On June 17, 2024, the U.S. Supreme Court granted certiorari in E.M.D. Sales, Inc. v. Carrera, adding it to their docket for the 2024-2025 term. This case will finally resolve a split between the U.S. Circuit Courts of Appeal and determine the burden of proof that employers must meet to demonstrate that an employee is exempt under the Fair Labor Standards Act (FLSA). This article provides a brief summary of the case background and current legal landscape, as well as some potential issues to be considered and the ramifications of the Supreme Court's upcoming decision.

Background

Last year, the U.S. Court of Appeals for the Fourth Circuit considered in Carrera v. E.M.D. Sales Inc. the appropriate burden of proof to determine whether employees are non-exempt and thus entitled to overtime pay under the FLSA.^[1] Specifically, the Fourth Circuit was asked to determine whether the "preponderance of the evidence" standard (a significantly lower evidentiary bar, endorsed by a majority of the jurisdictions) should apply, rather than Fourth Circuit precedent applying the "clear and convincing" evidence standard (a much higher burden of proof that, in this circumstance, is applied only in the Fourth Circuit).

At the trial level, the district court ruled that the clear and convincing evidence standard applied, and a jury found the employer liable for failing to pay its sales representatives overtime in accordance with the FLSA. On appeal, the Fourth Circuit affirmed the trial court's application of the clear and convincing evidence standard and rejected the employer's argument that the preponderance of the evidence standard should apply. In so holding, the Fourth Circuit acknowledged that its endorsement of the clear and convincing standard has received criticism from other circuit courts, but nevertheless reasoned that it was bound by precedent.

The Current Legal Landscape

The difference between the two evidentiary standards is significant. Under the preponderance of the evidence standard, sometimes called the "51% rule," employers need only prove that it is "more likely than not" that an employee is exempt under the FLSA. In contrast, the Fourth Circuit's clear and convincing evidence standard requires employers to prove that it is far more likely than not that an employee is exempt. As a result, an employer arguing that an employee is exempt under the FLSA has a significantly higher burden of proof under the clear and convincing standard that the Fourth Circuit has adopted than under the preponderance of the evidence standard that is favored by the majority of jurisdictions.

Issues to be Considered by the Supreme Court

In Carrera, the Fourth Circuit rejected the employer's argument that the Supreme Court has already signaled, in its decision in Encino Motorcars, LLC v. Navarro, that the less rigorous preponderance of the evidence standard was the appropriate standard for FLSA claims. In that case, the Supreme Court ruled that FLSA exemptions should be given a "fair reading," rather than be narrowly interpreted. The Fourth Circuit found that Encino Motorcars did not expressly address the evidentiary burden and that, regardless, the decision did not necessarily preclude the Fourth Circuit's application of the clear and convincing evidence standard. The employer is likely to make similar arguments before the Supreme Court and ask the Court to extend its reasoning in Encino Motorcars to this issue of first impression.

Notably, the Department of Justice submitted an amicus brief in support of the employer's argument that the Fourth Circuit's decision was incorrect. The Department stated in its brief that, "In the view of the United States, the Court should summarily reverse the court of appeals' decision," arguing that the Fourth Circuit's heightened clear and convincing evidence standard is inconsistent with Supreme Court precedent for ordinary civil cases seeking monetary remedies and directly conflicts with rulings from multiple other circuits to consider this issue.

Ramifications

The outcome of the Supreme Court's decision in E.M.D. Sales, Inc. v. Carrera will have significant implications for all employers defending against FLSA claims and/or determining whether to classify their employees as exempt or non-exempt. If the Supreme Court adopts the preponderance of the evidence rule, employers in the Fourth Circuit will have a much easier time proving exemption defenses. Alternatively, if the Supreme Court endorses the Fourth Circuit's clear and convincing standard, employers will face a significantly higher bar when defending against FLSA liability. Either way, the decision will ensure that employers face a uniform national standard.

[1] In the underlying case, the employer, a food products distributor, argued that its sales employees were not entitled to overtime pay because they were covered by the FLSA's "outside sales exemption," which excludes workers "employed . . . in the capacity of outside salesman" from FLSA overtime requirements. The employees disputed this categorization, arguing that under the Department of Labor's outside sales exemption regulations, their primary duty was not making sales, because they were limited in their ability to sell to chain stores, but instead they spent their time primarily on tasks related to inventory management.