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2d. Cir.: Advertising Salespeople Are Not Administratively Exempt Under The FLSA; Sales Are Not “Directly Related To Management Policies Or General Business Operations”
January 12, 2010 8:38 am / Leave a comment
Reiseck v. Universal Communications of Miami, Inc.
This case was before the Court on Plaintiff’s appeal an Order at the district court below, granting Defendants summary judgment on all counts of Plaintiff’s claim. The Court affirmed all parts of the judgment below, except for that pertaining to the FLSA. Resolving a question of first impression, the Court held that advertising salespeople, who conduct sales with individual customers are not subject to the administrative exemption as a matter of law, because such sales work is production work not administrative.
The Court discussed the following facts as relevant to its decision:
“September 2002, Reiseck began working as a Regional Director of Sales at Universal in New York City. As Regional Director of Sales, Reiseck was responsible for generating advertising sales in the northeastern United States and Canada from the travel and finance sectors for Universal’s magazine publication, Elite Traveler. While an employee of Universal, Reiseck was paid a base salary plus certain commissions. Plaintiff was paid no overtime during her tenure with Universal.
Elite Traveler is distributed on a complimentary basis. Advertising sales therefore constitute the majority of Universal’s revenue from Elite Traveler. The magazine had a sales staff, a marketing staff, and an editorial staff. The sales staff sold advertising space; the marketing staff created promotional material to increase advertising sales; and the editorial staff produced the “content” of the magazine.”
Discussing the inapplicability of the administrative exemption to the case at bar, the Court applied the s0-called pre-2004 “short test.”
“Under the short test as it applies here, an employee falls under the administrative employee exemption if the employee is paid on a salary or fee basis at a rate of not less than $250 per week (i.e., the “salary test”), id. § 541.2(e)(2), and the employee’s “primary duty consists of … the performance of office or nonmanual work directly related to management policies or general business operations of his employer,” id. § 541.2(a), and requires “the exercise of discretion and independent judgment,” id. § 541.2(e)(2), (i.e., the “duties test”). As noted above, there is no dispute that Reiseck’s employment satisfies the salary test prong of the short test.
Because the first prong of the short test is not in dispute, we move to the second prong-the duties test. Here, it is uncontested that Reiseck’s primary duty consisted of “the performance of office or non-manual work”; therefore we must consider whether Reiseck’s primary duty was “directly related to management policies or general business operations” of Universal. Id. § 541.2(a).
The phrase “directly related to management policies or general business operations” is not self-defining, and the Secretary of Labor has promulgated interpretive regulations to aid our application of this test. See, e.g., id. § 541.2. Although the Secretary’s legislative regulations-those promulgated pursuant to an express grant of authority by Congress, like 29 C.F.R. § 541.2-have the power to control courts’ reading of the law, the Secretary’s interpretive regulations have only the power to persuade courts. See Skidmore v. Swift & Co., 323 U.S. 134, 139-40 (1944). See generally United States v. Mead Corp., 533 U .S. 218 (2001). And thus we defer to the Secretary’s interpretative regulations only to the extent that we find them persuasive. See Skidmore, 323 U.S. at 140.
In its interpretive regulations, the Department of Labor describes “directly related to management policies or general business operations” in several ways. First, the interpretive rules state that the phrase at issue “describes those types activities relating to the administrative operations of a business as distinguished from ‘production’ or, in a retail or service establishment, ‘sales’ work.” 29 C.F.R. § 541.205(a). They also state that “the phrase limits the exemption to persons who perform work of substantial importance to the management or operation of the business.” Id. Alternatively, the interpretive rules state that the administrative operations include “advising the management, planning, negotiating, representing the company, purchasing, promoting sales, and business research and control.” Id. § 541.205(b).
At first glance, the two definitions of the phrase “directly related to management policies or general business operations” in the interpretive regulations seem to point to contradictory conclusions in Reiseck’s case. On the one hand, plaintiff was a salesperson responsible for selling specific advertising space, and so seems to fit comfortably on the “sales” side of the administrative/sales divide. See id. § 541.205(a). On the other hand, Reiseck also “promoted sales” in some sense, and thus seems to have performed administrative operations. See id. § 541.205(b). We are required to resolve this apparent contradiction. Whether advertising salespersons are administrative employees for the purposes of the exemptions to the FLSA’s overtime pay provisions is a question of first impression for this Court. In answering this question, we also refine our interpretation of the administrative exemption to the FLSA.
