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9th Cir.: Notwithstanding DOL’s Position Otherwise, Pharmaceutical Reps (PSRs) Are “Outside Sales” Exempt
Christopher v. SmithKline Beecham Corp.
This case was before the Ninth Circuit on the plaintiffs’ appeal from an order granting defendant’s motion for summary judgment, finding plaintiffs’, pharmaceutical reps (“PSRs”), to be exempt from the Fair Labor Standards Act (“FLSA”) under the “outside sales” exemption. Although the DOL, filed an Amicus Brief, explaining that the type of work performed by the PSRs did not come within the “outside sales” exemption, because the PSR’s did not perform any sales, the Ninth Circuit disagreed.
Reasoning that the PSR employees came within the outside sales exemption, notwithstanding the fact that they did not complete sales, the court essentially held that their work was close enough to sales, that it should be deemed sales:
“Absent an agency-determined result, it is the province of the court to construe the relevant statutes and regulations. N. Cal. River Watch, 620 F.3d at 1088-89. As noted supra, Plaintiffs argue that by not transferring any product to physicians, they are not selling pharmaceuticals, but only “promoting” them. Plaintiffs say this distinction is warranted in light of the rule that the FLSA be “narrowly construed against … employers.” Webster, 247 F.3d at 914. For its part, Glaxo urges us to view “sale” in Section 3(k) in a commonsensical fashion, while contending that the meaning of “sale” is permissive. Glaxo urges us to adopt the rationale that the phrase “other disposition” in Section 3(k)’s definition of “sale” is a broad catch-all category. This view was cited with approval by the district court here, and is supported by the Secretary’s usage, dating back to 1940, of the language that an employee must “in some sense make a sale.” 69 Fed.Reg. at 22,162 (quoting “Executive, Administrative, Professional Outside Salesman” Redefined, Wage and Hour Division, U.S. Dept. of Labor, Report & Recommendations of the Presiding Officer (Harold Stein) at Hearings Preliminary to Redefinition, at 46 (Oct. 10, 1940)) (emphasis added).
Plaintiffs’ contention that they do not “sell” to doctors ignores the structure and realities of the heavily regulated pharmaceutical industry. It is undisputed that federal law prohibits pharmaceutical manufacturers from directly selling prescription medications to patients. Plaintiffs suggest that despite being hired for their sales experience, being trained in sales methods, encouraging physicians to prescribe their products, and receiving commission-based compensation tied to sales, their job cannot “in some sense” be called selling. This view ignores the reality of the nature of the work of detailers, as it has been carried out for decades. Plaintiffs’ argument also fails to account for the fact that the relevant “purchasers” in the pharmaceutical industry, and the appropriate foci of our inquiry, are not the end-users of the drug but, rather, the prescribing physicians whom they importune frequently. See, e.g., Baum v. AstraZeneca LP, 605 F.Supp.2d 669, 678-79 (W.D.Pa.2009) (discussing why the “professional paradigm” places the physician as the relevant decision maker in the health services industry), aff’d on other grounds, 372 Fed. App’x 246 (3d Cir.2010). Unlike conventional retail sales, the patient is not at liberty to choose personally which prescription pharmaceutical he desires. As such, he cannot be fairly characterized as the “buyer.” Instead, it is patient’s physician, who is vested with both a moral and legal duty to prescribe medication appropriately, who selects the medication and is the appropriate focus of our “sell/buy” inquiry. In this industry, the “sale” is the exchange of non-binding commitments between the PSR and physician at the end of a successful call. Through such commitments, the manufacturer will provide an effective product and the doctor will appropriately prescribe; for all practical purposes, this is a sale. Because pharmaceutical manufacturers appreciate who the “real” buyer is, they have structured their 90,000-person sales force and their marketing tactics to accommodate this unique environment.
When a PSR visits a doctor, he or she attempts to obtain the absolute maximum commitment from his or her “buyer”-a non-binding commitment from the physician to prescribe the PSR’s assigned product when medically appropriate. In most industries, there are no firm legal barriers that prohibit the actual physical exchange of the goods offered for sale. Because such barriers do exist in this industry, the fact that commitments are non-binding is irrelevant; the record reveals that binding or non-binding, a physician’s commitment to a PSR is nevertheless a meaningful exchange because pharmaceutical manufacturers value these commitments enough to reward a PSR with increased commissions when a physician increases his or her use of a drug in the PSR’s bag. See, e.g., Baum, 605 F.Supp.2d at 681 (“This Court believes that other courts, and perhaps regulatory agencies, underestimate the significance of this oral commitment from physicians. In part, this error emerges from a misunderstanding of the ways in which human beings are socially and informally motivated. Sometimes lawyers and judges forget that a person’s word means something; remarkably, many people do not actually need a 400-page contract to bind themselves to their word.”).
Moreover, the industry has agreed upon and abides by the PhRMA Code to regulate the marketing of medicine to healthcare professionals-just as any consumer-products maker might develop rules to limit the express warranties its sales force might offer to a customer. Such industry practice and prevailing customs should inform our disposition. Cf. Reiseck v. Universal Commc’ns of Miami, Inc., 591 F.3d 101, 106 (2d Cir.2010) (in resolving whether advertising sales director was an administrative or sales worker in the publishing industry “a careful consideration of [employer’s] business model provides some clarity”).
Under Plaintiffs’ view, PSRs are not salespeople, despite the fact that more than 90,000 pharmaceutical representatives make daily calls on physicians for the purpose of driving greater sales. See IMS Health, 616 F.3d at 14. We cannot square this view with Section 3(k)’s open-ended use of the word “sale,” which includes “other disposition[s].” While we recognize that the FLSA is to be narrowly construed in light of its remedial nature, that general principle does not mean that every word must be given a rigid, formalistic interpretation. For example, for over seventy years, the Secretary has emphasized a sensible application of the exemptions; in the Preamble to the 2004 Rule, the Secretary employs the openended concept that a salesman is someone who “in some sense” sells. 69 Fed.Reg. at 22,162-63 (emphasis added). In other words, while the Secretary asks us to narrowly interpret this exemption, she herself acknowledges that technical considerations alone and changes in the way sales are made should not be grounds for denying the exemption. See 69 Fed.Reg. at 22,162.
To further explain our common sense understanding of why PSRs make sales, we find the paradigm “outside salesman” case Jewel Tea Co. v. Williams-instructive. 118 F.2d 202 (10th Cir.1941). The importance of Jewel Tea is illustrated by the fact that both parties and the amicus offer it as favorable precedent for their conflicting positions.
Jewel Tea involved a FLSA overtime-wage suit brought by three employees of a tea, coffee, and sundry goods manufacturer and distributor. 118 F.2d at 203. The plaintiffs held the position of “route salesmen” to “sell and distribute” products to customers in their homes. Id. The area in which the company sold its goods was divided and “[e]ach salesman [was] assigned an exclusive territory which he cover[ed].” Id. The employees made no immediate deliveries but instead took orders for future delivery, although they might advance an item to a customer. Id. The company provided sales training and sent a supervisor with a new hire on early sales calls before permitting the employee to “go out on a route by himself.” Id. at 204. Further, employees were taught a “five-point sale” method to employ when speaking with customers. Id. A certain degree of knowledge about the products and potential customers was also required-“[t]he salesman must know recipes for the preparation of the Company’s products … [and] must learn the general requirements of each family, in order to avoid over-stocking his customer and in order to anticipate the family’s needs.” Id. After working in the field during the day, employees completed some clerical tasks at night. Id. at 205. Finally, employees were paid a base salary plus a commission if their collections were in excess of a sum certain. Id.
The Jewel Tea plaintiffs brought suit to collect unpaid overtime, asserting they did not fall within the “outside sales” exemption, primarily employing the argument that they were “delivery men.” Id. at 208. In its decision denying plaintiffs overtime pay, the Tenth Circuit penned the oft-quoted justification for the outside sales exemption:
The reasons for excluding an outside salesman are fairly apparent. Such salesman, to a great extent, works individually. There are no restrictions respecting the time he shall work and he can earn as much or as little, within the range of his ability, as his ambition dictates. In lieu of overtime, he ordinarily receives commissions as extra compensation. He works away from his employer’s place of business, is not subject to the personal supervision of his employer, and his employer has no way of knowing the number of hours he works per day. To apply hourly standards primarily devised for an employee on a fixed hourly wage is incompatible with the individual character of the work of an outside salesman. Id. at 207-08.
Reviewing the undisputed facts here, we consider the rationale for applying the outside sales exemption to PSRs to be as “apparent” as it was in Jewel Tea. Of course, this case does not involve door-to-door consumer-product sales. But, the FLSA is not an industry-specific statute. As the Second Circuit recognized in Reiseck, not all FLSA claims will involve the “archetypal businesses envisaged by the FLSA,” 591 F.3d at 106. Even though there are differences, it is notable that the salesmen in Jewel Tea and Plaintiffs here each (1) worked in assigned territories, (2) did not make immediate deliveries, (3) were required to analyze client backgrounds, (4) received product training, (5) employed a pre-planned routine for client interaction, (6) were accompanied by supervisors for training, (7) were later subject to minimal supervisor oversight, (8) completed clerical activities at the end of the day, and (9) had a dual salary and commission-based compensation plan tied to their performance. Even though PSRs lack some hallmarks of the classic salesman, the great bulk of their activities are the same, as is the overarching purpose of obtaining a commitment to purchase (prescribe) something.
The primary duty of a PSR is not promoting Glaxo’s products in general or schooling physicians in drug development. These are but preliminary steps toward the end goal of causing a particular doctor to commit to prescribing more of the particular drugs in the PSR’s drug bag. Without this commitment and the concomitant increase in prescriptions, or drug volume, or market share-i.e. without more sales-the PSR would not receive his or her commission salary and could soon find himself or herself unemployed. While not all steps in the PSR’s daily activities constitute “selling,” that fact does not render the totality of those activities non-exempt promotion; “work performed incidental to and in conjunction with the employee’s own outside sales or solicitations … shall be regarded as exempt outside sales work … [and] … other work that furthers the employee’s sales efforts also shall be regarded as exempt work.” 29 C.F.R. § 541.500(b).
The Secretary’s distinction between selling and promoting is only meaningful if the employee does not engage in any activities that constitute “selling” under the Act. This much is seen from the plain language of the regulations, which gives the example of promotional work as “a company representative who visits chain stores, arranges the merchandise on shelves, replenishes stock by replacing old with new merchandise, sets up displays and consults with the store manager when inventory runs low, but does not obtain a commitment for additional purchases.” 29 C.F.R. § 541.503(c) (emphasis added). PSRs do far more than collect general data or provide consultations; indeed they ask for, and sometimes obtain, a commitment by the doctor to prescribe Glaxo drugs, and whether the doctor keeps that commitment is verified and traced using aggregated pharmacy data Glaxo collects. See IMS Health, 550 F.3d at 44-47 (“A valuable tool in this endeavor, available through the omnipresence of computerized technology, is knowledge of each individual physician’s prescribing history.”).
