Tag Archives: Administrative Exemption

N.D.Ill.: Pharmaceutical Representatives Not Outside Sales Or Administrative Exempt Under FLSA

Jirak v. Abbott Laboratories, Inc.

This case was before the Court on the parties cross-Motions for Summary Judgment on the hot-button issue of whether Plaintiffs, pharmaceutical representatives, were exempt–under either the outside sales or administrative exemption–or non-exempt and entitled to overtime.  Joining the minority of courts to have decided the issue to date, the Court granted Plaintiffs’ Motion for Summary Judgment and denied Defendant’s Motion.

The Court cited the following facts as relevant to its inquiry:

“Defendant is a global, broad-based health care company headquartered in Illinois. (R. 144, Pls.’ Facts ¶ 1.) Plaintiffs are current and former employees of Defendant that worked as Pharmaceutical Representatives (“Representatives”). (Id. ¶ 2.) Representatives had the core duties of “generating market share and market share growth for assigned professional pharmaceutical products” and “mak[ing] selling presentations to physicians and other health care professionals.” (R. 149, Def.’s Facts ¶ 8.) Representatives, however, did not promote Defendant’s products directly to patients or end-users. (R. 144, Pls.’ Facts ¶ 53.)

Representatives received initial training from Defendant on science and selling skills. (R. 149, Def.’s Facts ¶ 10.) This included training on product and competitor product information as well as selling techniques and techniques to determine the physician’s needs. (Id. ¶¶ 11, 13-14.) After the initial period of training, Representatives received training to continue to develop these skills and were also encouraged to participate in sales training outside of the company. (Id. ¶¶ 16, 19.)

Representatives were evaluated on their ability to utilize their training in the field. (Id. ¶ 10.) During “calls” or visits to health care providers, Defendant expected Representatives to adhere to company policies and federal and state laws that govern the pharmaceutical industry. (R. 144, Pls.’ Facts ¶ 11.) Their evaluations were based on job responsibilities that included “selling to customers” and “coordinat[ing] sales efforts.” (R. 149, Def.’s Facts ¶ 20.) Defendant provided each Representative with a “call list” specifying the physicians in their assigned territory that they were to present information about Defendant’s products. (R. 144, Pls.’ Facts ¶¶ 8, 10.) Defendant ranked the physicians on the “call list” and Representatives were expected to call on the higher-ranked physicians with more frequency than others .  (Id. ¶¶ 39-40.) Each Representative was also supplied with a laptop computer to enter “call notes” describing what they did on a particular sales call. (Id. ¶ 11.) District Managers (“DMs”) had access to these “call notes” to ensure that Representatives were following appropriate procedure. (Id.) DMs could also conduct “ride alongs” to monitor Representatives during their calls. (Id.)

Representatives were expected to deliver “core messages” created by Defendant’s marketing department about the products to health care providers. (Id. ¶¶ 4-5, 41.) Although Plaintiffs contend that Representatives “could not deviate” from these messages, the record illustrates that Representatives were not provided “transcripts of communications to be repeated verbatim.” (R. 144, Pls.’ Facts ¶ 4; R. 162, Def.’s Resp. Facts ¶ 4.) Rather, they were free to “weave” these “core messages” into “their overall product conversations with doctors.” (Id.)

To assist with “core message” delivery, Defendant’s marketing department provided “visual aids” and material that Representatives could use or distribute during their calls. (R. 144, Pls.’ Facts ¶¶ 6, 9.) The messaging and material was created under the supervision of Defendant’s medical, regulatory, and legal departments to ensure compliance with industry and company policy.  (R. 162, Def.’s Resp. Facts ¶ 6.) Although Representatives were “prohibited” from using aids that had not been approved by Defendant, they did have discretion to decide which, if any, materials to use during a particular call. (Id. ¶ 9.) Representatives were evaluated on their ability to “consistently giv[e] a logical, reasonable call-to-action/close on every sales call to drive product adoption and utilization.” (R. 149, Def.’s Facts ¶ 26.) “Closing,” however, did not create a contract or an enforceable commitment by the doctor to write a prescription for Defendant’s products. (R. 144, Pls.’ Facts ¶ 19.)

Even if the targeted doctor wrote a prescription for the product and it was filled by a pharmacy, Defendant did not recognize income. (Id. ¶ 15.) Rather, Defendant recognized revenue when their “trade group” provided pharmaceutical products to wholesale and retail customers. (Id.) Eighty to ninety percent of the revenue recognized by Defendant came from sales to wholesalers. (Id.) The remaining ten to twenty percent, was from sales to managed care entities, VA hospitals, long-term care facilities, independent hospital, independent pharmacies, and other small entities. (Id.; R. 162, Def.’s Resp. Facts ¶ 15.) However, in addition to their base wages, Representatives were paid “incentive compensation” that was calculated, in part, based on prescriptions written in the Representatives’ assigned territory. (R. 149, Def.’s Facts ¶¶ 30-35.)”

Holding that neither the outside sales exemption, nor the administrative exemption was applicable, the Court reasoned:

“I. Outside Salesmen Exemption

The DOL regulations define an “outside salesman” as an employee:  (1) Whose primary duty is: (i) making sales within the meaning of section 3(k) of the [FLSA], or (ii) obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer; and (2) Who is customarily and regularly engaged away from the employer’s place or places of business in performing such primary duty.  29 C.F.R. § 541.500(a). “Primary duty” means “the principal, main, major or most important duty that the employee performs.” Id. at § 541.700(a). “Sale” or “sell” under the FLSA “includes any sale, exchange, contract to sell, consignment for sale, shipment for sale, or other disposition.” Id. at § 541.501(b); 29 U.S.C. § 203(k). The regulations indicate that “promotion work” is “one type of activity often performed by persons who make sales, which may or may not be exempt outside sales work, depending upon the circumstances under which it is performed.” 29 C.F.R. § 541.503(a). “Promotion activities directed toward consummation of the employee’s own sales are exempt.” Id. § 541.503(b). However, “[p]romotional activities designed to stimulate sales that will be made by someone else are not exempt outside sales work.” Id.

Plaintiffs argue that the outside sales exemption does not apply in this case because Representatives “do[ ] not sell anything” and health care providers “do [ ] not purchase anything.” (R. 145, Pls .’ Mem. at 2.) In support of their argument, Plaintiffs cite an amicus curiae brief submitted by the DOL in an appeal pending before the Second Circuit Court of Appeals, In Re Novartis Wage and Hour Litigation. (Id. at 3.) In its brief, the DOL argues that the district court in that case committed legal error when it concluded that the pharmaceutical sales representatives employed by Novartis Pharmaceutical Corporation (“NPC”) were exempt from the overtime requirements of the FLSA under the outsides sales and administrative exemptions. (R. 146-21, Ex. U-DOL Brief.)

In the context of the outside sales exemption, the DOL emphasizes the fact that pharmaceutical sales representatives do not sell or take orders for NPC’s drugs; rather, “they provide information to target physicians about NPC’s drugs with the goal of persuading the physicians to prescribe those drugs to their patients.” (Id. at 5.) The DOL contends that “[b]ecause the reps do not sell any drugs or obtain any orders for drugs, and can at most obtain 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.) The DOL acknowledges that the sales reps duties “bear some of the indicia of sales.” (Id. at 5.) However, the DOL contends that insofar as the reps’ work increases NPC’s sales, “it is non-exempt promotional work ‘designed to stimulate sales that will be made by someone else’ “ and that “a ‘sale’ for the purpose of the outside sales exemption requires a consummated transaction directly involving the employee for whom the exemption is sought.” (Id. at 10 (citing 29 C.F.R. § 541.503(b)), 11-12.)

Plaintiffs argue that pursuant to Auer v. Robbins, 519 U.S. 452 (1997), the DOL’s amicus brief is “entitled to substantial deference by this Court.” (R. 145, Pls.’ Mem. at 4.) Auer involved a disputed interpretation of whether a class of law enforcement officers met the “salary-basis” test for overtime pay exemption under the FLSA. 519 U.S. at 454-55. The Secretary of Labor filed an amicus brief explaining why, in his view, the regulations gave exempt status to the officers. Id. at 461. The Supreme Court deferred to the Secretary’s interpretation explaining that the test was “a creature of the Secretary’s own regulations” and therefore his interpretation was “controlling unless ‘plainly erroneous or inconsistent with the regulations.’ “ Id. at 461 (citations omitted); see also Whetsel v. Network Prop. Servs., Inc., 246 F.3d 897, 901 (7th Cir.2001) (quoting Pauley v. BethEnergy Mines, Inc. 501 U.S. 680, 702 (1991)) (“[i]f the regulation is ambiguous, then we defer to any reasonable construction by the Secretary”). 

Defendant argues that the Court should grant “no deference” to the DOL’s amicus brief. (R. 161, Def.’s Opp’n Mem. at 8.) Defendant claims that the DOL’s interpretation of what it means to “sell” under the outside sales exemption is not based on “language of the DOL’s own creation;” but rather, “statutory language created by Congress.” (Id. at 9.) Therefore, Defendant argues that pursuant to Gonzales v. Oregon, 546 U.S. 243 (2006), the DOL’s interpretation is not entitled to controlling deference. (Id.) In Gonzales, the Supreme Court held that it would not accord deference to an Attorney General rule interpreting a “parroting regulation” that “just repeats two statutory phrases and attempts to summarize the others.” 546 U.S. at 257. The Court reasoned that: “[a]n agency does not acquire special authority to interpret its own words when, instead of using its expertise and experience to formulate a regulation, it has elected merely to paraphrase the statutory language.” Id.