First, we consider the Department’s distinction between “administrative” and “sales.” As a magazine publisher, Universal is not one of the archetypal businesses envisaged by the FLSA; it is neither a manufacturer nor a retailer. Accordingly, placing Reiseck’s work into either the administrative or sales category is difficult initially. Nevertheless, a careful consideration of Universal’s business model provides some clarity. Because Universal does not charge readers for Elite Traveler, advertising sales are a critical source of revenue for Universal. One could thus conclude that advertising space is Universal’s “product.” If advertising space is Universal’s product and Reiseck’s primary duty was the sale of that product, then she may reasonably be considered a sales employee, rather than an administrative employee.
Next, we consider the contradictory conclusion suggested by the second description found in the interpretive regulations-namely, that administrative operations include “promoting sales.” 29 C.F.R. § 541.205(b). Because Reiseck sold advertising space, it seems that she must have “promoted sales.” But under that theory, any sales clerk in a retail store would “promote sales” when assisting potential customers, and there would be no administrative/sales distinction in a retail store despite the clear assertion of the interpretive rule that sales work in a retail store is not administrative work for the purposes of the FLSA. Id. One of our sister circuits has provided some helpful guidance on this matter. In Martin v. Cooper Electric Supply Co., 940 F.2d 896, 905 (3d Cir.1991), the Third Circuit reasoned that sales promotion “consists of marketing activity aimed at promoting (i.e., increasing, developing, facilitating, and/or maintaining) customer sales generally.” According to the logic of the Third Circuit, which we now adopt, an employee making specific sales to individual customers is a salesperson for the purposes of the FLSA, while an employee encouraging an increase in sales generally among all customers is an administrative employee for the purposes of the FLSA. Consider a clothing store. The individual who assists customers in finding their size of clothing or who completes the transaction at the cash register is a salesperson under the FLSA, while the individual who designs advertisements for the store or decides when to reduce prices to attract customers is an administrative employee for the purposes of the FLSA.
Here, Reiseck is plainly a salesperson. Although she did “develop new clients” with the goal of increasing sales generally, this was not her primary duty. Under the interpretive regulations, an employee’s “primary duty” is the duty that consumes a “major part, or over [fifty] percent, of the employee’s time.” 29 C.F.R. § 541.103 (defining “primary duty” for the executive employee); see also 29 C.F.R. § 541.206 (applying the definition of “primary duty” for the executive employee to the administrative employee). The record shows that Reiseck’s primary duty was to sell specific advertising space to clients. Even Gollan, plaintiff’s supervisor, conceded that Reiseck was a member of the “sales staff” and not the “marketing staff.” Because Reiseck’s primary duty was the sale of advertising space, she is properly considered a “salesperson” for the purposes of the FLSA and therefore does not fall under the administrative exemption to the overtime pay provisions of the FLSA.
Recent amendments to the interpretive regulations provide helpful guidance to support our conclusion above. Although these interpretive regulations do not apply retroactively, see ante note 5, (and even if they did apply retroactively, we need not consider them if we find them unpersuasive, see Skidmore, 323 U.S. at 140), we nevertheless note that the new regulations reach the same conclusion that we reach above. When providing examples of employees who fall under the administrative exemption, the interpretative regulations state that an employee in the financial sector whose primary duty includes “marketing, servicing, or promoting the employer’s financial products” likely falls under the administrative exemption. 29 C.F.R. § 541.203(b) (2004). But, the regulations then specify that “an employee whose primary duty is selling financial products does not qualify for the administrative exemption.” Id. (emphasis added). For example, if a bank employee, acting within the scope of her primary duty, encourages a customer to open a money market account while she opens a checking account for that customer, she would not likely be an administrative employee because she simply was selling a financial product. If, however, an employee’s primary duty included deciding which interest rates to offer to encourage customers to open money market accounts, then that employee would likely be considered an administrative employee, because she was “marketing … or promoting” the financial products. Universal’s sale of advertising space is similar to a financial services company’s sale of financial products. Neither fits neatly within the traditional retail sales model, yet both are standard products sold directly to clients. Additionally, the new interpretative regulations confirm t
Because Reiseck’s primary duty is not administrative, she cannot fall under the administrative exemption to the overtime pay provisions of the FLSA. Our inquiry ends there-we need not inquire whether her work requires “the exercise of discretion and independent judgment,” because the short test requires both that the employee’s primary duty be administrative and that the employee’s work involves the use of discretion. 29 C.F.R. § 541.2(e)(2).”
