Tag Archives: Administrative Exemption

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. §§ 201219 (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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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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E.D.Pa.: Following Third Circuit Precedent, Pharmaceutical Rep Administratively Exempt

Kesselman v. Sanofi-Aventis U.S. LLC

Continuing a split with virtually every other circuit, another court within the Third Circuit has held that a pharmaceutical representative, performing typical duties is administratively exempt under the FLSA (and PMWA, which requires exercise of discetion and independent judgment, but not that same be exercised with regard to matters of significance) is exempt from overtime under the administrative exemption.

Discussing the Third Circuit precedent, the court stated:

The Third Circuit has recently found pharmaceutical sales representatives exempt as administrative employees under the FLSA and the PMWA. In Smith v. Johnson & Johnson, the Court held a sales representative was engaged in work directly related to the management or general business operations of the employer because the “position required her to form a strategic plan designed to maximize sales in her territory,” which “involved a high level of planning and foresight.” Because Smith “executed nearly all of her duties without direct oversight” and considered herself “the manager of her own business who could run her own territory as she saw fit [,]” the Court concluded that Smith was subject to the administrative employee exemption under the FLSA.

In Baum v. AstraZeneca, the Court, relying on Smith, held that plaintiff’s work related to her employer’s general operation because she marketed and advertised its pharmaceutical products. The plaintiff also had “significant discretion in how she would approach physicians, whether it be through access meals, peer-to-peer meetings, or other means,” “spent the majority of her time in the field, unsupervised,” “decided how much time she would spend with a given physician …. [and] whether she would use a detail aid,” such that her “day-to-day activities involved making numerous independent judgments on how best to promote [her employer’s] products.” The Third Circuit therefore held that plaintiff was subject to the administrative employee exception to the PMWA.

The court rejected plaintiff’s contention that her duties were distinguishable from prior cases within the Third Circuit:

Having carefully considered the undisputed and stipulated facts of this case, Kesselman’s deposition testimony, and record documents reflecting Kesselman’s own assessment of her job responsibilities and accomplishments, the Court finds Smith and Baum controlling. Like the plaintiffs in Smith and Baum, Kesselman spent most of her working hours unsupervised and was responsible for developing her own target list of physicians, daily and monthly sales call itineraries, and a business plan for her territory based on her extensive knowledge of clients and sales data. Although, like Smith and Baum, she often worked from company-approved materials and was expected to convey certain product information during calls, she otherwise had discretion as to how to organize and conduct the calls. In general, she considered herself the “boss” of her territory.

These activities, which closely parallel the activities of Smith and Baum, “reflect [her] ability to develop strategies; to approach, communicate, and cultivate relationships with physicians; and to operate without constant supervision in the field.” Furthermore, they “are consistent with relevant definitions of exempt administrative work because they affect Defendant’s business operations to a substantial… work on behalf of Defendant that reflect the exercise of discretion and independent judgment with respect to matters of significance….”

While the issue of whether the outside sales exemption applies to pharmaceutical representatives has reached the Supreme Court, with a resolution to be forthcoming shortly, it is not clear whether the administrative exemption issue will have the same fate. Whereas the outside sales exemption issue hinges on the legal definition of the term “sale,” the administrative exemption requires a more fact specific inquiry. Thus, for the foreseeable future, pharmaceutical representatives whose cases are decided in New Jersey, Delaware and Pennsylvania may be exempt from the FLSA under the administrative exemption, while those whose cases are adjudicated in the other 47 states are not. Of course, to the extent that the Supreme Court holds that their positions are outside sales exempt, the whole issue will be rendered moot.

Click Kesselman v. Sanofi-Aventis U.S. LLC to read the entire Memorandum Opinion and Order.

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U.S.S.C.: Court Denies Certiorari to Novartis and Schering on Appeals of Decisions Finding Pharma Reps Non-Exempt Under the FLSA

Novartis Pharmaceuticals Corp. v. Lopes, Simona M. and Schering Corporation v. Kuzinski, Eugene, et al.