The Court, however, is not persuaded by Defendant’s argument because the regulations at issue in this case do not merely “parrot” the FLSA. The Court acknowledges that both the regulations and the FLSA define “sale” or “sell” to include “any sale, exchange, contract to sell, consignment for sale, shipment for sale, or other disposition.” See 29 C.F.R. § 541.501(b); 29 U.S.C. § 203(k). The regulations, however, go further and provide guidance directly applicable to the issue in this case: when the outside sales exemption applies. The regulations explain that “sales” under the exemption include the transfer of both tangible and intangible property, and that “outside sales work” includes both the sale of commodities and obtaining orders or contracts for services or the use of facilities. See 29 C.F.R. § 541.501. Further, the regulations provide guidance as to when “promotion work” falls under the outside sales exemption. Id. at § 541.500(b). As such, the regulations do more than merely repeat or summarize the FLSA. See Harrell v. United States Postal Serv., 445 F.3d 913, 925-26 (7th Cir.2006) (determining that although the DOL’s interpretation “follows closely the language of the statute,” it is entitled to deference because “the regulation goes beyond the mere recitation of the statutory language and speaks to the issue presented in this case”). Accordingly, the Gonzales exception to awarding deference to the DOL’s interpretation does not apply here. Moreover, even if the Court did find that the DOL’s brief was not entitled to deference, its interpretation is still “entitled to respect” to the extent that “it has the ‘power to persuade.’ “ Gonzales, 546 U.S. at 256 (quoting Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944)). 

After careful review, this Court finds that the DOL’s interpretation is both persuasive and consistent with our analysis of the regulations. The regulations dictate that if an employee does not make any sales and does not obtain any orders or contracts, then the outside sales exemption does not apply. See 29 C.F.R. § 541.500(a). Further, the regulations state that “promotional work that is incidental to sales made, or to be made, by someone else is not exempt outside sales work” and that “promotional activities designed to stimulate sales that will be made by someone else are not exempt outside sales work.” Id. at § 541.503(a)-(b). The latter regulation describes promotional activities generally, and does not distinguish between activities that are “incidental” versus “essential” to sales. See id. at § 541.503(b). In this case, the Court acknowledges that Representatives’ promotional activities were not “incidental” to Defendant’s sales; rather, such activity was an essential component of Defendant’s business strategy. (See R. 149, Def.’s Facts ¶ 8.) However, the activities did not generate Representatives’ “sales,” but instead stimulated “sales” Defendant’s “trade group.” (See R. 144, Pls.’ Facts ¶¶ 15, 19.) Therefore, Representatives’ promotional activities are not exempt under the regulation.

Further, the Court finds that this conclusion is consistent with the DOL’s prior position that a “sale” for the purpose of the outside exemption requires a consummated transition involving the employee for whom the exemption is sought. For example, the DOL found that the outside sales exemption did not apply to “enrollment advisors” or college recruiters whose duties included “selling” the school and “inducing” student applicants, which resulted in the advisors personally obtaining a signed enrollment application and a nonrefundable $50.00 application fee. DOL Opinion Letter, 1998 DOLWH LEXIS 17, at *3, 7 (Feb. 19, 1998). The DOL explained that the activities of the position were more “analogous to sales promotion work” because “like a promotion person who solicits customers for a business,” the college recruiter identifies customers and induces their application but does not “make a contractual offer of its educational services to the applicant.” Id. at *7. See also DOL Opinion Letter, FLSA2006-16, 2006 WL 1698305, at *2 (May 22, 2006) (finding that “ ‘selling the concept’ of donating to a charity does not constitute ‘sales’ for purposes of the outside sales exemption” because the solicitors do not obtain orders or contracts and the “exchange of a token gift for the promise of a charitable donation” is not a “sale”).

In arguing that Representatives “made sales” within the meaning of the FLSA, Defendant relies on the Novartis district court decision as well as the opinion of the only court in this Circuit to address the issue, Schaefer-LaRose v. Eli Lily & Co., 663 F.Supp.2d 674 (S.D.Ind.2009). (R. 148, Def.’s Mem. at 6-12.) The district court in Novartis found that “the realities of the pharmaceutical industry” was “incompatible” with engaging in a “narrow reading” of the outside sales exemption and that a determination that sales representatives are exempt “produces results that reflect the exemptions terms and spirit.” 593 F.Supp.2d at 653. Similarly, the Schaefer court noted that the pharmaceutical industry was “unique” because “the only individuals who can legally authorize a purchase of the medication and who thus drive demand for those drugs” are physicians. 663 F.Supp.2d at 684. As such, the Schaefer court found that although the pharmaceutical sales representatives in that case did not provide “direct sales of the medications,” they represented a “special category with regard to ‘making sales’ “ and thus fell within the FLSA’s outside sales exemption. Id. at 684-85. 

This Court, however, declines to follow these decisions and carve out this “special category.” Instead, pursuant to the Seventh Circuit’s mandate that FLSA exemptions must be “narrowly construed against the employer seeking the exemption,” Schmidt, 599 F.3d at 631, the Court finds that Representatives do not “plainly and unmistakably” come within the outside sales exemption. See Jackson, 56 Fed. Appx. at 270. It is clear that Representatives bear some indicia of salesmen (as evidenced by hiring considerations, training, their evaluation criteria and incentive pay). However, pursuant to both the plain text of the outside sales exemption and the DOL’s interpretation of it, Representatives fail to satisfy the primary duty test of the exemption because they do not “make sales” under the statute. (See R. 146-21, Ex. U-DOL Brief at 11 (“a ‘sale’ for the purpose of the outside sales exemption requires a consummated transaction directly involving the employee for whom the exemption is sought”).) See also Kuzinski v. Schering Corp., 604 F.Supp.2d 385, 402-03 (D.Conn.2009) (“Because [pharmaceutical sales reps] undisputedly do not ‘sell’ or make any ‘sales’ as those terms are defined in the FLSA and its implementing regulations, they fall outside the FLSA’s outside sales exemption.”); Ruggeri v. Boehringer Ingelheim Pharms., Inc., 585 F.Supp.2d 254, 272 (D.Conn.2008) (“Because Defendant has not shown that [pharmaceutical sales reps] make sales or obtain contracts or orders, the outside sales exemption is inapplicable.”).

Thus, Representatives are not exempt from the overtime requirements of the FLSA under the outside sales exemption.  Accordingly, summary judgment is granted to Plaintiffs on this issue. 

II. Administrative Exemption

Next, the parties present cross-motions on the issue of whether Representatives are exempt from the overtime requirements of the FLSA under the administrative exemption. (R. 145, Pls.’ Mem at 11-19; R. 148, Def.’s Mem. at 12-20.) The DOL Regulations define an “administrative employee” as someone:  (1) Compensated on a salary or fee basis at a rate of not less than $455 per week … exclusive of board, lodging or other facilities; (2) Whose primary duty is the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and (3) Whose primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.  29 C.F.R. § 541.200. There is no dispute that Representatives in this case meet the first prong of the administrative employee exemption. (See R. 145, Pls.’ Mem at 11-19; R. 148, Def.’s Mem. at 12-20.) The parties, however, disagree as to whether Representatives performed work “directly related” to Defendant’s management or business operations and whether Representatives exercised “discretion and judgment with respect to matters of significance.” (Id.)

Turning first to prong three of the exemption, the regulations explain that, “the exercise of discretion and independent judgment involves the comparison and the evaluation of possible courses of conduct, and acting or making a decision after the various possibilities have been considered.” 29 C.F.R. § 541.202(a). “The term ‘matters of significance’ refers to the level of importance or consequence of the work performed.” Id. The exercise of discretion and independent judgment requires “more than the use of skill in applying well-established techniques, procedures or specific standards described in manuals or other sources.” Id. at § 541.202(e). The employee must have “authority to make an independent choice, free from immediate direction or supervision.” Id. at § 541.202(c). Further, an employee does not meet the requirement “merely because the employer will experience financial losses if the employee fails to perform the job properly.” Id. at § 541.202(f).

“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 questions arises.” Id. at § 541.202(b). The regulations, however, provide factors to consider when determining whether an employee’s duties meet this threshold. Id. These factors include, but are not limited to, whether the employee “carries out major assignments in conducting the operations of the business”; “has authority to commit the employer in matters that have significant financial impact”; “has authority to waive or deviate from established policies and procedures without prior approval”; and “has authority to negotiate and bind the company on significant matters.” Id.

Defendant argues that Representatives “regularly exercised discretion and independent judgment with matters of significance.” (R. 148, Def.’s Mem. at 13-19.) Specifically, Defendant asserts that Representatives built relationships, created “pre-call plans” and customized their calls to develop a specific strategy to increase their effectiveness with targeted physicians, which resulted in an increase in Defendant’s market share. (Id.) Defendant cites the recently decided case Smith v. Johnson & Johnson, 593 F.3d 280 (3d Cir.2010), in support of their argument. (R. 169, Def.’s Reply at 6-10; R. 173, Def.’s Mot. to File Supp. Authority.) The facts before the Third Circuit (the only circuit to address the administrative exemption status of pharmaceutical sales representatives), however, do not persuade this Court to reach the same conclusion in this case. The Third Circuit noted that the plaintiff, Smith, “executed nearly all of her duties without direct oversight” and during her deposition “described herself as the manager of her own business who could run her territory as she saw fit.” Smith, 593 F.3d at 285. Although Smith argued that she lacked discretion with respect to matters of significance and that her previous statements were “overinflated” and “mere puffery,” the Third Circuit was “unwilling to ignore Smith’s testimony” and accepted her statements “as an accurate description of her position .” Id. 

The facts before this Court are distinguishable from Smith and indicate that Representatives did not exercise discretion and independent judgment, but instead used their sales skill to apply Defendant’s well established techniques and procedures. For example, the record illustrates that Representatives did not independently solicit doctors, but worked from a “call list” provided by Defendant that specified the physicians in their assigned territory that they were to target. (R. 144, Pls.’ Facts ¶¶ 8, 10.) The “call list” also dictated the frequency that Defendant expected Representatives to visit the targeted physicians. (Id. ¶ 39.) Further, although Representatives had flexibility to determine how to best craft the appropriate message for a particular doctor (R. 162, Def.’s Resp. Facts ¶ 4), they did not engage in sales “calls” “independent [ly],” and were not “free from immediate direction.” See 29 C.F.R. § 541.200. Representatives were expected to adhere to company policies and to deliver Defendant’s “core messages” about the products during “calls.” (R. 144, Pls.’ Facts ¶¶ 4-5, 11, 41.) Representatives could use or distribute marketing material provided by Defendant but were “prohibited” from creating their own material. (Id. ¶¶ 6, 9; R. 162, Def.’s Resp. Facts ¶ 9.) Further, because Representatives could not prepare contracts or create an enforceable commitment by a doctor to write a particular prescription (R. 144, Pls.’ Facts ¶ 19), they did not have the authority to negotiate and bind Defendant in significant matters or matters that had a significant financial impact. See 29 C.F.R. § 541.202(b).

