Seyfarth Synopsis: In a clarification of the administrative/production dichotomy, the U.S. Circuit Court of Appeals for the Seventh Circuit has held that whether a duty is exempt under the FLSA’s administrative exemption may turn on the employee’s involvement in the enterprise’s “primary” or “central revenue generator.”

As our readers are aware, the United States Court of Appeals for the Seventh Circuit recently issued a highly-anticipated decision on when a plaintiff may be able to send a collective action notice to those who agreed to arbitrate their claims and to waive their ability to participate in a class or collective action. But the Seventh Circuit’s opinion was notable not just for its impact on arbitration agreements. It also has provided some clarity on how to interpret the FLSA’s administrative exemption.

In Bigger v. Facebook, Inc., a former Client Solutions Manager claimed that Facebook misclassified her, and those similarly-situated, as overtime-exempt in violation of the FLSA. In response to a motion for conditional certification, Facebook cross-moved for summary judgment, arguing that Bigger was exempt from the FLSA overtime-pay requirements under the FLSA’s administrative exemption. The district court denied Facebook’s motion for summary judgment.

On interlocutory appeal (allowed because of the arbitration issue in the case), the Seventh Circuit examined Bigger’s exempt status under the highly compensated employee exemption, noting it was a “less rigorous” alternative to the administrative exemption. The FLSA’s highly compensated employee exemption provides that an employee with total annual compensation exceeding an amount specific by regulation (now $107,432) is exempt if the employee “customarily and regularly performs” any one or more of the exempt duties or responsibilities of the administrative or certain other exemptions. The parties agreed that Bigger was highly compensated, so, according to the Seventh Circuit, Facebook needed only to demonstrate that Bigger either customarily and regularly (1) performed “office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers,” or (2) “exercise[d] of discretion and independent judgment with respect to matters of significance.”

Discussing the “directly related” criterion, the Seventh Circuit emphasized the importance of the enterprise’s core function, which it identified as “the central revenue generator,” and later, “primary revenue generator” and the employee’s involvement in that function, when determining whether a duty is exempt. The Seventh Circuit synthesized relevant “administrative/production dichotomy” precedent and instructed that, “while duties supporting an enterprise’s core function may qualify as an administratively exempt duty, actually engaging in that core function may not.” For example, if an employer’s core function or central revenue generator is the sale of products, employees who sell those products are engaged in production and may not satisfy the “directly related to management or general business operations” requirement. On the other hand, employees who are not actually engaged in that function—which could involve a broad swath of employees—likely would fall on the administrative side and may very well satisfy the “directly related” requirement.

The Seventh Circuit determined that Facebook’s core function or “primary revenue generator” is the sale of advertisements on its electronic platforms. Based on the evidence in the record, the Seventh Circuit was unable to determine as a matter of whether Bigger’s duties customarily and regularly supported Facebook’s general sales efforts (which would be exempt work) or constituted actual sales work (which, under the Court’s decision, would likely not be exempt work). The Court also held that it could not determine as a matter of law as to whether Bigger met the discretion and independent judgment prong based on the conflicting evidence in the record.

This is a helpful decision for employers and provides clarity as the meaning of the administrative exemption, including the emphasis on the employee’s involvement in the employer’s core function, which is its primary or central revenue generator.