In a case with far sweeping ramifications for the pharmaceutical industry and its employees, following the Second Circuit’s decision that found pharmaceutical representatives (pharma reps) to be non-exempt and therefore, entitled to overtime, the Supreme Court has denied Plaintiff’s Petition for Cert, and therefore the issue remains largely unresolved.  In a decision discussed here, the Second Circuit had previously held that the pharma reps were non-exempt, notwithstanding the pharmaceutical companies’ arguments that they were outside sales and/or administrative exempt.  However, the Third Circuit, on facts it acknowledged were limited to the case before it, recently reached the opposite conclusion, holding Johnson & Johnson pharma reps to be exempt under the administrative exemption.  Most recently, the Ninth Circuit held that, notwithstanding the fact that pharma reps cannot and do not consummate sales, their promotional activities are close enough to render them exempt under the outside sales exemption.

The Department of Labor had submitted an Amicus Brief in support of the employees in both the Second and Ninth Circuit cases.  While the Second Circuit relied on the DOL’s Brief in large part, reaching its conclusion that the pharma reps are non-exempt, the Ninth Circuit rejected the arguments in the Brief.

It will be interesting to see if the large pharmaceutical companies, most of whom are in the midst of FLSA collective actions and/or state wage and hour class actions, will reclassify their pharma reps based on the Novartis decision.  The stakes are huge, and the risk- if they chose not to- could be an imposition of liquidated damages, in addition to unpaid wage awards in any case(s) the employees win.

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11th Cir.: Trial Court Erred In Allowing Defendants To Amend Their Affirmative Defenses At Trial To Add Previously Unpled Exemption

Diaz v. Jaguar Restaurant Group, LLC

Plaintiff filed a lawsuit against Defendants, her former employer, for unpaid overtime wages under the Fair Labor Standards Act (“FLSA”), 29 U.S.C. §§ 201–216. During trial, the district court allowed Jaguar to amend its Answer pursuant to Federal Rule of Civil Procedure 15(b) to include the administrative exemption as an affirmative defense as it found that Diaz had injected the issue through her testimony at trial. The jury returned a verdict finding that Diaz had worked more than 40 hours per week for which she was not compensated, but also finding that she was exempt from the requirements of the FLSA as she was an administrative employee.  On appeal to the Eleventh Circuit, Plaintiff challenged the district court’s decision to allow Defendant to amend its Answer during trial. The Eleventh Circuit reversed, and remand the case to the district court for a trial on damages.

In reversing, the Eleventh Circuit reasoned:

“Jaguar failed to plead the administrative exemption as an affirmative defense in its Answer. In the fourteen months between the filing of its Answer and the commencement of trial, Jaguar never moved to amend its Answer to include the administrative exemption. Jaguar also did not raise the issue of the administrative exemption during discovery. The only time Jaguar raised the issue prior to trial was by inserting it in one line of the Joint Pretrial Stipulation and in the proposed Joint Jury Instructions, to which Diaz objected. Jaguar did not raise the issue during the pretrial conference and the district court did not include the issue in its Omnibus Order Following Pretrial Conference. If ever there were a classic case of waiver, this is it! See Latimer v. Roaring Toyz, Inc., 601 F.3d 1224, 1239 (11th Cir. 2010) (“Failure to plead an affirmative defense generally results in a waiver of that defense.”). Jaguar repeatedly waived the administrative exemption defense by failing to plead the defense in its Answer and by failing to move to amend its Answer before trial.

