Category Archives: Exemptions

March 5, 2013 · 9:59 pm

N.D.Tex.: Debt Settlement Company Not a “Retail or Service Establishment”

Parker v. ABC Debt Relief, Ltd. Co.

This case was before the court on the parties’ cross motions for summary judgment, regarding a variety of issues. As discussed here, one of the issues concerned the applicability of the so-called retail sales exemption, commonly referred to as 7(i), to defendant, a debt settlement company. The court held that the defendant was not a “retail or service establishment” within the meaning of 7(i), and held that the plaintiffs were not retail or service exempt as a matter of law.

Rejecting the defendant’s argument that the plaintiffs were subject to the retail exemption, because they engaged in telephone sales of a specific retail product to the general public, the court explained:

To determine whether an employer is a “retail or service establishment,” courts look to the former statutory definition in Section 13(a)(2) of the FLSA, 29 U.S.C. § 213(a)(2), which defines a “retail or service establishment” as one in which 75% of the annual dollar volume of sales of goods or services is “not for resale” and “is recognized as retail sales or services in the particular industry.” See 29 C.F.R. 779.319; Geig, 407 F.3d at 1047.

“Determination of whether a business fits the retail concept is not without difficulty.” Brennan, 477 F.2d at 296. In making their determinations, courts consistently rely on the expertise of the Department of Labor, which has promulgated an extensive series of regulations and interpretive rules that accompany the statute. See 29 C.F.R. § 779.300 et seq. Although courts are not bound by interpretative bulletins, they do provide guidance because they reflect the position of those most experienced with the application of the Act. Brennan, 477 F.2d at 296–97. Courts must consider all circumstances relevant to the business at issue. 29 C.F.R. 779.318(b).

After quoting the relevant section of the CFR, the court reasoned:

The Department of Labor’s regulations consistently emphasize that the exemption is meant to apply to “traditional” local retail establishments. 29 C.F.R. §§ 779.314, 779.315, 779.317. To assist the public, the regulations identify certain establishments as traditional local retail or service establishments—e.g., restaurants, hotels, barber shops, and repair shops. The regulations also seek to assist the public by identifying establishments that do not fall within the exception—e.g., insurance companies that sell insurance and electric companies that sell power. 29 C.F.R. §§ 779.316, 779.317. The Fifth Circuit has noted this ” ‘demonstrates that not everything the consumer purchases can be a retail sale of goods or services’ and ‘industry usage is not controlling.’ ” Brennan, 477 F.2d at 295 (citation omitted).

The regulations elaborate further on the definition by stating that “an establishment, wherever located, will not be considered a retail or service establishment within the meaning of the Act, if it is not ordinarily available to the general consuming public.” 29 C.F.R. § 779.319. “An establishment does not have to be actually frequented by the general public in the sense that the public must actually visit it and make purchases of goods or services on the premises in order to be considered as available and open to the general public. A refrigerator repair service shop, for example, is available and open to the general public even if it receives all its orders on the telephone and performs all of its repair services on the premises of its customers.” Id.

In this case, Defendants operated a debt settlement business from the eighth and tenth floors of an office building in Dallas, Texas. There were three main aspects to this debt settlement operation—sales, customer service, and negotiation with creditors. The Salespeople recruited the clients. They were constantly making telephone calls (around 300 calls a day)—to prospective customers all over the country—trying to sell a service. This is not the type of service that is utilized by the general public in the course of their daily living. Defendants were not “serv[ing] [an] everyday need [ ] of the community.” Defendants did not operate from a store front. They did not serve the general public by providing a retail product or service in the traditional sense. Defendants’ debt negotiation and settlement business was similar to other establishments that lack a “retail concept”—such as banks, brokers, credit companies, and loan offices. 29 C.F.R. § 779.317.

For these reasons, the Court finds that Defendants did not establish their burden of proving they operate a retail or service establishment within the meaning of the FLSA. The Court hereby DENIES Defendants’ motion for summary judgment on the retail or service establishment exemption and finds as a matter of law the salespeople Plaintiffs are not exempt from overtime pay under the retail or service exemption.

Click Parker v. ABC Debt Relief, Ltd. Co. to read the entire Memorandum Opinion and Order.

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February 22, 2013 · 9:12 am

2 Recent Decisions Discuss the Applicability of the Secondary Agricultural Exemption

The so-called “secondary” agricultural exemption, is one of the lesser known and litigated exemptions. Two recent cases shed light on how far the exemption actually reaches. Discussing the exemption, 2 courts reached different conclusions regarding whether the employees at issue were in fact exempt as secondary agricultural employees. In the first case, the Eleventh Circuit held that employees of an agricultural business, who were employed in Home Depot retail store locations, solely to care for their employer’s plants prior to sale to third parties, were subject to the exemption. In the second case, a district court in the Eastern District of California held that a truck driver who occasionally transported feed for the dairy cows to his employer’s dairy ranch was not exempt under the agricultural exemption, and held that the transport of milk that had been ultra filtrated might not qualify as “agricultural” work. Notably, each decision turned on a different element of the exemptions requirements as discussed below.

Rodriguez v. Pure Beauty Farms, Inc.

In the first case, the Eleventh Circuit held that employees who worked for their employer, a commercial nursery, and maintained their employer’s plants at Home Depot locations, for ultimate sale to third-party customers were subject to the secondary agricultural exemption. The court reasoned that the plaintiffs’ work caring for plants displayed in stores was incident to or in conjunction with nursery farming operations, and so qualified for secondary agricultural exemption. In so holding, the court rejected the plaintiffs’ contention that the employees were engaged in separate business enterprise of selling plants, since they handled only their employers’ plants, albeit in Home Depot locations, and held that the Home Depots where they performed their work qualified as “farms” within the meaning of the regulation.

Initially the court laid out the three prerequisites for application of the secondary agricultural exemption: (1) the “practice must be performed either by a farmer or on a farm”; (2) it must “be performed either in connection with the farmer’s own farming operations or in connection with farming operations conducted on the farm where the practice is performed”; and (3) it must be “performed ‘as an incident to or in conjunction with’ the farming operations.” 29 C.F.R. § 780.129; see also Sariol, 490 F.3d at 1279–80.

The court quickly disposed of the first two elements, finding that they clearly applied. Turning to the third element, the court held that the work performed by the employees was indeed incident to or in conjunction with the defendant’s farming operations, reasoning:

The parties’ dispute focuses primarily on the third requirement—whether the practices Rodriguez and Hernandez performed for the Farms, but on Home Depot store-sites, were “incident to or in conjunction with” the Farms’ farming operations. See 29 C.F .R. § 780.129. “Generally, a practice performed in connection with farming operations is within the statutory language only if it constitutes an established part of agriculture, is subordinate to the farming operations involved, and does not amount to an independent business.” 29 C.F.R. § 780.144. When, as here, the practice is performed on “agricultural or horticultural commodities,” to determine whether “the practice is conducted as a separate business activity rather than as a part of agriculture,” consideration is given to, among other things: (1) whether “the type of product resulting from the practice” remains in its raw or natural state or changes; (2) “the value added to the product as a result of the practice and whether a sales organization is maintained for the disposal of the product”; and (3) whether the product is “sold under the producer’s own label rather than under that of the purchaser.” 29 C.F.R. § 780.147. A farmer or his employees selling the farmer’s own agricultural commodities is also a practice “incident to or in conjunction with the farming operations” as long as “it does not amount to a separate business.” 29 C.F.R. § 780.158(a).

