There are three possible applicable exemptions available to avoid overtime pay for information technology jobs. They are: (1) the computer related exemption under 29 CFR Section 541.400; (2) the administrative exemption under 29 CFR Section 541.200; and (3) the executive exemption under 29 CFR Section 641.100. This article will focus only on the computer related exemption.

Computer Exemption Requires Skill & Proficiency

Under the applicable regulations, employees who qualify for the computer exemption must not only be highly skilled but they also must have achieved a level of proficiency in the “theoretical and practical application of a body of highly specialized knowledge in computer systems analysis, programming or related work in software functions.” Although a job title alone is not determinative of the exemption’s applicability, the Department of Labor lists the following as common job titles for this exemption: computer programmer, systems analyst, computer systems analyst, computer programmer analyst, applications programmer, application systems analyst, application systems analyst/programmer, software engineer, software specialist, systems engineer and systems specialist. 29 CFR Sections 541.400-402. Although covered employees commonly have a bachelor’s degree, it is not required and expertise and skill can be combined through a combination of education and experience in the field.

Two Pronged Test — Salary & Primary Duty

Turning to the applicable two pronged test, companies must look at the employee’s salary and the nature of the employee’s primary duty. First, the employee must be paid at least $23,660 annually ($455 weekly) or $27.53 per hour. Very favorably, payment of $27.53 per hour allows the company to avoid the salary basis test. The salary basis test requires the employee to regularly receive a predetermined amount constituting all or part of the employee’s salary. That amount cannot be subject to reduction because of variations in the quality or quantity of work performed.

Secondly, the employee’s primary duty must consist of the following: (1) the application of system-analyst techniques and procedures, including consulting with users to determine hardware, software or systems functional specifications; (2) the design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications; (3) the design, documentation, testing, creation or modification of computer programs related to machine operating systems; or (4) a combination or the aforementioned duties, the performance of which provides the same level of skills. 29 CFR Section 541.400.

For example, applying the above test to “help desk” employees, a common misclassification, a recent Court decision holds that “help desk” employees are nonexempt. In Martin v. Indiana Michigan Power Company, 381 F.3d 574 (6th Cir. 2004), the Court ruled that the employee’s maintenance of computer systems within predetermined parameters does not rise to the level of “theoretical and practical application of highly specialized knowledge.” Martin was an information support specialist working in the company’s self described “maintenance organization that takes care of computer systems.” He had no education or training in systems engineering. He was responsible for installing and upgrading hardware and software on workstations, configuring desktops, checking cables, replacing parts, testing and troubleshooting Windows problems. The Court held that Martin merely consulted with users for purposes of repair and user support versus actually determining hardware, software or system functional specifications. Likewise, any testing that Martin did was for the purpose of testing things to determine what was wrong with the workstation, not the type of testing involved in actually creating a system.

Additional Exclusions from “Computer Exemption”

Trainees learning to become proficient in the areas cited above are similarly not covered. Neither are employees, although having a title, who have not attained the level of skill and expertise which allow them to work independently and generally without close supervision.

Also excluded from the exemption are employees engaged in the operation of computers or in the manufacture, repair, or maintenance of computer hardware and related equipment. Further, employees whose work is highly dependent upon, or facilitated by, the use of computers and computer software programs, e.g. engineers, drafters and other skilled in computer-aided design software like CAD/CAM but who are not in computer systems analysis and programming occupations, are also excluded from the exemption 29 CFR Section 541.401.

Conclusion — Offensive and Defensive Strategy

Companies should be prepared to defend their computer related exemption conclusions by compiling detailed information about the employee’s primary duties, the processes actually assigned to the employee, and the applicable computer systems analysis, programming or software engineering required.

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Patent and copyright law provide an entrepreneur some rights in relation to employees involved in developing patented or copyrighted material. Additionally, an entrepreneur has some common law rights in its trade secrets and confidential information. However, in order for a business to fully protect its interests in intellectual property developed and utilized by it, it is important to implement written agreements
that specifically address the rights of the business and its employees relative to such inventions and information.