In Reisick, the Second Circuit highlighted an important distinction between selling and promoting, noting that the latter is directed to the public at large, as opposed to a particular client:
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. Reiseck, 591 F.3d at 107. At Glaxo, Plaintiffs had no interest in “generally” promoting sales by the company or improving sales across the board. Rather, Plaintiffs directed their sales efforts only towards certain products, only to a discrete group of physicians, and only within a defined geographic area. Targeting physicians is not based on mass appeals or general advertisements, but is the result of a personalized review of each physician’s prescribing habits and history. The process, like any sales process, is tailored to the customer’s preferences.
We also find that the Secretary’s acquiescence in the sales practices of the drug industry for over seventy years further buttresses our decision. The outside sales exemption has existed since 1938. Detail men have practiced their craft over that same period. Generally, they have been considered salespeople. Until the Secretary’s appearance in Novartis, the DOL did not challenge the conventional wisdom that detailing is the functional equivalent of selling pharmaceutical products. Indeed, the DOL has recognized as much in its Dictionary of Occupation Titles, which provides the following definition for pharmaceutical detailers:
Promotes use of and sells ethical drugs and other pharmaceutical products to physicians, [dentists], hospitals, and retail and wholesale drug establishments, utilizing knowledge of medical practices, drugs, and medicines: Calls on customers, informs customer of new drugs, and explains characteristics and clinical studies conducted with drug. Discusses dosage, use, and effect of new drugs and medicinal preparations. Gives samples of new drugs to customer. Promotes and sells other drugs and medicines manufactured by company. May sell and take orders for pharmaceutical supply items from persons contacted.
D.O.L. Dictionary of Occupational Titles § 262.157-010 (4th ed.1991) (emphases added). Likewise, although it emerged in a different context, we find Judge Posner’s observation in Yi v. Sterling Collison Centers, Inc., 480 F.3d 505, 510-11 (7th Cir.2007), informative-while it is “possible for an entire industry to be in violation of the [FSLA] for a long time without the Labor Department noticing[, the] more plausible hypothesis is that the … industry has been left alone” because DOL believed its practices were lawful.
In view of many similarities between PSRs and salespeople in other fields, pharmaceutical industry norms, and the acquiescence of the Secretary over the last seventy-plus years, we cannot accord even minimal Skidmore deference to the position expressed in the amicus brief. Under Skidmore, “[t]he fair measure of deference to an agency administering its own statute has been understood to vary with circumstances, and courts have looked to the degree of the agency’s care, its consistency, formality, and relative expertness, and to the persuasiveness of the agency’s position.” United States v. Mead Corp., 533 U.S. 218, 228 (2001) (internal citations omitted); see also League of Wilderness Defenders v. Forsgren, 309 F.3d 1181, 1189 (9th Cir.2002) (quoting Skidmore, 323 U.S. at 140) (internal quotation marks omitted). Many, if not all, of these hallmarks of “respectful” deference are absent here. The about-face regulation, expressed only in ad hoc amicus filings, is not enough to overcome decades of DOL nonfeasance and the consistent message to employers that a salesman is someone who “in some sense” sells. Moreover, we are unable to accept an argument that fails to account for industry customs and emphasizes formalism over practicality, in particular the argument that “obtaining a commitment to buy” is the sine qua non of the exemption. Under the Secretary’s view, “sale” means unequivocally the final execution of a legally binding contract for the exchange of a discrete good. In addition to the point that such stringent wording is not found in Section 3(k), or plausibly implied from phrases like “other disposition,” the Secretary’s approach transforms what since the time of Jewel Tea has been recognized as a multi-factor review of an employee’s functions into a single, stagnant inquiry.
Telephones, television, shopping malls, the Internet and general societal progress have largely relegated the professional pitchman embodied in Jewel Tea to the history books. But selling continues, and, as in prior eras, a salesperson learns the nuances of a product and those of his or her potential clientele, tailors a scripted message based on intuition about the customer, asks for the customer to consider her need for the product, and then receives a commission when the customer’s positive impression ultimately results in a purchase.
For the past seventy-plus years, selling in the pharmaceutical industry has followed this process. PSRs are driven by their own ambition and rewarded with commissions when their efforts generate new sales. They receive their commissions in lieu of overtime and enjoy a largely autonomous work-life outside of an office. The pharmaceutical industry’s representatives-detail men and women-share many more similarities than differences with their colleagues in other sales fields, and we hold that they are exempt from the FLSA overtime-pay requirement.
For the foregoing reasons, we AFFIRM the district court’s summary judgment for Defendant-Appellee SmithKline Beecham Corporation.”
Click Christopher v. SmithKline Beecham Corp. to read the entire decision.
WHD Proposes Update To FLSA Recordkeeping Requirements With “Right To Know Under The Fair Labor Standards Act” Regulation
According to the DOL’s Fall 2010 Semi-Annual Agenda, the Wage and Hour Division of the Department of Labor (WHD), intends to issue updated FLSA recordkeeping requirements in the near future.
Several of the initiatives the department is considering could have major impacts on both employees and employers.
For example, the WHD is considering a proposed rule that would require covered employers to notify workers of their rights under the FLSA, and to provide information concerning hours worked and wage computation, similar to the Wage and Hour laws some states like New York and California already have on the books.
Under the proposed rule, employers would be required to perform a written classification analysis for every worker that is excluded from FLSA coverage. In addition, the employer would have to disclose the individual analysis to each worker, and retain the documents in the event of a WHD investigation.
Thanks to Valiant for alerting us to this significant development.
E.D.Pa.: Hourly-Paid Physician Assistant (PA) Not Professional Exempt; Not A Practitioner “Licensed and Practicing In The Field Of Medical Science”
Cuttic v. Crozer-Chester Medical Center
This case was before the court on the parties’ cross-motions for summary judgment regarding whether plaintiff was exempt from the FLSA’s overtime provisions under the professional exemption. Because it was undisputed that Plaintiff was paid on an hourly rather than salary basis, the sole issue before the court was whether plaintiff, a physician assistant (PA), qualified as a “professional” within the meaning of § 541.304, the regulation that exempts certain “other practitioners licenced and practicing in the field of medical science” from the typical salary requirements for the professional exemption. Holding that PA’s do not fall within this definition, the court granted plaintiff’s motion and denied defendant’s motion.
The court reasoned:
“The issue in dispute is whether PAs are intended to be included within § 541.304 and, thus, exempt from the salary requirement in § 541.300(a)(1). In particular, the parties contest whether the language “other practitioners licenced and practicing in the field of medical science” includes PAs. See 29 C.F.R. § 541.304(b).
Defendant argues that PAs are explicitly included among those who qualify for the salary-basis exemption enunciated in § 541.304 because the regulation makes an exception to the salary-basis requirement for employees holding valid licenses or certifications permitting the practice of medicine and actually engaging in the practice thereof. 29 C.F.R. § 541.304(d). Defendant states that because Plaintiff admitted he possesses a valid licence to practice as a PA in Pennsylvania and that he “practice[s] medicine under the direct supervision of [his] attending physicians,” Plaintiff is a “practitioner licensed and practicing in a field of medical science” and qualifies under the salary-basis exemption. (Def.’s Mot. for Summ. J. at 9-12.)
Plaintiff, on the other hand, argues that the salary-basis exemption is narrow in scope and does not include PAs. To support this argument, Plaintiff compares the examples given in § 541.600(e) and § 541.304(b). Section 541.600(e) states that “[i]n the case of medical occupations, the exception from the salary or fee requirement does not apply to pharmacists, nurses, therapists, technologists, sanitarians, dieticians, social workers, psychologists, psychometrists, or other professions which service the medical profession.” 29 C.F.R. § 541.600(e) (emphasis added). Section 541.304(b) states that “the exemption applies to physicians and other practitioners…. The term ‘physicians’ includes doctors including general practitioners and specialists, osteopathic physicians …, podiatrists, dentists …, and optometrists ….” 29 C.F.R. § 541.304(b).
Plaintiff argues that a PA is more akin to one of the named professions which “service the medical profession” as opposed to a doctor, osteopathic physician, podiatrist, dentist, or optometrist. Plaintiff points out that any work he does as a PA must be performed under the direct supervision of a physician, and his main function “is to serve and provide support to the medical profession .” (Pl.’s Mot. for Summ. J. at 8.)
B. Examination of § 541.304
In interpreting the language and meaning of § 541.304, the Court must first determine whether the terms used in § 541.304 are ambiguous as to PAs. Defendant argues that PAs unambiguously practice medicine or a branch of medicine within the meaning of § 541.304, and Plaintiff maintains that the regulation does not speak to this issue. “A regulation is ambiguous when it is not free from doubt … and where no particular interpretation of the regulation is compelled by the regulation’s plain language or by other indications of the [agency’s] intent at the time of promulgation of the regulation.” Sec’y of Labor v. Beverly Healthcare-Hillview, 541 F.3d 193, 198 (3d Cir.2008) (internal marks omitted) (holding the term “cost” in Bloodborne Pathogens Standard regulation was ambiguous based on preamble language and fact that neither party “pointed to any indication contemporaneous with promulgation unequivocally stating the agency’s intent to interpret the provision in a particular way”).
Here, the regulations do not define the terms used in § 541.304. In particular, the term “other practitioners licensed and practicing in the field of medical science” is broad and undefined. See Belt v. Emcare, Inc., 444 F.3d 403, 409-12 (5th Cir.2006) (finding § 541.304‘s language is ambiguous and resorting to DOL for interpretative guidance); Clark v. United Emergency Animal Clinic, Inc., 390 F.3d 1124, 1127 (9th Cir.2004) (considering the applicability of § 541.304 to veterinarians); Parker v. Halpern-Ruder, M.D., No. 07-401S, 2008 WL 4365429, at *1 (D.R.I. Sept.16, 2008) (considering the applicability of § 541.304 to registered nurse practitioners and holding nurse practitioners do not fall within § 541.304). Consequently, the Court must construe the language of § 541.304 by giving controlling weight to the agency’s interpretations unless they are “arbitrary, capricious, or manifestly contrary to the statute.” Chevron U.S.A., Inc. v. Natural Res. Defense Council, Inc., 467 U.S. 837, 842-44, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). An agency’s interpretation is controlling “unless plainly erroneous or inconsistent with the regulation.” Auer v. Robbins, 519 U.S. 452, 461, 117 S.Ct. 905, 137 L.Ed.2d 79 (1997) (internal marks omitted).
There is limited law on the question of whether PAs are exempt from the overtime requirements of the FLSA pursuant to § 541.304. The Fifth Circuit, the only circuit to consider the matter, gave deference to the DOL’s informal interpretative statements because that court held that there was limited law on the matter. Belt, 444 F.3d at 405 (using DOL interpretative statements to determine that PAs are not exempt from the salary-basis test); see also Parker, No. 07-401S, 2008 WL 4365429, at *4 (denying Defendant’s motion to dismiss because Defendant did not establish that nurse practitioners are subject to salary-basis exemption in § 541.304). This Court will do the same.