In addition, the Department of Labor has specific regulations addressing employees of nurseries. If nursery employees are engaged in “[p]lanting, cultivating, watering, spraying, fertilizing, pruning, bracing, and feeding the growing crop,” they are employed in agriculture. 29 C.F.R. § 780.205. “Employees of a grower of nursery stock who work in packing and storage sheds sorting the stock, grading and trimming it, racking it in bins, and packing it for shipment are employed in ‘agriculture’ provided they handle only products grown by their employer and their activities constitute an established part of their employer’s agricultural activities and are subordinate to his farming operations.” 29 C.F.R. § 780.209 (emphasis added). However, if the “grower of nursery stock operates, as a separate enterprise, a processing establishment or an establishment for the wholesale of retail distribution of such commodities, the employees in such separate enterprise are not engaged in agriculture.” Id. (citations omitted). “Although the handling and the sale of nursery commodities by the grower at or near the place where they were grown may be incidental to his farming operations, the character of these operations changes when they are performed in an establishment set up as a marketing point to aid the distribution of those products.” Id.

After briefly discussing similar cases, the court explained:

Here, the Farms handles and sells only its own plants, and Rodriguez and Hernandez watered, pruned, and cared for only the Farms’ plants situated at the Home Depot stores. Unlike the employees in Mitchell, Rodriguez and Hernandez did not work in a wholesale distribution center for other growers’ horticultural products. Cf. Mitchell, 267 F.2d at 290–91; see also Adkins v. Mid–American Growers, Inc., 167 F.3d 355, 357 (7th Cir.1999) (explaining that when an employer “buys plants and then resells them without doing significant agricultural work it is operating as a wholesaler rather than as a grower, and wholesalers of agricultural commodities are not exempt from the Act”); Wirtz v. Jackson & Perkins Co., 312 F.2d 48, 51 (2d Cir.1963) (stating that “[w]ere any significant portion of the stock handled in defendant’s storages purchased from … independent sources” the agricultural exemption would not apply because it “is inapplicable to services performed by employees of mere distributors of agricultural products”). Rodriguez and Hernandez are more akin to the flower shop employees in Walling, who handled and sold only their employer’s own nursery stock. See Walling, 132 F.2d at 6.

In any event, the kind of work Rodriguez and Hernandez performed on the Farms’ plants is explicitly identified in the regulations as “agricultural,” such as watering them, pruning away dead limbs, leaves and buds and preparing them for market by handling, inspecting and sorting them. See 29 C.F.R. § 780.205. Nothing Rodriguez and Hernandez did to the plants changed them from their natural state, such that they could be said to be engaged in the separate enterprise of processing or manufacturing. Cf. Mitchell v. Budd, 350 U.S. 473, 480–82, 76 S.Ct. 527, 532, 100 L.Ed. 565 (1956) (concluding that workers at tobacco-bulking plant, where a lengthy fermentation process substantially changed the tobacco’s physical properties and chemical content, were not exempt as agricultural workers). Indeed, by ensuring that the Farms’ plants continued to receive adequate water and light and were pruned and insect-free while in the staging areas, Rodriguez and Hernandez’s work was directly connected with and subordinate to the Farms’ own nursery-farming operations.

Click Rodriguez v. Pure Beauty Farms, Inc. to read the entire Opinion.

Williams v. Hilarides

In the second case, there were three issues regarding the application of the agricultural exemption before the court: (1) whether the fact that Plaintiff occasionally transported feed for the dairy cows to Defendant’s dairy ranch has any effect on the court’s determination of Plaintiff’s exempt status; (2) whether Plaintiff’s usual activity of hauling milk from the farm constituted agricultural work within the meaning of the exemption; and (3) whether application of the agricultural exemption is appropriate where the product shipped by Defendant to the cheese plant was a product which Plaintiff characterizes as being manufactured from raw milk by a process of ultrafiltration which removes significant amounts of water.

The court quickly disposed of the first issue, noting that the amount of time that an employee spends on so-called “agricultural” activities each week is determinative of whether the exemption applies (week-to-week):

The first issue—whether the fact that Plaintiff occasionally hauled feed for the dairy cows to Defendant’s farm—requires little discussion. Put simply, exemption from overtime pay entitlement under FLSA is an all-or-nothing proposition. If any portion of the employee’s workweek is spent in work that is not agricultural and therefore not exempt, no exemption may be claimed by the same employer for any amount of work that is agricultural under FLSA. Wyatt v. Holtville Alfalfa Mills, Inc., 106 F.Supp. 624, 629 (S.D.Cal.1952). In other words, an employee’s hours worked in a given workweek are not exempt under the agriculture exemption unless all the work performed that week was exempt agricultural work. Thus, it is of no import to the court’s determination of Plaintiff’s overtime exemption status that Plaintiff may have spent some small amount of time hauling hay for feed for the cattle if it is determined that Plaintiff’s trips to the Hilmar Cheese Plant are determined to be not agricultural in nature.

Discussing the second issue, the court analyzed the CFR regulations and case law pertaining to employees engaged in hauling agricultural goods and concluded that the hauling of such goods necessarily constitutes secondary agricultural work falling within the scope of the exemption.

Turning to the final issue, whether the transport of the raw milk that had been subject the ultra filtration process constituted agricultural work, the court held that issues of fact precluded a finding of same:

Plaintiff’s opposition to Defendant’s motion for summary adjudication raises the issue of whether the product that Plaintiff transported from Defendant’s farm to the cheese plant was a “dairy product” or was an industrial product such that the agriculture exemption was inapplicable. Defendant’s reply to Plaintiff’s contention is essentially limited to the claim that the product hauled by Plaintiff to the cheese plant was milk destined to be made into cheese and the fact that it was treated by ultrafiltration is of no consequence. Plaintiff cites two cases, Mitchell v. Budd, 350 U.S. 473, 76 S.Ct. 527, 100 L.Ed. 565 (1956) and N.L.R.B. v. Tepper, 297 F.2d 280 (1961), to support the contention that the hauling of a dairy product that is the result of the application of a process that removes the dairy product from its raw, natural state does not constitute employment in agriculture for purposes of the FLSA. As the court previously noted, at the time these cases were decided, the overtime provisions of section 7 of the FLSA contained a subsection that exempted those employed in agriculture from overtime but providing that the exemption applied only to activities carried out with respect to commodities in their “raw or natural state.” 29 U.S.C. §§ 207(c), (d) (repealed 1972); Hodgson v. Twin City Foods, Inc., 464 F.2d 246, 250 n. 3 (9th Cir.1972).