In this respect, one size certainly does not fit all. Instead, it is important that agreements between businesses and their employees be customized to address their specific circumstances. More and more, courts in Missouri are refusing to enforce overly broad restrictions against competition by former employees. The remainder of this document will contain an outline regarding various types of provisions an entrepreneur may wish to consider including in employment agreements, and various considerations with regard to each type of provision.

Pre-Invention Assignment Agreements.

Such agreements allow a business to obtain exclusive property rights of patentable inventions developed by its employees.

Without such an agreement, an employee may own the invention. In some cases, the employer may have a non-exclusive license to the invention. However, if the invention was developed on the employee’s own time, the employer may have no interest in the invention, even though it relates to the employer’s business.

Continued employment is sufficient consideration for a pre-invention assignment agreement.

Such agreements may specify certain categories of inventions assigned to the employer, or provide “blanket” coverage of any and all inventions.

Copyright Assignment Agreements.

These are similar to pre-invention assignment agreements. A software developer will want to have pre-invention and copyright assignment provisions in its employment agreements.

Trade Secret/Confidential Information Non-Disclosure Agreements.

Trade secrets and confidential information of a business include such things as formulas, patterns, devices, and compilations of information used by a business which the business has taken precautions to keep secret and from which it derives economic benefit. Generally, in order for something to constitute a trade secret or confidential information, an employer must restrict access to such information to employees who have a reasonable need to see it.

Such agreements generally prohibit an employee, either during the term of his/her employment or thereafter, from disclosing trade secrets or confidential information to any third party, or from utilizing such
information for the employee’s own benefit.

To the extent possible, such agreements should specify the type of information that the business considers to constitute trade secrets or confidential information. This is so the employee cannot claim that he/she did not have notice that a particular piece of information was a trade secret or otherwise confidential to the business.

Non-Compete Agreements.

A significant minority of states (e.g., California and Georgia) have held non-compete agreements are unenforceable. Generally, the law of the state where the employee will perform most services (or if he is a traveling employee, the state in which he lives) will control whether or not the agreement is enforceable. Some states will refuse to enforce such agreements as to their residents, even if the agreement would be enforceable in the state where the agreement was executed or performed.

Must be reasonable as to both temporal and geographic scope. What is reasonable differs from state to state.

Such agreements are disfavored by the Courts, and will generally only be enforced if the employee had access to trade secrets or confidential information.

In the St. Louis City and County Circuit Courts, the Courts will generally not enforce non-compete agreements if the employer’s interests are adequately protected by a non-solicitation agreement.

Non-Solicitation Agreements.

Some states that will not enforce a non-compete will enforce a nonsolicitation agreement. These agreements generally prohibit an employee from soliciting the customers of his/her former employer for a set period of time.

Such agreements will generally be enforced for a period of two to three years following termination of employment. A non-solicitation agreement need not include a geographic limitation.

Leads and prospects are generally not protectable under a nonsolicitation agreement.

Agreements Prohibiting Solicitation of Employees.

It has been quite common for companies to include provisions in their employment agreements prohibiting employees, after termination of their employment, from trying to lure away other of the company’s employees. However, the Missouri Court of Appeals for the Eastern District of Missouri has recently held such provisions to be unenforceable. The court held that “an employer does not have a proprietary interest in its employees at will or in their skills.” Schmersahl, Treloar & Co. v. McHugh, 2000 WL 1051831. The Missouri Supreme Court refused to hear the case.

Pre-Employment vs. “After-Thought” Agreements.

Courts in Missouri have held that continued employment generally constitutes sufficient consideration for the various types of restrictive covenants discussed above, so that they may be entered into at any time during the course of employment. However, questions remain as to whether continued employment will be sufficient consideration in all circumstances. The better practice is to either enter into restrictive
covenants at the time an employee is hired, or in conjunction with a raise or promotion.