The DOL has consistently interpreted the regulations set forth in § 541 to require a PA to satisfy both the duties test and the salary-basis test, as set forth in § 541.300(a)(1)-(2), in order to qualify for an exemption from the FLSA’s overtime requirements. The DOL has refused to extend § 541.304‘s exception to the salary-basis requirement beyond actual physicians and has consistently taken the position that the salary-basis exception does not apply to PAs. The DOL issued an interpretative regulation in 1949, which was revised in 1973, regarding the meaning of § 541.304(a)‘s phrase “or any of its branches”. See Belt, 444 F.3d at 413 (examining DOL’s interpretative regulations to interpret 29 C.F.R. § 541.3(e) which is a predecessor to 29 C.F.R. § 541.304). This interpretative regulation stated:
Exception for physicians, lawyers, and teachers.
(a) … The exception applies only to the traditional professions of law, medicine, and teaching and not to employees in related professions which merely serve these professions.
(b) In the case of medicine:
(1) … The term physicians means medical doctors including general practitioners and specialists, and osteopathic physicians…. Other practitioners in the field of medical science and healing may include podiatrists …, dentists …, optometrists….
(2) [omitted]
(3) In the case of medical occupations, the exception from the salary or fee requirement does not apply to pharmacists, nurses, therapists, technologists, sanitarians, dieticians, social workers, psychologists, psychometrists, or other professions which service the medical profession.
Id. (quoting 29 C.F.R. § 541.314(a), (b)(1)-(3) (1973)) (emphasis added). This language indicates that the DOL intended for the salary-basis exemption, set forth in § 541.304, to only apply to the “traditional professions of law, medicine, and teaching….” Defendant does not assert any arguments as to why PA’s should be considered members of the “traditional professions of law, medicine, and teaching.” The PA occupation did not develop until 1960; as such, it could not have been within the traditional practice of medicine when the exception was first enacted in 1940.
The 2004 amendments to the regulations continue to use a salary-basis test to determine whether an employee qualifies for the “bona fide professional” exemption pursuant to § 541.300. Additionally, the 2004 amendments specifically reference PA’s. Section 541.301(e)(4) states that PAs who meet certain educational and certification requirements “generally meet the duties requirements for the learned professional exemption.” 29 C.F.R. § 541.301(e)(4). The learned professional exemption that is referenced is found in § 541.300, and this exemption requires an employee to meet the duties and salary requirements. Other occupations explicitly recognized in § 541.301 include registered or certified medical technologists and nurses. See § 541.301(e) (1)-(2). These recognized professions are explicitly excluded from § 541.304‘s salary-basis exemption in § 541.600(e). Further support for the Plaintiff’s position is found directly in the DOL’s statements. In Belt, the DOL, as amicus curiae, “unambiguously adopt[ed] the position that [nurse practitioners] and PA’s do not qualify for the professional exemption.” 444 F.3d at 415; see also Auer, 519 U.S. at 462 (finding that Secretary’s amicus brief sufficed to show how the DOL interpreted its own ambiguous regulation).
Under these circumstances, the Court will give deference to the DOL’s position which is consistent with the 1973 interpretative regulations and 2004 amendments. In deferring to the DOL’s interpretive statements, the Court holds that PAs are not included in the salary-basis exemption found in § 541.304.”
Click Cuttic v. Crozer-Chester Medical Center to read the entire opinion.
If you are an hourly-paid Physician Assistant, call us at 1-888-OVERTIME to discuss your rights.
11th Cir.: Trial Court Erred In Allowing Defendants To Amend Their Affirmative Defenses At Trial To Add Previously Unpled Exemption
Diaz v. Jaguar Restaurant Group, LLC
Plaintiff filed a lawsuit against Defendants, her former employer, for unpaid overtime wages under the Fair Labor Standards Act (“FLSA”), 29 U.S.C. §§ 201–216. During trial, the district court allowed Jaguar to amend its Answer pursuant to Federal Rule of Civil Procedure 15(b) to include the administrative exemption as an affirmative defense as it found that Diaz had injected the issue through her testimony at trial. The jury returned a verdict finding that Diaz had worked more than 40 hours per week for which she was not compensated, but also finding that she was exempt from the requirements of the FLSA as she was an administrative employee. On appeal to the Eleventh Circuit, Plaintiff challenged the district court’s decision to allow Defendant to amend its Answer during trial. The Eleventh Circuit reversed, and remand the case to the district court for a trial on damages.
In reversing, the Eleventh Circuit reasoned:
“Jaguar failed to plead the administrative exemption as an affirmative defense in its Answer. In the fourteen months between the filing of its Answer and the commencement of trial, Jaguar never moved to amend its Answer to include the administrative exemption. Jaguar also did not raise the issue of the administrative exemption during discovery. The only time Jaguar raised the issue prior to trial was by inserting it in one line of the Joint Pretrial Stipulation and in the proposed Joint Jury Instructions, to which Diaz objected. Jaguar did not raise the issue during the pretrial conference and the district court did not include the issue in its Omnibus Order Following Pretrial Conference. If ever there were a classic case of waiver, this is it! See Latimer v. Roaring Toyz, Inc., 601 F.3d 1224, 1239 (11th Cir. 2010) (“Failure to plead an affirmative defense generally results in a waiver of that defense.”). Jaguar repeatedly waived the administrative exemption defense by failing to plead the defense in its Answer and by failing to move to amend its Answer before trial.
Ideally, cases should be tried on their merits. Accordingly, even if Jaguar failed to plead the administrative exemption defense, the district court could allow Jaguar to amend its Answer during trial if the issue was tried by the parties’ express or implied consent, or included in a pretrial order. See Fed. R. Civ. P. 15(b); see Steger v. Gen. Elec. Co., 318 F.3d 1066, 1077 (11th Cir. 2003) (“[I]ssues not raised in the pleadings may be treated as if they were properly raised when they are ‘tried by express or implied consent of the parties,’ Federal Rule of Civil Procedure 15(b), or are included in a pretrial order.”). In this case, the issue was not included in the district court’s Omnibus Order Following Pretrial Conference. Further, it is clear that the administrative exemption issue was not tried by the parties’ express consent as Diaz opposed the insertion of the issue in the Joint Pretrial Stipulation, proposed Joint Jury Instructions, and at trial. See R. Vol. 5: 160–65. The district court, however, found that the issue was tried by implied consent as it believed Diaz introduced the issue of the administrative exemption through her testimony at trial. Thus, the district court allowed the amendment.
The district court erred in finding that the administrative exemption issue was tried by implied consent and in thereby allowing Jaguar to amend its Answer. That issue was not tried by implied consent as Diaz’s testimony was relevant to another defense in this case: Jaguar’s independent contractor defense. “The introduction of evidence arguably relevant to pleaded issues cannot serve to give a party fair notice that new issues are entering the case.” Wesco Mfg., Inc. v. Tropical Attractions of Palm Beach, Inc., 833 F.2d 1484, 1487 (11th Cir. 1987); see Jimenez v. Tuna Vessel Granada, 652 F.2d 415, 421 (5th Cir. 1981) (stating that implied consent cannot be found when “evidence is introduced that is relevant to an issue already in the case and there is no indication that the party who introduced the evidence was seeking to raise a new issue”). Diaz’s testimony was relevant to counter Jaguar’s independent contractor defense, and she clearly was not seeking to raise the administrative exemption as a new issue. Further, we cannot conclude that her testimony was “much more strongly relevant” to the administrative exemption than to the independent contractor defense, which could be construed as notice of a new issue. See United States f/u/b/o Seminole Sheet Metal Co. v. SCI, Inc., 828 F.2d 671, 677 (11th Cir. 1987). Thus, her testimony cannot be considered implied consent to try the administrative exemption.”
Click Diaz v. Jaguar Restaurant Group, LLC, to read the entire opinion.
S.D.Tex.: Upon Reconsideration, Pharmaceutical Reps Nonexempt; Court Elects To Adopt Second Circuit’s Reasoning
Harris v. Auxilium Pharmaceuticals, Inc.
This case was before the court on Plaintiff’s Motion for Reconsideration of the court’s prior decision granting Defendant’s Motion for Summary Judgment. The court had previously held that the Plaintiff’s, pharmaceutical representatives were exempt from the overtime provisions of the Fair Labor Standards Act (FLSA) under both the administrative and outside sales exemptions. Plaintiff sought reconsideration in light of the United States Secretary of Labor’s amicus curiae brief filed in In re Novartis Wage and Hour Litigation. Granting the Plaintiff’s Motion, the court reversed itself, finding that the Second Circuit’s recent opinion was more persuasive than the contrary jurisprudence.
Discussing the exemption issues, the court reasoned:
“In its previous order, this Court determined that Harris could not bring a FLSA claim because her position as a Medical Sales Consultant (“MSC”), or pharmaceutical representative, took her out of FLSA’s purview. This Court found that the MSC position was exempt from FLSA under the “administrative” and “outside sales” exemptions.
Shortly after this Court’s order came out, the Department of Labor (“DOL”) filed an amicus curiae brief in a case then pending before the Second Circuit, In re Novartis Wage & Hour Litigation, 611 F.3d 141 (2010). In Novartis, The DOL argued that, under its regulations, pharmaceutical representatives “do not meet the requirements for either the outside sales or administrative exemption.” (Br. for the Secretary of Labor as Amicus Curiae in Supp. of Pls.-Appellants, Doc. No. 106-2, at 5.) Regarding the outside sales exemption, the DOL noted that, “[b]ecause the [pharmaceutical representatives] do not sell any drugs or obtain any orders for drugs, and can at most obtain from the physicians a non-binding commitment to prescribe NPC’s drugs to their patients when appropriate, [they] do not meet the regulation’s plain and unmistakable requirement that their primary duty must be ‘making sales.’ “ (Id. at 10.) Under the administrative exemption, the DOL noted that, although pharmaceutical representatives work independently, that “does not suffice to qualify for the administrative exemption; [the representatives] do not perform any primary duties that are largely comparable to those found in 29 C.F.R. § 541.202(b), such as formulating or implementing management policies, utilizing authority to deviate from established policies, providing expert advice, or planning business objectives.” (Doc. No. 106-2, at 21.)
While this motion for reconsideration was pending at this Court, the Second Circuit concluded that under the DOL’s regulations, pharmaceutical representatives are not outside salesmen or administrative employees for the purposes of FLSA’s overtime pay requirements. Novartis, 611 F.3d at 149. The Novartis court determined that the DOL’s interpretations were “entitled to ‘controlling’ deference,” id., under the Supreme Court’s decision in Auer v. Robbins, 519 U.S. 452, 461 (1997).
