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Fifth Circuit Court of Appeals Holds that Property Tax Consultants Are NOT Exempt From Overtime Pay Under the FLSA


Fraser v. Patrick O’Connor & Associates - Fifth Circuit Court of Appeals


Facts:  Patrick O’Connor & Associates (“O’Connor”) is a Houston based real estate law firm that specializes in property tax consulting, appraisal, and market research.  O’Connor routinely hires property tax consultants to assist with its workload during busy months (typically May - September.)  Each property tax consultant is assigned approximately 65 files per day and expected to attend both formal and informal review hearings as to property value disputes.  Prior to the hearings, the property tax consultants are expected to comb through files generated by O’Connor and locate information that will assist with the review hearings.  At the hearings themselves, the property tax consultants rely upon information in the file and present property tax valuations and attempt to obtain lower property tax valuations for O’Connor’s clients.  Each workweek often entails working between 60 - 90 hours.  However, O’Connor did not pay these property tax consultants overtime, as provided for in the Fair Labor Standards Act (“FLSA”), on the grounds that these workers were administratively exempt.  Several O’Connor’s property tax consultants filed suit on the grounds that they were not administratively exempt and were therefore owed overtime pay under the FLSA.  Following a four day bench trial, $286,671.00 in unpaid overtime was awarded to the property tax consultants.  O’Connor subsequently appealed.

Holding:  As many readers are likely aware, the FLSA mandates that employers pay overtime compensation to employees that work more than 40 hours in a week.  The FLSA does provide some exemptions, however, including individuals “employed in a bona fide executive, administrative, or professional capacity.”  For an administrative exemption to exist, it must be shown 1) that the employee receives a salary or fee basis of not less than $455/week; 2) the employee’s primary duty must be “work directly related to the management or general business operations of the employer or the employer’s customers; and 3) the employee must exercise discretion and independent judgment with respect to matters of significance.  The determination of whether an employee is exempt from the FLSA’s overtime requirement is a question of law.  Notably, the burden is on the employer to establish that an exemption actually applies.

The Fifth Circuit Court of Appeals recognized that the second factor would govern the dispute and thus focused on that.  For an employer to satisfy the second requirement of the administrative exemption, an employee’s work must directly relate to assisting with the running of the business as opposed to simply doing work that relates to the production of the business’s products or services.  In the district court, it was found that O’Connor failed to meet its burden of showing that the tax consultants’ primary duties related to the management or general business operations of the company.  The Court of Appeals agreed, noting that none of the tax consultants helped run or service any business, no tax consultant was ever a supervisor or manager, and no tax consultant formulated management policies, provided tax advice, prepared tax returns, or helped with regulatory or legal compliance.  

Judgment:  The Fifth Circuit Court of Appeals affirmed judgment for the law firm’s employees, on the grounds that the employees were entitled to overtime pay under the FLSA because their employer could not meet its burden to show the employees qualified for an administrative exemption.

The Takeaway:  This case caught my eye for two reasons.  1) I am familiar with O’Connor and these type of real estate law firms that litigate property tax values with local taxing authorities; and 2) this case provides readers will a clear cut examination of the administrative exemption under the FLSA and why it does not apply in this case.  While it was a rather open and shut decision, this one is worth a read.

Majority Opinion Judge:  Judge Elrod 

Date:  April 7, 2020


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