Moreover, pursuant to the DOL’s interpretation, duties similar to those of the Representatives in this case, “do[ ] not suffice to qualify for the administrative exemption.” (R. 146-21, Ex. U-DOL Brief at 21.) In the Novartis brief, the DOL asserts that NPC’s pharmaceutical sales representatives do not perform duties that require the exercise of discretion and independent judgment as contemplated by the regulations. (Id. at 21.) Rather, the DOL states:

The facts are clear that, within the stringent restrictions on Reps’ work activities, the Reps’ discretion is limited to such matters as what time of day to visit a particular doctor, the manner in which to approach the doctor based on the doctor’s personality, and how best to deliver (i.e., to ‘fit in’) the NPC’s ‘core message’ for a particular drug given the time constraints of a visit.  Id. at 26. Accordingly, the DOL argues that the district court in Novartis erred in concluding that NPC’s pharmaceutical sales representatives are administrative employees because they do not exercise discretion and independent judgment with respect to matters of significance. (Id. at 17.)

The DOL interpretation is consistent with previous agency decisions addressing the discretion and independent judgment prong of the exemption. See, e.g., DOL Opinion Letter, FLSA2006-27, 2006 DOLWH LEXIS 37, at *7 (July 24, 2006) (citation omitted) (stating that discretion and independent judgment requires more than “mak[ing] limited decisions, within clearly ‘prescribed parameters’ ”); DOL Opinion Letter, 2000 DOLWH LEXIS 23, at *5 (July 17, 2000) (“An employee who merely applies his knowledge in following prescribed procedures or determining which procedure to follow … is not exercising discretion and independent judgment within the meaning of section 541.2, even if there is some leeway in reaching a conclusion.”).

Accordingly, this Court finds that in light of the facts of this case, Representatives do not exercise discretion and independent judgment and thus do not meet the administrative exemption.  Therefore, summary judgment is granted to Plaintiffs on this issue.

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Mortgage Loan Officers Do Not Typically Qualify For The Administrative Exemption, Says DOL

Administrator’s Interpretation No. 2010-1

The Wage and Hour Division, under the current Administration, has issued its first Administrative Interpretation Letter.  The introductory text of the Letter is below:

“Based on the Wage and Hour Division’s significant enforcement experience in the application of the administrative exemption, a careful analysis of the applicable statutory and regulatory provisions and a thorough review of the case law that has continued to develop on the exemption, the Administrator is issuing this interpretation to provide needed guidance on this important and frequently litigated area of the law.  Based on the following analysis it is the Administrator’s interpretation that employees who perform the typical job duties of a mortgage loan officer, as described below, do not qualify as bona fide administrative employees exempt under section 13(a)(1) of the Fair Labor Standards Act, 29 U.S.C. § 213(a)(1).

Typical Job Duties of Mortgage Loan Officers

The financial services industry assigns a variety of job titles to employees who perform the typical job duties of a mortgage loan officer.  Those job titles include mortgage loan representative, mortgage loan consultant, and mortgage loan originator.  For purposes of this interpretation the job title of mortgage loan officer will be used.  However, as the regulations make clear, a job title does not determine whether an employee is exempt. The employee’s actual job duties and compensation determine whether the employee is exempt or nonexempt.  29 C.F.R. § 541.2.

Facts found during Wage and Hour Division investigations and the facts set out in the case law establish that the following are typical mortgage loan officer job duties: Mortgage loan officers receive internal leads and contact potential customers or receive contacts from customers generated by direct mail or other marketing activity.  Mortgage loan officers collect required financial information from customers they contact or who contact them, including  information about income, employment history, assets, investments, home ownership, debts, credit history, prior bankruptcies, judgments, and liens.  They also run credit reports.  Mortgage loan officers enter the collected financial information into a computer program that identifies which loan products may be offered to customers based on the financial information provided.  They then assess the loan products identified and discuss with the customers the terms and conditions of particular loans, trying to match the customers’ needs with one of the company’s loan products. Mortgage loan officers also compile customer documents for forwarding to an underwriter or loan processor, and may finalize documents for closings.  See, e.g., Yanni v. Red Brick Mortgage, 2008 WL 4619772, at *1 (S.D. Ohio 2008); Pontius v. Delta Financial Corp., 2007 WL 1496692, at *2 (W.D. Pa. 2007); Geer v. Challenge Financial Investors Corp., 2007 WL 2010957 (D. Kan. 2007), at *2; Chao v. First National Lending Corp., 516 F. Supp. 2d 895, 904 (N.D. Ohio 2006), aff’d, 249 Fed.App. 441 (6th Cir. 2007); Epps v. Oak Street Mortgage LLC, 2006 WL 1460273, at *4 (M.D. Fla. 2006); Rogers v. Savings First Mortgage, LLC, 362 F. Supp. 2d 624, 627 (D. Md. 2005); Casas v. Conseco Finance Corp., 2002 WL 507059, at *1 (D. Minn. 2002).”

To read the entire Letter click here.

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3rd. Cir.: “Senior Professional Sales Representative” For Pharmaceutical Company Exempt From Overtime Provisions Of FLSA Under Administrative Exemption

Smith v. Johnson and Johnson

The Court below determined that Plaintiff was exempt under the Administrative Exemption, based on her duties and salary while employed as a “Senior Professional Sales Representative.”  On appeal, the Third Circuit affirmed.

Discussing the relevant facts, the Court stated:

“From April 2006 to October 2006, McNeill Pediatrics, a J & J wholly-owned subsidiary, employed Smith in the position of Senior Professional Sales Representative. In essence, Smith’s position required her to travel to various doctors’ offices and hospitals where she extolled the benefit of J & J’s pharmaceutical drug Concerta to the prescribing doctors. J & J hoped that the doctors, having learned about the benefits of Concerta, would choose to prescribe this drug for their patients. Smith, however, did not sell Concerta (a controlled substance) directly to the doctors, as such sales are prohibited by law.

J & J gave Smith a list of target doctors that it created and told her to complete an average of ten visits per day, visiting every doctor on her target list at least once each quarter. To schedule visits with reluctant doctors, Smith had to be inventive and cultivate relationships with the doctor’s staff, an endeavor in which she found that coffee and donuts were useful tools. J & J left the itinerary and order of Smith’s visits to the target doctors to her discretion. The J & J target list identified “high-priority” doctors that issued a large number of prescriptions for Concerta or a competing product, and Smith could choose to visit high-priority doctors more than once each quarter. J & J gave her a budget for these visits and she could use the money in the budget to take the doctors to lunch or to sponsor seminars.

At the meetings, Smith worked off of a prepared “message” that J & J provided her, although she had some discretion when deciding how to approach the conversation. J & J gave her pre-approved visual aids and did not permit her to use other aids. J & J trained its representatives to gauge a doctor’s interest and knowledge about the product, eventually building to a “commitment” to prescribe the drug.

In Smith’s deposition she made it clear that she appreciated the freedom and responsibility that her position provided. Though a supervisor accompanied Smith during the doctor visits on a few days each quarter, by her own calculation Smith was unsupervised 95% of the time. As Smith explained during her deposition, “[i]t was really up to me to run the territory the way I wanted to. And it was not a micromanaged type of job. I had pretty much the ability to work it the way I wanted to work it.” App. at 54. According to Smith’s job description, she was required to plan and prioritize her responsibilities in a manner that maximized business results. J & J witnesses testified (and J & J documents confirmed) that Smith was the “expert” on her own territory and was supposed to develop a strategic plan to achieve higher sales.

Before her visits, Smith completed pre-visit reports to help her select the correct strategy for that day’s visits. At the end of her day, Smith completed post-visit reports summarizing the events of the visits. Smith would refer back to this information before her next visit to the same doctors. After adding up the time she spent writing pre-visit reports, driving, conducting the visits, writing post-visit reports, and completing other tasks, Smith worked more than eight hours per day.

Smith earned a base salary of $66,000 but was not paid overtime, though J & J, at its discretion, could award her a bonus. J & J considered the number of Concerta prescriptions issued in Smith’s territory in determining her bonus. The collection of this data and its direct relationship to Smith’s efforts was, however, subject to error as purchasers might fill their prescriptions in another territory or with a pharmacy that would not release the pertinent information to J & J.”

Applying the Administrative Exemption to the facts of this case, the Court held, that the Administrative Exemption was applicable to Smith.  The Court reasoned, “[w]hile testifying at her deposition Smith elaborated on the independent and managerial qualities that her position required. Her non-manual position required her to form a strategic plan designed to maximize sales in her territory. We think that this requirement satisfied the “directly related to the management or general business operations of the employer” provision of the administrative employee exemption because it involved a high level of planning and foresight, and the strategic plan that Smith developed guided the execution of her remaining duties. See29 C.F.R. § 541.203(e) (“Human resources managers who formulate, interpret or implement employment policies and management consultants who study the operations of a business and propose changes in organization generally meet the duties requirements for the administrative exemption.”); Reich v. John Alden Life Ins. Co. ., 126 F.3d 1, 3-5, 12 (1st Cir.1997) (applying administrative employee exemption to marketing representatives who dealt with licensed independent insurance agents who, in turn, dealt with purchasers of insurance products).

When we turn to the “exercise of discretion and independent judgment with respect to matters of significance” requirement, we note that Smith executed nearly all of her duties without direct oversight. In fact, she described herself as the manager of her own business who could run her own territory as she saw fit. Given these descriptions, we conclude that Smith was subject to the administrative employee exemption. Cf. Cote v. Burroughs Wellcome Co., 558 F.Supp. 883, 886-87 (E.D.Pa.1982) (applying administrative employee exemption to medical “detailer” even though description of employee’s duties was more parsimonious than Smith’s description of her duties here).

Smith nevertheless has asked us to limit the significance of her testimony and find that she lacked discretion with respect to matters of significance. Indeed, her attorney contended at oral argument on this appeal that Smith overinflated her importance during the deposition, and that we should consider her statements mere puffery. We are unwilling to ignore Smith’s testimony to hold that there is an issue of material fact merely because of Smith’s request that we do so. In this regard, we point out that when Smith testified she surely understood the significance of her testimony in the context of this case. In the circumstances before us, we accept Smith’s deposition testimony as an accurate description of her position and thus we will affirm the order granting J & J summary judgment.FN3

In reaching our result we have not overlooked our opinion in Martin v. Cooper Elec. Supply Co., 940 F.2d 896 (3d Cir.1991), on which Smith heavily relies. Rather, we find that Cooper is distinguishable on the facts. Moreover, we agree with the District Court that changes in the Secretary’s regulations since Cooper make that case inapplicable here. See Smith, 2008 WL 5427802, at *8-9.”