Finding no specific regulation directly on point, as to whether the milk that had undergone the ultra filtration was still milk in its “raw” state, the court denied defendant’s motion, noting it had failed to carry its burden of proof on the issue:

As noted above, Defendant has the burden to show that there is no issue of material fact as to whether Plaintiff is exempt from the overtime provisions of 29 U.S.C. § 207(b). Where Defendant fails to carry his burden is in the failure to show the process of transforming milk into the ultrafiltered product that Plaintiff transported to the cheese factory is, in fact, an agricultural, as opposed to manufacturing, function. If the court has no basis upon which it can conclude that the product Plaintiff was hauling to the cheese plant was a “dairy product” (as opposed to a manufactured product), the court cannot conclude that Defendant was engaged in “agriculture” when he shipped his product to the cheese plant or that Plaintiff was correspondingly carrying out an agricultural function. Defendant’s motion for summary adjudication must therefore fail. There is no question that reasonable minds could differ as to both sub-parts (B) and (C) of this opinion. However, the court finds that the application of guidelines established by Congress clearly prevent Defendant from meeting the high burden of production of proof that would allow the court to grant summary adjudication.

Click Williams v. Hilarides to read the entire Memorandum Opinion and Order on Defendant’s Motion for Summary Adjudication.

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November 13, 2012 · 7:53 am

N.D.Ala.: GM’s Salary Based on Forecast Sales of Store Did Not Qualify As a “Bona Fide Commission Plan;” Retail Exemption Inapplicable

Kuntsmann v. Aaron Rents, Inc.

This case was before the court on the defendant’s motion for summary judgment. The defendant asserted that plaintiff was exempt under either the executive exemption, administrative exemption or the so-called combination exemption of the two. As discussed here, the defendant further argued that even if the plaintiff was not properly deemed exempt under any of the 3 exemptions, he was paid in accordance with 207(i), the “retail exemption” and thus not entitled to overtime compensation. After holding that issues of fact regarding the plaintiff’s primary duties precluded summary judgment, the court addressed the defendant’s final contention regarding the retail exemption and held that it was inapplicable because the plaintiff had not been paid “commissions” as required for application of the retail exemption.

Describing the compensation plan at issue, the court explained:

During his time as GM of that store, Kuntsmann was the highest ranking and only employee in the store whom Aaron classified as exempt from the FLSA’s minimum wage and overtime requirements. Aaron’s compensation scheme for GMs is based on the revenue and operating profits of each individual store. The GM of each store receives a monthly income that approximates the expected financial performance of the store in a month. This approximation, called the “draw,” is compared with the actual earnings of the store on a monthly basis. Then, Aaron adjusts salary upwards when the store performance exceeds the draw and sometimes downward when the store performance does not meet the draw. GMs are also eligible for monthly bonuses based on set financial goals. Aaron reviews each store’s performance twice a year and can increase or decrease the draw according to performance. Aaron also looks at the financial performance of the store at the end of each quarter and provides the GM a bonus if his total monthly commission is greater than the GM’s quarterly draw.

After disposing of the plaintiff’s argument that the retail exemption argument was waived by the defendant’s failure to assert it in its answer (the court reasoned that it wasn’t really an exemption despite referring to it as same, but rather an “exception”), and discussing the elements necessary for the retail exemption, the court explained that it was not applicable, because the plaintiff had not been paid under a “bona fide commission plan.” After noting a lack of authority on the issue, the court distinguished two prior cases from within the Eleventh Circuit.

First, the court noted that time did not play any role in the compensation system at bar, which the court reasoned supported its finding that the plaintiff had not been paid a commission as defendant claimed:

The compensation scheme examined in Klinedinst is distinguishable from the one at issue in the present case. The Eleventh Circuit emphasized the importance of time as a factor in the Klinedinst compensation scheme; time does not play a role in the compensation of an Aaron’s GM. In addition, inherent differences appear between how the auto mechanics in Klinedinst and the GMs at Aaron earn their compensation. The auto mechanics’ compensation derived from each individual job that they performed that was assigned a particular number of “flag hours.” The connection between individual sales and the compensation of an Aaron GM is much more attenuated, however. At Aaron, GMs are neither paid on a “per job basis,” nor an hourly basis but a monthly compensation based on previous quarters’ revenue that could possibly be increased or decreased based on the store’s profits. The payment system in Klinedinst is different enough from the Aaron compensation scheme so that the opinion does not guide this court’s analysis as to whether Aaron’s payment scheme meets the final requirements of § 207(i) at the summary judgment stage—whether its compensation scheme qualifies as a bona fide commission plan.

The court also reasoned that plaintiff’s salary at issue was not a “commission,” because he was not being paid based on total sales attributed to him, but rather based on his store’s overall profits and whether they exceeded the company’s expectations:

A great difference exists between simply adding up total sales attributed to a salesperson each month and then giving the salesperson a certain percentage of those sales in compensation, and awarding a store manager a “bonus” if his store’s profits exceeded the company’s predictions. As Kuntsmann argued, his monthly salary was based on a published rate and did not change based solely on his sales or the store’s sales alone. The payment system in Ethan Allen diverges enough from the Aaron compensation scheme so that the opinion does not direct this court’s analysis as to whether Aaron’s scheme qualifies as a bona fide commission plan under § 207(i).

Thus, the court concluded:

Therefore, this court finds that Aaron has not demonstrated that its compensation scheme qualifies as a “bona fide commission plan.” 29 U.S.C. § 207(i). Although some circuits have doubted the validity of the “clear and affirmative evidence” standard, the Eleventh Circuit has not retreated from this standard, and Aaron has not met it regarding the applicability of the § 207(i) exception. Moreover, regardless of how exacting Aaron’s burden should be when proving the applicability of an FLSA exception, the Eleventh Circuit has also instructed this court to construe FLSA exceptions “narrowly and sensibly.” Klinedinst, 260 F.3d at 1254. After narrowly construing § 207(i), the court has serious doubts as to whether Aaron’ compensation scheme qualifies under the statutory section. While recognizing that determining whether a compensation system qualifies as a bona fide commission plan is a question of law for the court, Aaron has not met its burden of proof at this stage.

Click Kuntsmann v. Aaron Rents, Inc. to read the entire Memorandum Opinion.

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October 24, 2012 · 8:26 am

Recent Exemption Cases of Interest

The last few weeks have brought their share of interesting misclassification/exemption cases. In one case, a law school graduate performing non-lawyer duties was held to be non-exempt. In another, a court within the Fifth Circuit held that a tax lien negotiation business- clearly within the CFR’s definitions of a business lacking a retail concept- was in fact a retail business subject to 7(i)’s so-called retail sales exemption. Lastly, despite his managerial duties at times, a court held that a police sergeant might not be exempt under the executive exemption and denied the police department-employer’s motion for summary judgment. Each of these decisions is discussed in greater detail below.

Law School Graduate Employed as a Graphic Consultant Non-Exempt

Kadden v. VisuaLex, LLC

In the first case, the defendant- a litigation support company- employed plaintiff- a college and law school graduate as a graphics consultant. At issue was whether the defendant had properly deemed plaintiff to be exempt from the FLSA’s overtime requirements. The defendant (“VisuaLex”) contended that the plaintiff was exempt under either the creative professional exemption, the administrative exemption, or the so-called combination exemption whereby an employer can utilize elements of multiple white-collar exemptions to render an employee exempt. While acknowledging that the case presented a close call, the court held that the plaintiff lacked the requisite primary duties to meet the elements of any of the exemptions asserted. Thus, the court held that the plaintiff had been misclassified and should have been paid proper overtime. In so doing, the court reiterated that the fundamental tenet of exemption cases is an examination of the employees primary duties and not simply a job description or a list of duties performed. The court also reminded us that the learned professional examination is only applicable where the advanced degree of learning or science is actually required for and by the position performed by the employee- holding such a degree alone is not sufficient to meet the stringent exemption requirements.

