Fifth Circuit Employment Cases from 2019 That Affect 2020

The U.S. Court of Appeals for the Fifth Circuit had a busy 2019. Employment law continues to be affected by the pro-employer leanings of the Trump administration. For the next few months, we will highlight cases that are important for employers to know in 2020.

Criteria for age discrimination
In McMichael v. Transocean Offshore Deepwater Drilling, a former employee (McMichael) who lost his job in the course of a reduction in force (RIF) claimed that he was laid off due to his age ­­— 59 at the time. The employer produced evidence that McMichael had been treated fairly and his assertions of age discrimination were unfounded. The lower court found that the plaintiff had insufficient evidence to support a discrimination claim and dismissed the suit. McMichael appealed.

The Fifth U.S. Circuit Court of Appeals upheld the dismissal and, in its ruling, noted two factors that supported the holding. First, the managers responsible for determining which employees would be let go were in their 50s, making age discrimination unlikely. Second, the RIF included a number of employees that were younger and more qualified than the plaintiff, supporting the employer’s claim that age was not a factor in the layoff.

To the company’s credit, it had carefully planned and documented the reasons for the layoffs in advance of the force reduction. Thanks to these copious records, the company was able to prove that it had legitimate, non-discriminatory guidelines for the RIF.

Independent contractors are not employees
In another win for employers, the Fifth Circuit considered the appeal of a lower court decision that the plaintiffs were improperly classified as independent contractors and should receive overtime compensation under the Fair Labor Standards Act (FLSA)

On appeal, the Fifth Circuit reversed the ruling of the trial court in favor of the employer. The opinion offers employers helpful guidance for its relationships with independent contractors. The court used the following factors in deciding proper classification: (1) the degree of control; (2) relative investment in the project; (3) opportunity for profit and loss; (4) skill and initiative required to perform the work; and (5) the permanency/duration of the relationship.  The court seemed particularly swayed by the discretion afforded the consultants in completing the work and the consultants’ ability to reject a project, in which case they were not paid and free to consult for other businesses.

Day rates count toward salary basis for exemption
In Faludi v. U.S. Shale Solutions, an attorney (Faludi) who consulted U.S. Shale was paid a day rate of $1,000 plus documented expenses. When Faludi’s relationship with the company ended, he filed suit under the FLSA for unpaid overtime. The company countersued, saying that Faludi worked as an independent contractor and was, therefore, exempt from overtime. Further, even if Faludi should have been classified as an employee, he made more than the $100,000 salary threshold for determining exempt status.

The Fifth Circuit sided with the employer, ruling that a day rate can satisfy the base salary required for overtime exemption. Even though the court questioned whether Faludi was a contractor or an employee, it agreed that Faludi would be ineligible for overtime either way, citing the FLSA high compensation employee (HCE) exemption.

The decision is a significant win for employers. Now employers can satisfy the HCE exemption by paying a high day rate, assuming other elements of the exemption apply.

These and other pro-employer decisions are sometimes difficult to navigate. But experienced employment law attorneys can assist you in determining how the rulings affect your company. As always, we’re happy to help.




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