To qualify as an exempt administrative employee under the Fair Labor Standards Act ("FLSA"), the employee must satisfy the following three requirements: (1) be salaried at a rate of not less than $455 per week; (2) primarily perform office or non-manual work directly related to the management or general business operations of the employer or the employer's customers; and (3) exercise discretion and independent judgment with respect to matters of significance. 29 C.F.R. § 541.200(a). While the first two requirements are rather straight forward, the third requirement is often cause for denying an employer the exemption it seeks from the FLSA's overtime and minimum wage requirements.
On July 18, 2007, the Sixth Circuit, governing Ohio, Kentucky, Michigan and Tennessee, issued an opinion specifically addressing the third requirement, namely that exempt administrative employees exercise discretion and independent judgment with respect to matters of significance. In Renfro v. Indiana Michigan Power Co., No. 06-1935, 2007 U.S. App. LEXIS 16990 (6th Cir. July 18, 2007), a group of technical writers supporting a nuclear power plant's maintenance department filed suit against Indiana Michigan Power Co., d/b/a America Electric Power ("AEP"), for failure to pay overtime. The district court denied both parties summary judgment, and a jury ultimately held that the writers did not exercise sufficient discretion and independent judgment to qualify as exempt under the FLSA. The Sixth Circuit reversed and ordered the district court to rule in favor of AEP.
As a factual matter, the technical writers at the nuclear power plants developed written procedures on how to maintain equipment. They created new procedures, changed existing procedures, and reviewed plant documents for their impact on established procedures. The process for performing their duties required the technical writers to consult various sources, such as vendor manuals, technical specifications, EPRI guides, INPO operating experiences, NCR bulletins, industry standards, and inside engineers to determine how to maintain specific pieces of equipment. The writers examined each method for addressing a problem and chose the method they deemed appropriate. Where a new problem was encountered, the technical writers produced a proposed solution, which was then reviewed by their peers.
To assist the writers, AEP had developed a manual on procedure writing that explained the purpose of the different types of procedures, provided definitions and abbreviations for technical terms, outlined and explained the structure of each type of procedure, prescribed format and style, and dictated the sequence of different sections. While the manual prescribed foundational structures and methodologies for producing satisfactory procedures, the technical writers maintained discretion to determine the level of detail for each procedure.
There was little dispute at the trial court that AEP satisfied the first two elements required for the administrative exemption. However, the trial court held that AEP restricted the technical writers' discretion and independent judgment by virtue of the manuals describing the writing methods and the different types of procedures to be implemented at AEP.
The Sixth Circuit disagreed with the trial court. It made the following findings relevant to the technical writers' discretion and independent judgment: (1) they did not work under constant supervision; (2) they independently selected the best methods to maintain the plant's equipment; and (3) they independently created highly technical instructions for maintaining electrical and mechanical systems. While the technical writers hung their hats on the argument that the guidelines and procedures for performing their duties curtailed their discretion and independent judgment, the Court noted that it looks at "whether those guidelines and procedures contemplate independent judgment calls or allow for deviations." The Court determined that the manuals merely created guidelines on how to develop problem solving procedures; they did not create strict rules that governed the writers' job duties. The Court noted that "the approach taken by one technical writer to create a complex procedure often differs from that of another technical writer creating a similar procedure." In fact, "AEP could assign two different writers to create the same procedure and receive differing documents."
The significance of this opinion is that the Sixth Circuit has further delineated what constitutes discretion and independent judgment. The employer must delve into the specific facts of particular circumstances to determine whether an employee is engaging in the requisite discretion and independent judgment to qualify for the administrative exemption. Furthermore, the employer must look to the following factors in the Code of Federal Regulations:
- 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 employer 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.
29 C.F.R. § 541.202(b).
If the employer abides by these requirements, it can successfully satisfy the discretion and independent judgment prong for exempt employees under the FLSA.