Click Kadden v. VisuaLex, LLC to read the entire Opinion and Order.

Tax Consultants Subject to 7(i) Retail Exemption Notwithstanding CFR Regs Defining “Tax Services” Establishments as “Lacking a Retail Concept”

Wells v. TaxMasters, Inc.

The second case was before the court on the parties’ competing motions for summary judgment. Deciding the case in favor of the defendants, the court held that the plaintiffs were subject to the so-called retail exemption codified in 7(i) of the FLSA. It was uncontested that the plaintiffs regularly worked in excess of 40 hours. Similarly, the duties they performed were not at issue nor was the methodology by which they were paid (qualifying for the pay element of the retail sales exemption). Rather the sole issue appears to have been whether or not defendants- an enterprise engaged in rendering “tax resolution services”- was in a retail establishment within the meaning of 7(i) such that plaintiffs could properly be deemed to be exempt from overtime under the so-called retail exemption.

Holding that the defendants were a retail establishment, notwithstanding the Department of Labor’s regulations stating otherwise, the court reasoned:

Whether Defendants were exempt under Section 207(i) thus turns on whether they were “an establishment 75 percentum of whose annual dollar volume of sales of goods or services (or of both) is not for resale and is recognized as retail sales or services in the particular industry.” 29 U.S.C. § 213(a)(2). According to Department of Labor regulations, a retail or service establishment must have a “retail concept.” 29 C.F.R. § 779.316 (2005). Section 318 of the regulations describes the “characteristics and examples” of retail or service establishments:

Typically a retail or service establishment is one which sells goods or services to the general public. It serves the everyday needs of the community in which it is located. The retail or service establishment performs a function in the business organization of the Nation which is at the very end of the stream of distribution, disposing in small quantities of the products and skills of such organization and does not take part in the manufacturing process.

Such an establishment sells to the general public its food and drink. It sells to such public its clothing and its furniture, its automobiles, its radios and refrigerators, its coal and its lumber, and other goods, and performs incidental services on such goods when necessary. It provides the general public its repair services and other services for the comfort and convenience of such public in the course of its daily living. 29 C.F.R. § 779.318. Section 317 of the regulations provide a “partial list of establishments lacking ‘retail concept’ ” which includes, among over one hundred other examples, “tax services.” 29 C.F.R. § 779.317.

Plaintiffs do not dispute that Defendants sold more than 75 per cent of their products directly to the consumer. Instead, Plaintiffs insist that the Department of Labor regulations, which expressly define “tax services” companies as lacking a retail component, are determinative. See Doc. 60, 61, 63. Defendants contend both that they were not a “tax services” establishment and that Section 779.317 therefore does not apply and that Fifth Circuit precedent holds that the Department of Labor’s list of non-retail establishments is not determinative. Doc. 64.

The Defendants are correct that the Fifth Circuit has declined to follow strictly the Department of Labor’s list. See Rachal v. Allen, 376 F.2d 999 (5th Cir.1967) (rejecting Secretary of Labor’s position that a fixed base aeronautics operator’s business has no retail concept merely because it is part of an industry, namely, the air transportation industry, that Section 779.317 lists as lacking a retail concept). “There is no magic in placing a business in a category and then asserting that since it is in that category, it is like all businesses with which it has been placed.” Id. at 1003. In Rachal, the Fifth Circuit rejected the Secretary of Labor’s argument that because a fixed-base operator engaged in servicing and selling aircraft at airports was in the air transportation industry, and because the Secretary had made a determination in Section 779.317 that the air transportation industry lacked a retail concept, a fixed base operator necessarily lacked a retail concept:

[T]he Secretary’s argument … assumes the result of the issue we are asked to determine…. The issue is whether, under the statute, there may be, as a matter of law, and if so whether there is as a matter of fact, a retail concept in the defendants’ business, notwithstanding the Secretary’s determination. It is, of course, the function of the Court, as well as of the Secretary, to interpret the statute. Id. (citing Walling v. La Belle S.S. Co., 148 F.2d 198 (6th Cir.1945)). The question for this Court, then, is whether Defendants provided services that meet the Secretary’s four criteria for establishments with a retail concept. 29 C.F.R. § 770.319 (listing criteria).

Certainly Defendants sold their services to the general public. In fact, the Plaintiffs in this action worked as salespeople in a call center and sold Defendants’ services directly to consumers. Plaintiffs contend, however, that Defendants’ “services do not serve the every day needs of the public” because “these services provide a specialized function that is not necessary for the community’s daily routine.” Doc. 68 at 22. It is not the case that an establishment must provide a product or service used by each member of the community on daily basis for it to serve the everyday needs of the community. Addressing just such an argument, the District Court for the Middle District of Florida reasoned that:

[t]he list provided in the regulations of businesses which are recognized as retail reflects that such narrow interpretation would be incorrect. This list includes billiard parlors, bowling alleys, cemeteries, coal yards, crematories, dance halls, embalming establishments, funeral homes, fur repair and storage shops, hotels, masseur establishments, recreational camps, taxidermists, theatres, and undertakers, none of which would be used daily by everyone in the community. Reich v. Cruises Only, Inc., 1997 WL 1507504, *4 (M.D.Fla.1997).

This Court agrees. The summary judgment evidence before the Court indicates that Defendants provided not only tax preparation services that each member of the community may well utilize, but also tax dispute services to address issues that may, in some instances, arise in the course of filing taxes. Doc. 64–1 at 7–8. Each member of “the community” does not require tax services on a daily basis any more than they require frequent visits to the undertaker. Yet these services derive inevitably from the only two certainties in life. Such certain, but periodic, services are no less retail in nature than the sale of “automobiles, … radios and refrigerators,” or the “incidental services on such goods when necessary.” 29 C.F.R. § 779.318. Defendants’ tax resolution services clearly were “services for the comfort and convenience of such public in the course of its daily living.” Id.

It is not clear if the case would have been decided differently outside the Fifth Circuit. Of interest, in footnote 5 of its opinion, the court declined to follow a Sixth Circuit opinion on point that reached the opposite conclusion, Hodgson v. N.G. Kallas Co., 480 F.2d 994 (6th Cir.1973).

Click Wells v. TaxMasters, Inc. to read the entire Opinion and Order.

Notwithstanding Management Duties, Police Lieutenant Might be Non-Exempt; Defendant’s Motion for Summary Judgment re: Executive Exemption Denied

Jones v. Williams

In the third exemption case of interest, the case was before the court on the defendant’s motion for summary judgment regarding all of plaintiff’s asserted claims (Title VII, retaliation, unpaid overtime, etc.). As discussed here, the court denied the defendant’s motion with regard to plaintiff’s unpaid overtime claim, citing issues of fact precluding a finding- as a matter of law- that plaintiff was subject to the executive exemption.