After a review of the applicable authority, this Court adopts the reasoning of the Second Circuit and holds that Plaintiffs are not outside salesmen or administrative employees under FLSA. This Court recognizes that district courts are split on the issue, and that some courts have specifically rejected the DOL’s reasoning as set forth in its Novartis amicus brief. See, e.g., Christopher v. SmithKlein Beecham Corp., 2010 WL 396300, at *1-2 (D.Ariz. Feb. 1, 2010). In this Court’s opinion, however, the Novartis court sets forth a persuasive and reasoned analysis for its deference to the DOL’s interpretation of its regulations. As the Novartis court pointed out, the DOL’s interpretations “do far more than merely parrot the language of the FLSA,” and are therefore “entitled to ‘controlling’ deference unless those interpretations are ‘plainly erroneous or inconsistent with the regulation.’ “ 611 F.3d at 153 (quoting Auer v. Robbins, 519 U.S. 452, 461 (1997)). This Court further agrees that no such error or inconsistency exists. Id.
Auxilium points this Court to two opinions in the Third Circuit that came to the opposite conclusion on this question: Smith v. Johnson & Johnson, 593 F.3d 280 (3d Cir.2010), and Baum v. AstraZeneca LP, 372 F. App’x 246 (3d Cir.2010). Neither of these cases, however, considers the impact of the DOL’s amicus brief on their decisions. Therefore, they do not provide a reasoned counterweight to the Second Circuit’s analysis.”
EDITOR’S NOTE: There continues to be a split of authority with respect to whether pharmaceutical representatives are exempt or nonexempt under the FLSA. Within the last week, another court, analyzing the very same issue–whether reconsideration (of an order granting defendant summary judgment) in light of the Novartis ruling and the DOL’s amicus brief(s) was warranted–another court held that the decision was not due to be reconsidered and allowed its prior decision to stand. Schaefer-Larose v. Eli Lilly and Co., 2010 WL 3892464, at *1 (S.D. Ind. Sept. 29, 2010).
9th Cir.: Reporters For Newspaper Properly Deemed Nonexempt; Creative Professional Exemption Not Applicable, Because The Reporters’ Work Does Not Require Sophisticated Analysis
Wang v. Chinese Daily News, Inc.
Following a verdict/decision in the plaintiffs favor, the defendant appealed to the Ninth Circuit based on a variety of issues, both substantive and procedural. As discussed here, the Ninth Circuit affirmed the lower Court’s holding that the plaintiffs, reporters for a local Chinese-language newspaper were nonexempt under the Fair Labor Standards Act (“FLSA”) and California Wage and Hour Law.
Reasoning that the plaintiff-reporters were not subject to the so-called “creative professional” exemption, the Court reasoned:
“CDN argues that the district court erred in holding on summary judgment that CDN’s reporters were non-exempt employees entitled to overtime. Specifically, CDN argues that its reporters were subject to the “creative professional exemption” and were therefore exempt employees not subject to FLSA and state-law overtime pay and break requirements. We review the district court’s grant of summary judgment de novo. Bamonte v. City of Mesa, 598 F.3d 1217, 1220 (9th Cir.2010).
Federal law exempts employers from paying overtime to “any employee employed in a bona fide … professional capacity.” 29 U.S.C. § 213(a)(1). To qualify as an exempt professional under federal law, an employee must be compensated “at a rate of not less than $455 per week,” and his or her “primary duty” must be the performance of exempt work. 29 C.F.R. §§ 541.300, 541.700. “[A]n employee’s primary duty must be the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor as opposed to routine mental, manual, mechanical or physical work.” 29 C.F.R. § 541.302(a). The exemption is construed narrowly against the employer who seeks to assert it. Cleveland v. City of Los Angeles, 420 F.3d 981, 988 (9th Cir.2005). California wage and hour law largely tracks federal law. See Industrial Welfare Commission Order 4-2001 § 1(A)(3)(b) (defining professional to include “an employee who is primarily engaged in the performance of … [w]ork that is original and creative in character in a recognized field of artistic endeavor … and the result of which depends primarily on the invention, imagination, or talent of the employee”); see also id. § 1(A)(3)(e) (directing that the exemption is “intended to be construed in accordance with … [inter alia, 29 C.F.R. § 541.302 ] as [it] existed as of the date of this wage order”).
As applied to journalists, the federal Department of Labor construed the “creative professional exemption” in a 2004 regulation:
Journalists may satisfy the duties requirements for the creative professional exemption if their primary duty is work requiring invention, imagination, originality or talent, as opposed to work which depends primarily on intelligence, diligence and accuracy. Employees of newspapers, magazines, television and other media are not exempt creative professionals if they only collect, organize and record information that is routine or already public, or if they do not contribute a unique interpretation or analysis to a news product. Thus, for example, newspaper reporters who merely rewrite press releases or who write standard recounts of public information by gathering facts on routine community events are not exempt creative professionals. Reporters also do not qualify as exempt creative professionals if their work product is subject to substantial control by the employer. However, journalists may qualify as exempt creative professionals if their primary duty is performing on the air in radio, television or other electronic media; conducting investigative interviews; analyzing or interpreting public events; writing editorials, opinion columns or other commentary; or acting as a narrator or commentator. 29 C.F.R. § 541.302(d) (2004). Unlike the “interpretation” it replaced, the 2004 regulation was promulgated pursuant to notice and comment rulemaking and therefore has the force of law. See 69 Fed.Reg. 22122, 22157-58 (Apr. 23, 2004). In promulgating the new regulation, the Department of Labor explained that “[t]he majority of journalists, who simply collect and organize information that is already public, or do not contribute a unique or creative interpretation or analysis to a news product, are not likely to be exempt.” Id. at 22158. Although we have not decided a case applying the creative professional exemption to journalists, other courts have explored the circumstances under which print journalists qualify for the exemption. In Reich v. Gateway Press, Inc., 13 F.3d 685 (3d Cir.1994), the Third Circuit concluded that none of the reporters at a chain of nineteen local weeklies was exempt. The newspapers largely contained “information about the day-to-day events of their respective local communities … overlooked by the Pittsburgh metropolitan daily press.” Id. at 688. The reporters primarily generated articles and features using what they knew about the local community, spent 50-60% of their time accumulating facts, and mostly filed recast press releases or information taken from public records. They wrote a feature article or editorial about once per month. Id. at 689. The court held that they were among the majority of reporters who were non-exempt. Id. at 699-700. It noted that the work was not “the type of fact gathering that demands the skill or expertise of an investigative journalist for the Philadelphia Inquirer or Washington Post, or a bureau chief for the New York Times.” Id. at 700.
In Reich v. Newspapers of New England, Inc., 44 F.3d 1060 (1st Cir.1995), the First Circuit similarly held that reporters and other employees employed by a small community newspaper were not exempt professionals. The day-to-day duties of the reporters involved “general assignment work” covering hearings, criminal and policy activity, and legislative proceedings and business events. Employees were not “asked to editorialize about or interpret the events they covered.” Id. at 1075. They, too, were therefore among the majority of reporters who were not exempt, even though their work occasionally demonstrated creativity, invention, imagination, or talent. Id.
By comparison, in Sherwood v. Washington Post, 871 F.Supp. 1471, 1482 (D.D.C.1994), the district court held that a Washington Post reporter whose “job required him to originate his own story ideas, maintain a wide network of sources, write engaging, imaginative prose, and produce stories containing thoughtful analysis of complex issues” was exempt. As a high-level investigative journalist who had held multiple positions of prominence at one of the nation’s top newspapers, the reporter was the sort of elite journalist whom the creative professional exemption was intended to cover.
The parties in this case submitted extensive evidence on summary judgment. Reporters stated in their depositions that they wrote between two and four articles per day, and that they very seldom did investigative reporting. The reporters proposed articles, but the editors gave considerate direction and frequently assigned the topics. One reporter explained that with having to write so much, “you didn’t have enough time to-really analyze anything.” Some time was spent rewriting press releases. There were no senior reporters or others with distinctive titles, and each of the reporters performed essentially the same tasks.
Editors’ declarations submitted by CDN, on the other hand, stated that articles “include background, analysis and perspective on events and news,” that CDN employs some of the most talented reporters in the Chinese newspaper industry, and that the reporters have extensive control over their time, pace of work, and ideas for articles to write. They stated that reporters must cultivate sources, sift through significant amounts of information, and analyze complicated issues. Several editors stated that they approved more than 90% of the topics suggested by reporters. Reporters’ salaries ranged from $2,060 to $3,700 per month.
Although the evidence submitted revealed disputes over how to characterize CDN’s journalists, we agree with the district court that, even when viewing the facts in the light most favorable to CDN, the reporters do not satisfy the criteria for the creative professional exemption. CDN’s Monterey Park (Los Angeles) operation, with twelve to fifteen reporters and a local circulation of 30,000, is not quite as small or unsophisticated as the community newspapers described in the Newspapers of New England and Gateway Press cases. But CDN is much closer to the community newspapers described in those cases than to the New York Times or Washington Post. As the district court explored in detail, the materials submitted on summary judgment make clear that CDN’s articles do not have the sophistication of the national-level papers at which one might expect to find the small minority of journalists who are exempt. Moreover, the intense pace at which CDN’s reporters work precludes them from engaging in sophisticated analysis. CDN’s reporters’ primary duties do not involve “conducting investigative interviews; analyzing or interpreting public events; [or] writing editorial[s], opinion columns or other commentary,” 29 C.F.R. § 541 .302(d), even if they engage in these activities some of the time. Indeed, many CDN articles may be characterized as “standard recounts of public information [created] by gathering facts on routine community events,” id., as opposed to the product of in-depth analysis. Characterizing CDN journalists as exempt would therefore be inconsistent with the Department of Labor’s intent that “the majority of journalists … are not likely to be exempt,” 69 Fed.Reg. at 22158, and with the requirement that FLSA exemptions be construed narrowly.
The evidence before the district court did not create a genuine issue of material fact as to the reporters’ status. We therefore affirm the district court’s determination on summary judgment that CDN’s reporters were non-exempt employees who were entitled to the protections of the FLSA and California law.”
Not discussed here, the Court also held that the certification of both a collective action of the FLSA claims and a class action of the California state law claims was within the court’s discretion, as was the lower court’s decision to invalidate many opt-out forms received in response to the initial class action notice, in response to what it believed was coercion from the defendant employer.
To read the entire decision, click here.
M.D.Ala.: Wal-Mart Assistant Store Managers (ASMs) May Be Entitled To Overtime Pay; Wal-Mart’s Motion for Summary Judgment Denied
Davis v. Wal-Mart Stores, Inc.
This case was before the Court on Wal-Mart’s motion for summary judgment. Wal-Mart asserted that the Plaintiffs, two (2) former Assistant Store Managers (“ASMs”) were exempt from the overtime provisions of the Fair Labor Standards Act (“FLSA”). Citing issues of fact raised by the Plaintiffs, the Court denied Wal-Mart’s motion.
