The spread of artificial intelligence tools in the workplace could require employers to pay minimum wage and overtime under the Fair Labor Standards Act, because employees could lose their discretion and independent judgment under the federal statute's administrative exemption, attorneys say.

How AI can affect work has become more prevalent recently: Attorneys have previously told Law360 that AI could play a role in the nature of degree and control employers usually exercise over employees and lead to a shift in whether workers are independent contractors. More recently, the DOL has asked American workers to share how and why they use AI, although there currently isn't federal guidance on the topic.

The latest consideration, the impact of employees' AI use on their eligibility for the administrative exemption, comes down to what their primary duties require. If they need to exercise independent judgment "with respect to matters of significance," employees are exempt from minimum wage and overtime obligations under the FLSA, according to the U.S. Department of Labor.

"To the extent AI is used by workers who have been validly covered by the administrative exemption, I would expect plaintiffs' class action lawyers to argue that such workers are now using AI's reasoning and independent judgment instead of their own," said Richard Reibstein, a shareholder at management-side firm Littler Mendelson PC.

For example, plaintiffs' lawyers would argue that those who are tasked with checking a business entity's compliance with laws could see a shift in their exempt status if AI is helping them answer a compliance question, Reibstein said.

The argument by workers' counsel would likely be that "the worker is not using their own independent judgment and discretion, but rather relying on AI to do so," he said.

Litigation surrounding whether employees fall under the administrative exemption because of AI use has also been evolving, especially when it comes to discovery, worker-side attorney Sally J. Abrahamson of Werman Salas PC said.

Exemption cases are generally fact-intensive, and discovery on the AI systems has become important in order to demonstrate how an employee interacted with a prompt and what the override rates were, among other things, she said.

"Discretion is at the heart of the administrative exemption," Abrahamson said. "If an employee accepts the tool's output most of the time and the employers have policies in place about relying on the AI systems, that undermines the administrative exemption."

Abrahamson said that piece of evidence is important because discretion is not supported when "applying well-established techniques and procedures out of a manual."

"An AI system is a manual that keeps a written record," Abrahamson said.

Ryan L. Eddings of Hanson Bridgett LLP, who represents employers, also said AI systems have affected litigation when it comes to showing whether employees fall under the administrative exemption.

For example, AI systems can leave a track record of what recommendations were given to employees, whether those suggestions were accepted and how often they were accepted, providing insight on whether workers maintained their independent judgment, he said.

"The practical litigation question for these exemptions may become: Who actually made the decision? The employee or the system?" Eddings said.

AI, however, could also have an impact on shifting employees' status from nonexempt to exempt by eliminating routine data entry and document preparation, Eddings said.

For instance, an analyst who would spend most of his workday gathering information and producing reports may be using AI to do that work and then using the remainder of his day for advising management and delving into anomalies, Eddings said.

Eddings said the focus of whether employees are exempt under federal law will remain on their duties, with or without AI.

"The important point is that greater productivity or technical sophistication does not itself create exempt status," Eddings said. "The employer would need to show a genuine and durable change in duties to satisfy the exemption in question."

Although AI could change whether workers are entitled to minimum wage and overtime under the administrative carveout, how employees are determined to be exempt under the FLSA would still be based on their job duties, said worker-side attorney Michal Shinnar, a senior counsel at Joseph Greenwald & Laake PA.

AI could alter what duties an employee does and the way it will change jobs will vary and be on a case-by-case basis, she said.

For instance, workers who are tasked with drafting documents or conducting research could ask AI to put together a report and may no longer have the discretion and independent judgment necessary to be exempt, Shinnar said.

"Whether someone is exempt or not is always an individual analysis of their job duties and what they actually do, and that'll remain the same," Shinnar said. "But I think it's important for employees and employers when we're having such a huge shift with AI coming about to take a look at the jobs now being done, even the same jobs that were being done last year, to think about how the FLSA applies to them."

--Editing by Emma Brauer.

Clarification: This article has been updated to clarify Reibstein's comments.

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