The court’s brief description of the plaintiff’s duties was as follows:

Steven Jones currently works as a police supervisor with the rank of lieutenant at BCCC. (Defs.’ Mot. Summ. J., ECF No. 44, at 2, Ex. 1; Deposition of Steven Jones, ECF No. 51, at 7–8.) Jones’s duties include making shift assignments, reviewing paperwork, responding to calls in the event he is needed, and “mak[ing] sure everybody is on their post, looking clean and doing their jobs.”

After noting that the defendant’s cited an outdated regulation as the basis for their exemption defense, the court ultimately held that the defendant failed to show that the plaintiff’s primary duties were the performance of exempt work:

Here, the defendants’ exemption claim fails summary judgment on two fronts. First, the defendants have failed to adduce any evidence that Jones has any responsibility with respect to hiring or firing or that his opinions are given “particular weight” with regard to these matters. See
29 C.F.R. § 541.105. Without such evidence, the defendants cannot sustain an exemption claim under § 541.100.

Second, taking the available facts regarding his job responsibilities in the light most favorable to Jones, the defendants have not convincingly demonstrated that, even though he supervises other officers, Jones’s primary duty is not law enforcement. See 29 C.F.R. § 541.3(b). As evidence that Jones primarily performs exempt work, the defendants point to Jones’s statement that his duties include “making shift assignments … review[ing] all paperwork and … respond[ing] to calls in the event an officer has an issue or my sergeant is unable to deal with an issue … mak[ing] sure everybody is on their post, looking clean and doing their jobs.” (Jones Dep. at 9.) However, in interpreting a similar job description (“a lieutenant’s ‘primary responsibility … is to make sure that their people in the field can handle any situation that happens at any time’ “), the Tenth Circuit noted that this description could merely encompass “the kind of front-line supervision” that the regulations deem “non-managerial.” Maestas, 664 F.3d at 830. Elsewhere in the record, Jones has indicated that his duties also include being “on-call” (Jones Dep. at 59), maintaining emergency generators when needed, ensuring campus safety, and setting up traffic barrels. Jones was, apparently, essential to front line security during the snow storms that caused him to work substantial overtime. Jones may perform enough non-exempt duties like these to fall outside the scope of the exemption. The defendants have certainly not demonstrated his job position falls squarely within an exemption. Accordingly, the defendants’ motion for summary judge with respect to Jones’s FLSA claim will be denied.

Click Jones v. Williams to read the entire Memorandum opinion.

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September 2, 2012 · 10:41 am

D.Conn.: Time and a Half is the Proper Measure of Damages in a “Salary Misclassification” Case

Hasan v. GPM Investments, LLC

Yet another court has weighed in on the FWW (“half-time”) versus time and a half issue in so-called “salary misclassification” cases, and this time it’s a victory for employees. This case was before the court on the plaintiffs’ motion in limine regarding the methodology for calculating damages, in the event the plaintiffs prevailed on their misclassification claims at trial. Addressing all of the arguments typically proffered by plaintiff-employees and defendant-employers, the court held that the fluctuating work week methodology was inapplicable because the defendant failed to meet several of the prerequisites for its use. Thus, the court held that any damages had to be calculated using the FLSA’s default time and a half methodology.

After a lengthy discussion of the Missel case, a history of the FWW and recent salary misclassification decisions, the court discussed why the FWW could not apply to a salary misclassification case. Framing the issue, the court explained:

Plaintiffs contend that the fluctuating work week method of compensation is never appropriate in a case where an employer has misclassified an employee as exempt from the FLSA’s protections. They argue that misclassification cases only present one issue—how to reconstruct what the rate of pay would have been absent a violation. Defendants counter that in a misclassification case “a fixed salary is always meant to compensate for all hours worked,” and under Missel, a fluctuating work week calculation “provides the precise remedy.” Def. Opp. at 12. In other words, a misclassification case does not require that the court recreate a rate, but, instead, that it convert a unusual payment method into an hourly rate. Plaintiffs have the better argument and one need look no further than the DOL’s guidance to understand why.

Initially, the court noted that where an employer has classified an employee as exempt, logically there is never a mutual understanding that overtime will be paid at varying rates, because the parties agreement is that there will be no overtime at all.

When an employer misclassifies an employee, the resultant employment contract will never fulfill any of the requirements of section 778.114. First, parties who believe that an employee merits no overtime payment cannot simultaneously believe that any overtime will be paid at varying rates. Put another way, in a misclassification case, the parties never agreed to an essential term of a fluctuating work week arrangement—that overtime would be paid at different rates depending on the number of hours worked per week. See Perkins v. Southern New England Telephone Co., 2011 WL 4460248 at *3 (D.Conn. Sept. 27, 2011), Russell, 672 F.Supp.2d at 1013–14,Rainey v. Am. Forest & Paper Assoc., 26 F.2d 82, 100–02 (D.D.C.1998). To assume otherwise converts every salaried position into a position compensated at a fluctuating rate.

Next, the court noted the lack of contemporaneous overtime payment at the time the work in question was performed, pursuant to the parties agreement that there would be no overtime:

Second, misclassified employees will never have received any kind of bonus or premium for overtime. Indeed, parties will have explicitly agreed, as they did in this case, that employees will not earn extra money for long hours. See Def. Opp. Ex. A Job Description (listing the position as explicitly “exempt” from overtime compensation). At best, an employer could argue that the flat salary had an overtime bump embedded within it, that it was high enough so that employees remained well compensated for the hardship of working more than 40 hours per week. But this argument fails for two reasons: First, such an agreement would be illegal. An employee would have to waive her statutory right to extra compensation for overtime. Barrentine v. Arkansas–Best Freight Sys., 450 U.S. 728, 740 (1981) (noting that “FLSA rights cannot be abridged by contract” because this would “nullify the purposes of the statute”). Second, Missel explicitly rejected such an argument. The court reasoned that the contract at issue did not comply with the FLSA because “it [did not include a] provision for additional pay in the event the hours worked required minimum compensation greater than the fixed wage.” Missel, 316 U.S. at 581.

Further, here the court noted that while the plaintiffs’ hours fluctuated, the never worked fewer than 40 hours. Thus, the court concluded this was not a situation where short weeks were balanced against longer weeks and the plaintiffs were nonetheless receiving the type of steady income envisioned by the FWW as the supposed benefit for employees:

In this case, GPM also fails to meet a third criterion enunciated in the DOL’s guidance—that an employee’s hours actually fluctuate. After it lays out the requirements for a contract for a fluctuating rate, the rule warns that “typically, such salaries are paid to employees who do not customarily work a regular schedule of hours” and are “in amounts agreed on by the parties as adequate straight-time compensation for long work weeks as well as short ones .” 29 C.F.R. § 778.114(c). For a fluctuating work week arrangement to make sense to both parties, employees should offset their relative loss from a grueling work week far above forty hours with the benefit of full pay for weeks that clock-in at less than forty hours. Otherwise, employees have not bargained for anything but decreasing marginal pay as they work longer and longer hours at work. This is what the Court divined in Missel; a rate clerk would sometimes work long hours when shipments flooded in, and sometimes not at all when business dried up. Here, plaintiffs never had a short week; GPM’s job description stated that store managers were expected to work a minimum of 52 hours per week. See Def. Opp. Ex. A, Job Description. To the extent their hours fluctuated, it was because they sometimes worked almost 100 hours per week. See Plaintiff’s Motion in Limine, Ex. A, Timesheets. This variance, between weeks with a moderate amount of overtime hours, and weeks where a majority of hours worked exceeded the 40 hour threshold, is not the same as the up and down fluctuation contemplated by the DOL and by the Court in Missel.