Ideally, cases should be tried on their merits. Accordingly, even if Jaguar failed to plead the administrative exemption defense, the district court could allow Jaguar to amend its Answer during trial if the issue was tried by the parties’ express or implied consent, or included in a pretrial order. See Fed. R. Civ. P. 15(b); see Steger v. Gen. Elec. Co., 318 F.3d 1066, 1077 (11th Cir. 2003) (“[I]ssues not raised in the pleadings may be treated as if they were properly raised when they are ‘tried by express or implied consent of the parties,’ Federal Rule of Civil Procedure 15(b), or are included in a pretrial order.”). In this case, the issue was not included in the district court’s Omnibus Order Following Pretrial Conference. Further, it is clear that the administrative exemption issue was not tried by the parties’ express consent as Diaz opposed the insertion of the issue in the Joint Pretrial Stipulation, proposed Joint Jury Instructions, and at trial. See R. Vol. 5: 160–65. The district court, however, found that the issue was tried by implied consent as it believed Diaz introduced the issue of the administrative exemption through her testimony at trial. Thus, the district court allowed the amendment.

The district court erred in finding that the administrative exemption issue was tried by implied consent and in thereby allowing Jaguar to amend its Answer.  That issue was not tried by implied consent as Diaz’s testimony was relevant to another defense in this case: Jaguar’s independent contractor defense. “The introduction of evidence arguably relevant to pleaded issues cannot serve to give a party fair notice that new issues are entering the case.” Wesco Mfg., Inc. v. Tropical Attractions of Palm Beach, Inc., 833 F.2d 1484, 1487 (11th Cir. 1987); see Jimenez v. Tuna Vessel Granada, 652 F.2d 415, 421 (5th Cir. 1981) (stating that implied consent cannot be found when “evidence is introduced that is relevant to an issue already in the case and there is no indication that the party who introduced the evidence was seeking to raise a new issue”). Diaz’s testimony was relevant to counter Jaguar’s independent contractor defense, and she clearly was not seeking to raise the administrative exemption as a new issue. Further, we cannot conclude that her testimony was “much more strongly relevant” to the administrative exemption than to the independent contractor defense, which could be construed as notice of a new issue. See United States f/u/b/o Seminole Sheet Metal Co. v. SCI, Inc., 828 F.2d 671, 677 (11th Cir. 1987). Thus, her testimony cannot be considered implied consent to try the administrative exemption.”

Click Diaz v. Jaguar Restaurant Group, LLC, to read the entire opinion.

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S.D.Tex.: Upon Reconsideration, Pharmaceutical Reps Nonexempt; Court Elects To Adopt Second Circuit’s Reasoning

Harris v. Auxilium Pharmaceuticals, Inc.

This case was before the court on Plaintiff’s Motion for Reconsideration of the court’s prior decision granting Defendant’s Motion for Summary Judgment.  The court had previously held that the Plaintiff’s, pharmaceutical representatives were exempt from the overtime provisions of the Fair Labor Standards Act (FLSA) under both the administrative and outside sales exemptions.  Plaintiff sought reconsideration in light of the United States Secretary of Labor’s amicus curiae brief filed in In re Novartis Wage and Hour Litigation.   Granting the Plaintiff’s Motion, the court reversed itself, finding that the Second Circuit’s recent opinion was more persuasive than the contrary jurisprudence.

Discussing the exemption issues, the court reasoned:

“In its previous order, this Court determined that Harris could not bring a FLSA claim because her position as a Medical Sales Consultant (“MSC”), or pharmaceutical representative, took her out of FLSA’s purview. This Court found that the MSC position was exempt from FLSA under the “administrative” and “outside sales” exemptions.

Shortly after this Court’s order came out, the Department of Labor (“DOL”) filed an amicus curiae brief in a case then pending before the Second Circuit, In re Novartis Wage & Hour Litigation, 611 F.3d 141 (2010). In Novartis, The DOL argued that, under its regulations, pharmaceutical representatives “do not meet the requirements for either the outside sales or administrative exemption.” (Br. for the Secretary of Labor as Amicus Curiae in Supp. of Pls.-Appellants, Doc. No. 106-2, at 5.) Regarding the outside sales exemption, the DOL noted that, “[b]ecause the [pharmaceutical representatives] do not sell any drugs or obtain any orders for drugs, and can at most obtain from the physicians a non-binding commitment to prescribe NPC’s drugs to their patients when appropriate, [they] do not meet the regulation’s plain and unmistakable requirement that their primary duty must be ‘making sales.’ “ (Id. at 10.) Under the administrative exemption, the DOL noted that, although pharmaceutical representatives work independently, that “does not suffice to qualify for the administrative exemption; [the representatives] do not perform any primary duties that are largely comparable to those found in 29 C.F.R. § 541.202(b), such as formulating or implementing management policies, utilizing authority to deviate from established policies, providing expert advice, or planning business objectives.” (Doc. No. 106-2, at 21.)

