lacks the language traditionally used to impose a higher evidentiary standard. Id. at 17–18. Absent explicit legislative directive, E.M.D. argues, the Court rarely assigns the clear and convincing evidence standard—only “when ‘the individual interests at stake…are both particularly important and more substantial than mere loss of money.’” Id. at 14–15. Here, E.M.D. contends that applying this heightened standard is inappropriate because this is a dispute involving “monetary relief,” this is not a case involving “core liberty interests…like avoiding involuntary [civil] commitment, denaturalization, or loss of parental rights.” Id. at 20–21. Ultimately, E.M.D. asserts that the United States Supreme Court’s 2018 decision in Encino Motorcars, LLC v. Navarro supersedes Fourth Circuit authority here. Id. at 9, 12–13, 29. E.M.D. raises that, in Encino, the Court “reject[ed] the principle that exemptions to the FLSA should be construed narrowly,” and therefore Encino counsels against adopting the Fourth Circuit’s heightened standard. Id. at 29. Further, E.M.D. contends that the Fourth Circuit authority relied upon by the district court is, at best, unpersuasive. Id. at 27. E.M.D. thus challenges the district court’s reading of circuit precedent because, it alleges, none of the relied-upon authority requires a clear and convincing standard; thus, “the default” preponderance of the evidence standard should apply. Id. at 27–29.
Carrera counters that the district court properly applied the clear and convincing standard. See Brief for Respondent, Carrera at 23. Carrera argues that FLSA’s lack of explicit directive is not definitive. Brief for Respondent at 11–12. Carrera contends the court has sufficient power to determine the appropriate standard that applies to an evidentiary finding on a factual issue because it falls within a court’s traditional trial authority. Id. Carrera asserts that the Court seldom applies the clear and convincing evidence standard, and thus rejects E.M.D.’s categorical assertion of the standard’s prominence. Id. at 14–15. Carrera argues that the Court has also imposed the “intermediate” standard to “mitigate the risk of erroneous factfinding when that risk disproportionately accrues to one party.” Id. at 15–16. Further, Carrera counters E.M.D.’s argument that claims under the FLSA are categorically reducible to cases about “monetary damages.” Id. at 17. Instead, Carrera states that the FLSA protects both the rights of employees and the public interest in a fair labor society. Id. at 17–18. Additionally, Carrera maintains the FLSA is statutorily unique because employees cannot waive the rights enshrined to them by the FLSA. Id. at 20. Carrera further argues that the Court should affirm the lower court’s decision that the employees were not exempt under the FLSA regardless of which standard the Court deems appropriate for this case. Id. at 23–24. Carrera posits E.M.D.’s argument that the district court based its decision on whether E.M.D. met the heightened clear and convincing standard. Id. at 26. Carrera argues that the district court’s findings indicate that the decision would have been the same even under a lower standard. Id.
EQUITABLE AUTHORITY
First, E.M.D. argues that the risk of error allocation under a clear and convincing evidence standard would be improper. Brief for Petitioner at 13. E.M.D. contends that, in this case, the clear and convincing standard increases the risk of erroneous outcomes. Id. at 22–23. E.M.D. proposes that the preponderance standard, on the other hand, splits the risk of error equally among the parties. Id. at 14. Specifically, E.M.D. posits that, for a monetary dispute like this case, the risk exposure is the same for both parties because, in monetary disputes, there is no preference for one party’s interests over the other. Id. Therefore, E.M.D. argues, the preponderance standard is most appropriate here. Id. Second, E.M.D. contends that the preponderance standard requires a party to prove that something is “more probable than not.” Id. at 14. In contrast, E.M.D. argues, the clear and convincing standard requires a party to prove something “without hesitancy,” which is a higher burden on the party. Id. E.M.D. argues that if the Court were to apply the clear and convincing standard to FLSA cases, the employee could win even if it were more certain that not that the employee did fit into an FLSA exemption; therefore, there would be a less equitable outcome. See id. at 23. E.M.D. argues that, for this reason, applying the clear and convincing standard rather than the preponderance standard allowed Carrera to prevail. Id.
Carrera refutes E.M.D.’s assertion that the clear and convincing standard will increase the risk of erroneous outcomes. See Brief for Respondent at 21. Rather, Carrera argues that the clear and convincing standard is applicable here because it properly allocates the risk between the parties. See id. at 15. Specifically, Carrera maintains that the clear and convincing standard is applicable in cases where the risk of individual harm is unequal between the parties. Id. at 12–13. To give an example, Carrera highlights the following situations as being particularly unbalanced in terms of risk allocation: where one party is part of a disadvantaged group, where there is a special danger of deception, and where one party can structure evidence to increase the risk of erroneous findings. Id. Carrera asserts that the court must analyze the social costs and risks of an erroneous decision in such cases, which this case is a part. See id. at 16. Carrera argues that the employer, not the employee, controls most of the relevant evidence in an FLSA exemption case. Id. at 21. Thus, Carrera notes that there is a risk that employers may manipulate job descriptions to avoid FLSA exemptions. Id. at 22. Additionally, Carrera states that the demographics of the employees in this case make them more vulnerable than the employer. Id. Therefore, Carrera argues, in this case there is more social cost to an erroneous decision in favor of an employer compared to an erroneous decision in favor of an employee. See id. at 16. As a result, Carrera maintains that the clear and convincing standard is appropriate here because it will mitigate the unequal risk between the parties and will produce a more equitable result. See id. at 15.