After noting that the court was due to accept the facts in the light most favorable to the Plaintiffs (as the non-moving party), the court recited the following facts pertinent to the motion:
“The facts of this case concern the job duties of the Plaintiffs. Plaintiff Nancy Davis was employed at the Wal-Mart in Opelika, Alabama as a salaried assistant manager from June of 2006 until September 2009. Davis states that during her employment she performed such tasks as stocking, acting as cashier, sweeping, mopping, cleaning, unloading trucks, bringing in shopping carts, and doing price checks. Plaintiff Shirley Toliver was employed with the Wal-Mart store in Opelika from August 2001 to May 20, 2009. She also states that she performed tasks such as stocking, running the cash register, sweeping, mopping, cleaning, loading trucks, pulling pallets, bringing in shopping carts and performing price checks. The Plaintiffs have testified in their depositions that these tasks comprised 80-90 % of their work duties. Wal-Mart has presented documentary and deposition evidence that Davis and Toliver also engaged in managerial tasks, including delegation of duties, interviewing and hiring applicants, coaching associates, evaluating associates, and terminating associates.”
The Court held that, on these facts, the Plaintiffs could not be said, as a matter of law, to fall under the FLSA’s executive exemption or administrative exemption. After outlining the elements of the executive exemption, the Court reasoned:
“In a case relied upon by Davis and Toliver, the Eleventh Circuit has engaged in a lengthy analysis of the primary duty requirement in the context of store managers of Family Dollar Stores, a retail establishment. See Morgan v. Family Dollar Stores, Inc., 551 F.3d 1233 (11th Cir.2008). In Morgan, the plaintiffs were store managers who spent 80 to 90 % of their time performing manual labor tasks such as stocking shelves, running cash registers, unloading trucks, and cleaning. Id. at 1270. They were also assigned tasks such as completing paper work and making bank deposits, but those tasks were strictly prescribed. In evaluating the claim that the executive exemption did not apply to these managers, the court emphasized that at the executive exemption to FLSA overtime pay is to be narrowly construed because the Supreme Court has directed that the exemption be applied only to plaintiffs who fall “clearly and unmistakably within the terms and spirit of the exemption.” Id. at 1269 (citation omitted). The court further noted that the inquiry is fact-intensive, and if there is evidence “on both sides of the question,” the facts should be determined by a jury. Id. The factor of time spent on manual, nonexempt work, however, did not establish that the plaintiffs were nonexempt. Id. Instead, the court found that the jury’s determination that the managers were nonexempt was supported not just by the amount of time spent performing nonexempt work, but also by evidence that non-managerial tasks were of “equal or greater importance to the store’s functioning and success.” Id. The court found significant that the employer described manual labor performed on delivery day as an “essential function” of the position. Id. The court also concluded that the evidence of little time spent in discretionary matters, little freedom from direct supervision, and the difference between managerial and other wages supported the jury’s finding of non-exempt work as the primary duty. Id. at 1270-71. As Wal-Mart points out, the court distinguished other courts’ opinions on the basis that in Morgan the manual labor was not performed concurrently with managerial duties. Id. at 1272-73.
Davis and Toliver contend that here, as in Morgan, all four of the primary duty factors weigh in their favor in this case. With respect to managerial duties, Davis and Toliver contend that they spent the vast majority of their time performing non-managerial tasks, and that the managerial tasks they performed were relatively less important than their non-managerial duties. The court begins with the factor of the amount of time spent performing management duties.
1. Time Spent Performing Management Duties
Davis and Toliver have testified that 80-90 % of their time was spent performing nonmanagerial tasks. Davis Dep. at page 125: 19-126: 4. Davis stated that she would run the cash register for 15 or 20 minutes at a time all day long, three out of five days a week, on day and night shifts, and that she found herself doing sweeping and cleaning, particularly on the third shift. Id. at page 128: 18-129:16. Toliver testified that she performed the same tasks testified to by Davis, adding that sometimes she would be a cashier for three hours at a time. Toliver Dep. at pages 95: 16-96: 4, 17-11-19.
While Wal-Mart characterizes this testimony as self-serving, the court must accept the Plaintiffs’ testimony that they performed the sort of tasks described 80-90 % of the time. Those tasks testified to are not considered managerial duties.
Managerial duties are defined by the C.F.R. to include interviewing, selecting and training employees, directing the work of employees, maintaining sales records, appraising employees’ productivity and efficiency, handling employee complaints and grievances, disciplining employees, planning work, determining techniques to be used, apportioning work, determining merchandise to be bought and sold, controlling distribution of merchandise, providing for safety and security of employees or property, planning and controlling the budget, and implementing and monitoring legal compliance measures. 29 C.F.R. § 541.102. Clearly the tasks which Davis and Toliver have identified as comprising 80-90 % of their working time do not fall within these examples of managerial tasks. The C.F.R. also states, however, that
Occasional, infrequently recurring tasks that cannot practicably be performed by nonexempt employees, but are the means for an exempt employee to properly carry out exempt functions and responsibilities, are considered exempt work. The following factors should be considered in determining whether such work is exempt work: Whether the same work is performed by any of the exempt employee’s subordinates; practicability of delegating the work to a nonexempt employee; whether the exempt employee performs the task frequently or occasionally; and existence of an industry practice for the exempt employee to perform the task. 29 C.F.R. § 541.707.
The Plaintiffs argue that the extent to which they performed nonmanagerial tasks meant that the tasks cannot be considered to be exempt work. Davis and Toliver state that their time spent doing the managerial duties of performance evaluation was minimal, averaging 10 to 15 minutes. Toliver Dep. at page 98: 8-16. Davis described her duties as running the register, pulling pallets, unloading trucks, working freight by pulling it off a truck and putting it on the shelf, zoning by fronting merchandise, and cleaning. Davis Dep. at 156: 3-10. Given the testimony of the extent of their nonmanagerial duties, the court concludes that a reasonable jury could conclude that the tasks which, according to the Plaintiffs’ testimony, comprised 80-90 % of their work, were more than occasional, infrequently recurring tasks and, therefore, were nonexempt tasks.
Wal-Mart argues that the Plaintiffs’ choice to perform nonexempt tasks, rather than to delegate those tasks, because they were ultimately responsible for those tasks, does not make them nonexempt. Wal-Mart points to the C.F.R. and argues that concurrent performance of exempt and nonexempt work does not disqualify an employee from the executive exemption. See 29 C.F.R. § 106(a). That C.F.R. section states, however, that if exempt and nonexempt work occurs concurrently, the exemption can still apply, if the requirements for the exemption are otherwise met. Id. The C.F.R. offers as an example an assistant manager who supervises employees and serves customers at the same time, without losing the executive exemption. § 541.106(b). The C.F.R. draws a distinction between persons who make the decision of when to perform nonexempt duties and those directed to perform exempt work. § 541.106(a).
The Eleventh Circuit relied on such a distinction in Morgan. The court distinguished cases from other courts which had given less weight to plaintiffs’ estimates of time performed on nonexempt tasks because those plaintiffs concurrently performed exempt tasks. Morgan, 551 F.3d at 1272. The court explained that the amount of manual labor performed by the managers in Morgan overwhelmed their capacity to perform managerial duties concurrently during store hours. Morgan, 551 F.3d at 1272. The court further explained that management duties could not be performed concurrently because, for example, “a store manager unloading a truck and stocking the storeroom was not concurrently supervising the cashier out front.” Id. at 1273. The court noted that many of the tasks were performed before and after the store closed. Id. at 1272. The court concluded that the jury “may well have given more weight to the Plaintiffs’ evidence that they spent 80 to 90 % of their time solely on nonexempt work.” Id.
Davis stated in her deposition that she would receive managerial notes from the store manager which would tell her tasks that needed to be accomplished during a shift. Id. at page 126:15-127:14. She explained that “[w]e were told what to do, either find somebody to do it or do it yourself.” Id. at page 126: 15-16. Davis explained that she was assigned duties by the store manager or co-manager in the shift notes that told her what they wanted done. Id. at 150:8-22. If there were minimal associates working, she had to perform the manual labor tasks herself. Id. at page 150: 17-151:17. Davis gave as an example that if two or three trucks came in carrying freight during the third shift, she would have to go to that department. Id. at 151:10-17. She further explained that she would get in trouble for not getting the tasks done. Id. at 151:21-22. Davis testified that she performed sweeping, mopping, and cleaning duties “mostly on third shift” because there were not “enough associates to get everything done that needed to be done.” Id. at 129: 8-16. She also stated that she has been told to scrape dirt from under shelves with a scraper on third shift. Id. at 156:18-157. Davis also testified that she would stay on past the end of her shift on some occasions so that she averaged 54 to 65 hours per week. Id. at page 110: 13-19.
According to the Plaintiffs’ evidence, they were not responsible for the scheduling of associates. The scheduling of employees was conducted by co-Manager Ken King. King explained in his deposition that he set the schedules based on a budget he was provided by corporate headquarters, which came down through the regional and district manager. King Dep. at page 12. Although King also stated that assistant managers also set schedules, in her deposition, Toliver disputed that she made schedules, and stated that the co-manager made the schedules. Toliver Dep. at page 20: 8-12, 21-3.
While Wal-Mart has contended that the Plaintiffs chose to perform nonmanagerial tasks instead of delegating those tasks, viewing the evidence in a light most favorable to the non-movants, the Plaintiffs were directed to perform tasks even in the face of inadequate staffing levels. Furthermore, the nonexempt tasks performed by Davis and Toliver in this case were similar to those in Morgan, such as unloading of freight, which would not allow for the supervision of associates in other sections of the store. The court concludes, therefore, that Wal-Mart has not conclusively shown that the nonexempt tasks were performed concurrently with exempt tasks, for purposes of its affirmative defense. Here, as in Morgan, the court concludes that there is sufficient evidence to support the Plaintiffs’ estimate that 80 % to 90 % of their work was nonexempt work.
The C.F.R. states that the amount of time spent on managerial tasks “can be a useful guide in determining whether exempt work is the primary duty of an employee,” but it is not the sole test. § 541.700(b). A person who spends more than 50 percent of her time performing exempt work generally will satisfy the primary duty requirement, but “employees who do not spend more than 50 percent of their time performing exempt duties may nonetheless meet the primary duty requirement if the other factors support such a conclusion.” Id.
Given the Plaintiffs’ evidence, the factor of the amount of time spent on nonexempt tasks, while not dispositive, weighs against a finding of exempt work as the primary duty in this case. See Morgan, 551 F.3d at 1270.
2. Relative Importance of Managerial Duties
The next primary duty factor to be examined is the relative importance of managerial duties as compared to other duties. 29 C.F .R. § 541.700(a).
Wal-Mart has submitted multiple records evidencing managerial tasks, such as coaching for improvement of hourly associates, performance evaluations, and job offers. Wal-Mart states that Davis and Toliver managed recognized departments during the day shift, and were “in charge” of the store on night shifts. Wal-Mart further states that these duties were important, as they were evaluated in the Plaintiffs’ performance evaluations.