While this motion for reconsideration was pending at this Court, the Second Circuit concluded that under the DOL’s regulations, pharmaceutical representatives are not outside salesmen or administrative employees for the purposes of FLSA’s overtime pay requirements. Novartis, 611 F.3d at 149. The Novartis court determined that the DOL’s interpretations were “entitled to ‘controlling’ deference,” id., under the Supreme Court’s decision in Auer v. Robbins, 519 U.S. 452, 461 (1997).

After a review of the applicable authority, this Court adopts the reasoning of the Second Circuit and holds that Plaintiffs are not outside salesmen or administrative employees under FLSA. This Court recognizes that district courts are split on the issue, and that some courts have specifically rejected the DOL’s reasoning as set forth in its Novartis amicus brief. See, e.g., Christopher v. SmithKlein Beecham Corp., 2010 WL 396300, at *1-2 (D.Ariz. Feb. 1, 2010). In this Court’s opinion, however, the Novartis court sets forth a persuasive and reasoned analysis for its deference to the DOL’s interpretation of its regulations. As the Novartis court pointed out, the DOL’s interpretations “do far more than merely parrot the language of the FLSA,” and are therefore “entitled to ‘controlling’ deference unless those interpretations are ‘plainly erroneous or inconsistent with the regulation.’ “ 611 F.3d at 153 (quoting Auer v. Robbins, 519 U.S. 452, 461 (1997)). This Court further agrees that no such error or inconsistency exists. Id.

Auxilium points this Court to two opinions in the Third Circuit that came to the opposite conclusion on this question: Smith v. Johnson & Johnson, 593 F.3d 280 (3d Cir.2010), and Baum v. AstraZeneca LP, 372 F. App’x 246 (3d Cir.2010). Neither of these cases, however, considers the impact of the DOL’s amicus brief on their decisions. Therefore, they do not provide a reasoned counterweight to the Second Circuit’s analysis.”

EDITOR’S NOTE:  There continues to be a split of authority with respect to whether pharmaceutical representatives are exempt or nonexempt under the FLSA.  Within the last week, another court, analyzing the very same issue–whether reconsideration (of an order granting defendant summary judgment) in light of the Novartis ruling and the DOL’s amicus brief(s) was warranted–another court held that the decision was not due to be reconsidered and allowed its prior decision to stand.  Schaefer-Larose v. Eli Lilly and Co., 2010 WL 3892464, at *1 (S.D. Ind. Sept. 29, 2010).

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M.D.Ala.: Wal-Mart Assistant Store Managers (ASMs) May Be Entitled To Overtime Pay; Wal-Mart’s Motion for Summary Judgment Denied

Davis v. Wal-Mart Stores, Inc.

This case was before the Court on Wal-Mart’s motion for summary judgment.  Wal-Mart asserted that the Plaintiffs, two (2) former Assistant Store Managers (“ASMs”) were exempt from the overtime provisions of the Fair Labor Standards Act (“FLSA”).  Citing issues of fact raised by the Plaintiffs, the Court denied Wal-Mart’s motion.