2d. Cir.: Mortgage Underwriters Not Subject To Administrative Exemption; Plaintiffs Are ‘Production’ Rather Than ‘Administrative’ Workers
November 22, 2009 3:44 pm / Leave a comment
Davis v. J.P. Morgan Chase & Co.
Plaintiff, was employed as mortgage underwriter. He brought the case challenging Defendant, J.P. Morgan Chase’s categorization of underwriters as administrative employees exempt from the Fair Labor Standard Act’s overtime pay requirements. The District Court granted Defendant’s Motion for Summary Judgment finding Plaintiff to be subject to the Administrative Exemption. On appeal, the Second Circuit reverses, finding Plaintiff to be non-exempt.
The Court initially described the issue before it as follows:
“This appeal requires us to decide whether underwriters tasked with approving loans, in accordance with detailed guidelines provided by their employer, are administrative employees exempt from the overtime requirements of the Fair Labor Standards Act. Andrew Whalen was employed by J.P. Morgan Chase (“Chase”) for four years as an underwriter. As an underwriter, Whalen evaluated whether to issue loans to individual loan applicants by referring to a detailed set of guidelines, known as the Credit Guide, provided to him by Chase. The Credit Guide specified how underwriters should determine loan applicant characteristics such as qualifying income and credit history, and instructed underwriters to compare such data with criteria, also set out in the Credit Guide, prescribing what qualified a loan applicant for a particular loan product. Chase also provided supplemental guidelines and product guidelines with information specific to individual loan products. An underwriter was expected to evaluate each loan application under the Credit Guide and approve the loan if it met the Guide’s standards. If a loan did not meet the Guide’s standards, certain underwriters had some ability to make exceptions or variances to implement appropriate compensating factors. Whalen and Chase provide different accounts of how often underwriters made such exceptions.”
Discussing a variety of precedent and the administrative/production dichotomy, the Court held that such underwriters are not subject to the Administrative Exemption.
“Precedent in this circuit is light but provides the framework of our analysis to identify Whalen’s job as either administrative or production. In Reich v. State of New York, 3 F.3d 581 (2d Cir.1993), overruled by implication on other grounds by Seminole Tribe v. Florida, 517 U.S. 44 (1996), we held that members of the state police assigned to the Bureau of Criminal Investigation (BCI), known as BCI Investigators, were not exempt as administrative employees. See id. at 585, 588. BCI Investigators are responsible for supervising investigations performed by state troopers and conducting their own investigations of felonies and major misdemeanors. Applying the administrative versus production analysis, we then reasoned that because “the primary function of the Investigators … is to conduct-or ‘produce’-its criminal investigations,” the BCI Investigators fell “squarely on the ‘production’ side of the line” and were not exempt from the FLSA’s overtime requirements. Id. at 587-88.
