On May 27, 2011, the U. S. Court of Appeals for the Seventh Circuit ruled that an account manager for a computer software company that provides software to advertising agencies qualified for the “administrative employee” exemption under the Fair Labor Standards Act (FLSA), Section 213 (a)(1), and was therefore not entitled to overtime.

The District Court Ruling

In Verkuilen v. MediaBank, LLC, Ms. Verkuilen served as an account manager for MediaBank LLC, which is in the media buying industry; MediaBank produces software programs that assist advertising agencies in placing advertising in the media. In her role as an account manager, Ms. Verkuilen “acted as a bridge between the software developers and the customers, helping to determine the customers’ needs, then relaying those needs to the developers and so assisting in the customization of the software, and finally helping the customers use the customized software.” The district court rejected Ms. Verkuilen’s overtime claim on summary judgment.

The Seventh Circuit Decision

Ms. Verkuilen claimed that she was not employed in an “administrative capacity” for purposes of that exemption as explained in the U.S. Department of Labor’s regulation 29 C.F.R. Part 541. The Seventh Circuit noted that aside from being paid more than $455 a week, which Ms. Verkuilen conceded, the regulation required that her “primary duty” be both “the exercise of discretion and independent judgment with respect to matters of significance” and “the performance of office or non-manual work directly related to the management of general business operations of the employer or the employer’s customers.” The circuit court then commented that the regulation’s “primary duty” provisions were “pretty vague,” as were the provisions concerning the requirement that the employee perform work directly related to assisting with the running or servicing of the business, as distinguished, “from working on a manufacturing production line or selling a product in a retail or service establishment.” This final requirement is often referred to the as the administrative/production dichotomy.

The court also found that despite the vagueness of the regulation, it was manifest what the regulation was “getting at.” That is, the requirement for overtime did not fit a worker who spends much of his or her time off the employer’s premises, where he or she cannot be supervised and would be tempted to inflate his or her hours if entitled to overtime. This was particularly true if, as the regulation requires for the exemption, the work involves the exercise of independent judgment relating to management or general business operations or operations of a customer. The Seventh Circuit noted that an employer would be “hard pressed” to determine how many hours an employee should need to complete a particular job, much of which is performed on the premises of a different company. In this capacity, an employee tasked with jobs requiring the exercise of independent judgment are expected to work with a minimum amount of supervision – even when they are working on his or her employer’s own premises.

When the Overtime Provision is Not Intended

Turning to Ms. Verkuilen, the MediaBank court found she was “a picture-perfect example” of a worker for whom the FLSA’s overtime provision “is not intended.” Here, the court focused on several salient facts showing that Ms. Verkuilen did perform tasks that, in fact, met the exemption. Specifically, she served as an intermediary between employees of advertising agencies struggling to master complex software and the software developers at MediaBank; she had to spend much of her time on customers’ premises training staff in the use of the software, answering questions when she can or taking them back to MediaBank’s software developers; and she explained MediaBank developers’ answers to customers and showed them how to implement the answers in MediaBank software. Also, she spent time identifying customers’ needs and translating them into specifications for the MediaBank software developers and assisted customers in implementing the solutions. In short, these duties constituted work exempt from overtime under the FLSA. On this basis, the court affirmed the summary judgment in MediaBank’s favor.

Carefully Consider the FLSA Administrative Exemption

In practical terms, the MediaBank case provides a further example of how the administrative exemption under the FLSA applies not only when an employee performs work primarily applicable to the business operations of her employer but also when she performs work primarily applicable to the business operations of her employer’s customers or clients. But because exemptions are applied narrowly, employers are cautioned to examine carefully the work of those employees who are deemed exempt under the administrative capacity exemption.

To qualify for the exemption, such employees must meet all three of the requirements set forth in MediaBank: being paid more than $455 a week and having a “primary duty” involving both “the exercise of discretion and independent judgment with respect to matters of significance” and “the performance of office or non-manual work directly related to the management of general business operations of the employer or the employer’s customers.”