After noting that the court was due to accept the facts in the light most favorable to the Plaintiffs (as the non-moving party), the court recited the following facts pertinent to the motion:

“The facts of this case concern the job duties of the Plaintiffs. Plaintiff Nancy Davis was employed at the Wal-Mart in Opelika, Alabama as a salaried assistant manager from June of 2006 until September 2009. Davis states that during her employment she performed such tasks as stocking, acting as cashier, sweeping, mopping, cleaning, unloading trucks, bringing in shopping carts, and doing price checks. Plaintiff Shirley Toliver was employed with the Wal-Mart store in Opelika from August 2001 to May 20, 2009. She also states that she performed tasks such as stocking, running the cash register, sweeping, mopping, cleaning, loading trucks, pulling pallets, bringing in shopping carts and performing price checks. The Plaintiffs have testified in their depositions that these tasks comprised 80-90 % of their work duties. Wal-Mart has presented documentary and deposition evidence that Davis and Toliver also engaged in managerial tasks, including delegation of duties, interviewing and hiring applicants, coaching associates, evaluating associates, and terminating associates.”

The Court held that, on these facts, the Plaintiffs could not be said, as a matter of law, to fall under the FLSA’s executive exemption or administrative exemption.  After outlining the elements of the executive exemption, the Court reasoned:

“In a case relied upon by Davis and Toliver, the Eleventh Circuit has engaged in a lengthy analysis of the primary duty requirement in the context of store managers of Family Dollar Stores, a retail establishment. See Morgan v. Family Dollar Stores, Inc., 551 F.3d 1233 (11th Cir.2008).  In Morgan, the plaintiffs were store managers who spent 80 to 90 % of their time performing manual labor tasks such as stocking shelves, running cash registers, unloading trucks, and cleaning. Id. at 1270. They were also assigned tasks such as completing paper work and making bank deposits, but those tasks were strictly prescribed. In evaluating the claim that the executive exemption did not apply to these managers, the court emphasized that at the executive exemption to FLSA overtime pay is to be narrowly construed because the Supreme Court has directed that the exemption be applied only to plaintiffs who fall “clearly and unmistakably within the terms and spirit of the exemption.” Id. at 1269 (citation omitted). The court further noted that the inquiry is fact-intensive, and if there is evidence “on both sides of the question,” the facts should be determined by a jury. Id. The factor of time spent on manual, nonexempt work, however, did not establish that the plaintiffs were nonexempt. Id. Instead, the court found that the jury’s determination that the managers were nonexempt was supported not just by the amount of time spent performing nonexempt work, but also by evidence that non-managerial tasks were of “equal or greater importance to the store’s functioning and success.” Id. The court found significant that the employer described manual labor performed on delivery day as an “essential function” of the position. Id. The court also concluded that the evidence of little time spent in discretionary matters, little freedom from direct supervision, and the difference between managerial and other wages supported the jury’s finding of non-exempt work as the primary duty. Id. at 1270-71. As Wal-Mart points out, the court distinguished other courts’ opinions on the basis that in Morgan the manual labor was not performed concurrently with managerial duties. Id. at 1272-73.

Davis and Toliver contend that here, as in Morgan, all four of the primary duty factors weigh in their favor in this case. With respect to managerial duties, Davis and Toliver contend that they spent the vast majority of their time performing non-managerial tasks, and that the managerial tasks they performed were relatively less important than their non-managerial duties. The court begins with the factor of the amount of time spent performing management duties.

1. Time Spent Performing Management Duties

Davis and Toliver have testified that 80-90 % of their time was spent performing nonmanagerial tasks. Davis Dep. at page 125: 19-126: 4. Davis stated that she would run the cash register for 15 or 20 minutes at a time all day long, three out of five days a week, on day and night shifts, and that she found herself doing sweeping and cleaning, particularly on the third shift. Id. at page 128: 18-129:16. Toliver testified that she performed the same tasks testified to by Davis, adding that sometimes she would be a cashier for three hours at a time. Toliver Dep. at pages 95: 16-96: 4, 17-11-19.

While Wal-Mart characterizes this testimony as self-serving, the court must accept the Plaintiffs’ testimony that they performed the sort of tasks described 80-90 % of the time. Those tasks testified to are not considered managerial duties.