Davis and Toliver do not dispute that they coached associate employees, evaluated performance of associates, checked the status of inventory, and monitored store conditions. See Doc. # 20 at page 15. As noted above, however, they state their time spent doing managerial duties, for example, employee evaluation, was minimal, consisting of 10 to 15 minutes, and that these duties were secondary to their primary duties of waiting on customers, stocking shelves, cleaning, merchandising, unloading delivery trucks, and bringing in shopping carts. As further evidence of the relative importance of the nonmanagerial tasks, the Plaintiffs point out that in the job description’s listing of physical activities necessary to perform essential job functions an assistant manager is required to move, lift, carry, and place merchandise and supplies weighing up to 25 pounds without assistance, and to grasp, turn, and manipulate objects of varying size and weight, requiring fine motor skills and hand-eye coordination. As described extensively above, there is evidence that Davis and Toliver were required to perform manual tasks also performed by associates, and that the budget-based schedule, which left the store understaffed at times, required them to perform manual labor tasks.
In Morgan, the court concluded that nonmanagerial duties were more important because the essential job functions as listed by the employer required that the managers do the same work as stock clerks and cashiers, and that a large amount of manual labor by managers was a key to the business model, given the limited payroll and large amount of labor that had to be performed. Morgan, 551 F.2d at 1270.
Viewing the evidence presented in a light most favorable to the nonmovant, the court concludes that here, as in Morgan, there is enough evidence for a jury to find not only that nonmanagerial tasks consumed 80-90 % of Davis and Toliver’s time, but also that the nonmanagerial work was relatively more important than managerial work.
3. Relative freedom from Direct Supervision
As to the analytical factor of relative freedom from direct supervision, Davis and Toliver argue that not only were they governed by policies put in place by Wal-Mart at its corporate headquarters, but also policies created, implemented, and enforced by the store manager or co-manager who were present in the store daily. For instance, Toliver states in her deposition that there was a time during which assistant managers set the schedules, but during the relevant time period, the co-manager set schedules. Toliver Dep. at page 20: 4-12. She also explained that she thought it should be within her discretion to decide whom to interview for an position which was open, but that she was told whom to choose at times. Id. at page 78: 3-12. She testified that the rate of starting pay was dictated by policy and that she was not allowed to give raises. Id. at 107:10-23.
Davis testified that when the store manager and co-manager were present in the store, they were supervising the assistant supervisors and were supervising the hourly associates. Davis Dep. at page 148: 9-17. With respect to the placement of merchandise, Davis testified that the home office, store manager, or co-manager directed where to place merchandise, and that placement was dictated by planograms. Id. at page 152:12-153:4. Even on the third shift, when Wal-Mart insists the Plaintiffs were “in charge” of the store, as set out above, upper management gave instructions of what was to be done, down to tasks such as scraping dirt from beneath shelves.
In Morgan, the Eleventh Circuit found that the factor of freedom from supervision weighed in favor of a finding of the primary duty being nonexempt work, because managers above the level of the store managers were responsible for enforcing detailed store operating policies, closely reviewed inventory, closely monitored the payroll, controlled employee hourly rates and pay raises, routinely sent to-do lists and emails with instructions to the managers, closely supervised displays, and closely supervised store operations. Morgan, 551 F.3d at 1271. When viewed in a light most favorable to the non-movants, many of the same considerations present in Morgan, such as instructions from upper management as to tasks to perform, and pay rates and budget-controlled staffing by upper management, are present in this case as well. Therefore, the court concludes that this factor also weighs in Davis and Toliver’s favor.
4. Relative wages
As to the fourth primary duty factor, the relationship between employee’s salary and wages paid to other employees for the kind of nonexempt work performed by the employee, although Davis and Toliver have argued, correctly, that the court should account for the extra hours they worked in comparing salaries and wages, the court has not been pointed to evidence of the amount of hourly wages paid for the same nonexempt work duties. Therefore, the court cannot conclude that this factor weighs in favor of the Plaintiffs in this case.
Considering together the evidence of the relative importance of the management duties as compared with other types of duties, the amount of time spent performing management duties, the employee’s relative freedom from direct supervision, and the lack of evidence of relative wages, along with the fact that there is evidence that the Plaintiffs performed several types of managerial duties, it appears to the court there is a close question as to whether Davis and Toliver had primarily nonexempt duties. While the Morgan case is helpful in applying the analytical factors and considerations set forth in the C.F.R., the Morgan decision is also distinguishable to the extent that the evidence of managerial responsibilities of the plaintiffs in that case was somewhat limited. Bearing in mind that Wal-Mart has the burden of proof on its affirmative defense, and viewing the evidence in a light most favorable to the non-movants, however, the court concludes that there is sufficient evidence to create a question of fact as to whether the Plaintiffs’ primary duties were managerial. Having concluded that there are questions of fact which preclude judgment in Wal-Mart’s favor on the exemption requirement of primary duty, the court need not address the remaining requirements for application of the executive exemption.”
The Court then went on to hold that Plaintiffs may not be administratrively exempt either. While, this case was limited to the facts of the two (2) ASM Plaintiffs here, this will be an interesting one to watch.
Cliok here Davis v. Wal-Mart Stores, Inc. to read the entire opinion.
11th Cir.: Intrastate Travel Of SuperShuttle Drivers Satisfied Motor Carrier Act Exemption, Because Many Customers Were “Through Ticketed” Based On Internet Travel Packages
Abel v. Southern Shuttle Services, Inc.
This case was before the Eleventh Circuit for the second time. Plaintiff, a former driver of Defendant Southern Shuttle Services, Inc.’s airport shuttle vans, filed the action under the FLSA seeking unpaid overtime pay. In the first appeal, the Eleventh Circuit vacated the district court’s entry of summary judgment in Southern Shuttle’s favor because Southern Shuttle’s airport shuttle service did not fall within the “taxicab exemption” to the FLSA’s overtime provisions. See Abel v. S. Shuttle Servs., Inc., 301 F. App’x 856 (11th Cir.2008). After remand, Southern Shuttle filed a second motion for summary judgment, arguing that its airport shuttle van drivers fall under the Motor Carrier Act exemption in 29 U.S.C. § 213(b)(1). The district court agreed and granted Southern Shuttle summary judgment. On appeal, the Eleventh Circuit affirmed.
The Court outlined the following facts pertinent to its inquiry:
“Southern Shuttle operates a shared-ride airport shuttle, known as “SuperShuttle,” that transports passengers to and from three South Florida airports (Miami International Airport, Palm Beach International Airport and Fort Lauderdale-Hollywood International Airport). From December 19, 2005 to June 24, 2007, Abel worked for Defendant Southern Shuttle as a shuttle driver, driving passengers to and from airports. Abel, like all shuttle drivers, was paid commission and tips, but not overtime compensation. Abel’s employment ended after he refused to transport a passenger with a payment voucher and made the passenger exit the shuttle van, in violation of Southern Shuttle’s policy.
The shuttles are large nine- and ten-person passenger vans. The shuttles pick up passengers at one of the airports and take them to any location in the area (such as a residence, office or hotel), or pick them up at any location in the area and take them to one of the airports. Shuttle drivers do not transport passengers to or from locations outside of Florida. Some shuttle passengers are transported to the airports so they can travel via air carrier to other states or countries. Other shuttle passengers are transported from the airports after having flown from other states or countries.
Many shuttle passengers arrange for shuttle transportation by contacting Southern Shuttle directly. Passengers traveling to the airport make reservations ahead of time and schedule a trip to the airport. Similarly, passengers traveling from the airport check in at a SuperShuttle airport kiosk or counter or with a curbside representative to be assigned to the next available shuttle.
Southern Shuttle’s president, Mark Levitt averred that: (1) “[a] large portion of the reservations made with Southern Shuttle are through internet package deals wherein a traveler buys a package deal from a third party company that includes airfare, hotel accommodations and transportation to and from the airport”; (2) “the traveler receives a voucher for free transportation to and from the airport and provides the voucher to Southern Shuttle in lieu of payment”; and (3) “Southern Shuttle then prepares an invoice to the third party company for payment.” These third party companies include internet travel web sites such as Expedia.com, Travelocity, Orbitz, CheapTickets, a German company called Viator, a company in the United Kingdom called Get a Bed, and American Express, among others.”
Affirming the lower court’s decision, the Eleventh Circuit reasoned:
“[T]he Supreme Court’s Morris decision involved a general cartage business that primarily transported steel around the Detroit area either within local steel plants or to and from local steel plants. 332 U.S. at 427, 68 S.Ct. at 133. A small percentage of the employer’s trips, roughly four percent, involved transporting miscellaneous freight to and from Detroit boat docks, railroad depots and freight terminals. Id. at 427 & n. 7, 68 S.Ct. at 133 & n. 7. Although these trips did not cross state lines, they nonetheless met the de minimus interstate commerce requirement because they transported freight “in interstate commerce, either as part of continuous interstate movements or of interstate movements begun or terminated in metropolitan Detroit.” Id. at 427, 432-33, 68 S.Ct. at 133, 136.
Other cases make clear that trips within a single state are made in interstate commerce when they are part of “a practical continuity of movement of the goods” in interstate commerce. Walling v. Jacksonville Paper Co., 317 U.S. at 568, 63 S.Ct. at 335 (involving wholesale distributor of paper products made outside the state but transported only to customers within the state); see also Baez, 938 F.2d at 181-82 (involving armored trucks delivering to Florida banks checks and other instruments bound for banks outside Florida); Galbreath v. Gulf Oil Corp., 413 F.2d 941 (5th Cir.1969) (involving oil company’s transport within Georgia of petroleum products originating from refineries in Texas and Mississippi); Opelika Royal Crown Bottling Co. v. Goldberg, 299 F.2d 37 (5th Cir.1962) (involving wholesale soft drink distributor transporting drinks bottled in Georgia from Alabama warehouse to Alabama customers and returning empty bottles to Alabama warehouse, where other trucks took them back to Georgia).
The Third Circuit distinguished the transportation of passengers from goods. See Packard v. Pittsburgh Transp. Co., 418 F.3d 246 (3d Cir.2005). The employer in Packard provided transportation to the elderly and disabled in Allegheny County, which included trips to train and bus stations and to the airport. Id. at 248-49. The Third Circuit concluded that this transportation service did not fall within the Secretary’s jurisdiction because it was not “in practical continuity with a larger interstate journey.” Id. at 258. Because Morris involved transportation of goods not passengers, the Third Circuit looked at cases arising in other contexts that defined interstate transportation of passengers, including United States v. Yellow Cab Co., 332 U.S. 218, 67 S.Ct. 1560, 91 L.Ed. 2010 (1947), overruled on other grounds by Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 104 S.Ct. 2731, 81 L.Ed.2d 628 (1984), a Sherman Act case.
In Yellow Cab, the Supreme Court described interstate commerce as “an intensely practical concept drawn from the normal and accepted course of business.” Id. at 231, 67 S.Ct. at 1567. Because “the limits of an interstate shipment of goods” may be different than “the commonly accepted limits of an individual’s interstate journey,” courts must “mark the beginning and end of a particular kind of interstate commerce by its own practical considerations.” Id. In light of these practical considerations, the Supreme Court concluded that, “in the absence of some special arrangement,” a taxi ride to or from a railroad station at the beginning or end of an interstate journey ordinarily is a local trip that is not within interstate commerce. Id. at 231-32, 67 S.Ct. at 1567. However, where the railroad “contract[s] with the passengers to supply between-station transportation in Chicago,” the taxi ride “is clearly a part of the stream of interstate commerce.” Id. at 228, 67 S.Ct. at 1565-66. The Supreme Court explained that “[w]hen persons or goods move from a point of origin in one state to a point of destination in another, the fact that a part of that journey consists of transportation by an independent agency solely within the boundaries of one state does not make that portion of the trip any less interstate in character.” Id. at 228, 67 S.Ct. at 1566.
