Under the Fair Labor Standards Act, employers are generally obligated to provide overtime compensation equal to one-and-a-half times an employee's regular rate of pay for all hours worked exceeding 40 hours per week. However, the FLSA includes an exemption providing that this overtime requirement does not apply to certain employees engaged in agriculture. By properly applying this exemption, agribusinesses may be able to significantly reduce labor costs.
Unfortunately, it's not always clear when an individual is engaged in agriculture. This presents a problem because an employer that fails to pay overtime when due may be vulnerable to government enforcement actions or private lawsuits brought by current or former employees seeking to recover overtime compensation. The potential liability can be staggering as it may include two or three years of unpaid overtime wages multiplied by the number of employees and the number of overtime hours per employee. In some circumstances, the courts may require an employer to pay double damages as well as the other side's attorney fees.
In setting boundaries for the overtime exemption, FLSA and its regulations define agriculture as follows: "Agriculture includes farming in all its branches and among other things includes the cultivation and tillage of the soil; dairying, the production, cultivation, growing, and harvesting of any agricultural or horticultural commodities (including commodities defined as agricultural commodities in section 15(g) of the Agricultural Marketing Act, as amended); the raising of livestock, bees, fur-bearing animals or poultry; and any practices (including any forestry or lumbering operations) performed by a farmer or on a farm as an incident to or in conjunction with such farming operations, including preparation for market, delivery to storage or to market or to carriers for transportation to market."
The first part of the definition describes "primary agriculture." Practices that are "incident to or in conjunction with" farming are "secondary agriculture." Most of the problems regarding interpretation of the agriculture exemption relate to secondary agriculture.
In applying the exemption, it's helpful to keep in mind two general principles:
- If an individual is not employed in farming or by a farmer or on a farm, he or she is not employed in agriculture.
In determining whether the exemption applies, one must always look to the character of the activities performed by each individual employee not the general nature of the employer's business.
Unfortunately, simple statements alone cannot effectively solve close exemption questions.
One difficulty in applying the exemption especially for complex and vertically integrated agribusinesses is figuring out when processing an agricultural commodity constitutes an independent productive activity. An independent productive activity is an activity not performed as "an incident to or in conjunction with" the farming operation. Analyzing each FLSA agriculture exemption issue is dependent on the specific commodity and process in question. But the regulation offers the following questions as guidance regarding whether an employee engaged in processing is exempt from the FLSA:
Is the commodity changed from its raw or naturalstate during processing? Example: Employees who sort and grade eggs can be exempt from the FLSA because the egg remains in its natural state.
Does the process add value to the commodity? Is that value considerable or negligible? Example: Employees who grade and pack wool can be exempt, but an employee who makes yarn from the wool is unlikely to be exempt.
Do farmers who produce this commodity ordinarily perform this process? Example: Employees of tobacco bulking plants fall outside of the exemption, in part because tobacco farmers do not ordinarily perform the bulking operation.
Also, if the agribusiness employs its own sales force to market and sell the product, and if it sells the commodity under its own label rather than a purchaser's label, it's more likely that employees are not exempt.
Even if the process does not create concerns, the commodity's origin can defeat the exemption. If the business processes a commodity that is produced somewhere other than its own property, or the commodity begins its life (whether plant or animal) at a nursery or the equivalent owned by another entity, employees are likely not exempt. There are, however, special cases where an independent grower is effectively the agribusiness" agent, and the exemption is preserved with respect to employees who later handle the commodity.
When some of an employee's activities are exempt and some are not, the workweek is the smallest increment of time to determine whether the employee is exempt or nonexempt. Tracking time and work performed is critical when workers occasionally or sporadically perform nonexempt work as part of their duties. If any nonexempt work is performed during the workweek and the employee works more than 40 hours, the employee must be
Planning becomes easier for both the employer and employee if the division is seasonal. If an employee performs repairs and mechanical work on nonagricultural manufacturing equipment during the off-season but does the same work on farm implements used in agriculture during harvest, that employee should be entitled to overtime pay only during the off-season. As a result, a business can control the risk of paying overtime unnecessarily by being diligent in avoiding expectations or contractual obligations that commit the business to year-round overtime pay with respect to these employees.
Of course, the agricultural exemption applies only to the overtime provisions of the FLSA. Even where this exemption applies, businesses must still comply with other requirements such as minimum-wage and child-labor laws. The ins and outs of the agricultural exemption to the FLSA and its exceptions are worth attention. If you suspect that some of your employees fall into a gray area, discuss the issue with legal counsel familiar with the FLSA.
Steven Anderson and Emily Hildebrand Pontius are members of Faegre &; Benson's employment practice and the firm's food, agriculture and biofuels group. Contact Anderson at (612) 766-8225 or SAnderson@faegre.com; Hildebrand Pontius at (515) 248-9022 or EPontius@faegre.com.