Managerial duties are defined by the C.F.R. to include interviewing, selecting and training employees, directing the work of employees, maintaining sales records, appraising employees’ productivity and efficiency, handling employee complaints and grievances, disciplining employees, planning work, determining techniques to be used, apportioning work, determining merchandise to be bought and sold, controlling distribution of merchandise, providing for safety and security of employees or property, planning and controlling the budget, and implementing and monitoring legal compliance measures. 29 C.F.R. § 541.102. Clearly the tasks which Davis and Toliver have identified as comprising 80-90 % of their working time do not fall within these examples of managerial tasks. The C.F.R. also states, however, that

Occasional, infrequently recurring tasks that cannot practicably be performed by nonexempt employees, but are the means for an exempt employee to properly carry out exempt functions and responsibilities, are considered exempt work. The following factors should be considered in determining whether such work is exempt work: Whether the same work is performed by any of the exempt employee’s subordinates; practicability of delegating the work to a nonexempt employee; whether the exempt employee performs the task frequently or occasionally; and existence of an industry practice for the exempt employee to perform the task.  29 C.F.R. § 541.707.

The Plaintiffs argue that the extent to which they performed nonmanagerial tasks meant that the tasks cannot be considered to be exempt work. Davis and Toliver state that their time spent doing the managerial duties of performance evaluation was minimal, averaging 10 to 15 minutes. Toliver Dep. at page 98: 8-16. Davis described her duties as running the register, pulling pallets, unloading trucks, working freight by pulling it off a truck and putting it on the shelf, zoning by fronting merchandise, and cleaning. Davis Dep. at 156: 3-10. Given the testimony of the extent of their nonmanagerial duties, the court concludes that a reasonable jury could conclude that the tasks which, according to the Plaintiffs’ testimony, comprised 80-90 % of their work, were more than occasional, infrequently recurring tasks and, therefore, were nonexempt tasks.

Wal-Mart argues that the Plaintiffs’ choice to perform nonexempt tasks, rather than to delegate those tasks, because they were ultimately responsible for those tasks, does not make them nonexempt. Wal-Mart points to the C.F.R. and argues that concurrent performance of exempt and nonexempt work does not disqualify an employee from the executive exemption. See 29 C.F.R. § 106(a). That C.F.R. section states, however, that if exempt and nonexempt work occurs concurrently, the exemption can still apply, if the requirements for the exemption are otherwise met. Id. The C.F.R. offers as an example an assistant manager who supervises employees and serves customers at the same time, without losing the executive exemption. § 541.106(b). The C.F.R. draws a distinction between persons who make the decision of when to perform nonexempt duties and those directed to perform exempt work. § 541.106(a).

The Eleventh Circuit relied on such a distinction in Morgan. The court distinguished cases from other courts which had given less weight to plaintiffs’ estimates of time performed on nonexempt tasks because those plaintiffs concurrently performed exempt tasks. Morgan, 551 F.3d at 1272. The court explained that the amount of manual labor performed by the managers in Morgan overwhelmed their capacity to perform managerial duties concurrently during store hours. Morgan, 551 F.3d at 1272. The court further explained that management duties could not be performed concurrently because, for example, “a store manager unloading a truck and stocking the storeroom was not concurrently supervising the cashier out front.” Id. at 1273. The court noted that many of the tasks were performed before and after the store closed.   Id. at 1272. The court concluded that the jury “may well have given more weight to the Plaintiffs’ evidence that they spent 80 to 90 % of their time solely on nonexempt work.” Id.

Davis stated in her deposition that she would receive managerial notes from the store manager which would tell her tasks that needed to be accomplished during a shift. Id. at page 126:15-127:14. She explained that “[w]e were told what to do, either find somebody to do it or do it yourself.” Id. at page 126: 15-16. Davis explained that she was assigned duties by the store manager or co-manager in the shift notes that told her what they wanted done. Id. at 150:8-22. If there were minimal associates working, she had to perform the manual labor tasks herself. Id. at page 150: 17-151:17. Davis gave as an example that if two or three trucks came in carrying freight during the third shift, she would have to go to that department. Id. at 151:10-17. She further explained that she would get in trouble for not getting the tasks done. Id. at 151:21-22. Davis testified that she performed sweeping, mopping, and cleaning duties “mostly on third shift” because there were not “enough associates to get everything done that needed to be done.” Id. at 129: 8-16. She also stated that she has been told to scrape dirt from under shelves with a scraper on third shift. Id. at 156:18-157. Davis also testified that she would stay on past the end of her shift on some occasions so that she averaged 54 to 65 hours per week. Id. at page 110: 13-19.

