Reich v. John Alden
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Reich v. John Alden, (1st Cir. 1997).
Opinion
USCA1 Opinion
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
____________________
No. 97-1053
ROBERT B. REICH, ETC.,
Plaintiff - Appellant,
v.
JOHN ALDEN LIFE INSURANCE COMPANY,
Defendant - Appellee.
____________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Nathaniel M. Gorton, U.S. District Judge] ___________________
____________________
Before
Selya, Circuit Judge, _____________
Campbell, Senior Circuit Judge, ____________________
and Lagueux,* District Judge. ______________
_____________________
Anne Payne Fugett, Attorney, with whom J. Davitt McAteer, __________________ __________________
Acting Solicitor of Labor, Steven J. Mandel, Associate Solicitor, ________________
and William J. Stone, Counsel for Appellate Litigation, U.S. _________________
Department of Labor, were on brief for appellant.
William J. Kilberg, with whom Eugene Scalia and Gibson, Dunn __________________ _____________ ____________
& Crutcher LLP were on brief for appellee. ______________
____________________
September 18, 1997
____________________
____________________
* Of the District of Rhode Island, sitting by designation.
LAGUEUX, District Judge. In this appeal, the Court is LAGUEUX, District Judge. ______________
asked to decide whether certain employees of the John Alden Life
Insurance Company ("John Alden") are exempt from the overtime pay
provisions of the Fair Labor Standards Act, 29 U.S.C. 201-219
("FLSA" or the "Act"). The particular question before the Court
concerns whether the employees at issue, known as marketing
representatives or marketing specialists (collectively, the
"marketing representatives"), fall within the "administrative
employee" exemption, 29 U.S.C. 213(a)(1), which provides that
"any employee employed in a bona fide executive, administrative,
or professional capacity" is excluded from the Act's overtime pay
and recordkeeping provisions.
The United States Secretary of Labor ("the Secretary")
filed this action against John Alden on May 4, 1995, seeking to
enjoin the company from violating the FLSA's overtime and
recordkeeping requirements with respect to the marketing
representatives. The parties submitted the case to the district
court on stipulated facts and cross-motions for summary judgment,
under Rule 56 of the Federal Rules of Civil Procedure. In a
Memorandum and Order dated October 8, 1996, Judge Gorton found
that the marketing representatives qualified as "administrative
employees" under 29 U.S.C. 213(a)(1), and therefore denied the
Secretary's motion and granted summary judgment in favor of John
Alden. See Reich v. John Alden Life Ins. Co., 940 F. Supp. 418, ___ _____ ________________________
421-24 (D. Mass. 1996). For the reasons that follow, we affirm.
-2-
I. FACTUAL BACKGROUND I. FACTUAL BACKGROUND
As noted above, the parties submitted this case to the
district court on stipulated facts, and Judge Gorton provides a
detailed account of the parties' stipulation in his memorandum.
See id. at 419-20. Thus, for the purposes of this appeal the ___ ___
Court needs only to highlight those facts that are most relevant
to the issue presented for review.
John Alden is a Florida-based company that operates in
several states, including Massachusetts, where it maintains an
office in Westborough. The company designs, creates, and sells
various types of insurance products; its customers are typically
businesses, who purchase group coverage on behalf of their
employees.
As is the common practice in the industry, John Alden
does not sell its products through direct contacts with
customers, but instead relies on licensed independent insurance
agents ("agents") to provide its customer base. In general, an
agent will recommend a variety of insurance products, including
John Alden products and those of its competitors, to a
prospective end-purchaser. When a customer decides to purchase a
John Alden product, the agent acts as an intermediary between the
company and the end-purchaser to achieve completion of the
transaction.
-3-
The primary duty of the marketing representatives --
the employees at issue here1 -- is to cultivate this independent
agent sales force, and, thereby, ultimately to increase sales of
John Alden products. To this end, the marketing representatives
maintain constant contact with agents. Marketing representatives
do not "share" agents with one another; instead, each keeps a
list or "deck" of agents with whom he or she is in contact. The
typical deck consists of 500-600 agents, and marketing
representatives continually cull their decks to maintain an
active agent base.