The administrative/production dichotomy was similarly employed in a Vermont case we affirmed last year, but the circumstances of our affirmance limit its precedential value. The facts of that case were similar to those presented here: the plaintiffs were employed as underwriters for a company in the business of underwriting mortgage loans that were then sold to the secondary lending market. See Havey v. Homebound Mortgage, Inc., No. 2:03-CV-313, 2005 WL 1719061, at *1 (D.Vt. July 21, 2005), aff’d, 547 F.3d 158 (2d Cir.2008). The district court concluded with very little analysis that the underwriters were not employed in production because they performed “nonmanual work related to Homebound’s business.” Id., at *5 Significantly, the court appeared to assume that “production” must relate to tangible goods, citing a Connecticut case in which the court refused to grant summary judgment finding that material planning specialists, senior financial analysts, project financial analysts, and logistics specialists employed by a company that built submarines were exempt from FLSA’s overtime requirements. See id. at *5 n. 6, citing Cooke v. Gen. Dynamics Corp., 993 F.Supp. 56 (D.Conn.1997). The Havey court noted that “[i]n that case … the corporation was in the business of producing submarines. Homebound was in the business of underwriting mortgage loans. No production was taking place.” Id. (citations omitted).
As Reich illustrates, this literal reading of “production” to require tangible goods has no basis in law or regulation. We affirmed the district court in Havey, but the only issue presented on appeal was whether plaintiffs were paid on a salary basis under the payment structure adopted by Homebound. Accordingly, our opinion offered no analysis as to whether the underwriters performed work directly related to the management policies or general business operations of their employers under the FLSA. We therefore do not read our Havey opinion as adopting the flawed analysis of the Vermont court as to administrative and production job functions.
The line between administrative and production jobs is not a clear one, particularly given that the item being produced-such as “criminal investigations”-is often an intangible service rather than a material good. Notably, the border between administrative and production work does not track the level of responsibility, importance, or skill needed to perform a particular job. The monetary value of the loans approved by Whalen as an underwriter, for example, is irrelevant to this classification: a bank teller might deal with hundreds of thousands of dollars each month whereas a staffer in human resources never touches a dime of the bank’s money, yet the bank teller is in production and the human resources staffer performs an administrative position. Similarly, it is irrelevant that Whalen’s salary was relatively low or that he worked in a cubicle. What determines whether an underwriter performed production or administrative functions is the nature of her duties, not the physical conditions of her employment.
The Department of Labor has attempted to clarify the classification of jobs within the financial industry through regulations and opinion letters. In 2004, the Department of Labor promulgated new regulations discussing, among other things, employees in the financial services industry. Although these regulations were instituted after Whalen’s employment with Chase ended, the Department of Labor noted that the new regulations were “[c]onsistent with existing case law.” 69 Fed.Reg. 22,122, 22,145 (Apr. 23, 2004). The regulation states:
Employees in the financial services industry generally meet the duties requirements for the administrative exemption if their duties include work such as collecting and analyzing information regarding the customer’s income, assets, investments or debts; determining which financial products best meet the customer’s needs and financial circumstances; advising the customer regarding the advantages and disadvantages of different financial products; and marketing, servicing or promoting the employer’s financial products. However, an employee whose primary duty is selling financial products does not qualify for the administrative exemption.29 C.F.R. § 541.203(b).
The Department of Labor explained that the new regulation was sparked by growing litigation in the area and contrasted two threads of case law. On the one hand, some courts found that “employees who represent the employer with the public, negotiate on behalf of the company, and engage in sales promotion” were exempt from overtime requirements. 69 Fed.Reg.. 22,122, 22,145 (Apr. 23, 2004), citing Hogan v. Allstate Ins. Co., No. 02-15918, 2004 WL 362378 (11th Cir.2004); Reich v. John Alden Life Ins. Co., 126 F .3d 1 (1st Cir.1997); Wilshin v. Allstate Ins. Co., 212 F.Supp.2d 1360 (M.D.Ga.2002). On the other hand, the Department cited a Minnesota district court, which found that “employees who had a ‘primary duty to sell [the company’s] lending products on a day-to-day basis’ directly to consumers” were not exempt. 69 Fed.Reg.. 22,122, 22,145 (Apr. 23, 2004), quoting Casas v. Conseco Fin. Corp., No. Civ. 00-1512(JRT/SRN), 2002 WL 507059, at *9 (D.Minn.2002). The regulation thus helped to clarify the distinction between employees performing substantial and independent financial work and employees who merely sold financial products.