Relying on the distinctions drawn in Yellow Cab, the Third Circuit noted that the transportation of the elderly and disabled in Packard “involves no joint fare or ticketing arrangement, and no prior arrangement of any kind, contractual or otherwise, with the railroads, airlines, or other companies.” Packard, 418 F.3d at 258. The Third Circuit cited “through ticketing” as “one example of a common arrangement involving both intra and interstate portions of passenger transport” but concluded that it was “not the only means of establishing that passenger transport operating intrastate is in practical continuity with a larger interstate journey.” Id. (emphasis omitted). Highlighting the “lack of coordination with other transportation,” such as through “a prepackaged tour,” the Third Circuit concluded that the transportation service in Packard was “purely intrastate.” Id.
4. Southern Shuttle
Guided by the interstate commerce principles in Walters, Morris and Yellow Cab, we conclude that the purely intrastate transport of passengers to and from an airport may, under certain circumstances, constitute interstate commerce and thus bring the transportation company within the jurisdiction of the Secretary of Transportation. Those circumstances are present here.
Many of Southern Shuttle’s passengers to and from the airport have either just flown from, or are about to fly to, places outside the state of Florida. A large portion of Southern Shuttle’s reservations are made via travel websites on the internet. Travelers buy package deals from these internet travel companies that include hotel accommodations and airfare in addition to transportation to and from the airport. The internet travel companies provide their package-deal customers with a voucher for free airport transportation, which the customers use to board Southern Shuttle’s airport shuttles. Southern Shuttle then uses the collected vouchers to invoice the internet travel company for payment. In other words, Southern Shuttle’s local transport of these package-deal travelers has a “practical continuity of movement” with the overall interstate journey.
Furthermore, Southern Shuttle’s arrangement with internet travel companies to provide airport shuttle service for their package-deal customers meets the “common arrangement” requirement discussed in Walters. Indeed, Southern Shuttle’s voucher system resembles in many respects the voucher system the bus company used for cruise ship passengers in Walters. In sum, we conclude that Southern Shuttle has shown that it is subject to the Secretary of Transportation’s jurisdiction under the MCA.
C. Secretary’s MCA Jurisdiction over Abel’s Work-Related Activities
We next address the second requirement: whether the Secretary’s jurisdiction extends to Abel’s work-related activities at Southern Shuttle. To satisfy this requirement, Southern Shuttle must show that Abel “engage[d] in activities of a character directly affecting the safety of operation of motor vehicles in the transportation on the public highways of passengers or property in interstate or foreign commerce within the meaning of the Motor Carrier Act.” 29 C.F.R. § 782.2(a). Abel does not dispute that, as an airport shuttle driver, he engaged in activities that directly affected the safety of operation of motor vehicles in the transportation of passengers on the public highways. Thus, the only issue presented is whether Abel’s activities as an airport shuttle driver constituted “interstate commerce” within the meaning of the MCA. Here, the issue is easily resolved because Abel performed Southern Shuttle’s core airport shuttle transport activity. Having already concluded that Southern Shuttle’s airport shuttle service was transportation of passengers in interstate commerce that subjected it to the Secretary’s jurisdiction, we conclude that Abel’s activities in driving the airport shuttle also constitute interstate commerce.”
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D.Minn.: “Insurance Investigators” Were Non-Exempt, Because Their Duties Lacked Independent Judgment and Discretion
Ahle v. Veracity Research Co.
Among other motions, the case was before the Court on the parties’ cross-motions for summary judgment. Of note here, the parties asked the Court to determine whether Plaintiffs, who were “Insurance Investigators” qualified as Administrative Exempt or not. Holding that their duties did not require the independent judgment and discretion necessary, the Court held that Plaintiffs were non-exempt under the FLSA.
Examining the Plaintiffs’ duties the Court explained:
“Veracity is a full-service investigative firm specializing in insurance defense investigations. Answer to Compl., Defenses and Am. Counterclaim (Counterclaim) [Docket No. 29] ¶ 5. Named Plaintiffs Ahle, Jordan, and Wiseman formerly worked as investigators for Veracity. Id. ¶¶ 6-8; Collective Action Compl. [Docket No. 1] ¶¶ 4-6. Approximately 150 other individuals have opted into this litigation. The plaintiff class members are current or former investigators for Veracity.
Veracity is hired by insurance companies, third-party administrators, and law firms to investigate suspect claims. Morgan Decl., May 13, 2010 [Docket No. 186], Ex. 1 (Foster Dep.) 45:22-46:8. Veracity categorizes its investigators by title and level; the titles and levels that are at issue in this litigation are surveillance investigators (levels 1-3), claims investigators (level 4), and senior field investigators (level 5). Morgan Decl., May 13, 2010, Ex. 2 (Doyle Dep.) 60:10-19. Surveillance investigators primarily work in the field conducting surveillance, undercover investigations, and background checks. Id. 50:15-21; Foster Aff ., July 7, 2009 [Docket No. 59], ¶ 7. Claims investigators generally perform the same duties as surveillance investigators, but they also interview witnesses, obtain statements, take photographs, and, occasionally, perform sales functions. Foster Aff., July 7, 2009, ¶¶ 8, 10-11. Senior field investigators supervise and manage surveillance and claims investigators in the field, train new investigators, and perform occasional promotion and sales duties. Id. ¶ 13. Thus, all of the titles and levels of investigators at issue have in common some surveillance duties, although the parties dispute whether the primary duty of investigators in each of these titles and levels is surveillance.
After receiving an assignment from Veracity but before driving to the surveillance site, the investigator typically completes several tasks including reviewing the assignment sheet, performing a background check on the subject, matching the name of the subject to an address, mapping out directions to the surveillance site, and ensuring that the investigator’s camera, laptop computer, and cellular phones are fully charged. Morgan Decl., May 13, 2010, Ex. 8 at VRC001063-64. According to Plaintiffs, investigators also are required to perform maintenance including cleaning the windows and filling the fuel tank on their vehicles before leaving for a surveillance site. Morgan Decl., May 13, 2010, Exs. 13, 14, ¶ 6. At the surveillance site, investigators monitor and video record the subject and take notes of their observations. Morgan Decl., May 13, 2010, Ex. 13, ¶ 5. Claims investigators may also interview witnesses, obtain statements, and collect documents. Foster Dep. 149:7-23.
Investigators record their activities in a daily investigative report (“DIR”). Morgan Decl., May 13, 2010, Exs. 13, 14 ¶ 7. An investigator’s DIR discloses when the investigator left home for the surveillance site, the drive time, the arrival time, observation notes, the departure time from the site, and the arrival time back at the investigator’s home. Id. Once completed, the investigator sends the DIR online to Veracity. Id. Investigators send any video recording taken during the day to their managers by depositing the tapes at a FedEx drop-off location. Id .
The dispute in this action centers on whether Plaintiffs, given their daily duties, were properly classified as FLSA “exempt” employees who are not required to be paid overtime for work in excess of forty hours per week. Based on Veracity’s founders’ view of the “industry standard,” Veracity classified its investigators as exempt when it began business in 1995. Doyle Dep. 15:10-17:6. Plaintiffs initiated this action on January 8, 2009, claiming that they were improperly classified as exempt and, therefore, were wrongfully denied compensation for overtime hours allegedly worked while employed by Veracity as investigators.”
After concluding that it lacked information sufficient to determine whether the second prong of the Administrative Exemption was met or not here, the Court held that Defendant could not, as a matter of law, establish that Plaintiffs’ activities required the independent judgment and discretion required for application of the exemption:
“Discretion and Independent Judgment
Although claims investigations is directly related to the management or general business operations of Veracity’s clients, such a primary duty must also involve the exercise of discretion and independent judgment with respect to matters of significance for claims investigators to meet the final element of the definition of administrative employees. DOL 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).
Factors to be considered when determining whether an employee exercises discretion and independent judgment with respect to matters of significance include, but are not limited to: whether the employee has authority to formulate, affect, interpret, or implement management policies or operating practices; whether the employee carries out major assignments in conducting the operations of the business; whether the employee performs work that affects business operations to a substantial degree, even if the employee’s assignments are related to operation of a particular segment of the business; whether the employee has authority to commit the employer in matters that have significant financial impact; whether the employee has authority to waive or deviate from established policies and procedures without prior approval; whether the employee has authority to negotiate and bind the company on significant matters; whether the employee provides consultation or expert advice to management; whether the employee is involved in planning long- or short-term business objectives; whether the employee investigates and resolves matters of significance on behalf of management; and whether the employee represents the company in handling complaints, arbitrating disputes or resolving grievances. Id. § 541.202(b). “The exercise of discretion and independent judgment implies that the employee has the authority to make an independent choice, free from immediate direction or supervision,” but “employees can exercise discretion and independent judgment even if their decisions or recommendations are reviewed at a higher level,” and discretion and independent judgment can “consist of recommendations for action rather than the actual taking of action.” Id. § 541.202(c). However, “[t]he exercise of discretion and independent judgment must be more than the use of skill in applying well-established techniques, procedures or specific standards described in manuals or other sources.” Id . § 541.202(e).
In support of their argument that the duties of the claims investigators do not involve the exercise of discretion and independent judgment regarding matters of significance, Plaintiffs again cite Gusdonovich, as well as Fenton v. Farmers Insurance Exchange, 663 F.Supp.2d 718 (D.Minn.2009), a case from this district. In Gusdonovich, the court concluded that the insurance “investigators were merely applying their knowledge and skill in determining what procedure to follow, which … is not the exercise of discretion and independent judgment contemplated by the [DOL] regulation[s].” 705 F.Supp. at 265.
The plaintiffs in Fenton were insurance investigators employed by a company to investigate potentially fraudulent insurance claims. 663 F.Supp.2d at 721. The court held that the job duties of such “special investigators” did not involve a sufficient exercise of discretion and independent judgment to qualify for the administrative exemption. Id. at 726. Instead, the special investigators’ job duties were “sufficiently aligned with the employment circumstances” of (1) the insurance investigators who were the plaintiffs in Gusdonovich, (2) the employees performing background investigations discussed in the 2005 DOL Opinion Letter, and (3) the police investigations addressed in DOL regulation 29 C.F.R. § 541.3(b)(1). Id. at 726. In reaching that conclusion, the court noted that the employer’s written guidelines explained in great detail how the investigators should approach issues that often arise in conducting and documenting an investigation, there was “nothing in the residual discretion available to investigators that [was] sufficient to justify exemption,” and there was no dispute that the investigator’s subjective opinions and conclusions were excluded from their written reports. Id. at 726-27. In addition, written guidelines instructed the investigators to include, with equal detail and emphasis, all inculpating and exculpating information in their reports, and investigators had no authority to determine whether a claim should be denied or whether the insurance company should seek to negotiate a settlement. Id. at 727.