As an agent's primary contact with John Alden, a
marketing representative is responsible for keeping his or her
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USCA1 Opinion
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
____________________
No. 97-1053
ROBERT B. REICH, ETC.,
Plaintiff - Appellant,
v.
JOHN ALDEN LIFE INSURANCE COMPANY,
Defendant - Appellee.
____________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Nathaniel M. Gorton, U.S. District Judge] ___________________
____________________
Before
Selya, Circuit Judge, _____________
Campbell, Senior Circuit Judge, ____________________
and Lagueux,* District Judge. ______________
_____________________
Anne Payne Fugett, Attorney, with whom J. Davitt McAteer, __________________ __________________
Acting Solicitor of Labor, Steven J. Mandel, Associate Solicitor, ________________
and William J. Stone, Counsel for Appellate Litigation, U.S. _________________
Department of Labor, were on brief for appellant.
William J. Kilberg, with whom Eugene Scalia and Gibson, Dunn __________________ _____________ ____________
& Crutcher LLP were on brief for appellee. ______________
____________________
September 18, 1997
____________________
____________________
* Of the District of Rhode Island, sitting by designation.
LAGUEUX, District Judge. In this appeal, the Court is LAGUEUX, District Judge. ______________
asked to decide whether certain employees of the John Alden Life
Insurance Company ("John Alden") are exempt from the overtime pay
provisions of the Fair Labor Standards Act, 29 U.S.C. 201-219
("FLSA" or the "Act"). The particular question before the Court
concerns whether the employees at issue, known as marketing
representatives or marketing specialists (collectively, the
"marketing representatives"), fall within the "administrative
employee" exemption, 29 U.S.C. 213(a)(1), which provides that
"any employee employed in a bona fide executive, administrative,
or professional capacity" is excluded from the Act's overtime pay
and recordkeeping provisions.
The United States Secretary of Labor ("the Secretary")
filed this action against John Alden on May 4, 1995, seeking to
enjoin the company from violating the FLSA's overtime and
recordkeeping requirements with respect to the marketing
representatives. The parties submitted the case to the district
court on stipulated facts and cross-motions for summary judgment,
under Rule 56 of the Federal Rules of Civil Procedure. In a
Memorandum and Order dated October 8, 1996, Judge Gorton found
that the marketing representatives qualified as "administrative
employees" under 29 U.S.C. 213(a)(1), and therefore denied the
Secretary's motion and granted summary judgment in favor of John
Alden. See Reich v. John Alden Life Ins. Co., 940 F. Supp. 418, ___ _____ ________________________
421-24 (D. Mass. 1996). For the reasons that follow, we affirm.
-2-
I. FACTUAL BACKGROUND I. FACTUAL BACKGROUND
As noted above, the parties submitted this case to the
district court on stipulated facts, and Judge Gorton provides a
detailed account of the parties' stipulation in his memorandum.
See id. at 419-20. Thus, for the purposes of this appeal the ___ ___
Court needs only to highlight those facts that are most relevant
to the issue presented for review.
John Alden is a Florida-based company that operates in
several states, including Massachusetts, where it maintains an
office in Westborough. The company designs, creates, and sells
various types of insurance products; its customers are typically
businesses, who purchase group coverage on behalf of their
employees.
As is the common practice in the industry, John Alden
does not sell its products through direct contacts with
customers, but instead relies on licensed independent insurance
agents ("agents") to provide its customer base. In general, an
agent will recommend a variety of insurance products, including
John Alden products and those of its competitors, to a
prospective end-purchaser. When a customer decides to purchase a
John Alden product, the agent acts as an intermediary between the
company and the end-purchaser to achieve completion of the
transaction.