Interestingly, neither the Court below, nor the Third Circuit, reached the hot button issue of whether Smith was subject to the Outside Sales Exemption, despite the fact that the issue was briefed both on Defendant’s Motion below, and on cross-appeal.

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2d. Cir.: Advertising Salespeople Are Not Administratively Exempt Under The FLSA; Sales Are Not “Directly Related To Management Policies Or General Business Operations”

Reiseck v. Universal Communications of Miami, Inc.

This case was before the Court on Plaintiff’s appeal an Order at the district court below, granting Defendants summary judgment on all counts of Plaintiff’s claim.  The Court affirmed all parts of the judgment below, except for that pertaining to the FLSA.  Resolving a question of first impression, the Court held that advertising salespeople, who conduct sales with individual customers are not subject to the administrative exemption as a matter of law, because such sales work is production work not administrative.

The Court discussed the following facts as relevant to its decision:

“September 2002, Reiseck began working as a Regional Director of Sales at Universal in New York City. As Regional Director of Sales, Reiseck was responsible for generating advertising sales in the northeastern United States and Canada from the travel and finance sectors for Universal’s magazine publication, Elite Traveler. While an employee of Universal, Reiseck was paid a base salary plus certain commissions. Plaintiff was paid no overtime during her tenure with Universal.

Elite Traveler is distributed on a complimentary basis. Advertising sales therefore constitute the majority of Universal’s revenue from Elite Traveler. The magazine had a sales staff, a marketing staff, and an editorial staff. The sales staff sold advertising space; the marketing staff created promotional material to increase advertising sales; and the editorial staff produced the “content” of the magazine.”

Discussing the inapplicability of the administrative exemption to the case at bar, the Court applied the s0-called pre-2004 “short test.”

“Under the short test as it applies here, an employee falls under the administrative employee exemption if the employee is paid on a salary or fee basis at a rate of not less than $250 per week (i.e., the “salary test”), id. § 541.2(e)(2), and the employee’s “primary duty consists of … the performance of office or nonmanual work directly related to management policies or general business operations of his employer,” id. § 541.2(a), and requires “the exercise of discretion and independent judgment,” id. § 541.2(e)(2), (i.e., the “duties test”). As noted above, there is no dispute that Reiseck’s employment satisfies the salary test prong of the short test.

Because the first prong of the short test is not in dispute, we move to the second prong-the duties test. Here, it is uncontested that Reiseck’s primary duty consisted of “the performance of office or non-manual work”; therefore we must consider whether Reiseck’s primary duty was “directly related to management policies or general business operations” of Universal. Id. § 541.2(a).

The phrase “directly related to management policies or general business operations” is not self-defining, and the Secretary of Labor has promulgated interpretive regulations to aid our application of this test. See, e.g., id. § 541.2. Although the Secretary’s legislative regulations-those promulgated pursuant to an express grant of authority by Congress, like 29 C.F.R. § 541.2-have the power to control courts’ reading of the law, the Secretary’s interpretive regulations have only the power to persuade courts. See Skidmore v. Swift & Co., 323 U.S. 134, 139-40 (1944). See generally United States v. Mead Corp., 533 U .S. 218 (2001). And thus we defer to the Secretary’s interpretative regulations only to the extent that we find them persuasive. See Skidmore, 323 U.S. at 140.

In its interpretive regulations, the Department of Labor describes “directly related to management policies or general business operations” in several ways. First, the interpretive rules state that the phrase at issue “describes those types activities relating to the administrative operations of a business as distinguished from ‘production’ or, in a retail or service establishment, ‘sales’ work.” 29 C.F.R. § 541.205(a). They also state that “the phrase limits the exemption to persons who perform work of substantial importance to the management or operation of the business.” Id. Alternatively, the interpretive rules state that the administrative operations include “advising the management, planning, negotiating, representing the company, purchasing, promoting sales, and business research and control.” Id. § 541.205(b).

At first glance, the two definitions of the phrase “directly related to management policies or general business operations” in the interpretive regulations seem to point to contradictory conclusions in Reiseck’s case. On the one hand, plaintiff was a salesperson responsible for selling specific advertising space, and so seems to fit comfortably on the “sales” side of the administrative/sales divide. See id. § 541.205(a). On the other hand, Reiseck also “promoted sales” in some sense, and thus seems to have performed administrative operations. See id. § 541.205(b). We are required to resolve this apparent contradiction. Whether advertising salespersons are administrative employees for the purposes of the exemptions to the FLSA’s overtime pay provisions is a question of first impression for this Court. In answering this question, we also refine our interpretation of the administrative exemption to the FLSA.

First, we consider the Department’s distinction between “administrative” and “sales.” As a magazine publisher, Universal is not one of the archetypal businesses envisaged by the FLSA; it is neither a manufacturer nor a retailer. Accordingly, placing Reiseck’s work into either the administrative or sales category is difficult initially. Nevertheless, a careful consideration of Universal’s business model provides some clarity. Because Universal does not charge readers for Elite Traveler, advertising sales are a critical source of revenue for Universal. One could thus conclude that advertising space is Universal’s “product.” If advertising space is Universal’s product and Reiseck’s primary duty was the sale of that product, then she may reasonably be considered a sales employee, rather than an administrative employee.

Next, we consider the contradictory conclusion suggested by the second description found in the interpretive regulations-namely, that administrative operations include “promoting sales.” 29 C.F.R. § 541.205(b). Because Reiseck sold advertising space, it seems that she must have “promoted sales.” But under that theory, any sales clerk in a retail store would “promote sales” when assisting potential customers, and there would be no administrative/sales distinction in a retail store despite the clear assertion of the interpretive rule that sales work in a retail store is not administrative work for the purposes of the FLSA. Id. One of our sister circuits has provided some helpful guidance on this matter. In Martin v. Cooper Electric Supply Co., 940 F.2d 896, 905 (3d Cir.1991), the Third Circuit reasoned that sales promotion “consists of marketing activity aimed at promoting (i.e., increasing, developing, facilitating, and/or maintaining) customer sales generally.” According to the logic of the Third Circuit, which we now adopt, an employee making specific sales to individual customers is a salesperson for the purposes of the FLSA, while an employee encouraging an increase in sales generally among all customers is an administrative employee for the purposes of the FLSA. Consider a clothing store. The individual who assists customers in finding their size of clothing or who completes the transaction at the cash register is a salesperson under the FLSA, while the individual who designs advertisements for the store or decides when to reduce prices to attract customers is an administrative employee for the purposes of the FLSA.

Here, Reiseck is plainly a salesperson. Although she did “develop new clients” with the goal of increasing sales generally, this was not her primary duty. Under the interpretive regulations, an employee’s “primary duty” is the duty that consumes a “major part, or over [fifty] percent, of the employee’s time.” 29 C.F.R. § 541.103 (defining “primary duty” for the executive employee); see also 29 C.F.R. § 541.206 (applying the definition of “primary duty” for the executive employee to the administrative employee). The record shows that Reiseck’s primary duty was to sell specific advertising space to clients. Even Gollan, plaintiff’s supervisor, conceded that Reiseck was a member of the “sales staff” and not the “marketing staff.”  Because Reiseck’s primary duty was the sale of advertising space, she is properly considered a “salesperson” for the purposes of the FLSA and therefore does not fall under the administrative exemption to the overtime pay provisions of the FLSA.

Recent amendments to the interpretive regulations provide helpful guidance to support our conclusion above. Although these interpretive regulations do not apply retroactively, see ante note 5, (and even if they did apply retroactively, we need not consider them if we find them unpersuasive, see Skidmore, 323 U.S. at 140), we nevertheless note that the new regulations reach the same conclusion that we reach above. When providing examples of employees who fall under the administrative exemption, the interpretative regulations state that an employee in the financial sector whose primary duty includes “marketing, servicing, or promoting the employer’s financial products” likely falls under the administrative exemption. 29 C.F.R. § 541.203(b) (2004). But, the regulations then specify that “an employee whose primary duty is selling financial products does not qualify for the administrative exemption.” Id. (emphasis added). For example, if a bank employee, acting within the scope of her primary duty, encourages a customer to open a money market account while she opens a checking account for that customer, she would not likely be an administrative employee because she simply was selling a financial product. If, however, an employee’s primary duty included deciding which interest rates to offer to encourage customers to open money market accounts, then that employee would likely be considered an administrative employee, because she was “marketing … or promoting” the financial products. Universal’s sale of advertising space is similar to a financial services company’s sale of financial products. Neither fits neatly within the traditional retail sales model, yet both are standard products sold directly to clients. Additionally, the new interpretative regulations confirm t

Because Reiseck’s primary duty is not administrative, she cannot fall under the administrative exemption to the overtime pay provisions of the FLSA. Our inquiry ends there-we need not inquire whether her work requires “the exercise of discretion and independent judgment,” because the short test requires both that the employee’s primary duty be administrative and that the employee’s work involves the use of discretion. 29 C.F.R. § 541.2(e)(2).”

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2d. Cir.: Mortgage Underwriters Not Subject To Administrative Exemption; Plaintiffs Are ‘Production’ Rather Than ‘Administrative’ Workers

Davis v. J.P. Morgan Chase & Co.

Plaintiff, was employed as mortgage underwriter.  He brought the case challenging Defendant, J.P. Morgan Chase’s categorization of underwriters as administrative employees exempt from the Fair Labor Standard Act’s overtime pay requirements.  The District Court granted Defendant’s Motion for Summary Judgment finding Plaintiff to be subject to the Administrative Exemption.  On appeal, the Second Circuit reverses, finding Plaintiff to be non-exempt.

