Supreme Court Clarifies Standard of Proof for FLSA Exemptions

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The U.S. Supreme Court unanimously ruled last week that employers do not face an unusually high standard to prove exemptions under wage and overtime laws, ending the Fourth Circuit’s stricter approach for employers in five Southeastern and mid-Atlantic states.

The Impact for Employers

In E.M.D. Sales, Inc. v. Carrera, No. 23-217 (U.S. Jan. 15, 2025), the justices held that employers only need to prove that exemptions apply by “a preponderance of the evidence”—the default burden of proof in civil litigation—rather than by the higher bar of “clear and convincing evidence,” which the Fourth Circuit had required for over thirty years in Maryland, North Carolina, South Carolina, Virginia, and West Virginia.^[1]

Both of these civil standards are easier to meet than the familiar “beyond a reasonable doubt” standard from criminal law. The “preponderance” standard essentially asks which side has the stronger case, even if just barely, while the “clear and convincing” standard requires the party with the burden of proof to mount a much stronger case. The Fourth Circuit’s use of the “clear and convincing” standard had demanded more from employers asserting that employees fit into an exemption from the general requirement of overtime pay after forty hours worked in a week.

The new Supreme Court decision is welcome news for employers since the federal Fair Labor Standards Act (FLSA) imposes liability stretching back two years—or three years for willful violations—plus liquidated damages that double the amount due. The FLSA also requires employers to pay attorneys’ fees if employees win lawsuits under the statute. Collective or class actions with multiple plaintiffs can result in large losses and settlements. For example, just last year, a nursing home operator was ordered to pay over $35 million to several thousand employees.^[2] Even employers with smaller workforces can face significant liability; the smart-home technology company SmartRent agreed in November to pay $1.5 million to resolve FLSA claims by seventy-four employees.^[3]

The High Court’s Approach

All nine justices joined Justice Brett Kavanaugh’s relatively short opinion, which emphasized that the Fourth Circuit stood alone among the seven appeals courts to address the issue. The six-to-one circuit ratio and the unanimous decision at the high court indicate the Fourth Circuit’s approach was an outlier. Employers still carry the burden of proof to show an exemption applies under the FLSA, but that burden is no heavier than in other civil litigation. The Fourth Circuit’s stricter standard will not apply to any current or future litigation, even cases that had been operating under the prior rule in the Fourth Circuit.

The Supreme Court’s opinion identified three situations requiring a heightened burden of proof: when Congress writes it into a statute; when the Constitution requires it, as with involuntary commitment and certain First Amendment issues; and in “certain other rare cases” when the government pursues “unusual coercive action” against an individual, such as revoking citizenship. Otherwise, the default “preponderance” standard applies—including in employment-discrimination cases, making it “hard to see why [a higher standard] would be required” for FLSA exemptions. 

The only additional opinion in this case was a brief concurrence from Justice Neil Gorsuch, joined by Justice Clarence Thomas, stating that “courts apply the default standard unless Congress alters it or the Constitution forbids it.” The concurrence recognizes only two categories of exceptions to the usual standard of proof (statutory or constitutional) rather than the three categories recognized in the majority opinion (statutory, constitutional, or precedential). 

The plaintiff-employees in this case were “sales representatives who manage inventory and take orders at grocery stores that stock EMD products” in the Washington, D.C. region. The employer did not dispute that the employees worked more than forty hours a week. Instead, the employer argued the employees met the “outside sales” exemption to the FLSA’s general requirement of overtime pay for work beyond forty hours a week. The Supreme Court did not decide whether the employees did indeed qualify for the “outside sales” exemption, leaving for lower courts to analyze under the framework provided by the high court.

The “Outside Sales” Exemption

This frequently litigated exemption requires that an employee have the primary duty of making sales (or obtaining orders or contracts) and also be “regularly engaged away from the employer’s place or places of business.” The Supreme Court has identified “external indicia” of outside sales,^[4] but there is no hard-and-fast rule to guide employers. Additionally, salespeople generally do not qualify for other FLSA exemptions covering executive, administrative, and professional employees.^[5] 

The FLSA dates to 1938 when outside sales often consisted of door-to-door solicitation. In the modern economy, salespeople often conduct much of their business remotely, and many work from home—which can qualify as a place of business that disqualifies an employee from the exemption.^[6] CNBC reported in 2023 that, long after pandemic restrictions were lifted, “fewer people are traveling for business — and those who are traveling are doing so less often.”^[7] The consulting firm Gartner found that sales leaders have continued a hybrid approach or even moved field roles to become virtual.^[8] In-person sales visits make less sense when potential customers have fewer employees on site, as the consultancy Deloitte noted last year.^[9] And, in-person sales visits are crucial to the application of the outside sales exemption.

Employers should know that the “outside sales” exemption remains tricky and that they still bear the burden of proof for all FLSA exemptions, even under the “preponderance" standard. Maynard Nexsen’s Employment & Labor Law practice group can review employee classifications and guide employers through the tangled thicket of exemptions.

_{[1] Shockley v. City of Newport News, 997 F.2d 18, 21 (4th Cir. 1993) (citing Clark v. J.M. Benson Co., 789 F.2d 282, 286 (4th Cir.1986) (quoting another circuit’s discussion of “clear and affirmative evidence”)).}

_{[2] Su v. Comprehensive Healthcare Mgmt. Servs., LLC, No. 2:18-cv-1608, 2024 WL 3816138 (W.D. Pa. July 22, 2024) (Judgment Order), appeal pending, No. 24-2842 (3d Cir.).}

_{[3] Osei-Asibey v. SmartRent, Inc., No. 1:23-cv-01590, ECF No. 94 (N.D. Ga. Nov. 22, 2024) (Motion for Settlement Approval).} 

_{[4] Christopher v. SmithKline Beecham Corp., 567 U.S. 142, 165–66 (2012)}

_{[5] See Su v. F.W. Webb Co., 110 F.4th 391, 397 (1st Cir. 2024) (finding inside salespeople categorically ineligible for administrative exemption because their primary duty is sales rather than administration), cert. pet. pending sub nom. F.W. Webb Co. v. Su, S. Ct. No. 24-626.}

_{[6] See, e.g., Kinney v. Artist & Brand Agency LLC, No. 13CV8864, 2015 WL 10714080, at *21 (S.D.N.Y. Nov. 25, 2015), R&R adopted, 2016 WL 1643876.}

_{[7] Monica Pitrelli, New Reports Say Business Travel Isn’t Going Back to Normal — Ever, CNBC (Apr. 23, 2023, 9:19 PM), https://www.cnbc.com/2023/04/24/is-business-travel-returning-no-and-its-not-going-to-say-studies-.html.}

_{[8] Brian Nordli, Outside Sales Isn’t Dead, But It Is Changing, BuiltIn (Sept. 22, 2021), https://builtin.com/articles/how-outside-sales-is-changing.}

_{[9] Eileen Crowley et al., Upward Climb with Uphill Struggles: 2024 Deloitte Corporate Travel Study, Deloitte Consumer Industry Center (July 16, 2024), https://www2.deloitte.com/us/en/insights/focus/transportation/corporate-business-travel-survey-2024.html.}