Opinion letters issued by the Department of Labor similarly recognize a variance in the types of work performed by employees within the financial industry, and explain why some financial employees are administrative while some perform production functions. In 2001, the Department stated that a loan officer who was responsible for creating a loan package to meet the goals of a borrower by “select[ing] from a wide range of loan packages in order to properly advise the client, … supervis[ing] the processing of the transaction to closing,” and “acquir[ing] a full understanding of the customer’s credit history and financial goals in order to advise them regarding the selection of a loan package that will fit their needs and ability” performed administrative work, although the opinion letter ultimately concluded that such loan officers were not exempt. Dep’t of Labor, Wage & Hour Div., Op. Letter (Feb. 16, 2001), available at 2001 WL 1558764.
Crucially, the 2001 opinion letter clarified an opinion letter issued in 1999 after the Department received more information about the loan officer’s duties. In 1999, the Department understood loan officers to develop new business for their employer, consult with borrowers to obtain the best possible loan package, work with a number of different lenders to select loan programs, and perform assorted services shepherding the loan to completion. See Dep’t of Labor, Wage & Hour Div., Op. Letter (May 17, 1999), available at 1999 WL 1002401. With that understanding of the loan officers’ duties, the Department concluded that the loan officers were “engaged in carrying out the employer’s day-to-day activities rather than in determining the overall course and policies of the business” and were therefore not employed as administrative employees. See id. While the 2001 letter reconsidered the loan officers’ employment and reached a different conclusion, the later letter noted that the reconsideration was “in light of the advisory duties [loan officers] perform on behalf of their employer’s customers,” which the employer clarified were the “primary duty” of a loan officer. See 2001 WL 1558764. The two letters read together thus provide a helpful point of reference, highlighting the importance of advisory duties as opposed to mere loan sales.
We thus turn to the job of underwriter at Chase to assess whether Whalen performed day-to-day sales activities or more substantial advisory duties. As an underwriter, Whalen’s primary duty was to sell loan products under the detailed directions of the Credit Guide. There is no indication that underwriters were expected to advise customers as to what loan products best met their needs and abilities. Underwriters were given a loan application and followed procedures specified in the Credit Guide in order to produce a yes or no decision. Their work is not related either to setting “management policies” nor to “general business operations” such as human relations or advertising, 29 C.F.R. § 541.2, but rather concerns the “production” of loans-the fundamental service provided by the bank.
Chase itself provided several indications that they understood underwriters to be engaged in production work. Chase employees referred to the work performed by underwriters as “production work.” Within Chase, departments were at least informally categorized as “operations” or “production,” with underwriters encompassed by the production label. Underwriters were evaluated not by whether loans they approved were paid back, but by measuring each underwriter’s productivity in terms of “average of total actions per day” and by assessing whether the underwriters’ decisions met the Chase credit guide standards.
Underwriters were occasionally paid incentives to increase production, based on factors such as the number of decisions underwriters made. While being able to quantify a worker’s productivity in literal numbers of items produced is not a requirement of being engaged in production work, it illustrates the concerns that motivated the FLSA. The overtime requirements of the FLSA were meant to apply financial pressure to “spread employment to avoid the extra wage” and to assure workers “additional pay to compensate them for the burden of a workweek beyond the hours fixed in the act.” Overnight Motor Transp. Co., Inc. v. Missel, 316 U.S. 572, 577-78 (1942), superseded by statute, Portal-to-Portal Pay Act of 1947, ch. 52, 61 Stat. 84 (granting courts authority to deny or limit liquidated damages awarded for violations of the FLSA). While in the abstract any work can be spread, there is a relatively direct correlation between hours worked and materials produced in the case of a production worker that does not exist as to administrative employees. Paying production incentives to underwriters shows that Chase believed that the work of underwriters could be quantified in a way that the work of administrative employees generally cannot.
We conclude that the job of underwriter as it was performed at Chase falls under the category of production rather than of administrative work. Underwriters at Chase performed work that was primarily functional rather than conceptual. They were not at the heart of the company’s business operations. They had no involvement in determining the future strategy or direction of the business, nor did they perform any other function that in any way related to the business’s overall efficiency or mode of operation. It is undisputed that the underwriters played no role in the establishment of Chase’s credit policy. Rather, they were trained only to apply the credit policy as they found it, as it was articulated to them through the detailed Credit Guide.