-3-
The primary duty of the marketing representatives --
the employees at issue here1 -- is to cultivate this independent
agent sales force, and, thereby, ultimately to increase sales of
John Alden products. To this end, the marketing representatives
maintain constant contact with agents. Marketing representatives
do not "share" agents with one another; instead, each keeps a
list or "deck" of agents with whom he or she is in contact. The
typical deck consists of 500-600 agents, and marketing
representatives continually cull their decks to maintain an
active agent base.
As an agent's primary contact with John Alden, a
marketing representative is responsible for keeping his or her
agents up to date on all aspects of John Alden's product line.
For instance, the marketing representatives keep their agents
apprised of any new products or product combinations available
from John Alden, and make their agents aware of any changes in
the pricing of the company's products. The marketing
representatives also discuss how John Alden's products might meet
the particular needs of an agent's current or prospective
customers, and advise agents as to which John Alden products to
market against competing products. Often, they help their agents
develop proposals for bidding on new business by recommending the
appropriate combination of John Alden products to fit a
prospective customer's needs. To further educate their agents,
____________________
1 All of the marketing representatives at issue in this case
work in John Alden's Westborough, Massachusetts office.
-4-
marketing representatives sometimes pass along articles about the
company and/or its competitors, or give small-group presentations
about John Alden's products.
In dealing with agents, the marketing representatives
do not use prepared scripts. Further, although they receive
guidance about suggested points of emphasis during an initial
training period and at weekly sales meetings, these employees
must decide for themselves which products to emphasize to a
particular agent, and which of their agents to contact on a given
day. Thus, to make these decisions the marketing representatives
must rely on their own knowledge of their agent decks and the
specific needs of their agents' customers. Consequently, they
spend most of their time (approximately seven hours a day) on the
phone with agents. While most of these calls are made to agents
with whom they are already familiar -- to advise agents of new
product developments, discuss current customer needs, or follow
up on outstanding sales proposals -- they also make some "cold
calls" to agents in the deck with whom they are unfamiliar, both
to acquaint the agents with John Alden and to learn about each
agent's customer base.
When a customer ultimately decides to purchase a John
Alden product, a marketing representative acts as a conduit
between the agent and prospective purchaser, on the one hand, and
John Alden's underwriting department, on the other. Generally,
the marketing representative sends an application to the agent,
who meets with the customer to complete the necessary paperwork;
-5-
the agent then returns the completed application to the marketing
representative, who in turn forwards it to the underwriting
department. While the application is pending, the marketing
representative will sometimes gather the additional information
needed in the approval process, such as medical records, or
arrange medical tests for the purchasers' employees where such
information is lacking. Beyond this, however, the marketing
representatives play no further role in the purchase transaction.
Thus, they do not set or negotiate prices or terms of insurance,
nor do they have any authority to approve or deny an application,
as this is done solely by the underwriting department.
Typically, marketing representatives are college
graduates with two to six years of marketing experience. An
initial period of training at John Alden is supplemented with
both formal and informal instruction from supervisors and more
senior marketing representatives throughout their tenure at the
company. They also attend weekly sales meetings with a District
Manager, where they learn about new products and exchange
information about sales techniques they have found to be
effective. At these sales meetings, the marketing
representatives also pass along any information they might have
received from agents -- for instance, information concerning a
competitor's new products or prices, or about which new products
are selling well -- that might be helpful to the company in
designing new products.
-6-
The marketing representatives work five days a week,
typically working ten-hour days with a one-hour lunch break.2 As
noted earlier, they spend most of their time on the phone with
agents, with the remaining time spent completing and reviewing
paperwork related to these agent contacts. On average, a first-
year marketing representative will generate approximately $1.5
million in sales annually for the company, while a more
experienced representative will be credited with approximately $3
million in sales each year. The average annual compensation for
a marketing representative is $50,000, and more senior
representatives can earn as much as $75,000. In addition to a
base salary of $34,000 to $37,000, these employees earn quarterly
incentive and bonus pay based on the number, value, and profit
performance of the policies issued by the agents in their agent
decks. To further encourage sales, the company sets a quarterly
sales goal for each marketing representative; anyone who fails to
meet this benchmark receives further training and counseling, and
ultimately risks termination if this failure persists for two or
more consecutive quarters.