The Court initially described the issue before it as follows:

“This appeal requires us to decide whether underwriters tasked with approving loans, in accordance with detailed guidelines provided by their employer, are administrative employees exempt from the overtime requirements of the Fair Labor Standards Act. Andrew Whalen was employed by J.P. Morgan Chase (“Chase”) for four years as an underwriter. As an underwriter, Whalen evaluated whether to issue loans to individual loan applicants by referring to a detailed set of guidelines, known as the Credit Guide, provided to him by Chase. The Credit Guide specified how underwriters should determine loan applicant characteristics such as qualifying income and credit history, and instructed underwriters to compare such data with criteria, also set out in the Credit Guide, prescribing what qualified a loan applicant for a particular loan product. Chase also provided supplemental guidelines and product guidelines with information specific to individual loan products. An underwriter was expected to evaluate each loan application under the Credit Guide and approve the loan if it met the Guide’s standards. If a loan did not meet the Guide’s standards, certain underwriters had some ability to make exceptions or variances to implement appropriate compensating factors. Whalen and Chase provide different accounts of how often underwriters made such exceptions.”

Discussing a variety of precedent and the administrative/production dichotomy, the Court held that such underwriters are not subject to the Administrative Exemption.

“Precedent in this circuit is light but provides the framework of our analysis to identify Whalen’s job as either administrative or production. In Reich v. State of New York, 3 F.3d 581 (2d Cir.1993), overruled by implication on other grounds by Seminole Tribe v. Florida, 517 U.S. 44 (1996), we held that members of the state police assigned to the Bureau of Criminal Investigation (BCI), known as BCI Investigators, were not exempt as administrative employees. See id. at 585, 588. BCI Investigators are responsible for supervising investigations performed by state troopers and conducting their own investigations of felonies and major misdemeanors. Applying the administrative versus production analysis, we then reasoned that because “the primary function of the Investigators … is to conduct-or ‘produce’-its criminal investigations,” the BCI Investigators fell “squarely on the ‘production’ side of the line” and were not exempt from the FLSA’s overtime requirements. Id. at 587-88.

The administrative/production dichotomy was similarly employed in a Vermont case we affirmed last year, but the circumstances of our affirmance limit its precedential value. The facts of that case were similar to those presented here: the plaintiffs were employed as underwriters for a company in the business of underwriting mortgage loans that were then sold to the secondary lending market. See Havey v. Homebound Mortgage, Inc., No. 2:03-CV-313, 2005 WL 1719061, at *1 (D.Vt. July 21, 2005), aff’d, 547 F.3d 158 (2d Cir.2008). The district court concluded with very little analysis that the underwriters were not employed in production because they performed “nonmanual work related to Homebound’s business.” Id., at *5 Significantly, the court appeared to assume that “production” must relate to tangible goods, citing a Connecticut case in which the court refused to grant summary judgment finding that material planning specialists, senior financial analysts, project financial analysts, and logistics specialists employed by a company that built submarines were exempt from FLSA’s overtime requirements. See id. at *5 n. 6, citing Cooke v. Gen. Dynamics Corp., 993 F.Supp. 56 (D.Conn.1997). The Havey court noted that “[i]n that case … the corporation was in the business of producing submarines. Homebound was in the business of underwriting mortgage loans. No production was taking place.” Id. (citations omitted).

As Reich illustrates, this literal reading of “production” to require tangible goods has no basis in law or regulation. We affirmed the district court in Havey, but the only issue presented on appeal was whether plaintiffs were paid on a salary basis under the payment structure adopted by Homebound. Accordingly, our opinion offered no analysis as to whether the underwriters performed work directly related to the management policies or general business operations of their employers under the FLSA. We therefore do not read our Havey opinion as adopting the flawed analysis of the Vermont court as to administrative and production job functions.

The line between administrative and production jobs is not a clear one, particularly given that the item being produced-such as “criminal investigations”-is often an intangible service rather than a material good. Notably, the border between administrative and production work does not track the level of responsibility, importance, or skill needed to perform a particular job.  The monetary value of the loans approved by Whalen as an underwriter, for example, is irrelevant to this classification: a bank teller might deal with hundreds of thousands of dollars each month whereas a staffer in human resources never touches a dime of the bank’s money, yet the bank teller is in production and the human resources staffer performs an administrative position. Similarly, it is irrelevant that Whalen’s salary was relatively low or that he worked in a cubicle. What determines whether an underwriter performed production or administrative functions is the nature of her duties, not the physical conditions of her employment.

The Department of Labor has attempted to clarify the classification of jobs within the financial industry through regulations and opinion letters. In 2004, the Department of Labor promulgated new regulations discussing, among other things, employees in the financial services industry. Although these regulations were instituted after Whalen’s employment with Chase ended, the Department of Labor noted that the new regulations were “[c]onsistent with existing case law.” 69 Fed.Reg. 22,122, 22,145 (Apr. 23, 2004). The regulation states:

Employees in the financial services industry generally meet the duties requirements for the administrative exemption if their duties include work such as collecting and analyzing information regarding the customer’s income, assets, investments or debts; determining which financial products best meet the customer’s needs and financial circumstances; advising the customer regarding the advantages and disadvantages of different financial products; and marketing, servicing or promoting the employer’s financial products. However, an employee whose primary duty is selling financial products does not qualify for the administrative exemption.29 C.F.R. § 541.203(b).

The Department of Labor explained that the new regulation was sparked by growing litigation in the area and contrasted two threads of case law. On the one hand, some courts found that “employees who represent the employer with the public, negotiate on behalf of the company, and engage in sales promotion” were exempt from overtime requirements. 69 Fed.Reg.. 22,122, 22,145 (Apr. 23, 2004), citing Hogan v. Allstate Ins. Co., No. 02-15918, 2004 WL 362378 (11th Cir.2004); Reich v. John Alden Life Ins. Co., 126 F .3d 1 (1st Cir.1997); Wilshin v. Allstate Ins. Co., 212 F.Supp.2d 1360 (M.D.Ga.2002). On the other hand, the Department cited a Minnesota district court, which found that “employees who had a ‘primary duty to sell [the company's] lending products on a day-to-day basis’ directly to consumers” were not exempt. 69 Fed.Reg.. 22,122, 22,145 (Apr. 23, 2004), quoting Casas v. Conseco Fin. Corp., No. Civ. 00-1512(JRT/SRN), 2002 WL 507059, at *9 (D.Minn.2002). The regulation thus helped to clarify the distinction between employees performing substantial and independent financial work and employees who merely sold financial products.

Opinion letters issued by the Department of Labor similarly recognize a variance in the types of work performed by employees within the financial industry, and explain why some financial employees are administrative while some perform production functions. In 2001, the Department stated that a loan officer who was responsible for creating a loan package to meet the goals of a borrower by “select[ing] from a wide range of loan packages in order to properly advise the client, … supervis[ing] the processing of the transaction to closing,” and “acquir[ing] a full understanding of the customer’s credit history and financial goals in order to advise them regarding the selection of a loan package that will fit their needs and ability” performed administrative work, although the opinion letter ultimately concluded that such loan officers were not exempt. Dep’t of Labor, Wage & Hour Div., Op. Letter (Feb. 16, 2001), available at 2001 WL 1558764.

Crucially, the 2001 opinion letter clarified an opinion letter issued in 1999 after the Department received more information about the loan officer’s duties. In 1999, the Department understood loan officers to develop new business for their employer, consult with borrowers to obtain the best possible loan package, work with a number of different lenders to select loan programs, and perform assorted services shepherding the loan to completion. See Dep’t of Labor, Wage & Hour Div., Op. Letter (May 17, 1999), available at 1999 WL 1002401. With that understanding of the loan officers’ duties, the Department concluded that the loan officers were “engaged in carrying out the employer’s day-to-day activities rather than in determining the overall course and policies of the business” and were therefore not employed as administrative employees. See id. While the 2001 letter reconsidered the loan officers’ employment and reached a different conclusion, the later letter noted that the reconsideration was “in light of the advisory duties [loan officers] perform on behalf of their employer’s customers,” which the employer clarified were the “primary duty” of a loan officer. See 2001 WL 1558764. The two letters read together thus provide a helpful point of reference, highlighting the importance of advisory duties as opposed to mere loan sales.

We thus turn to the job of underwriter at Chase to assess whether Whalen performed day-to-day sales activities or more substantial advisory duties. As an underwriter, Whalen’s primary duty was to sell loan products under the detailed directions of the Credit Guide. There is no indication that underwriters were expected to advise customers as to what loan products best met their needs and abilities. Underwriters were given a loan application and followed procedures specified in the Credit Guide in order to produce a yes or no decision. Their work is not related either to setting “management policies” nor to “general business operations” such as human relations or advertising, 29 C.F.R. § 541.2, but rather concerns the “production” of loans-the fundamental service provided by the bank.

Chase itself provided several indications that they understood underwriters to be engaged in production work. Chase employees referred to the work performed by underwriters as “production work.” Within Chase, departments were at least informally categorized as “operations” or “production,” with underwriters encompassed by the production label. Underwriters were evaluated not by whether loans they approved were paid back, but by measuring each underwriter’s productivity in terms of “average of total actions per day” and by assessing whether the underwriters’ decisions met the Chase credit guide standards.

Underwriters were occasionally paid incentives to increase production, based on factors such as the number of decisions underwriters made. While being able to quantify a worker’s productivity in literal numbers of items produced is not a requirement of being engaged in production work, it illustrates the concerns that motivated the FLSA. The overtime requirements of the FLSA were meant to apply financial pressure to “spread employment to avoid the extra wage” and to assure workers “additional pay to compensate them for the burden of a workweek beyond the hours fixed in the act.” Overnight Motor Transp. Co., Inc. v. Missel, 316 U.S. 572, 577-78 (1942), superseded by statute, Portal-to-Portal Pay Act of 1947, ch. 52, 61 Stat. 84 (granting courts authority to deny or limit liquidated damages awarded for violations of the FLSA). While in the abstract any work can be spread, there is a relatively direct correlation between hours worked and materials produced in the case of a production worker that does not exist as to administrative employees. Paying production incentives to underwriters shows that Chase believed that the work of underwriters could be quantified in a way that the work of administrative employees generally cannot.

We conclude that the job of underwriter as it was performed at Chase falls under the category of production rather than of administrative work. Underwriters at Chase performed work that was primarily functional rather than conceptual. They were not at the heart of the company’s business operations. They had no involvement in determining the future strategy or direction of the business, nor did they perform any other function that in any way related to the business’s overall efficiency or mode of operation. It is undisputed that the underwriters played no role in the establishment of Chase’s credit policy. Rather, they were trained only to apply the credit policy as they found it, as it was articulated to them through the detailed Credit Guide.