Discussion
OUTCOME DETERMINATIVE IMPACT
The Washington Legal Foundation (WLF), in support of E.M.D., contends that employers will not succeed under the clear and convincing evidence standard in borderline cases. See Brief of Amicus Curiae of Washington Legal Foundation, in Support of Petitioners at 13. Specifically, WLF claims that, under this standard, it will be difficult for employers to prove that employees are exempt from the FLSA. Id. at 16. WLF contends that this higher evidentiary burden has an outcome determinative impact; therefore, it will skew outcomes in favor of employees, making it easier for them to prevail, even if much of the evidence might indicate that the FLSA’s exemptions do apply. See id. at 13, 16. WLF further insists that nothing in the FLSA indicates that Congress meant to make it harder for employers to win. Id. at 16. The Chamber of Commerce of the United States of America, et al. (“USCC”), in support of E.M.D., asserts that various parties within the Fourth Circuit—ranging from small businesses to social service organizations—already often face unfair outcomes due to a heightened burden of proof. See Brief of Amicus Curiae of The Chamber of Commerce of the United States of America et al., in Support of Petitioners at 12. Furthermore, USCC states that this elevated standard will pressure employers into settling cases that might otherwise fail under a lower burden of proof. Id. at 14. The USCC also posits that this heightened standard affects the Court’s ability to dismiss meritless claims early in the litigation process, as higher standards often prevent dismissal or summary judgment. Id.
Carrera contends that the clear and convincing evidence standard is not outcome determinative in FLSA cases because most of these cases hinge on legal questions rather than contested questions of fact. Brief of Respondents at 16. Carrera asserts that the heightened standard ensures that employees are not wrongly classified as exempt, and that it does not create an undue burden on employers. Id. at 17. Carrera further argues that this heightened standard exists to protect the public interest because a mistaken finding of fact in an employer’s favor can prevent the elimination of substandard working conditions. Id. at 18–19. Carrera claims that employers can currently control evidence relevant to FLSA determinations, such as changing the job title of an employee, to fit into one of the FLSA exemptions. Id. at 21–22. Carrera also argues that many employees in FLSA cases are poor, uneducated, and belong to minority groups, which creates a greater risk of erroneous fact finding for the employer. Id. at 22. Thus, Carrera argues the standard of proof is not outcome determinative in FLSA cases and does not favor one party over the other. Id. at 19.
LEGISLATIVE COMPROMISE
The New England Legal Foundation (NELF) argues that the FLSA reflects a deliberate legislative compromise on overtime pay. See Brief of Amicus Curiae of New England Legal Foundation, in Support of Petitioners at 5. NELF claims that Congress intended the FLSA to strike a balance between employer and employee interests. Id. NELF argues that only the preponderance standard maintains a fair balance between employer and employee interests in overtime cases. Id. at 8. Similarly, the Local Government Legal Center contends that Congress intended to balance local government liability for FLSA violations with employee protection, not to impose a higher burden on employers proving exemptions. See Brief of Amicus Curiae of The Local Government Legal Center et al., in Support of Petitioner at 14. It also claims that inconsistent burdens lead to confusion for local governments, making planning and budgeting challenging, which may result in increased costs for taxpayers. Id.
Carrera emphasizes that the FLSA's purpose and policies support protecting workers and argues that it is more harmful to wrongly deny workers these protections than it is to mistakenly require an employer to pay overtime. See Brief for Respondent at 11. Carrera notes that Congress recognizes that delays in payment hurt FLSA plaintiffs, stating that any delays affect their ability to maintain a minimum standard of living. Id. at 28. Carrera asserts that to avoid this harm, it is appropriate for the court to require an employer to establish an FLSA exemption by meeting the clear and convincing evidence standard. Id. Carrera declares that this heightened standard of proof prevents long-term financial harm for employees. Id. at 19. Carrera further argues that it prevents employers from exploiting ambiguities in job duties to misclassify employees as exempt. Id. at 22. According to Carrera, the demographics of FLSA plaintiffs reveal a heightened risk of bias in favor of employers, as many FLSA plaintiffs are low-income, have limited educational opportunities, or belong to minority groups. Id. at 22. Carrera posits that a lower standard of evidence would risk undermining the protections provided by the FLSA and fail to uphold Congress’ deliberate legislative compromise. Id. at 17.
Conclusion
Acknowledgments
The authors would like to thank Professor Stewart Schwab for his guidance and insights into this case.
Additional Resources
- Daniel Wiessner, US Supreme Court Will Review Test For Applying Wage Law Exemptions, Reuters (June 17, 2024).
- Charles E. McDonald, III and Zachary V. Zagger, Supreme Court Will Consider Whether Employers Have Heightened Burden for Demonstrating Overtime Exemption, Ogletree Deakins (June 17, 2024).
- Employers: Prepare for FLSA Overtime Law Updates, CLAConnect (Oct. 15, 2024).
- Allen Smith, J.D., Upcoming Supreme Court Decision May Make HR’s Exemption Analysis Less Costly, SHRM (June 19, 2024).