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

Reiseck v. Universal Communications of Miami, Inc.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

2d. Cir.: Employee Is Not Professionally Exempt Unless His Work Requires Knowledge Customarily Acquired After A Prolonged Course Of Specialized, Intellectual Instruction And Study

Young v. Cooper Cameron Corp.

The U.S. District Court for the Southern District of New York held on summary judgment that, as a matter of law, plaintiff, a “Product Design Specialist,” was not subject to the “professional exemption” to the overtime requirements of the Fair Labor Standards Act.  Defendant appealed and the Second Circuit affirmed, holding that an employee is not an exempt professional unless his work requires knowledge that is customarily acquired after a prolonged course of specialized, intellectual instruction and study.

Describing the relevant facts and the holding below, the Court stated, “Young is a high school graduate. He enrolled in some courses at various universities, but did not obtain a degree. Before he was hired by Cameron, he worked for 20 years in the engineering field as a draftsman, detailer, and designer. He was a member of the American Society of Mechanical Engineers, a membership that required the recommendation of three engineers. For three of the 20 years, Young worked with what are known as hydraulic power units (“HPUs”).

In the spring of 2001, Young applied for a job with Cameron, and he was offered the position of Mechanical Designer in the HPU group. This position paid an hourly wage of $26 and was classified as non-exempt under the FLSA. Young, seeking higher pay, declined.

Soon after, Young met again with Cameron. This time, Cameron offered to hire him as a PDS II-a position that Cameron had determined, through multiple internal and external analyses, was exempt from the FLSA’s overtime provisions. This job paid an annual salary of $62,000 (an effective hourly wage of $29.81). Applicants were required to have twelve years of relevant experience; but no particular kind or amount of education was required, and no PDS II had a college degree. Young accepted Cameron’s offer on July 23, 2001, understanding that the position was exempt from the FLSA’s overtime provisions. For his three-year tenure at Cameron, Young worked as a PDS II in the HPU group.

HPUs contain fluid under pressure for use in connection with oil drilling rigs. They are large and complex, and they are subject to a variety of industry standards, codes, and government specifications. Young was the principal person in charge of drafting plans for HPUs. This work required depth of knowledge and experience, and entailed considerable responsibility and discretion. For example, Young assimilated layers and types of specifications into a safe, functional, and serviceable design that met consumer demands, engineering requirements, and industry standards. Young personally selected various structural components of the HPU and modified certain specifications to account for new technology. In these ways, Young operated at the center of both the conceptual and physical processes of HPU creation and development.

On August 2, 2004, after losing his job in a reduction-in-force, Young sued Cameron in federal court, alleging that Cameron had improperly and willfully classified him as an exempt professional. The district court, adopting a report and recommendation from the magistrate judge (Gorenstein, M.J.), granted partial summary judgment to Young on the exemption issue. The court held as a matter of law that the work of a PDS II is ‘not of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction and study.’ ”

Affirming the lower Court’s Order finding Plaintiff not subject to the professional exemption, the Court stated:

“The typical symbol of the professional training and the best prima facie evidence of its possession is, of course, the appropriate academic degree, and in these professions an advanced academic degree is a standard (if not universal) prerequisite.” 29 C.F.R. § 541.301(e)(1). So it is not the case that “anyone employed in the field of … engineering … will qualify for exemption as a professional employee by virtue of such employment.” Id. § 541.308(a). At the same time, “the exemption of [an] individual depends upon his duties and other qualifications.” Id. “The field of ‘engineering’ has many persons with ‘engineer’ titles, who are not professional engineers, as well as many who are trained in the engineering profession, but are actually working as trainees, junior engineers, or draftsmen.” Id. § 541.308(b). Thus “technical specialists must be more than highly skilled technicians” to be eligible for the professional exemption. Id. § 541.301(e)(2); see also id. (“The professional person … attains his status after a prolonged course of specialized intellectual instruction and study.”).

As the Secretary interprets the regulations, a three-part test determines whether an employee has the type of knowledge sufficient to qualify as an exempt professional. First, the employee’s “knowledge must be of an advanced type … generally speaking, it must be knowledge which cannot be attained at the high school level.” 29 C.F.R. § 541.301(b). Second, the knowledge must be in a field of science or learning. Id. § 541.301(c). Third, the knowledge “must be customarily acquired by a prolonged course of specialized intellectual instruction and study.” Id. § 541.301(d). The word “customarily” is key:

The word ‘customarily’ implies that in the vast majority of cases the specific academic training is a prerequisite for entrance into the profession. It makes the exemption available to the occasional lawyer who has not gone to law school, or the occasional chemist who is not the possessor of a degree in chemistry, etc., but it does not include the members of such quasi-professions as journalism in which the bulk of the employees have acquired their skill by experience rather than by any formal specialized training. Id.