II. PROCEDURAL BACKGROUND II. PROCEDURAL BACKGROUND
On May 4, 1995, the Secretary commenced this action
against John Alden pursuant to section 17 of the FLSA, 29 U.S.C.
217, seeking to enjoin the company from violating the overtime
and recordkeeping provisions of the Act, 29 U.S.C. 207 and
____________________
2 Although John Alden does not maintain records of the hours
worked by its marketing representatives, the parties have
stipulated that they average more than 40 hours per week.
-7-
211, respectively, and from withholding unpaid overtime wages due
to the marketing representatives.3 In its answer, John Alden
asserted as an affirmative defense, inter alia, that the ___________
marketing representatives were exempt from the applicable
regulations of the FLSA as "administrative employees" under
section 13 of the Act, 29 U.S.C. 213(a)(1).
The parties submitted the case to the district court
for decision on cross-motions for summary judgment, based on
their stipulation of facts as described above. It was undisputed
that the marketing representatives routinely worked more than 40-
hour workweeks without overtime pay and that the company did not
keep records of the hours worked by each during a workweek.
Therefore, the only issue before the district court was whether
the marketing representatives could be considered "administrative
employees" under the FLSA. In a Memorandum and Order dated
October 8, 1996, the court concluded that the marketing
representatives satisfied the Department of Labor's ("DOL")
regulatory requirements for the administrative exemption, and
therefore entered judgment in favor of John Alden. See Reich v. ___ _____
John Alden Life Ins. Co., 940 F. Supp. 418 (D. Mass. 1996). ________________________
In finding these employees to be exempt, the court
applied the regulatory "short test" for the administrative
exemption, as set forth in 29 C.F.R. 541.2(e)(2). First, the
court addressed whether a marketing representative's primary duty
____________________
3 Specifically, the Secretary seeks to recover unpaid overtime
wages owed to 29 marketing representatives, 16 of whom were still
employed at John Alden at the time of the suit.
-8-
consists of "[t]he performance of office or nonmanual work
directly related to management policies or general business
operations," as required by 541.2(a)(1). In concluding that
this "primary duty" requirement had been met, the court first
found that marketing representatives perform the administrative
tasks of "promoting sales" and "representing the company" within
the meaning of the DOL's interpretative regulations, see 29 ___
C.F.R. 541.205(b). The court thus rejected the Secretary's
contention that, because they are concerned with securing sales
for the company, marketing representatives perform non-
administrative "production" work, the distinction drawn in
541.205(a). See John Alden, 940 F. Supp. at 421-22. Completing ___ __________
its analysis of the "primary duty" requirement, the court went on
to find that the work performed by the employees is of
"substantial importance to the management or operation of the
business" within the meaning of 541.205(a) and (c), noting
that "[t]he success of the company in New England depends in
large part on the success of the marketing representatives who
promote sales of John Alden products." Id. at 422-23. ___
The court then turned to the second part of the short
test, which provides that an exempt administrative employee must
engage in work that requires the exercise of "discretion and
independent judgment." 29 C.F.R. 541.2(e)(2). The court found
that this requirement had been met on the facts before it as
well, noting that marketing representatives exercise discretion
and use their own judgment in deciding which agents to contact
-9-
and which products to emphasize on a given day. See id. at 423- ___ ___
24. Thus, having found that both prongs of the short test had
been satisfied, the court concluded that the marketing
representatives qualified as administrative employees and were
thus exempt from the FLSA's overtime requirements.
Following the entry of judgment in favor of John Alden,
the Secretary filed a timely notice of appeal to this Court. The
case is now in order for decision.
