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News | Sep 09, 2011

Recent Writing: Second Circuit Court of Appeals Decisions Addressing the Administrative Exemption to Overtime Pay

U.S. Department of Labor (“DOL”) regulations interpreting the FLSA’s Administrative exemption provide three criteria that an employer must demonstrate for an employee to fit within its narrow confines. These are: (1) the employee must earn at least $ 455 a week; (2) the employee’s “primary duty” is the performance of “office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers”; and (3) the employee’s “primary duty” must “include[] the exercise of discretion and independent judgment with respect to matters of significance.” Novartis, 611 F.3d at 155 (citing 29 C.F.R. § 541.200(a)). Moreover, the term “primary duty” is defined as the employee’s “principal, main, major or most important duty.” 29 C.F. R. §541.700. In determining an employee’s primary duty, courts look to “all the facts in a particular case, with the major emphasis on the character of the employee’s job as a whole.” Id.

With respect to the requirement that the employee’s primary duty include the performance of work “directly related to the management or general business operations of the employer or the employer’s customers,” DOL regulations state:
(a) . . . The phrase “directly related to the management or general business operations” refers to the type of work performed by the employee. To meet this requirement, an employee must perform work directly related to assisting with the running or servicing of the business, as distinguished, for example, from working on a manufacturing production line or selling a product in a retail or service establishment.
(b) Work directly related to management or general business operations includes, but is not limited to, work in functional areas such as tax; finance; accounting; budgeting; auditing; insurance; quality control; purchasing; procurement; advertising; marketing; research; safety and health; personnel management; human resources; employee benefits; labor relations; public relations, government relations; computer network, internet and database administration; legal and regulatory compliance; and similar activities. Some of these activities may be performed by employees who also would qualify for another exemption.
(c) An employee may qualify for the administrative exemption if the employee’s primary duty is the performance of work directly related to the management or general business operations of the employer’s customers. Thus, for example, employees acting as advisers or consultants to their employer’s clients or customers (as tax experts or financial consultants, for example) may be exempt.
29 C.F.R. §541.201 (emphasis supplied).

The Second Circuit Court of Appeals has been especially strict in applying the above principles so that the administrative exemption is limited to employees who primarily are involved in the functional operation of a business and the implementation of company-wide policy and strategy. For example:
In Novartis, supra, the Court refused to extend the exemption to highly-compensated pharmaceutical sales reps. See Novartis, 611 F.3d at 155-57. In so holding, the Court emphasized the lack of evidence “that the Reps have any authority to formulate, affect, interpret, or implement Novartis management policies or its operating practices, or that they are involved in planning Novartis long-term or short-term business objectives, or that they carry out major assignments in conducting the operations of Novartis business, or that they have any authority to commit Novartis in matters that have significant financial impact.” Id. at 156; see also Reiseck, 591 F.3d at 105-08 (advertising salespersons not covered by exemption).

Likewise, in Davis v. J.P. Morgan Chase, 587 F.3d 529 (2d Cir. 2009), the Court refused to extend the administrative exemption to bank underwriters. The Court reasoned that the underwriters’ work was “primarily functional rather than conceptual.” Id. at 535. Moreover, the Court emphasized that the underwriters “were not at the heart of the company’s business operations” and “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.” Id.

Finally, Reich v. State of New York, 3 F.3d 581 (2d Cir. 1993), the Court refused to extend the administrative exemption to State Police Investigators. See id. at 586-89. Notably, the Court reached this conclusion notwithstanding “the broad discretion enjoyed by the Investigators in the conduct of investigations.” Id. at 589. What matters, the Court explained, is “the relationship of the Investigators to the management policies or general business operations of the [State Police].” Id.

The Circuit Court decisions discussed above are consistent with the outcomes of many district court decisions within the Second Circuit. These district courts, like the Circuit Court, focus on whether the purportedly administrative employee is involved in implementing company policy. See, e.g., Kuzinski v. Schering Corp., 2011 U.S. Dist. LEXIS 86575 (D. Conn. Aug. 5, 2011); Harper v. GEICO, 754 F. Supp. 2d 461 (E.D.N.Y. 2010); Ruggeri v. Boehringer Ingelheim Pharms., 585 F. Supp. 2d 254 (D. Conn. 2008).

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