While it may seem straightforward and not subject to dispute that an exempt employee paid the required “salary basis” must actually receive his or her salary to preserve exempt status, the law, as always, is not so clear cut. In fact, an employer had prevailed in arguing that the actual payment of the salary is not required by the FLSA (which typically concerns itself only with the payment of minimum wages and overtime), only to have that decision now reversed by the Court of Appeals for the Sixth Circuit. Orton v. Johnny’s Lunch Franchise, 2012 U.S. App. LEXIS 3344 (6th Cir. 2012).
In Johnny’s Lunch, the administratively-exempt Plaintiff, who worked as Defendant’s Vice President of Real Estate and Site Selection, did not receive his salary for the last months of his employment in 2008, as Defendant suffered financial difficulties. He brought overtime claims under the FLSA, arguing that the failure to pay him any salary meant he was not paid on a salary basis and thus could not be exempt (regardless of his duties). The District Court disagreed, finding him to be an exempt employee based on the allegations contained in his complaint and the fact that he was paid on a salary basis while employed by the employer (even though not necessarily always paid). In reversing, the Sixth Circuit cited two principal errors made by the District Court: one, the USDOL’s 2004 revisions to the FLSA regulations clarified that “employment agreements are no longer the relevant starting point for whether an employee is paid on a salary basis,” and two, by granting Defendant’s motion to dismiss, the District Court failed to properly place the evidentiary burden on Defendant to prove the affirmative defense of exempt status.
It should come as no surprise to the employment community that an individual who is not paid anything for his work likely will be entitled to overtime protections, as set forth in Johnny’s Lunch. At least within the Sixth Circuit, employers will not be entitled to rely on the protection of exempt status (correctly identified by the Sixth Circuit as an affirmative defense, to be established by the employer), where no payments whatsoever have been made for specific workweeks.