III. STANDARDS OF REVIEW III. STANDARDS OF REVIEW
Rule 56(c) of the Federal Rules of Civil Procedure sets
forth the standard for ruling on a motion for summary judgment:
The judgment sought shall be rendered
forthwith if the pleadings, depositions,
answers to interrogatories, and admissions on
file, together with the affidavits, if any,
show that there is no genuine issue as to any
material fact and that the moving party is
entitled to a judgment as a matter of law.
The trial court must view all facts and draw all inferences in
the light most favorable to the nonmoving party. See Continental ___ ___________
Cas. Co. v. Canadian Universal Ins. Co., 924 F.2d 370, 373 (1st _________ ___________________________
Cir. 1991). When deciding cross-motions for summary judgment,
the court must consider each motion separately, drawing
inferences against each movant in turn. See Blackie v. Maine, 75 ___ _______ _____
F.3d 716, 721 (1st Cir. 1996). Summary judgment is appropriate
when there is no dispute as to any material fact and only
questions of law remain. Id. ___
Because the summary judgment standard requires the
trial court to make a legal determination rather than to engage
-10-
in factfinding, appellate review is generally governed by the de __
novo standard. See National Amusements, Inc. v. Town of Dedham, ____ ___ __________________________ ______________
43 F.3d 731, 735 (1st Cir.), cert. denied, 515 U.S. 1103 (1995). ____________
However, the particular procedural vehicle by which this case was
decided by the district court requires some deviation from the
norm. As noted earlier, the parties cross-moved for summary
judgment on stipulated facts, with their legal arguments focused
on the significance to be accorded to the agreed-upon facts.
Thus, in effect, the parties submitted this case to the district
court as a case stated. Cf. Equal Opportunity Employment Comm'n ___ ___________________________________
v. Steamship Clerks Union, Local 1066, 48 F.3d 594, 603 (1st ____________________________________
Cir.), cert. denied, 116 S. Ct. 65 (1995). As this Court has ____________
stated in a similar case:
[W]here, in a nonjury case, "the basic
dispute between the parties concerns the
factual inferences . . . that one might draw
from the more basic facts to which the
parties have drawn the court's attention," .
. . the district court is freed from the
usual constraints that attend the
adjudication of summary judgment motions.
Federaci n de Empleados Tribunal Gen. de _____________________________________________
Justicia v. Torres, 747 F.2d 35, 36 (1st ________ _______
Cir. 1984) (Breyer, J.). The court may then
engage in a certain amount of differential
factfinding, including the sifting of
inferences. By the same token, the court of
appeals may assume that "the parties
considered the matter to have been submitted
below as a case ready for decision on the
merits." Id. Consequently, the standard for ___
appellate oversight shifts from de novo ________
review to clear-error review.
Id. at 603. ___
Here, as in Steamship Clerks, in reaching its decision ________________
the lower court was required first to engage in some differential
-11-
factfinding -- i.e., the drawing of factual inferences from the
stipulated facts -- and then to make a legal determination based
upon these facts. Thus, this appeal involves both factual and
legal determinations. This Court will apply the more deferential
clear-error standard when reviewing the factual inferences drawn
by the court below, id., while the lower court's ultimate ___
application of the law to the facts, both those stated and
inferred, remains subject to de novo review. Id. _______ ___
In parsing out the questions of fact from the ultimate
legal conclusion, we are guided by our decision in Reich v. _____
Newspapers of New England, Inc., 44 F.3d 1060 (1st Cir. 1995), ________________________________
where the Court considered whether certain newspaper employees
fell within the professional exemption to the FLSA's overtime pay
provisions, 29 U.S.C. 213(a)(1). Adopting the approach used by
the Fifth Circuit in Dalheim v. KDFW-TV, 918 F.2d 1220, 1226 (5th _______ _______
Cir. 1990), this Court recognized that "there are three distinct
types of findings involved in determining whether an employee is
exempt." Newspapers of New England, 44 F.3d at 1073. First, the _________________________
court must make findings concerning the so-called "historical
facts" of the case, such as determining an employee's day-to-day
duties. Id. Second, the court must draw factual inferences from __
these historical facts, for instance, to conclude whether these
day-to-day duties require "invention, imagination, or talent" as
required by applicable regulations. Id. Finally, the trial __
court must reach the ultimate conclusion of whether an employee
is exempt, based on both historical facts and factual inferences.