Furthermore, we have drawn an important distinction between employees directly producing the good or service that is the primary output of a business and employees performing general administrative work applicable to the running of any business. In Reich, for example, BCI Investigators “produced” law enforcement investigations. By contrast, administrative functions such as management of employees through a human resources department or supervising a business’s internal financial activities through the accounting department are functions that must be performed no matter what the business produces. For this reason, the fact that Whalen assessed creditworthiness is not enough to determine whether his job was administrative. The context of a job function matters: a clothing store accountant deciding whether to issue a credit card to a consumer performs a support function auxiliary to the department store’s primary function of selling clothes. An underwriter for Chase, by contrast, is directly engaged in creating the “goods”-loans and other financial services-produced and sold by Chase.

This conclusion is also supported by persuasive decisions of our sister circuits. In Bratt v. County of Los Angeles, the Ninth Circuit held that the “essence” of an administrative job is that an administrative employee participates in “the running of a business, and not merely … the day-to-day carrying out of its affairs.” 912 F.2d 1066, 1070 (9th Cir.1990) (internal quotations omitted). The Department of Labor later quoted that same language approvingly. See Dep’t of Labor, Wage & Hour Div., Op. Letter (Sept. 12, 1997), available at 1997 WL 971811. More recently, the Ninth Circuit expanded, “The administration/production distinction thus distinguishes between work related to the goods and services which constitute the business’ marketplace offerings and work which contributes to ‘running the business itself.’ “ Bothell v. Phase Metrics, Inc., 299 F.3d 1120, 1127 (9th Cir.2002). The Third Circuit has also noted that production encompasses more than the manufacture of tangible goods. See Martin v. Cooper Elec. Supply Co., 940 F.2d 896, 903-04 (3d Cir.1991). In that case, telephone salespersons were given a pricing matrix specifying price quotes for specific goods as offered to specific customers. The salespersons had some authority to deviate from the price quotes, and occasionally also called manufacturers to restock items, negotiating the price of acquiring the item with the manufacturer. The salespersons were paid a fixed salary, but were also paid incentives tied to their sales performance. The Third Circuit held that the salespersons were production employees because the goal of the salespersons was “to produce wholesale sales.” Id. at 903 (emphasis in original). Along similar lines, the First Circuit held that marketing representatives charged with cultivating and supervising an independent sales force were exempt administrative employees, as their primary duties of educating and organizing salespeople were “aimed at promoting … customer sales generally,” not “routine selling efforts focused simply on particular sales transactions.” Reich v. John Alden Life Ins. Co., 126 F.3d at 10 (emphasis in original).

A number of district court opinions have drawn a similar distinction. See, e.g., Neary v. Metro. Prop. & Cas. Ins. Co., 517 F.Supp.2d 606, 614 (D.Conn.2007) (finding that a claims adjuster did not perform administrative work because he did not perform “duties clearly related to servicing the business itself: it could not function properly without employees to maintain it; a business must pay its taxes and keep up its insurance. Such are not activities that involve what the day-to-day business specifically sells or provides, rather these are tasks that every business must undertake in order to function.”); Relyea v. Carman, Callahan & Ingham, LLP, No. 03 Civ. 5580(DRH)(MLO), 2006 WL 2577829, at *5 (E .D.N.Y.2006) (“Like [escrow] closers …, Plaintiffs applied existing policies and procedures on a case-by-case basis. Their duties do not involve the crafting of those policies, but rather the application of those policies. As a result, Plaintiffs are better described as ‘production,’ rather than ‘administrative’ workers, and they are not exempt from FLSA.”); Casas, 2002 WL 507059, at *9 (finding that loan originators for a finance company who were “responsible for soliciting, selling and processing loans as well as identifying, modifying and structuring the loan to fit a customer’s financial needs” were “primarily involved with ‘the day-to-day carrying out of the business’ rather than ‘the running of [the] business [itself]’ or determining its overall course or policies” (quoting Bratt, 912 F.2d at 1070)); Reich v. Chi. Title Ins. Co., 853 F.Supp. 1325, 1330 (D.Kan.1994) (finding escrow closers employed by a company engaged in the business of insuring title for real property to be engaged in a production rather than administrative capacity).

Other out-of-circuit cases similarly support the logic that context matters. An employee whose job is to evaluate credit who works in the credit industry is more likely to perform a production job. See Casas, 2002 WL 507059, at *9 (loan officers for bank are production); Relyea, 2006 WL 2577829, at *5 (loan closers are production); Reich v. Chi. Title Ins. Co., 853 F.Supp. at 1330. Employees who evaluate and extend credit on behalf of a company that is not in the credit industry-extending credit in order to allow customers to purchase a tangible good that the employer manufactured, for example-are generally considered administrative employees. See Hills v. W. Paper Co., 825 F.Supp. 936 (D.Kan.1993) (employee extended credit to customers of company manufacturing paper); Reich v. Haemonetics, 907 F.Supp. 512 (D.Mass.1995) (employee involved in extending credit to customers of company that sold equipment to hospitals). But in the context of such businesses, such employees provide adjunct, general services to the overall running of the business, while at Chase, underwriters such as Whalen are the workers who produce the services-loans-that are “sold” by the business to produce its income.

Chase offers a few out of circuit cases suggesting that underwriters are exempt administrative employees, but the cases are distinguishable on their facts. See, e.g., Edwards v. Audobon Ins. Group Co., No. 3:02-CV-1618-WS, 2004 WL 3119911, at *5 (S.D.Miss. Aug. 31, 2004) (finding an underwriter who “decide[d] what risks the company would take and at what price” an exempt administrative employee); Callahan v. Bancorpsouth Ins. Servs. of Miss., Inc., 244 F.Supp.2d 678, 685-86 (S.D.Miss.2002) (finding manager responsible for overseeing all aspects of employer’s operations, including marketing, billing and collections, and underwriting, was administrative employee); Hippen v. First Nat’l Bank, Civ. A. No. 90-2024-L, 1992 WL 73554, at *7 (D.Kan. Mar. 19, 1992) (finding executive vice president of bank who described himself as “number two” in hierarchy and was member of board of directors to be administrative employee); Creese v. Wash. Mut. Bank, No. B193931, 2008 WL 650766, at *8 (Cal.Ct.App.2008) (noting specifically that lower court determination as to class certification did not address the merits of whether underwriters seeking to challenge exempt classification were administrative employees). In virtually all of these cases, the employee in question exercised managerial tasks beyond assessing credit risk, or assessed risks in a firm whose primary business was not the extension of credit, and the result is therefore not in tension with the analysis offered here. In any event, to the extent that the reasoning, language, or result in any of these cases is not consistent with our analysis, we respectfully disagree.

Accordingly, we hold that Whalen did not perform work directly related to management policies or general business operations. Because an administrative employee must both perform work directly related to management policies or general business operations and customarily and regularly exercise discretion and independent judgment, we thus hold that Whalen was not employed in a bona fide administrative capacity. We need not address whether Whalen customarily and regularly exercised discretion and independent judgment.”

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E.D.Ark.: “Payroll Manager” Demonstrated Lack Of Discretion And Independent Judgment; Defendant’s SJ Motion On Administrative Exemption Denied

Reedy v. Rock-Tenn Co. of Arkansas

Plaintiff was, at points relevant to this case, Defendant’s “payroll manager.” The case was before the Court on Defendant’s Motion for summary judgment, based on Defendant’s assertion that Plaintiff was exempt from the FLSA’s overtime provisions under the administrative exemption. Finding issues of fact as to whether Plaintiff had the requisite discretion and independent judgment, the Court denied Defendant’s Motion.

The Court recited the following relevant facts, “Dolores Reedy worked at Rock-Tenn’s folding carton plant in Conway, Arkansas, from June 1986 until March 15, 2007, when she voluntarily resigned. Reedy, who has no college degree or formal accounting training, began as a temporary employee and later worked full-time as a payroll clerk. Rock-Tenn originally treated her as an hourly employee and paid her overtime. At some point, Reedy acquired the title of “Payroll Manager,” was paid on a salary basis, and stopped receiving overtime compensation.

Reedy was responsible for Rock-Tenn’s payroll. Rock-Tenn hired several assistants to work with Reedy in the payroll department, including Linda Suggs, Carolyn Hansen, and Denise Bent. Sometimes assistants worked only as temporary employees. Reedy’s responsibilities in the payroll department included maintaining employee files; wage garnishments; referring Family and Medical Leave Act (“FMLA”) matters to her immediate supervisor, Ken Hogan, or the Benefit Services Center; completing some Employment Eligibility Verification forms based on the documents in employees’ files; and responding to requests for information from the Arkansas Employment Security Department. At some point, Reedy composed a policy reference book for the payroll department.

Reedy says that after she stopped receiving overtime pay, she continued to log her hourly time and report her time to Hogan. She says she spoke with someone in Rock-Tenn’s corporate office about whether she should be exempt from overtime compensation under FLSA. Reedy also says that she and Hogan attended a class in which the instructors conducted an exercise to determine which persons were exempt under the FLSA, and Reedy says that at the end of the exercise she was in the group of persons who were not exempt. Reedy says that she discussed the exercise with Hogan, but Rock-Tenn made no changes to her exempt status.”

After a recitation of the relevant law, the Court applied same stating, “Reedy’s job title of “payroll manager,” standing alone, is of little use in determining whether she was exempt, and the Court must examine evidence relating to the nature of Reedy’s duties. See Lentz v. Hospitality Staffing Solutions, LLC, 2008 WL 269607, at *4 (N.D.Ga. Jan. 28, 2008). A reasonable jury could conclude that Reedy did not exercise discretion and independent judgment in her job as payroll manager. Therefore, the nature of Reedy’s duties and her position relative to the payroll assistants is a disputed issue of fact.

