Fair Labor Standards Act: public sector liability.

• Author: Markoe, Jeannine C.

At an alarming rate, federal courts are holding state and local governments liable for back overtime pay to many of their management-level employees. These executive, administrative, and professional employees, often earning between $40,000 and $100,000 annually, were thought to be exempt from federal overtime requirements outlined in the Fair Labor Standards Act (FLSA). Recent interpretations of the act by the Department of Labor (DOL), as well as various federal court rulings, have turned such thinking on its head. Many public employment practices and public-sector duties have been found to allow these employees to be covered by the FLSA. This shifting of employee status has caused states and localities to be faced with enormous, unexpected liabilities. Millions of dollars already have been spent, and the potential liability could threaten most jurisdictions' fiscal solvency. (See the accompanying sidebar for details of the amounts of some settlements that have been made.)

The FLSA regulations determining which types of employees are entitled to overtime pay have become shrouded with ambiguous interpretations so that employers are finding it nearly impossible to judge who should and who should not be receiving overtime compensation. In addition, the provisions impair the ability of public employers to offer more efficient and flexible work schedules and compensation programs and often are in direct conflict with state and local government policies, public accountability laws, and administrative and executive duties.

Public Employee Exemption Under FLSA

The Fair Labor Standards Act of 1938 was a Depression-era enactment to combat unemployment and to help safeguard the standard of living for low-wage workers. President Roosevelt urged Congress "to help those who toil in factory and on farm to obtain a fair day's pay for a fair day's work." Minimum wage, overtime compensation, and child-labor standards were subsequently legislated, and the FLSA became the primary federal statute governing the payment of wages and hours worked.

As originally written, the FLSA applied only to the private sector. It was not until 1974 that the act was amended to include the public sector. This amendment was challenged in the U.S. Supreme Court case National League of Cities v. Usery. In this decision, the Court ruled that the 10th Amendment to the Constitution rendered the application of the FLSA to state and local governments unconstitutional. Nine years later, this ruling was...