It is uncontested that the job of a PDS II requires no formal advanced education. The issue is whether a position can be exempt notwithstanding the lack of an educational requirement, if the duties actually performed require knowledge of an advanced type in a field of science or learning. Cameron argues for a stand-alone “duties test” independent from any educational considerations. Young argues, and the district court held, that if advanced and specialized education is not customarily required, the exemption cannot apply, regardless of the employee’s duties.

We agree with Young and the district court. The regulations state that a professional is someone “[w]hose primary duty consists of the performance of [w]ork requiring knowledge of an advance type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction and study. 29 C.F.R. § 541.3(a)(1) (emphasis added). As noted above, “customarily” in this context makes the exemption applicable to the rare individual who, unlike the vast majority of others in the profession, lacks the formal educational training and degree. But where most or all employees in a particular job lack advanced education and instruction, the exemption is inapplicable: hence, the Secretary’s interpretation advising that “members of such quasi-professions as journalism in which the bulk of the employees have acquired their skill by experience rather than by any formal specialized training” are not properly considered exempt professionals. See 29 C.F.R. § 541.301(d).

We therefore hold that an employee is not an exempt professional unless his work requires knowledge that is customarily acquired after a prolonged course of specialized, intellectual instruction and study. If a job does not require knowledge customarily acquired by an advanced educational degree-as for example when many employees in the position have no more than a high school diploma-then, regardless of the duties performed, the employee is not an exempt professional under the FLSA.

With these principles in mind, it is clear that Young is not exempt. The undisputed evidence is that the PDS II position required no advanced educational training or instruction and that, in fact, no PDS II had more than a high school education.

Two sister courts have issued persuasive opinions on this subject. In Vela v. City of Houston, 276 F.3d 659, 675 (5th Cir.2001), the only decisive factors were education and discretion (the exercise of professional judgment on the job). On that basis, the court distinguished emergency medical technicians and paramedics (who are not required to have college degrees) from nurses and athletic trainers (who are so required). Id. (explaining that EMTs and paramedics are not exempt professionals because they “lack the educational background to satisfy the education prong of the Learned Professional exemption”).

In Fife v. Harmon, 171 F.3d 1173, 1177 (8th Cir.1999), the minimum qualifications for the plaintiffs’ position as Airfield Operation Specialists were “a Bachelor’s degree in aviation management or a directly related field, or four years of full-time experience in aviation administration, or an equivalent combination of experience and education.” The court held the exemption inapplicable: “This is advanced knowledge from a general academic education and from an apprenticeship, not from a prolonged course of specialized intellectual instruction.” Id. (internal quotation marks omitted). The court did not separately consider the nature of the plaintiffs’ duties.

Other cases similarly tie the exemption analysis to the academic requirements of the position at issue. See, e.g., Reich v. Wyoming, 993 F.2d 739, 743 (10th Cir.1993) (concluding that game wardens are subject to the professional exemption because they must have a degree in wildlife management, biology, or a similar field); Dybach v. Fla. Dep’t of Corr., 942 F.2d 1562, 1566 (11th Cir.1991) (“Dybach’s position [as a probation officer] did not rise to the level of a section 213(a)(1) [exempt] professional because it did not require a college or an advanced degree in any specialized field of knowledge.”).

Finally, the case law advanced by Cameron is neither binding on this Court nor inconsistent with our conclusion. Some of these cases either misapply (or ignore altogether) the requirement that the plaintiff’s knowledge be of the type customarily acquired by a prolonged course of advanced intellectual study. See Debejian v. Atl. Testing Labs., Ltd., 64 F.Supp.2d 85, 88 (N.D.N.Y.1999); Stevins v. Provident Constr. Co., No. 04-15189, 137 Fed.Appx. 198, 199 (11th Cir. Apr. 18, 2005). Another case cited by Cameron provides minimal justification for its holding. See Dingwall v. Friedman Fisher Assocs., P.C., 3 F.Supp.2d 215, 218 (N.D.N.Y.1998) (holding, without explanation, that designing electrical systems is “clearly an area requiring advanced knowledge in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction and study”).

On the basis of the foregoing, we conclude that, as a matter of law, Young was not an exempt professional because he did not do work which required knowledge customarily acquired by a prolonged course of advanced intellectual study.”

Therefore, the Court affirmed the lower Court’s ruling that Plaintiff, who lacked a prolonged course of specialized, intellectual instruction and study, was not professionally exempt.