Regarding Reedy’s investigatory duties, Rock-Tenn asserts that she investigated alleged pay discrepancies and notified management if there were any problems requiring remedial action. Rock-Tenn argues that her investigatory duties were similar to those of the postal workers in Dymond, wherein the Eighth Circuit held that postal workers exercised discretion and independent judgment inasmuch as they determined when a situation required immediate action and whether an alleged violation was minor or required reporting to the United States Attorney for prosecution. Dymond, 670 F.2d at 95. Reedy responds that her investigatory responsibilities were distinguishable from the postal workers in Dymond.Reedy says that employees came to her about payroll discrepancies because she was the one who computed payroll, that she had no authority to issue a corrective check, and that she had to receive permission from management before taking any remedial action.

Reedy’s deposition testimony does not demonstrate that her payroll duties required independent judgment or discretion. She reviewed the payroll records in response to complaints; but she was not authorized to proceed with remedial action unless approved by management. Her responsibilities were more clerical than investigatory, unlike those of the postal inspectors in Dymond.Rock-Tenn has failed to show that, as a matter of law, her authority to investigate and remedy payroll discrepancies required the exercise of discretion and independent judgment.

As to the completion of I-9s, Reedy responds that she received no special training qualifying her to recognize a fake employment form, that her job was merely to check the documents in the employee’s personnel file, and that she then signed the I-9s to indicate that Rock-Tenn did in fact have the proper documentation on a particular employee. Rock-Tenn replies that the fact that Reedy signed the I-9s under penalty of perjury-swearing that she had examined the employee’s documents-means that she had to compare and evaluate possible courses of conduct and use her common sense. Rock-Tenn cites to Haywood v. North Am. Van Lines, 121 F.3d 1066, 1073 (7th Cir.1997), for the proposition that an employee who uses common sense satisfies the discretion and independent judgment prong of the administrative employee exception. In that case, however, the Seventh Circuit mentioned “common sense” in a footnote, referencing the employer’s guidelines which informed its employees, whose job it was to negotiate with customers, that they had considerable latitude to negotiate and were to “just use [their] common sense.” Haywood, 121 F.3d at 1073 n. 8. The Seventh Circuit did not hold that every employee who exercises common sense in the performance of a job duty is exercising discretion and independent judgment, and Rock-Tenn has cited no cases holding that completing I-9s amounts to exercising discretion and independent judgment. Furthermore, other than the I-9s and Hogan’s affidavit, there is no other evidence relating to Reedy’s completion of the I-9s, and Reedy was not questioned about the I-9s in her deposition testimony.

As to Reedy’s communications with the Arkansas Employment Security Department, Reedy seemingly characterizes those communications as routine clerical work. Rock-Tenn, relying on Hogan’s affidavit, asserts that Reedy’s responses to the Department’s requests for information often triggered Rock-Tenn’s responsibility to pay unemployment benefits. However, Rock-Tenn offers no authority for the proposition that acting as a liaison between the employer and a governmental agency in and of itself rises to the level of exercising discretion and independent judgment. It is a disputed issue of fact whether Reedy’s work in this area was routine clerical work, providing information to a state department when requested, or actually involved discretion and independent judgment.

Regarding Reedy’s understanding and application of the FMLA, Reedy responds that she was merely instructed to look for certain “red flags” that could indicate that an employee might be asking for FMLA-qualifying leave. Reedy points to Hogan’s deposition, in which he stated that Reedy would bring a potential FMLA-related request to him, and he would make the final decision. Reedy also states that FMLA issues were ultimately referred to a separate entity, the Benefit Services Center. Therefore, Reedy argues, she had no authority to exercise discretion or make decisions regarding FMLA matters. Rock-Tenn replies that Reedy exercised discretion because she stated in deposition testimony that she “felt like [she] was understanding when to ask [Hogan] if [she] should offer an employee FMLA.”Because Reedy stated that she felt like she understood FMLA well enough to notify Hogan of a potential FMLA-related request, Rock-Tenn argues that she was exercising discretion and independent judgment. Reedy characterizes her testimony as showing that she merely looked for “red flags,” whereas Rock-Tenn characterizes her testimony as Reedy touting her ability to interpret and apply the FMLA. After reviewing Reedy’s deposition testimony, it is unclear that either party’s characterization is completely accurate. Thus, the degree to which Reedy actually exercised discretion and independent judgment in reviewing leave requests for FMLA issues and the nature of Reedy’s review of those requests are issues of fact best left to a jury to resolve.

As to Reedy’s job questionnaire responses indicating that she engaged in policy clarification and research, Reedy responds that Rock-Tenn has cited no authority for the proposition that doing research requires the use of discretion or independent judgment with respect to matters of significance. Reedy also states that she eventually had to suspend her research due to other obligations, and Rock-Tenn offers no evidence showing that Reedy actually engaged in research and policy clarification during the period of time relevant to her lawsuit. Furthermore, the record is inadequate to show that whatever research and policy clarification Reedy performed involved the exercise of discretion and independent judgment.

Finally, regarding Reedy’s involvement in garnishing wages, Reedy responds that her duties consisted of merely following the court orders and company procedure, and that Rock-Tenn offers no authority for the proposition that performing wage garnishments amounts to exercising discretion or independent judgment. Rock-Tenn argues that Reedy admitted in deposition testimony that she followed the applicable garnishment laws, and that following those laws required the use of discretion and independent judgment insofar as she was required to “interpret, construe, and explain the laws, policies, and regulations applicable to her work.”In her deposition testimony, however, Reedy stated only that she followed the court orders and the applicable laws regarding precedence when there were multiple garnishments. Reedy did not talk about interpreting, construing, and explaining the laws, policies, and regulations applicable to her work, as Rock-Tenn contends. Rather, it appears from her deposition testimony that, in her position as payroll manager, Reedy simply followed the court orders she received regarding garnishments and then followed the proper procedures where there were multiple garnishments. The nature of Reedy’s work with garnishments and the extent to which her garnishment work involved discretion or independent judgment are disputed issues of fact for a jury to decide.

In summary, issues of fact remain regarding the nature of Reedy’s duties and the extent to which they involved the exercise of discretion or independent judgment.”

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M.D.Fla.: Question Of Fact For Jury Whether “Field Coordinator” For Cable Company, Who Managed Subcontractors, Administratively Exempt; Summary Judgment Denied

Driggers v. Cable Television Intsallation & Service, Inc.

This case was before the Court on Defendant’s Motion seeking summary judgment finding that Plaintiff was subject to the Administrative Exemption of the FLSA. Reviewing the evidence in the light most favorable to the Plaintiff, as the non-moving party, the Court denied Defendant’s Motion.

The Court assumed the following facts, as averred by Plaintiff:

“Plaintiff was employed by CTIS, a cable and internet installation services provider. He began his employment in dispatch and then became a cable installer (“Subcontractor”) for two to three years. Subcontractors are independent contractors required to use their own equipment and tools in their installation work as well as provide their own insurance. In May 2005, Plaintiff began working as a Field Coordinator, later called a Field Advisor, and continued in this position until he was terminated in May 2008.

As Field Coordinator, Plaintiff was assigned a hub, which was a geographical area based on zip code. Each morning, he handed out work assignments to subcontractors in his hub, making the assignments based on the time of the scheduled work and, when the workload permitted, on subcontractor ability and experience. Plaintiff also reviewed and entered subcontractor paperwork, which included checking billing documents to assure they were filled out in compliance with the standards of CTIS and its customer Bright House. He adjusted billing codes to comply with the job specifications and billing rules, often seeking guidance from Bright House.

Plaintiff was responsible for informing the subcontractors in his hub of changes to job specifications put out by Bright House and CTIS. He sometimes explained what the changes meant and suggested approaches to performing the job to the new specifications. If a subcontractor had a problem with an installation, Plaintiff would try to help the subcontractor figure out how to make the job comply with specifications, and if he could not, he would contact Bright House for further instructions. Plaintiff did not have the authority to deviate from job specifications without first consulting Bright House.

In the afternoons Plaintiff performed inspections. He had the authority to inspect installations of his choice to ensure compliance with job specifications. The number of these quality control inspections varied based upon Plaintiff’s workload in the office and number of damage inspections assigned by Bright House. If his quality control inspection revealed deviations from specifications, Plaintiff would have the installation subcontractor fix the problem to meet job specifications or assign another subcontractor to do so. Occasionally Plaintiff performed the repair work himself When customers had complaints about installations, they contacted Bright House or CTIS who in turn would contact Plaintiff, instructing him to inspect the damage. Plaintiff performed these inspections to determine if the subcontractor was responsible for the damage. If the subcontractor made a mistake that caused the damage, the subcontractor and his insurance were responsible. If the damage was caused by the subcontractor following specifications, Plaintiff would contact CTIS for approval of a repair or assign another subcontractor to handle the issue. If the subcontractor was not responsible for the damage, Plaintiff would not offer repairs and the customer would have to contact CTIS to take the claim further.”

The Court noted, “[i]n their filings, both parties state that Plaintiff satisfies the first and second prongs of the administrative exemption. Defendant has described Plaintiff’s primary duty as quality assurance, including assigning work orders, communicating changes in job specifications, checking subcontractor paperwork for compliance with policy, and ensuring subcontractor installations met specifications and quality standards. For the purposes of summary judgment, Plaintiff has agreed to this description and its satisfying the second prong. Plaintiff challenges only the use of discretion and independent judgment with respect to matters of significance in the performance of Plaintiffs primary duty as required in the third prong.”

Although the Court agreed with Defendant, that a jury could find that, since 4 or the 10 tests for independent judgment and discretion laid out in the CFR were satisfied, it was a question of fact of the jury whether Plaintiff met the requisite independent judgment and discretion element of the Administrative Exemption. Thus, the Court denied summary judgment stating, “[t]he undisputed facts allow a jury to reasonably find that Plaintiff has met some or none of the factors to be considered for the applicability of the third prong of the administrative exemption. The jury could determine that Plaintiffs use of skill and experience in the performance of his primary duty and his limited leeway in decisions do not allow him to qualify under the administrative exemption. Cotton v. HFS-USA, Inc., No. 8:08-cv-251-T-33TGW, 2009 WL 1396351 (M.D.Fla. May 18, 2009) (summary judgment order) (finding an employee who performed quality control inspections through comparison to standards and who assigned subcontractor work and repairs without direct supervision did not exercise discretion and independent judgment because most of his decisions were based on experience in the industry, well-established standards, and the use of common sense, and because he sought approval for deviations from specifications and frequently spoke with his superiors). The motion for summary judgment is therefore denied.”