Furthermore, we have drawn an important distinction between employees directly producing the good or service that is the primary output of a business and employees performing general administrative work applicable to the running of any business. In Reich, for example, BCI Investigators “produced” law enforcement investigations. By contrast, administrative functions such as management of employees through a human resources department or supervising a business’s internal financial activities through the accounting department are functions that must be performed no matter what the business produces. For this reason, the fact that Whalen assessed creditworthiness is not enough to determine whether his job was administrative. The context of a job function matters: a clothing store accountant deciding whether to issue a credit card to a consumer performs a support function auxiliary to the department store’s primary function of selling clothes. An underwriter for Chase, by contrast, is directly engaged in creating the “goods”-loans and other financial services-produced and sold by Chase.
This conclusion is also supported by persuasive decisions of our sister circuits. In Bratt v. County of Los Angeles, the Ninth Circuit held that the “essence” of an administrative job is that an administrative employee participates in “the running of a business, and not merely … the day-to-day carrying out of its affairs.” 912 F.2d 1066, 1070 (9th Cir.1990) (internal quotations omitted). The Department of Labor later quoted that same language approvingly. See Dep’t of Labor, Wage & Hour Div., Op. Letter (Sept. 12, 1997), available at 1997 WL 971811. More recently, the Ninth Circuit expanded, “The administration/production distinction thus distinguishes between work related to the goods and services which constitute the business’ marketplace offerings and work which contributes to ‘running the business itself.’ “ Bothell v. Phase Metrics, Inc., 299 F.3d 1120, 1127 (9th Cir.2002). The Third Circuit has also noted that production encompasses more than the manufacture of tangible goods. See Martin v. Cooper Elec. Supply Co., 940 F.2d 896, 903-04 (3d Cir.1991). In that case, telephone salespersons were given a pricing matrix specifying price quotes for specific goods as offered to specific customers. The salespersons had some authority to deviate from the price quotes, and occasionally also called manufacturers to restock items, negotiating the price of acquiring the item with the manufacturer. The salespersons were paid a fixed salary, but were also paid incentives tied to their sales performance. The Third Circuit held that the salespersons were production employees because the goal of the salespersons was “to produce wholesale sales.” Id. at 903 (emphasis in original). Along similar lines, the First Circuit held that marketing representatives charged with cultivating and supervising an independent sales force were exempt administrative employees, as their primary duties of educating and organizing salespeople were “aimed at promoting … customer sales generally,” not “routine selling efforts focused simply on particular sales transactions.” Reich v. John Alden Life Ins. Co., 126 F.3d at 10 (emphasis in original).
A number of district court opinions have drawn a similar distinction. See, e.g., Neary v. Metro. Prop. & Cas. Ins. Co., 517 F.Supp.2d 606, 614 (D.Conn.2007) (finding that a claims adjuster did not perform administrative work because he did not perform “duties clearly related to servicing the business itself: it could not function properly without employees to maintain it; a business must pay its taxes and keep up its insurance. Such are not activities that involve what the day-to-day business specifically sells or provides, rather these are tasks that every business must undertake in order to function.”); Relyea v. Carman, Callahan & Ingham, LLP, No. 03 Civ. 5580(DRH)(MLO), 2006 WL 2577829, at *5 (E .D.N.Y.2006) (“Like [escrow] closers …, Plaintiffs applied existing policies and procedures on a case-by-case basis. Their duties do not involve the crafting of those policies, but rather the application of those policies. As a result, Plaintiffs are better described as ‘production,’ rather than ‘administrative’ workers, and they are not exempt from FLSA.”); Casas, 2002 WL 507059, at *9 (finding that loan originators for a finance company who were “responsible for soliciting, selling and processing loans as well as identifying, modifying and structuring the loan to fit a customer’s financial needs” were “primarily involved with ‘the day-to-day carrying out of the business’ rather than ‘the running of [the] business [itself]’ or determining its overall course or policies” (quoting Bratt, 912 F.2d at 1070)); Reich v. Chi. Title Ins. Co., 853 F.Supp. 1325, 1330 (D.Kan.1994) (finding escrow closers employed by a company engaged in the business of insuring title for real property to be engaged in a production rather than administrative capacity).