In light of the defendant’s failure to meet any of the prerequisites for the use of the FWW, the court concluded that any damages due would be calculated using the FLSA’s default time and a half methodology.  Thus, it granted the plaintiffs’ motion in limine.

Click Hasan v. GPM Investments, LLC to read the entire Ruling and Order on Motion in Limine to Preclude Use of the Fluctuating Work Week.

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August 27, 2012 · 8:05 am

W.D.Mo.: Under Motor Carrier Act (MCA), Weight of Vehicle Measured by Gross Vehicle Weight Rating (GVWR) Which Includes the Weight of Trailer Pulled

McCall v. Disabled American Veterans Ernestine Schumann-Heink Missouri Chapter 2

This case was before the court on the parties dueling motions for summary judgment. Specifically, the motions addressed the applicability of the Fair Labor Standards Act (“FLSA”) to drivers employed by the defendants, in light of the Motor Carrier Act (“MCA”). As discussed here, the court was required to opine on the method by which the 10,001 pound threshold is calculated under the MCA, in order to determine whether a vehicle qualifies as a covered vehicle for the purposes of the MCA’s application to its driver(s). While the plaintiff argued that the actual weight of the truck, when loaded was less than 10,000 pounds, the court held that this was not dispositive of the issue. Instead, the court held that the plaintiff came within the MCA’s exemption to the FLSA because, “[t]he uncontroverted facts demonstrate[d] the truck’s gross vehicle weight rating (“GVWR”) exceeded 12,000 pounds.”

After surveying the MCA and the recent amendments thereto under SAFETA–LU and the TCA, the court- applying the post-TCA standard (due to the dates of plaintiff’s employment/claim) explained:

The TCA does not specify how the vehicle weight is to be determined: whether the vehicle is weighed loaded or unloaded, fueled or unfueled, or some sort of average is to be utilized. On November 4, 2010, the Department of Labor (“DOL”) issued Field Assistance Bulletin No.2010–2 (“the Bulletin”) to explain its interpretation of the TCA. Among other matters, the Bulletin announces DOL’s method for determining whether a vehicle weighs 10,000 pounds or less, stating the Wage and Hour Division “will continue to use the gross vehicle weight rating (GVWR) or gross combined vehicle weight rating in the event that the vehicle is pulling a trailer.”

The parties agree the Bulletin is entitled to deference because it represents DOL’s interpretation of statutory provisions it is charged with enforcing, but they disagree as to the Bulletin’s meaning. The Court believes the interpretation is quite clear: a vehicle’s GVWR is its weight for purposes of the TCA and, hence, applicability of the FLSA. If the vehicle is pulling a trailer, the combined GVWR of the vehicle and the trailer will be used. Plaintiff’s interpretation—that GVWR is to be used only if the vehicle is pulling a trailer makes no sense. There is no reason to use GVWR in one instance and not in another, and Plaintiff’s interpretation renders part of the Bulletin a nullity (or, at worst, surplusage) by purporting to have the Bulletin explain how vehicles are weighed if they pull a trailer but failing to explain how vehicles are weighed if they are not. The Court also notes DOL’s interpretation is reasonable because it not only leads to certainty but it is consistent with the Secretary of Transportation’s entire statutory and regulatory framework, which elsewhere typically relies on GVWR when referencing the weight of vehicles.

Plaintiff contends this interpretation thwarts Congress’ intent by diminishing the reach of the FLSA. The Court disagrees. Before 2005, the Secretary of Transportation had authority over all motor private carriers regardless of the weight of the vehicle, and the FLSA did not apply to any motor private carriers. With the passage of SAFETEA–LU in 2005, Congress removed the Secretary’s authority over motor private carriers using vehicles with a GVWR of 10,000 pounds or less—and thereby expanded the FLSA’s reach. The TCA restores the Secretary’s authority to all motor private carriers regardless of a vehicle’s weight, but specifies that the FLSA’s reach will remain as it was expanded with SAFETEA–LU’s passage. In short, the TCA expanded the Secretary’s authority, but it was not intended to further expand the FLSA’s reach—it remained exactly where it was before the TCA was passed.

Thus the court concluded:

There is no dispute that the GVWR of the vehicle Plaintiff drove exceeded 10,000 pounds. Therefore, the FLSA does not apply and the moving Defendants are entitled to judgment as a matter of law.

Click McCall v. Disabled American Veterans Ernestine Schumann-Heink Missouri Chapter 2 to read the entire Order and Opinion.

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August 12, 2012 · 8:15 pm

10th Cir.: Jury Instruction That Employer Bore Burden of Proving Exemption “Plainly and Unmistakably” Was in Error

Lederman v. Frontier Fire Protection, Inc.

Following a jury verdict in favor of the plaintiff-employee in a misclassification case, the defendant appealed. At issue was one jury instruction that the plaintiff had requested and which the trial court had given, instructing the jurors that:

An employer seeking an exemption from the overtime requirements of the FLSA bears the burden of proving that the particular employee fits plainly and unmistakably within the terms of the claimed exemption.

While the court acknowledged that the Tenth Circuit had regularly used the “plainly and unmistakably” language for decades, it ultimately held that such language is only applicable to statutory construction in the context of issues of law (i.e. decisions made by the court such as those on summary judgment motions) and not apply to issues of fact (i.e. decisions made by the jury or fact-finder). The court further clarified that the burden of proof on a defendant-employer raising an exemption defense under the FLSA is simply a preponderance of the evidence. Moreover, because the court held that the instruction had prejudiced the defendant, the court reversed the judgment in favor of the plaintiff and remanded the case back to the trial court for a new trial.

After sifting through three decades worth of Tenth Circuit jurisprudence, the court explained:

[a]ll of our other cases employing this phrase have done so in addressing legal rather than factual issues… In sum then, just as some courts have mistakenly viewed “clear and affirmative evidence” as a heightened evidentiary standard, the same is true with the phrase “plainly and unmistakably.” When our prior cases employing this phrase are read as a whole, they do not establish a heightened evidentiary requirement on employers seeking to prove an FLSA exemption. Instead, the ordinary burden of proof—preponderance of the evidence—controls the jury’s evaluation of whether the facts establish an exemption to the FLSA.

Click Lederman v. Frontier Fire Protection, Inc. to read the entire Decision.