Like in Gusdonovich and Fenton, Plaintiffs’ duties as claims investigators for Veracity do not involve a sufficient degree of discretion and independent judgement with respect to matters of significance. Claims investigators do not have the discretion to decide when to conduct an investigation, where to conduct it, or the length of time to spend on it. Morgan Decl., May 13, 2010, Ex. 13, ¶ 6. In addition, Veracity does not allow claims investigators to (1) make any recommendations or give their opinions as to whether fraud occurred when submitting their DIRs or (2) recommend or participate in the decision whether to deny or pay a claim or whether to conduct further investigation. Id. ¶ 8. Furthermore, Plaintiffs’ declarations state that they received guidelines and manuals describing how claims investigations are conducted and that they are “expected to follow such guidelines and manuals when conducting day-to-day investigations.” Id. ¶ 11. For example, a Veracity document entitled “Introduction to Claims Investigation and Responsibilities” informs claims investigators as follows:
Your job will be to obtain facts that relate to a specific claim. This will include, but is not limited to, taking recorded statements from the person making the claim …, witnesses to the specific incident, [and] persons that may have direct knowledge about the incident…. Your responsibility is to get the facts of the case by means of questioning or research. At times you will be called upon to obtain needed documentation to include medical records, receipts …, employment information, and police reports. You will have to develop comprehensive investigative and communication skills, and you must be able to decide which leads must be followed, and which ones should be reported but need no further effort.
One of the most challenging areas of [your job as a claims investigator] will be your ability to transfer the information that you gather into a coherent and informative report…. [I]n most cases you will not have the opportunity to speak directly with the client and therefore your report must be accurate, concise, easily understood, and complete. Morgan Decl., May 13, 2010, Ex. 9 at VRC001154.
The manual includes outlines to follow when taking a recorded statement in all investigations and in particular types of investigations (e.g., employment injuries, motor vehicle accidents resulting in deaths, products liability, property loss or theft, vehicle or property damage). Id. at VRC001167, 1176, 1216, 1230, 1233, 1240. Although claims investigators are not required to follow the outlines verbatim, the outlines do command, in several instances, that some specific information is not optional, employing language such as, “must be on every recorded statement,” “must be covered,” or “must be asked.” Id. at VRC001167, 1176, 1216, 1230, 1233, 1240. Furthermore, the outlines instruct investigators to “obtain all of the facts,” and remind the claims investigators that it is Veractiy’s responsibility to “obtain the information and then let the [client] and their legal department make the determination.” Id. at VRC001230.
The record establishes that (1) Veracity’s written guidelines explain in great detail how claims investigators should conduct an investigation, (2) the claims investigators are required to obtain all the facts regardless of their impact, and (3) the claims investigators do not include their own opinions, conclusions, or recommendations regarding the decision whether to pay or deny the claim. Because the claims investigators do not provide opinions and conclusions about their investigative observations, they are significantly different than the insurance investigators in Foster v. Nationwide Mutual Insurance Co. See 695 F.Supp.2d 748, 761 (S .D.Ohio 2010) (concluding that genuine issues of material fact exist as to whether the plaintiffs, insurance investigators, exercised discretion and independent judgment because “[m]ost significantly, there is a factual dispute as to whether Special Investigators’ primary duty encompasses providing their opinions and conclusions regarding their investigative findings”). Admittedly, claims investigators do make decisions regarding the precise manner in which they conduct an investigation-creating action plans, deciding who to interview, what documents to review, what leads to follow, and whether to recommend hiring an expert-however, such decisions are more appropriately viewed as choices among “established techniques, procedures or specific standards described in manuals or other sources,” which do not amount to the exercise of discretion and independent judgment with respect to matters of significance. 29 C.F.R. § 541.202(a), (e); see also 2005 Opinion Letter at 4-5 (advising that “prioritizing the pursuit of particular leads, assessing whether the leads … have provided information that requires further investigation, determining which potential witnesses to see and which documents to review, and making similar decisions that promote effective and efficient use of … work time in performing assigned investigative activities” do not involve the exercise of discretion and independent judgment with respect to matters of significance); Auer v. Robbins, 519 U.S. 452, 461 (1997) (stating that the DOL’s interpretation of its own regulations are “controlling unless plainly erroneous or inconsistent with the regulation”).
The cases cited by Veracity are unavailing. In Stout v. Smolar, the court viewed evidence that a private investigator had the authority to make decisions as to how to “investigate the scene of an accident, including determining what materials to be preserved and whether expert witnesses would be required” as showing that the investigator exercised discretion and independent judgment. No. 1:05-CV-1202, 2007 WL 2765519, at *6 n. 2 (N.D.Ga. Sept. 18, 2007). The court also commented that treating insurance investigators as not qualifying for the administrative exemption “would appear contrary to the insurance claims adjuster example of administrative exemption cited by the [DOL].” Id. This Court finds more persuasive the reasoning in DOL regulations, cases such as Fenton, and the 2005 Opinion Letter, which suggest that having discretion over the types of matters discussed in Stout does not equate to having discretion and independent judgment with respect to matters of significance. See Foster, 695 F.Supp.2d at 761 (recognizing, in light of the 2005 Opinion Letter, that deciding who to interview, what documents to review, what leads to pursue, and “similar tactical matters” were “fact-finding logistics [that] do not necessarily rise to the level of discretion and independent judgment contemplated by DOL regulations, for they do not amount to matters of significance”).
Equating Veracity’s claims investigators to claims adjusters is not a fair comparison or particularly helpful. The core function of a claims adjuster is to decide whether and to what extent an insurance claim should be paid, a task that requires considerable exercise of discretion on a matter of significance. Inclusion of the term “adjuster” in the title of the job strongly suggests that conclusion. All employees exercise some discretion in deciding how to perform their jobs, and the way in which they exercise that discretion likely will affect matters of significance. In the case of claims investigators, how they exercise their discretion in conducting an investigation will impact or affect how a claims adjuster working for one of Veracity’s clients decides the significant matter of the value of the claim. But an exercise of discretion that impacts or affects a matter of significance is not exercising discretion with respect to a matter of significance. If the rule were otherwise, all employees would arguably meet the third element of the definition of administrative employees. Because the analogy to claims adjusters is not persuasive, Veracity’s reliance on cases such as Roe-Midgett, 512 F.3d at 874, where the Seventh Circuit held that claims adjusters routinely used their discretion and independent judgment to make choices that impact damage estimates, settlement, and other matters of significance, does not alter the result here.
The Court concludes that Veracity has failed to demonstrate a triable issue as to whether the duties of claims investigators include the exercise of discretion and independent judgment with respect to matters of significance. Because claims investigators do not meet the third element of the definition in 29 C.F.R. § 541.200(a), they do not qualify for the administrative exemption.”
Not discussed here, the Court also held that the Plaintiffs lacked the requisite duties to be deemed outside sales exempt. Further, the Court held that certain time claimed as compensable by the Plaintiffs was not and that the appropriate method for determining Plaintiffs damages–as “salaried misclassified” employees was the Fluctuating Workweek (“FWW”), adopting the reasoning in the recent Seventh Circuit decision discussed here. Lastly, the Court denied Defendant’s motion for decertification of the collective action.
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5th Cir.: As Plaintiffs’ Joint Employer, Staff Leasing Company Qualified As “Motor Carrier” Subject To MCA Exemption From FLSA’s Overtime Pay Requirements, Because “Actual” Employer Was A “Motor Carrier”
Songer v. Dillon Resources, Inc.
This case was before the Fifth Circuit on Plaintiffs’ appeal of an Order granting Defendant, a staff leasing company, summary judgment finding that they were entitled to assert the MCA exemption, because the company they leased Plaintiffs to was a motor carrier entitled to assert the exemption. The Fifth Circuit affirmed the decision, essentially holding that the staff leasing company Defendant was entitled to assert the exemption of the actual employer.
Plaintiffs did not dispute that Sunset Ennis and Sunset Logistics (the “actual” employers), two trucking companies, were motor carriers subject to the Secretary’s power. Instead, they argued that Dillon, a staff leasing agency, was not a motor carrier within the meaning of the MCA. Defendants assert that because the Sunset companies are motor carriers and the Sunset companies are joint employers with Dillon, Dillon is also a motor carrier within the meaning of the MCA.
Reasoning that the the staff leasing company was entitled to assert the Motor Carrier Exemption, if the “actual” employer was entitled to assert same, the Fifth Circuit stated:
“While Fifth Circuit precedent is limited on this issue, other courts have held that a staff leasing company who provides employees for a motor carrier and operates as a joint employer with the carrier meets the requirements of 29 C.F.R. § 782.2(a)(1). See, e.g., Moore v. Universal Coordinators, Inc., 423 F.2d 96, 99-100 (3d Cir.1970) (holding that truck drivers were employees of both noncarrier truck driver leasing company and private motor carrier and therefore MCA exemption extended to leasing company). The Moore court analyzed the MCA and the FLSA, and determined that Congress intended to regulate employees of carriers in the interest of safety. Id. at 99. Therefore, the Secretary’s power had to extend to leased drivers and to the leasing company that employed them. Id. at 99-100.
In a more recent case, the district court cited Congressional safety concerns as the rationale for extending the exemption:
The [MCA] exemption, as explained in Moore, safeguards the Secretary[‘s] authority to regulate the qualifications and maximum hours of employees whose work affects the “safety of operation” of a motor carrier…. Refusing to extend the [MCA] exemption to the staffing agency defendants would therefore facilitate what Congress sought to prohibit-circumvention of the Secretary’s regulatory authority. Tidd v. Adecco USA, Inc., No. 07-11214-GAO, 2010 WL 996769, at *2 (D.Mass. Mar.16, 2010) (citing Moore, 423 F.2d at 98-99).
Applying Moore and Tidd, the evidence supports a finding that Dillon, as joint employer with Sunset Logistics and Sunset Ennis, is a carrier subject to the Secretary’s jurisdiction. Dillon is a staff leasing company who provides drivers to Sunset Logistics and Sunset Ennis to fulfill interstate work orders from clients for compensation. Our review of the record reflects the following evidence: Dillon hires and trains the drivers and is responsible for their payroll, the Sunset companies are responsible for control of the drivers’ day-to-day operations, and Dillon is reimbursed for wages and benefits paid to the drivers and receives a fee when the drivers are assigned. These facts are similar to Tidd, in which the staffing agency defendants were held as joint employers to FedEx, a motor carrier, and, therefore, subject to the Secretary’s jurisdiction. See Tidd, 2010 WL 996769, at *2-3. Accordingly, we hold that the first requirement for jurisdiction under the MCA-i.e., that Plaintiffs work for carriers engaged in interstate commerce-is met. See Barefoot, 1994 WL 57686, at *2.”
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Overtime Law Blog 