Other out-of-circuit cases similarly support the logic that context matters. An employee whose job is to evaluate credit who works in the credit industry is more likely to perform a production job. See Casas, 2002 WL 507059, at *9 (loan officers for bank are production); Relyea, 2006 WL 2577829, at *5 (loan closers are production); Reich v. Chi. Title Ins. Co., 853 F.Supp. at 1330. Employees who evaluate and extend credit on behalf of a company that is not in the credit industry-extending credit in order to allow customers to purchase a tangible good that the employer manufactured, for example-are generally considered administrative employees. See Hills v. W. Paper Co., 825 F.Supp. 936 (D.Kan.1993) (employee extended credit to customers of company manufacturing paper); Reich v. Haemonetics, 907 F.Supp. 512 (D.Mass.1995) (employee involved in extending credit to customers of company that sold equipment to hospitals). But in the context of such businesses, such employees provide adjunct, general services to the overall running of the business, while at Chase, underwriters such as Whalen are the workers who produce the services-loans-that are “sold” by the business to produce its income.
Chase offers a few out of circuit cases suggesting that underwriters are exempt administrative employees, but the cases are distinguishable on their facts. See, e.g., Edwards v. Audobon Ins. Group Co., No. 3:02-CV-1618-WS, 2004 WL 3119911, at *5 (S.D.Miss. Aug. 31, 2004) (finding an underwriter who “decide[d] what risks the company would take and at what price” an exempt administrative employee); Callahan v. Bancorpsouth Ins. Servs. of Miss., Inc., 244 F.Supp.2d 678, 685-86 (S.D.Miss.2002) (finding manager responsible for overseeing all aspects of employer’s operations, including marketing, billing and collections, and underwriting, was administrative employee); Hippen v. First Nat’l Bank, Civ. A. No. 90-2024-L, 1992 WL 73554, at *7 (D.Kan. Mar. 19, 1992) (finding executive vice president of bank who described himself as “number two” in hierarchy and was member of board of directors to be administrative employee); Creese v. Wash. Mut. Bank, No. B193931, 2008 WL 650766, at *8 (Cal.Ct.App.2008) (noting specifically that lower court determination as to class certification did not address the merits of whether underwriters seeking to challenge exempt classification were administrative employees). In virtually all of these cases, the employee in question exercised managerial tasks beyond assessing credit risk, or assessed risks in a firm whose primary business was not the extension of credit, and the result is therefore not in tension with the analysis offered here. In any event, to the extent that the reasoning, language, or result in any of these cases is not consistent with our analysis, we respectfully disagree.
Accordingly, we hold that Whalen did not perform work directly related to management policies or general business operations. Because an administrative employee must both perform work directly related to management policies or general business operations and customarily and regularly exercise discretion and independent judgment, we thus hold that Whalen was not employed in a bona fide administrative capacity. We need not address whether Whalen customarily and regularly exercised discretion and independent judgment.”
4th Cir.: Racing Track Employees Not Subject To The Administrative Exemption; Work Not “Directly Related To The Management Of General Business Operations”
May 5, 2009 10:33 am / Leave a comment
Desmond v. PNGI Charles Town Gaming, L.L.C.
The case was before the Court on appeal. Previously the lower Court had awarded the employer Summary Judgment finding that all of the Plaintiff’s were exempt under the FLSA’s Administrative Exemption. The 4th Circuit disagreed and reversed.
