On Monday, the Northern District of Alabama dismissed sixteen (16) individuals from a federal overtime lawsuit against Mercedes-Benz International Inc. (“Mercedes”) due to their status as “highly compensated” employees.  The Court determined that these individuals were exempt from overtime because they earned more than $100,000 per year and performed “office on non-manual work.”  The case is entitled Hicks v. Mercedes-Benz U.S. International Inc.

The decision is notable in that the “highly compensated” exemption is rarely the subject of litigation.  This exemption applies to certain, white collar employees who earn more than $100,000, and perform one or more of the duties required under the executive, administrative, or professional exemptions.  For instance, an employee who earns more than $100,000 annually will be exempt from overtime if he or she directs the work of two or more employees even though the employee does not meet the other requirements of the executive exemption.

In Hicks, the plaintiffs argued that the exemption did not apply to the sixteen (16) employees at issue because Mercedes included payments such as 401(k) contributions and insurance premiums in the compensation calculation.  The plaintiffs stated that “the only relevant indicator of any employee’s total compensation is the W-2 tax form.”  The District Court rejected the plaintiffs’ argument and held that pre-tax contributions, such as 401(k) contributions, are appropriately included in the calculation.

The lesson from this case is a simple one – employers should keep the “highly compensated” exemption in mind when considering the exempt status of employees.  Employers may discover that their generosity is finally being rewarded.