Surprise! You May Not Be A Covered Employee Under Federal Overtime Law

Not all businesses are covered by federal overtime law and not all workers are protected under that law. In the next two posts we'll discuss an issue under federal overtime law that doesn't receive a lot of attention -- Whether the worker claiming a right to overtime is even protected under federal overtime law. That is an important question in Iowa because Iowa, like most states, doesn't have a state overtime statute. Therefore, if federal overtime law doesn't apply to an Iowa worker, then that worker has no right to overtime at all.

Two primary questions can arise on this issue. First, does the nature of the worker's employer, or the worker's individual job duties, even subject to the employer to federal overtime law? Second, if overtime law does cover the employer or the specific worker, is there an employment relationship between the business and the worker, or is the worker an independent contractor? Overtime law doesn't cover independent contractors. We'll discuss that in our next post.

Federal overtime law, which is part of the Fair Labor Standards Act ("FLSA"), may apply to a business in one of two possible ways (or both methods simultaneously). One of the two coverage tests must be met or the worker has no right to overtime. The two possible FLSA overtime coverages are “enterprise coverage” and “individual coverage.” 

FLSA enterprise coverage exists for businesses that satisfy three requirements. First, the business or its employees must be engaged in interstate commerce.  Second, the business must have two or more employees. Third, the business’s gross annual revenue must be $500,000 or more. If a business satisfies both requirements for enterprise coverage, then all employees working for the business are covered under the FLSA's overtime provisions, regardless of their job duties or whether they ever engage in interstate commerce.

Caveat:  The FLSA's overtime provisions automatically apply to certain employers, without regard to the employer's annual gross revenue. Such employer include schools, hospitals, and nursing homes or other residential care facilities as well as all governmental entities at all levels of government.

Even if an employer is not subject to overtime law under enterprise coverage, the FLSA's overtime provisions may still protect the employee under the theory of "individual coverage." Employees are covered under overtime law in each week that they are individually engaged in interstate commerce, produce goods for commerce, or work in activities that are closely related and directly essential to the production of goods for commerce. Individual coverage is based on the nature of the employee's work activities, rather than on the business, employer, or industry as a whole. At the same time, the connection of the employer's business to interstate commerce may also be evidence of the employee's involvement in interstate commerce.

The United States Supreme Court has stated that to determine whether an employee is engaged in interstate commerce, the analysis "is not whether an employee's activities affect or directly relate to interstate commerce but whether they are actually in or so closely related to the movement of the commerce as to be a part of it." Neither the FLSA's overtime provisions nor the courts have imposed any minimum percentage, volume, or amount of activity in interstate commerce that must occur before an employee's covered. Even minor engagement with interstate commerce is sufficient to trigger individual coverage if that employee's involvement with interstate commerce is regular and recurring.

Individual coverage is a factually-specific inquiry, so it's impossible to provide a general list of occupations that always do or always do not create individual coverage under the FLSA's overtime provisions.  But there are three broad classes of employees whose work may bring them within individual coverage: (1) employees whose work is related to the actual movement of interstate commerce (for example, truck drivers who cross state lines); (2) employees whose work requires them to regularly use the channels of interstate commerce (for example, interstate mail, interstate telephone calls or facsimiles, interstate banking or credit card transactions, internet use across state lines, or the direct purchase of products that are ordered and delivered from out-of-state sellers or distributors); or (3) employees whose work is related to the instrumentalities of interstate commerce (for example, an employee who helps manufacture trucks to be used in interstate shipping).

Harley Erbe