“Charles Town Gaming operates a casino and live horse racing facility in Charles Town, West Virginia. The Former Employees worked for Charles Town Gaming in a non-supervisory position denominated as “Miscellaneous Racing Official,” which we will refer to as “Racing Official.” In the performance of their work duties, each of the Former Employees assisted in various tasks associated with Charles Town Gaming’s staging of live horse races. In the morning and on non-race work days, Racing Officials assist with clerical duties in the secretaries’ office, including noting rider changes, putting together the next day’s racing program, and completing racing entries for the following day. Racing Officials, including the Former Employees, rotated work in four roles: Placing Judge, Paddock Judge, Horse Identifier, and Clerk of Scales during horse races. A Placing Judge “observ[es] races from start to finish and determine[s] the final outcome using a viper computer system and photo finish systems … The Paddock Judge observ[es] the horses in the paddock prior to the running of a race, [ ] ensure[s] the horses are wearing the proper equipment for racing [and that] a responsible trainer or groom is in the paddock to saddle the horse and prepare it for the race. The Paddock Judge is also involved in seeing that a published workout is in the program or announced if [it is] not available by press time. The Horse Identifier is “responsible for foal papers, Coggins test results, and tattoos insuring the correct horse is running in any given race. The [Horse] Identifier goes to the paddock at race time and checks each horse’s tattoo.” J.A. 69, 152, 215; see also
W. Va.Code R. § 178-1-20 (2009). The Clerk of Scales “works in the jockeys’ room prior to and after each horse race and verifies each jockey’s presence and licensure, [as well as the jockey’s weight] before and after each race….”
Finding that Plaintiff’s duties did not fulfill either the 2nd prong of the administrative exemption. “directly related to the management of general business operations,” the Court explained:
“In contrast to the duties of these exempt employees in Shockeley, West, and Darveau, the Former Employees’ work was not directly related to the general business operations of Charles Town Gaming. During the horse races, Racing Officials fulfilled one of several roles, which required them to observe and examine the horses, the jockeys, the trainers or grooms, the relevant paperwork for the horses, the order of finish for the race, or the paperwork associated with any subsequent claims. Racing Officials have no supervisory responsibility and do not develop, review, evaluate, or recommend Charles Town Gaming’s business policies or strategies with regard to the horse races. Simply put, the Former Employees’ work did not entail the administration of-the “running or servicing of”-Charles Town Gaming’s business of staging live horse races. The Former Employees were not part of “the management” of Charles Town Gaming and did not run or service the “general business operations.” While serving as a Placing Judge, Paddock Judge, or performing similar duties is important to the operation of the racing business of Charles Town Gaming, those positions are unrelated to management or the general business functions of the company.
Instead, a Racing Official’s work consisted of tasks somewhat similar to those performed “on a manufacturing production line or selling a product in a retail or service establishment.” Cf.
29 C.F.R. § 541.201(a). Although the administrative-production dichotomy is an imperfect analytical tool in a service-oriented employment context, it is still a useful construct. Other Circuit Courts of Appeal have adopted and modified its logic to less traditional “production” situations:
[A]pplying the administrative-production dichotomy is not as simple as drawing the line between white-collar and blue-collar workers. On the contrary, non-manufacturing employees can be considered “production” employees in those instances where their job is to generate (i.e., “produce”) the very product or service that the employer’s business offers to the public. See, e.g., Reich v. New York, 3 F.3d 581, 587-89 (2d Cir.1993) (police investigators conduct or “produce” criminal investigations); Dalheim v. KDFW-TV, 928 F.2d 1220, 1230-31 (5th Cir.1990) (television station’s producers, directors, and assignment editors “produced” newscast, and were thus non-exempt).
Reich v. John Alden Life Ins. Co., 126 F.3d 1, 9 (1st Cir.1997).
As relevant here, Charles Town Gaming “produces” live horse races. The position of Racing Official consists of “the day-to-day carrying out of [Charles Town Gaming’s] affairs” to the public, a production-side role. See Bratt v. County of Los Angeles, 912 F .2d 1066, 1070 (9th Cir.1990), cited with approval in Shockley, 997 F.2d at 29. Because a Racing Official’s duties are not directly related to the general business operations of Charles Town Gaming, the position does not satisfy the requirements for the administrative exemption under the FLSA.”
Note, the Court declined to determine whether the “independent judgment and discretion” requirement of the 3rd prong was met, after having decided that Plaintiff’s work was not “directly related to the management of general business operations” although it is likely that they would have found that prong to have been lacking as well.