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W.D.Va.: “Assistant Manager” At Auto Parts Store Not Administrative Exempt; Damages To Be Calculated At Time And A Half Not Half-time

Brown v. Nipper Auto Parts and Supplies, Inc.

The case was before the Court on cross motions for summary judgment pertaining to whether Plaintiff was exempt from the FLSA’s overtime provisions under the FLSA. Additionally, Plaintiff moved for summary judgment on the issues of willfulness (3 year statute, as well as liquidated damages), and for a finding that the method under which his overtime should be calculated was the default time and a half method. As discussed below, the Court found Plaintiff nonexempt and further held that his damages were due to be calculated based on time and a half and not the fluctuating workweek’s half-time formula.

Addressing the exemption issue first, the Court noted, “Brown’s primary duties were sales and other non-exempt work, not running or servicing; the business. Nipper Auto attempts to characterize Brown’s duties as procurement and quality control, exempt activities; but since his activities generally concerned ordering auto parts based on customers’ requests, these duties are more aptly described as sales, a non-exempt activity. Roger Nipper has indicated no significant managerial decisions or changes that he has made during Brown’s tenure at Nipper Auto in which Brown had input. Indeed, Nipper Auto’s music section, where Brown is purported to have had primary authority, existed before Brown’s hiring and has continued to exist after his termination. Finally, Brown’s intermittent supervision of Shultz fails to show that his primary duty was an exempt activity.” Therefore, the Court found Brown nonexempt.

Later in the decision, the Court addressed the issue of calculating Plaintiff’s damages: “Nipper Auto argues that if Brown is entitled to overtime compensation, it should be calculated using the fluctuating workweek method of payment (the “FWW”), under which an employee’s overtime pay rate is half his regular pay rate. Brown argues that the FWW should not apply and that his overtime compensation rate should be one and one-half times his regular rate. The court agrees with Brown.

Generally, the rate for overtime compensation is one and one-half times the regular rate of pay, 29 U.S.C. § 207(a)(1), but when the FWW method applies, the rate for overtime compensation is one-half the regular pay. 29 C.F.R. § 778.114(a) (2003); Knight v. Morris, 693 F.Supp. 439, 445 (W.D.Va.1988). The FWW method is not an exception to the normal method of computing overtime compensation under the FLSA, “[i]t merely provides an alternative means by which an employer can determine its employees’ regular and overtime rate of pay.” Flood v. New Hanover County, 125 F.3d 249, 252 (4th Cir.1997). The employer must satisfy five conditions in order to take advantage of the FWW calculation: (1) the employee’s hours must fluctuate from week to week, (2) the employee must receive a fixed salary, (3) the salary must meet the minimum wage standards, (4) the employee and the employer must have a clear mutual understanding that the salary (not including overtime premiums) is fixed regardless of the number of hours the employee works, and (5) the employee must receive overtime compensation for hours worked in excess of forty hours, not less than the one-half rate of pay. Id.; 29 C.F.R. § 778.114(a). Though the first three FWW requirements are established, the court finds that the FWW method does not apply because Nipper Auto cannot fulfill the fourth and fifth requirements.

Under the fourth requirement, the parties must have a clear mutual understanding that “the fixed salary is to be compensation for all straight time hours worked, whether few or many.” Mayhew, 125 F.3d at 219. The burden is on the employer to show the existence of a clear mutual understanding. Monahan v. County of Chesterfield, 95 F.3d 1263, 1275 n. 12 (4th Cir.1996). If the employer believed the employee was exempt from overtime compensation, “then it was not possible … to have had a clear mutual understanding … that [the employee] was subject to [a] calculation method applicable only to non-exempt employees who are entitled to overtime compensation.” Cowan v. Treetop Enter., 163 F.Supp.2d 930, 942 (M.D.Tenn.2001); (quoting Rainey v. Am. Forest & Paper Ass’n Inc., 26 F.Supp.2d 82, 102 (D.D.C.1998)).

Nipper Auto cannot establish the fourth requirement because its principal argument is that Brown is an FLSA-exempt employee not entitled to any overtime compensation; in the alternative, Nipper Auto argues that the parties had an implied understanding with Brown regarding his salary and overtime compensation. If Nipper Auto believed Brown was exempt, the requisite clear mutual understanding for the application of the FWW method could not have existed. Rainey, 26 F.Supp.2d at 102. Both parties understood that Brown would receive no additional salary no matter how many hours he worked in a given week, but § 778.114(a) specifies that the fixed salary does not include overtime premiums. The court finds that, because Nipper Auto believed Brown was an FLSA-exempt employee, it has failed to create a material issue of fact as to the clear mutual understanding required to apply the FWW method.

In addition to this clear mutual understanding, under the fifth FWW requirement, the employer must also demonstrate that the employee has actually received some form of overtime compensation. See Cowan, 163 F.Supp.2d at 941 (“Moreover, to comply 29 C.F.R. Section 778.114 requires a contemporaneous payment of the half-time premium for an employer to avail itself of the fluctuating workweek provision.”). Indeed, the Fourth Circuit has applied the FWW method only when the employee has received contemporaneous payment for overtime. See generally Flood, 125 F.3d at 252 (applying the FWW where the employer contemporaneously provided some form of overtime compensation); Griffin, 142 F.3d at 715 (same); Mayhew, 125 F.3d at 218 (same). It is undisputed that Nipper Auto did not pay Brown any overtime compensation during his employment. Because no form of overtime compensation was provided, Nipper Auto cannot apply the FWW method retroactively. Flood, 125 F.3d at 249; Griffin, 142 F.3d at 716. The court finds that Nipper Auto’s evidence is insufficient to allow a reasonable jury to conclude that Brown is subject to the FWW method of compensation; therefore, Brown’s overtime pay rate is one and one-half times his regular rate of pay. The court grants Brown’s motion for summary judgment on this matter.”

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M.D.Fla.: “Field Supervisor” For Company Performing Finishing Services For Residential Builders Not Subject To Administrative Exemption

Cotten v. HFS-USA, Inc.

This case was before the Court on Defendant’s motion for summary judgment, alleging that Plaintiff, a “Field Supervisor,” for a construction “finishing” company, was exempt from the overtime provisions of FLSA under the “administrative exemption.” After reviewing the elements of the Administrative Exemption, the Court found that Plaintiff was not Administratively Exempt, because his primary duty was not directly related to the management of general business operations of Defendant, and because he did not exercise the requisite independent judgment or discretion with regard to matters of significance.

Addressing the “related to management of general business operations” prong first, the Court stated, “[b]ased on the undisputed evidence before the Court, it cannot be said that Cotten’s primary duties as a field supervisor were directly related to the management or general business operations of HFS. Although it can be said that Cotten “managed” certain assigned installation sites, his duties were concerned with ensuring that the installers received their work orders, retrieved the correct materials from the warehouse, and completed the installation job as specified in the contract and the work order and in compliance with specified standards. Cotten was not responsible for negotiating or executing contracts, creating work orders, or developing the applicable standards….

Cotten’s job duties are precisely the type that have been found to be consistent with production rather than administration. For example, in Sack v. Miami Helicopter Service, Inc., a court in the Southern District of Florida determined that an employee’s duties of opening work orders, planning repair work, ordering required materials, directing mechanics as to what work to perform, determining whether certain parts complied with F.A.A. standards, and directing repair or replacement of parts that failed inspection did not qualify as administrative tasks related to operation of the business. 986 F.Supp. 1456, 1470-71 (S.D.Fla.1997). The court found that these activities were an integral part of the production of the business and therefore did not directly relate to management policies or general business operations. Id.”

Next, the Court analyzed the “discretion or independent judgment” prong of the Administrative Exemption, stating, “Cotten spent much of his time performing inspections, which took place at all phases of the installation process. These inspections were conducted according to pre-established industry standards or the terms of the particular contract. (Id. at 5). Cotten had no specialized training and simply compared what he saw at the job site with the standards he had previously been directed to conform with. (Id.). He filled out forms documenting the inspection results, and spoke with builders or his supervisors when defects were noted.(Id.). These routine inspection duties did not require the exercise of significant discretion or independent judgment…

Of course, Cotten’s duties were not limited to inspections. If an installation was not completed properly or on time, Cotten was responsible for bringing the job into compliance, either by directing the original installer to make the necessary repairs or, on rare occasions, by retaining a second installer to do the necessary work. Although Crowder has attested that field supervisors were free to assign “the installers of their choice” to a particular job, this is not entirely true. HFS maintained a list of qualified installers that field supervisors were required to use. (Id.). Cotten has sworn that he never used an installer that was not on the approved list.”

Therefore, the Court concluded, “[u]pon due consideration of the record evidence regarding Cotten’s work activities, the Court concludes that Cotten’s primary duties at HFS did not involve the exercise of discretion and independent judgment with respect to matters of significance. As previously discussed, cases considering employees with very similar duties to Cotten have declined to apply the administrative exemption.”

The Plaintiff in this case is represented by Andrew Frisch. If you believe that you have been similarly misclassified as exempt under the FLSA, and wrongly denied overtime, call 1-888-OVERTIME or go to EMAIL CONSULTATION for a free consultation with Andrew Frisch today.

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9th Cir. Seeks Clarification From California Supreme Court Re: Proper Classification Of Pharmaceutical Sales Reps

On May 5, the 9th Circuit Court of Appeals certified the question of exempt status (under California state law) of pharmaceutical sales representatives to the California Supreme Court.

The 9th Circuit asked for guidance from the California Supreme Court to determine two issues, pertaining to the oft-litigated issues of whether Pharmaceutical Sales Reps are outside sales exempt and/or administrative exempt under those so-called exemptions in the California Wage and Hour law, which is similar to the FLSA. The first question focuses on whether or not pharmaceutical representatives fall within the “outside sales exemption.”  The other question focuses on the administrative exemption and whether or not application is applicable to the pharmaceutical sales reps at issue as well.

Pharmaceutical sales reps across the country will be watching this and other key cases in the months to come. If you worked as a pharmaceutical sales rep within the last 3 years, you may may entitled to overtime pay which was incorrectly denied to you, if you worked more than 40 hours per week.

Call 1-888-OVERTIME or visit http://www.overtimeadvocate.com to learn more about your overtime rights today.

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