In Whalen, the Second Circuit ruled that a former loan underwriter for J.P. Morgan Chase & Co. (“Chase”) was not exempt from overtime pay as an Administrative employee because his primary duty – selling loan products under detailed directions provided by Chase and at Chase’s offices – involved production, not administrative work. The loan underwriter, therefore, “did not perform work directly related to management policies or general business operations” so as to qualify for the FLSA’s Administrative exemption from overtime.
Judge Gerard E. Lynch, writing for the Court of Appeals, acknowledged that the line between administrative and production jobs was not a clear one, particularly where the item being “produced” was an intangible service rather than a material good. But Judge Lynch clarified that the line between the two types of jobs “does not track the level of responsibility, importance, or skill needed to perform a particular job.” Whalen, 587 F.3d at 532-533. The Court noted that factors such as the large monetary value of the loans approved by the underwriter, the employee’s salary, and the fact that the loan underwriter worked in a cubicle were irrelevant to the analysis of whether he could be classified as an Administrative employee. Instead, “[w]hat determines whether an underwriter performed production or administrative functions is the nature of her duties[.]” Id. at 533.
Analyzing the primary duty of the loan underwriter, the Appeals Court found that he was directly engaged in the “production” of loans. The underwriter’s “primary duty was to sell loan products under the detailed directions of the Credit Guide [provided by Chase]” rather than to advise customers about loan products. Id. Accordingly, the Second Circuit concluded, Chase’s underwriter job duties fell into the category of production, not administrative work, explaining:
Underwriters at Chase performed work that was primarily functional rather than conceptual. They were not at the heart of the company’s business operations. They 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. It is undisputed that the underwriters played no role in the establishment of Chase’s credit policy. Rather, they were trained only to apply the credit policy as they found it, as it was articulated to them through the Credit Guide.
Whalen, 587 F.3d at 534-535. As such, the loan underwriters’ duties were not related either to setting Chase’s “management policies” or to running Chase’s “general business operations[,]” evidence that employers must establish to satisfy the Administrative exemption.
Since the Appeals Court found that the loan underwriter did not perform any work directly related to management policies or general business operations, Judge Lynch found it unnecessary to determine whether the loan underwriter customarily and regularly exercised discretion and independent judgment with respect to matters of significance, the second substantive element an employer must demonstrate to bring employees within the Administrative exemption from overtime.
In Reiseck, the Court of Appeals similarly held that the Administrative exemption did not apply to an advertising salesperson where her duties were not directly related to the management policies or general business operations of her employer, a complimentary travel magazine. The Court, analyzing the case under the then relevant 2002 FLSA regulations, ruled that where the primary duty of the salesperson is to sell advertising to individual customers (and not to promote sales generally), that individual does not fall within the FLSA’s Administrative exemption.
To reach its conclusion, the Court looked first to the Company’s business model. Because the travel magazine for which Reiseck worked was free, the Court determined that “advertising sales [were] a critical source of revenue,” and that advertising space was Universal’s “product.” Since Reiseck’s “primary duty was the sale of that product,” the Court determined that she could reasonably be considered a sales production employee, but not an Administrative employee.
The Court of Appeals next examined the employer’s claim that selling advertising could be considered “promoting sales.” The Company argued that by selling advertising, Reiseck “promoted sales” generally, and therefore her duties involved the performance administrative functions. Judge Jose A. Cabranes, writing for the Court, disagreed: “[U]nder that theory, any sales clerk in a retail store would ‘promote sales’ when assisting potential customers.” Reiseck, 591 F. 3d at 106-107. Adopting the logic of the Third Circuit in Martin v. Cooper Elec. Supply Co., 940 F.2d 896 (3d Cir. 1991), Judge Cabranes stated that an Administrative employee for the purposes of the FLSA is “an employee encouraging an increase in sales generally[,]” not one who is doing the production work of selling. Id.
The Second Circuit concluded that Reiseck was “plainly a salesperson” since her primary duty was to “sell specific advertising space to clients.” Although the decision that Reiseck did not qualify as an exempt Administrative employee was based on the application of the 2002 FLSA regulations, the Court noted that the same result would be reached under the amended 2004 regulations. Indeed, in the Preamble commentary to the 2004 regulations, the Department of Labor expressly reiterated its long-held view that sales work is nonexempt, overtime-eligible work. Thus, the Court drew an analogy between Reiseck and “an employee whose primary duty is selling financial products” directly to clients, who also would not qualify for the Administrative exemption, citing the regulations at 29 C.F.R. § 541.203(b) (2004). Id. at 107.
The Court then vacated the lower court’s grant of summary judgment in favor of Universal, finding that Reiseck was misclassified because her sales duties related to the production, not administrative, functions of the Company. As with Whalen, the Court of Appeals deemed it unnecessary to reach the second question whether the employee’s work required “the exercise of discretion and independent judgment.” The case was remanded to the lower court to consider whether the employee might qualify for the Outside Sales exemption.