In this case, a group of St. Louis police sergeants sued their police commissioenrs for overtime pay under the Fair Labor Standards Act of 1938 ("FLSA"), 29 U.S.C. Sec. 207, which requires employers to pay overtime to employees who work more than forty hours per week. The police commissioners argued that the sergeants were "bona fide executive, administrative, or professional" employees exempted from FLSA overtime pay requirements by 29 U.S.C. Sec. 213(a)(1). Under the Secretary of Labor's regulations implementing this exemption, employees who were paid a specified minimum amount ($250.00 per week) on a "salary basis" fall within this exemption as long as their compensation is not "subject to" being reduced "because of variations in the quality or quantity of the work performed." The police sergeants claimed that they did not meet these requirements because, under the terms of a Police Department Manual that applied to all employees, their compensation theoretically could be reduced for a variety of disciplinary infractions, some of which related to the "quality or quantity" of their work. Both the District Court and the Eighth Circuit agreed with the police commissioners, holding that the Secretary's salary-basis test was satisfied.The Supreme Court affirmed on 2/19/97. Justice Scalia, writing for a unanimous court, held as follows:
First, the Secretary's "salary-basis" test, with its exception for disciplinary deductions, reflects a permissible reading of the FLSA as it applies to public employees. Neither the absence of other, non-salary reduction means of discipline, nor the peculiar needs of law enforcement organizations, rendered the Secretary's interpretation obviously unreasonable as applied to public sector employees. In light of the Secretary's broad authority to "defin[e] and delimi[t]" the exemption's scope, the Secretary's salary-basis test and exemption for disciplinary deductions are clearly permissible.
Second, the Secretary's interpretation that the salary-basis test is met whenever an employee's compensation cannot "as a practical matter" be adjusted in ways that are inconsistent with the test is reasonable. Since the Secretary's interpretation of the salary-basis test fits well within the key language of the exemption -- that the employee's compensation not be "subject to" disciplinary reduction -- the Secretary's interpretation is not "plainly erroneous," and is thus entitled to deference.
Third, relying on the plain language of the Secretary's implementing regulations, the Court held that employers may preserve the exempt status of employees whose pay has been improperly deducted as long as the employer reimburses those employees, and so long as the deductions were either inadvertent or made for reasons other than lack of work.
Manufacturers that consider certain executive, administrative or professional employees exempt from the FLSA should make sure that those employees' salaries are not subject to disciplinary reduction relating to the quality or quantity of their work.