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July 31, 2012 · 8:10 am

Courts Support DOL Positions re: Tip-Credit Regs and Classification of Mortgage Loan Officers

More so than any recent Department of Labor in memory, the DOL’s positions have come under attack by several major industries largely under the battle cry that they amount to unfair or “over” regulation. Although the Supreme Court recently handed the pharmaceutical industry a major victory in its industry-wide litigation regarding the outside sales exemption’s application to its so-called pharmaceutical reps or PSRs, the DOL and workers come out on the winning end in 2 district-level cases, both challenging recent DOL pronouncements of its policies. In the first, the DOL’s recent amendment to the rules governing when an employer may take the tip-credit with respect to tipped employees came under fire. In the second, the Mortgage Bankers Association challenged the DOL’s recent Administrative Interpretation 2010–1 in which the DOL took the position that Mortgage Loan Officers (MLOs) performing typical MLO duties were non-exempt.

National Restaurant Ass’n v. Solis

In the first case, the National Restaurant Association, Counsel of State Restaurant Associations, Inc., and National Federation of Independent Businesses sued the Secretary of Labor, Hilda L. Solis, in her official capacity as Secretary of the U.S. Department of Labor; Nancy Leppink, in her official capacity as Acting Administrator of the U.S. Department of Labor; and the U.S. Department of Labor (“the Department” or “DOL”).

The rule at issue, 29 C.F.R. § 531.59(b), which went into effect on May 5, 2011, provided:

Pursuant to section 3(m), an employer is not eligible to take the tip credit unless it has informed its tipped employees in advance of the employer’s use of the tip credit of the provisions of section 3(m) of the Act, i.e.: The amount of the cash wage that is to be paid to the tipped employee by the employer; the additional amount by which the wages of the tipped employee are increased on account of the tip credit claimed by the employer, which amount may not exceed the value of the tips actually received by the employee; that all tips received by the tipped employee must be retained by the employee except for a valid tip pooling arrangement limited to employees who customarily and regularly receive tips; and that the tip credit shall not apply to any employee who has not been informed of these requirements in this section.

In its challenge to the regulation, the restaurant tradegroup-Plaintiffs alleged that the DOL violated the Administrative Procedure Act (“APA”), 5 U.S.C. §§ 611, 702 (2006), when DOL promulgated a new regulation, 29 C.F.R. § 531.59(b) (2011), concerning an employer’s obligation to inform tipped employees of the “tip credit” requirements of the Federal Labor Standards Act of 1938 (“FLSA”), 29 U.S.C. §§ 201–219 (2006). The parties filed cross-motions seeking judgment in their respective favor. The court held that because the agency complied with the APA notice requirements when it conducted this rulemaking exercise, and the public was fully and specifically informed of the subject matter under consideration, the DOL was within its rulemaking powers when it promulgated the new tip-credit notice rules.

Click National Restaurant Ass’n v. Solis to read the entire Memorandum Opinion.

Mortgage Bankers Ass’n v. Solis

In the second case, the Mortgage Bankers Association, a trade group for mortgage bankers challenged the DOL’s issuance, in 2010, of Administrative Interpretation, the 2010 AI, which expressly withdrew a DOL’s 2006 Opinion Letter, regarding the exempt status of typical Mortgage Loan Officers (“MLOs”). Whereas, previously the DOL had taken the position that MLOs, performing typical duties of MLO positions met the requirements for application of the administrative exemption, the 2010 Administrative Interpretation took the opposite view- that typical MLOs are non-exempt.

Discussing the AI, the court explained:

The 2010 AI relies on a District of Minnesota decision, Casas v. Conseco Finance Corp., No. Civ.00–1512, 2002 WL 507059 (D.Minn. March 31, 2002) in addition to several other cases, as support for its position that mortgage loan officers are non-exempt employees. Id. at 105. In Casas, loan originators asserted they were entitled to overtime compensation from the defendants under the FLSA, requiring the court to decide whether the plaintiffs were exempt from FLSA overtime pay provisions. The court found that because “Conseco’s primary business purpose [was] to design, create and sell home lending products,” the mortgage loan officers’ primary duty was to sell those lending products on a day-to-day basis, not ” ‘the running of [the] business [itself]‘ or determining its overall course or policies.” Casas, 2002 WL 507059, at *9 (citation omitted) (alterations in original). Relying on the ruling in Casas, the 2010 AI reasons that “because Conseco’s loan officers’ duties were ‘selling loans directly to individual customers, one loan at a time,’ ” the administrative exemption did not apply to them. A.R. at 105 (Administrator’s Interpretation No.2010–01) (internal citation omitted). The 2010 AI further notes that the 2004 amended regulations examined the difference between mortgage loan officers who spend the majority of their time selling mortgage products to consumers, like the Casas plaintiffs, as compared to those who “promot[e] the employer’s financial products generally, decid[e] on an advertising budget and techniques, run[ ] an office, hir[e] staff and set[ ] their pay, service [ ] existing customers …, and advis[e] customers.” Id. at 105 (citing 69 Fed.Reg. at 22145–46). The 2010 AI concluded that in order for mortgage loan officers to be properly classified as exempt employees, their primary duties must be administrative in nature. Id. at 105.

Relying on the facts that a significant portion of mortgage loan officers’ compensation is composed of commissions from sales, that their job performance is evaluated based on their sales volume, and that much of the non-sales work performed by the officers is completed in furtherance of their sales duties, the 2010 AI concluded “that a mortgage loan officer’s primary duty is making sales.” Id. at 106–07. And because their primary duty is making sales, the 2010 AI further concludes that “mortgage loan officers perform the production[, not the administrative,] work of their employers.” Id. at 107.

After concluding that the work of mortgage loan officers is not related to the general business operation of their employers, the 2010 AI considered another factor that could provide the basis for finding that mortgage loan officers are subject to the administrative exemption. Id. at 108. The AI states that “[t]he administrative exemption can also apply if the employee’s primary duty is directly related to the management or general business operations of the employer’s customers.” Id. In making this assessment, the 2010 AI notes that “it is necessary to focus on the identity of the customer.” Id. The 2010 AI finds that “work for an employer’s customers does not qualify for the administrative exemption where the customers are individuals seeking advice for their personal needs, such as people seeking mortgages for their homes.” Id. However, it recognizes that a mortgage loan officer “might qualify under the administrative exemption” if the customer that the officer is working with “is a business seeking advice about, for example, a mortgage to purchase land for a new manufacturing plant, to buy a building for office space, or to acquire a warehouse for storage of finished goods.” Id. Nevertheless, the 2010 AI concludes that the typical mortgage loan officers’ “primary duty is making sales for the employer [to homeowners], and because homeowners do not have management or general business operations, a typical mortgage loan officer’s primary duty is not related to the management or general business operations of the employer’s customers.” Id. at 109.

Finally, the 2010 AI took exception with the 2006 Opinion Letter’s apparent assumption “that the example provided in 29 C.F.R. § 541.203(b) creates an alternative standard for the administrative exemption for employees in the financial services industry.” Id. Rather, the 2010 AI states that 29 C.F.R. § 541.203(b) merely illustrates an example of an employee who might otherwise qualify for the exemption based on “the requirements set forth in 29 C.F.R. § 541.200.” Id. Thus, the 2010 AI clarifies that “the administrative exemption is only applicable to employees that meet the requirements set forth in 29 C.F.R. § 541.200.” Id. In providing this clarification, the 2010 AI states, “[t]he fact example at 29 C.F.R. § 541.203(b) is not an alternative test, and its guidance cannot result in it ‘swallowing’ the requirements of 29 C.F.R. § 541.200.” FN4
Id.

