In January 2025, the Supreme Court (the Court) handed employers a win by confirming exemptions under the Fair Labor Standards Act (FLSA) need only be proven by a “preponderance of the evidence.” In doing so, the Court unanimously rejected the argument that a higher evidentiary standard—“clear and convincing evidence”—applies to FLSA exemption disputes. The decision has extensive implications for FLSA cases, especially when the employee’s exemption status is a close call.

The Case

In E.M.D. Sales Inc. v. Carrera (E.M.D), several employees of a grocery distribution company claimed they were misclassified as outside sales employees, and therefore, were owed overtime pay. E.M.D. argued the sales representatives fell within the overtime exemption for outside sales employees. The district court disagreed with E.M.D. and ruled in favor of the sales representatives. The court said E.M.D. failed to prove by clear and convincing evidence that the sales representatives met the exemption requirements. Under the FLSA, employees generally must be paid an overtime premium of 1.5 times their regular rate of pay for all hours worked beyond 40 in a workweek — unless they fall under an exemption.

While the executive, administrative and professional exemptions – collectively known as the “white-collar” exemptions – may be the most familiar to employers, this case focuses on the outside sales exemption. Under this exemption, the employee’s primary duties must involve making sales, and the employee must be customarily and regularly engaged away from the employer’s place of business.

Impact to Employers

Misclassifying employees based on their exemption status is a key compliance issue, particularly as the cost of potential class and collective actions skyrockets. The default under the federal FLSA is that an employee is non-exempt – and when exempt status is questioned, the employer has the burden of proving it properly classified an employee as exempt. Employers can breathe a sigh of relief knowing the Court has set a consistent standard for FLSA exemption cases, easing the burden on businesses. But wage and hour compliance should be top of mind since errors can result in significant penalties and hefty litigation costs.

By partnering with a payroll company familiar with FLSA regulations and others impacting your business’s payroll operations, you can gain confidence you are taking the right steps to stay compliant and avoid fines. Contact DM Payroll Solutions today to learn how we can help.