According to the Plaintiffs’ evidence, they were not responsible for the scheduling of associates. The scheduling of employees was conducted by co-Manager Ken King. King explained in his deposition that he set the schedules based on a budget he was provided by corporate headquarters, which came down through the regional and district manager. King Dep. at page 12. Although King also stated that assistant managers also set schedules, in her deposition, Toliver disputed that she made schedules, and stated that the co-manager made the schedules. Toliver Dep. at page 20: 8-12, 21-3.

While Wal-Mart has contended that the Plaintiffs chose to perform nonmanagerial tasks instead of delegating those tasks, viewing the evidence in a light most favorable to the non-movants, the Plaintiffs were directed to perform tasks even in the face of inadequate staffing levels. Furthermore, the nonexempt tasks performed by Davis and Toliver in this case were similar to those in Morgan, such as unloading of freight, which would not allow for the supervision of associates in other sections of the store. The court concludes, therefore, that Wal-Mart has not conclusively shown that the nonexempt tasks were performed concurrently with exempt tasks, for purposes of its affirmative defense. Here, as in Morgan, the court concludes that there is sufficient evidence to support the Plaintiffs’ estimate that 80 % to 90 % of their work was nonexempt work.

The C.F.R. states that the amount of time spent on managerial tasks “can be a useful guide in determining whether exempt work is the primary duty of an employee,” but it is not the sole test. § 541.700(b). A person who spends more than 50 percent of her time performing exempt work generally will satisfy the primary duty requirement, but “employees who do not spend more than 50 percent of their time performing exempt duties may nonetheless meet the primary duty requirement if the other factors support such a conclusion.” Id.

Given the Plaintiffs’ evidence, the factor of the amount of time spent on nonexempt tasks, while not dispositive, weighs against a finding of exempt work as the primary duty in this case. See Morgan, 551 F.3d at 1270.

2. Relative Importance of Managerial Duties

The next primary duty factor to be examined is the relative importance of managerial duties as compared to other duties. 29 C.F .R. § 541.700(a).

Wal-Mart has submitted multiple records evidencing managerial tasks, such as coaching for improvement of hourly associates, performance evaluations, and job offers. Wal-Mart states that Davis and Toliver managed recognized departments during the day shift, and were “in charge” of the store on night shifts. Wal-Mart further states that these duties were important, as they were evaluated in the Plaintiffs’ performance evaluations.

Davis and Toliver do not dispute that they coached associate employees, evaluated performance of associates, checked the status of inventory, and monitored store conditions. See Doc. # 20 at page 15. As noted above, however, they state their time spent doing managerial duties, for example, employee evaluation, was minimal, consisting of 10 to 15 minutes, and that these duties were secondary to their primary duties of waiting on customers, stocking shelves, cleaning, merchandising, unloading delivery trucks, and bringing in shopping carts. As further evidence of the relative importance of the nonmanagerial tasks, the Plaintiffs point out that in the job description’s listing of physical activities necessary to perform essential job functions an assistant manager is required to move, lift, carry, and place merchandise and supplies weighing up to 25 pounds without assistance, and to grasp, turn, and manipulate objects of varying size and weight, requiring fine motor skills and hand-eye coordination. As described extensively above, there is evidence that Davis and Toliver were required to perform manual tasks also performed by associates, and that the budget-based schedule, which left the store understaffed at times, required them to perform manual labor tasks.

In Morgan, the court concluded that nonmanagerial duties were more important because the essential job functions as listed by the employer required that the managers do the same work as stock clerks and cashiers, and that a large amount of manual labor by managers was a key to the business model, given the limited payroll and large amount of labor that had to be performed. Morgan, 551 F.2d at 1270.