In summation, the DOL through the issuance of the 2010 AI explicitly withdrew the 2006 Opinion Letter “[b]ecause of its misleading assumption and selective and narrow analysis[.]” Id. Before taking this action, the DOL did not utilize the APA’s notice and comment process. Compl. ¶¶ 32–33.

The Mortgage Bankers Association relied on two different theories in seeking that the court strike down the AI at issue. First, relying on Paralyzed Veterans, 117 F.3d at 586, the plaintiff argues that once an agency issues an authoritative interpretation of its own regulation, it must utilize the notice and comment process if it desires to modify that interpretation. Second, the Mortgage Bankers Association argued that the 2010 AI does not comport with the 2004 regulations and is therefore “arbitrary, capricious, an abused of discretion, and otherwise not in accordance with law.”

With regard to the first argument, the rejected it, noting that ” seven courts of appeals have held that the notice and comment provisions found in section 553 of the APA do not apply to interpretative rules.” Further, the court held that the case did not fit within the limited recognized exceptions to that general rule. Similarly, the court held that the DOL’s interpretation of its own 2004 white collar regulations was not inconsistent and therefore not arbitrary and capricious. Thus, the court granted the DOL summary judgment, in part, and denied the Mortgage Bankers Association’s similar motion, and upheld the AI.

Click Mortgage Bankers Ass’n v. Solis to read the entire Memorandum Opinion.

 

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June 18, 2012 · 11:34 am

U.S.S.C.: Pharma Reps Outside Sales Exempt

In an anxiously awaited decision the Supreme Court handed down a 5-4 decision today holding that Pharmacy Reps are not entitled to overtime.  Affirming the Ninth Circuit’s decision holding pharma reps to be outside sales exempt the conservative majority’s decision was delivered by Justice Alito.

Click Christopher v. Smithkline Beecham Corp. to read the entire decision.

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June 2, 2012 · 8:24 am

7th Cir.: Pharma Reps Are Administratively Exempt

Schaefer-LaRose v. Eli Lilly & Co.

This case was before the Seventh Circuit on the consolidated appeals of two different summary judgment orders in two different cases. In one case, the trial court had granted the plaintiffs’ motion for summary judgment holding that, as a matter of law, pharmaceutical reps were not administratively exempt employees. In the other case, the trial court held that the pharmaceutical reps were subject to the administrative exemption, and granted the defendant’s motion for summary judgment. Resolving this issue, at least in the Seventh Circuit, the court agreed with the latter and held that pharma reps do in fact meet both of the duties prongs of the administrative exemption. In so doing, the court joined the Third Circuit and furthered the split with the Second Circuit which had previously held that pharma reps with virtually identical duties are not subject to the administrative exemption.

Initially, the court examined the first duties prong of the administrative exemption and held that the reps’ primary duty as pharmaceutical sales representatives was performance of office work directly related to their employers’ general business operations. In so doing, the Seventh Circuit seems to have taken a particularly broad view of the first prong, in line with other recent Seventh Circuit authority, but in contrast to other circuits such as the Second and Eleventh, which typically require that an administrative employee “run of service” the employer’s business or at least some aspect of it in order to fall under the exemption.

In holding that they exercised the requisite independent judgment and discretion, the court cited the arguments raised by the defendants that:

the pharmaceutical companies assert that the representatives had a host of core duties committed to their discretion, including determining how best to gain access to particular physicians and managing their limited discretionary budgets. Their primary argument, however, focuses on the discretion that an individual representative must employ in the course of an individual sales call with a physician to communicate effectively his employer’s core message to the specific audience and to address a physician’s particular concerns.

As in other recent cases regarding the administrative exemption, the Seventh Circuit seems to have lowered the bar for the level of discretion that an employee must exercise in order to qualify for the exemption. Whereas § 541.202(b) explains:

The phrase “discretion and independent judgment” must be applied in the light of all the facts involved in the particular employment situation in which the question arises. Factors to consider when determining whether an employee exercises discretion and independent judgment with respect to matters of significance include, but are not limited to: whether the employee has authority to formulate, affect, interpret, or implement management policies or operating practices; whether the employee carries out major assignments in conducting the operations of the business; whether the employee performs work that affects business operations to a substantial degree, even if the employee’s assignments are related to operation of a particular segment of the business; whether the employee has authority to commit the employer in matters that have significant financial impact; whether the employee has authority to waive or deviate from established policies and procedures without prior approval; whether the employee has authority to negotiate and bind the company on significant matters; whether the employee provides consultation or expert advice to management; whether the employee is involved in planning long- or short-term business objectives; whether the employee investigates and resolves matters of significance on behalf of management; and whether the employee represents the company in handling complaints, arbitrating disputes or resolving grievances.

the court seemed to simply conclude that the plaintiffs’ duties were sufficient because they exercised some level of discretion, a fact that the parties did not dispute. Discussing the discretion exercised by the plaintiffs, the court reasoned:

Beyond these physician interactions, which we consider to be the critical function of the job and the place in which discretion is most evident, the representatives’ other duties related to the actual call on the physician also manifest a substantial measure of judgment. Although representatives are given specific call plans identifying the physicians to be visited and the degree of frequency or priority category for each physician, several representatives testified that they apply a measure of strategic analysis to their work, choosing to see physicians not on their call plans or non-physicians who may influence prescribing patterns. See supra note 14 (describing discretion applied to call plans). They work collaboratively with one another, proposing comprehensive visit plans for the territories and checking in regularly by phone to keep each other abreast of developments in particular visits with physicians. Representatives also spend the vast majority of their time entirely unsupervised. Although they keep extensive records, through which management can and does monitor their progress, neither the fact that management reviews their work nor that they are required to keep such records detracts from the discretion they exercise in the core of their workday.

The court also rejected the plaintiffs’ contention that the plaintiffs’ principal duties involved the application of skill, rather than the judgment required for application of the exemption:

Finally, the plaintiffs and the Secretary briefly contend that the work of the representatives principally involves the application of skill, rather than judgment. Although they are correct that the regulations draw this distinction and caution that skill is insufficient to warrant the exemption, skill and judgment are not mutually exclusive. The records clearly demonstrate that the representatives receive extensive skills training, particularly on sales techniques. They most certainly employ this skill, and, indeed, many others in the course of their daily duties. Nevertheless, applying these skills entails a great deal of judgment. The job requires far more than “applying well-established techniques, procedures or specific standards described in manuals.”

With the issue of whether pharmaceutical reps are subject to the outside sales exemption notwithstanding the fact that they technically do not make such sales currently before the Supreme Court, the conflict between the circuits may or may not continue to be significant in a few weeks time. Regardless of the effects of this decision on the ongoing pharma rep overtime battles, it is becoming more and more clear that the Seventh Circuit is the place employers want to be if they are arguing that any type of employee is administratively exempt.

Click Schaefer-LaRose v. Eli Lilly & Co. to read the entire Order.

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