Viewing the evidence presented in a light most favorable to the nonmovant, the court concludes that here, as in Morgan, there is enough evidence for a jury to find not only that nonmanagerial tasks consumed 80-90 % of Davis and Toliver’s time, but also that the nonmanagerial work was relatively more important than managerial work.

3. Relative freedom from Direct Supervision

As to the analytical factor of relative freedom from direct supervision, Davis and Toliver argue that not only were they governed by policies put in place by Wal-Mart at its corporate headquarters, but also policies created, implemented, and enforced by the store manager or co-manager who were present in the store daily. For instance, Toliver states in her deposition that there was a time during which assistant managers set the schedules, but during the relevant time period, the co-manager set schedules. Toliver Dep. at page 20: 4-12. She also explained that she thought it should be within her discretion to decide whom to interview for an position which was open, but that she was told whom to choose at times. Id. at page 78: 3-12. She testified that the rate of starting pay was dictated by policy and that she was not allowed to give raises. Id. at 107:10-23.

Davis testified that when the store manager and co-manager were present in the store, they were supervising the assistant supervisors and were supervising the hourly associates. Davis Dep. at page 148: 9-17. With respect to the placement of merchandise, Davis testified that the home office, store manager, or co-manager directed where to place merchandise, and that placement was dictated by planograms. Id. at page 152:12-153:4. Even on the third shift, when Wal-Mart insists the Plaintiffs were “in charge” of the store, as set out above, upper management gave instructions of what was to be done, down to tasks such as scraping dirt from beneath shelves.

In Morgan, the Eleventh Circuit found that the factor of freedom from supervision weighed in favor of a finding of the primary duty being nonexempt work, because managers above the level of the store managers were responsible for enforcing detailed store operating policies, closely reviewed inventory, closely monitored the payroll, controlled employee hourly rates and pay raises, routinely sent to-do lists and emails with instructions to the managers, closely supervised displays, and closely supervised store operations.   Morgan, 551 F.3d at 1271. When viewed in a light most favorable to the non-movants, many of the same considerations present in Morgan, such as instructions from upper management as to tasks to perform, and pay rates and budget-controlled staffing by upper management, are present in this case as well. Therefore, the court concludes that this factor also weighs in Davis and Toliver’s favor.

4. Relative wages

As to the fourth primary duty factor, the relationship between employee’s salary and wages paid to other employees for the kind of nonexempt work performed by the employee, although Davis and Toliver have argued, correctly, that the court should account for the extra hours they worked in comparing salaries and wages, the court has not been pointed to evidence of the amount of hourly wages paid for the same nonexempt work duties. Therefore, the court cannot conclude that this factor weighs in favor of the Plaintiffs in this case.

Considering together the evidence of the relative importance of the management duties as compared with other types of duties, the amount of time spent performing management duties, the employee’s relative freedom from direct supervision, and the lack of evidence of relative wages, along with the fact that there is evidence that the Plaintiffs performed several types of managerial duties, it appears to the court there is a close question as to whether Davis and Toliver had primarily nonexempt duties. While the Morgan case is helpful in applying the analytical factors and considerations set forth in the C.F.R., the Morgan decision is also distinguishable to the extent that the evidence of managerial responsibilities of the plaintiffs in that case was somewhat limited. Bearing in mind that Wal-Mart has the burden of proof on its affirmative defense, and viewing the evidence in a light most favorable to the non-movants, however, the court concludes that there is sufficient evidence to create a question of fact as to whether the Plaintiffs’ primary duties were managerial. Having concluded that there are questions of fact which preclude judgment in Wal-Mart’s favor on the exemption requirement of primary duty, the court need not address the remaining requirements for application of the executive exemption.”

The Court then went on to hold that Plaintiffs may not be administratrively exempt either.  While, this case was limited to the facts of the two (2) ASM Plaintiffs here, this will be an interesting one to watch.

Cliok here Davis v. Wal-Mart Stores, Inc. to read the entire opinion.

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