-12-
Id. Having separated out the lower court's determinations in __
this manner, we concluded that the first two types of findings,
as essentially factual determinations, were subject to the
clearly erroneous standard of review. Id. As for the district __
court's ultimate finding, we noted that "[a]lthough this is based
on both historical facts and factual inferences, it is a
conclusion of law, over which we exercise plenary review." Id. __
The Court will apply this framework in its review of
the decision at issue here. Of course, there are no "first tier"
findings to review, as the historical facts were agreed upon in
the parties' stipulation. Accordingly, the factual inferences
drawn by the district court from the stipulated facts will be
reviewed for clear error, while the lower court's ultimate legal
determination engenders plenary review.
Finally, while recognizing that the determination of
whether an employee is exempt is clearly tied to the district
court's inferential factfinding,4 we remain acutely aware of our
duty to engage in a thorough review of the record. See id. at ___ ___
1073. Moreover, we must review the decision below to ensure that
the court's factfinding was guided by the proper legal standards,
as "to the extent that findings of fact can be shown to have been
predicated upon, or induced by, errors of law, they will be
____________________
4 As the Fifth Circuit has noted, "[i]n the great majority of
cases, the district court's findings of fact and the inferences
it draws, if carefully set forth and supported by the record,
will all but compel the legal conclusion that a given employee is
or is not exempt. Absent some fundamental legal error, those
conclusions will usually stand undisturbed on appeal." Dalheim, _______
918 F.2d at 1226-27.
-13-
accorded diminished respect on appeal." Dedham Water Co. v. _________________
Cumberland Farms Dairy, Inc., 972 F.2d 453, 457 (1st Cir. 1992). ____________________________
IV. DISCUSSION IV. DISCUSSION
The FLSA establishes, as a general rule, that employees
must be compensated at a rate not less than one and one-half
times their regular rate for all overtime hours. 29 U.S.C.
207(a)(1). The Act further defines overtime as employment in
excess of 40 hours in a single workweek. Id. However, this __
overtime provision does not apply to "any employee employed in a
bona fide executive, administrative, or professional capacity . .
. (as such terms are defined and delimited from time to time by
regulations of the Secretary)." 29 U.S.C. 213(a)(1). Of
course, the remedial nature of the statute requires that FLSA
exemptions be "narrowly construed against the employers seeking
to assert them and their application limited to those
establishments plainly and unmistakably within their terms and
spirit." Arnold v. Ben Kanowsky, Inc., 361 U.S. 388, 392 (1960). ______ __________________
Further, it is the employer in an FLSA case that bears the
ultimate burden of establishing that its employees fall within
the exemption. See Newspapers of New England, 44 F.3d at 1070. ___ _________________________
The specific parameters of the FLSA's administrative
exemption are not set forth in the statute, but are instead
articulated in the DOL's regulations and interpretations. The
regulations, promulgated pursuant to an express delegation of
legislative authority, are to be given controlling weight unless
found to be arbitrary, capricious, or contrary to the statute.
-14-
See Chevron U.S.A. Inc. v. Natural Resources Defense Council, 467 ___ ___________________ _________________________________
U.S. 837, 843-44 (1984). On the other hand, the interpretive
regulations are not conclusive, as they merely set forth the
Secretary's official position on how the regulations should be
applied in specific contexts. See Newspapers of New England, 44 ___ _________________________
F.3d at 1070. Even so, these interpretations have the "power to
persuade, if lacking power to control," as they "constitute a
body of experience and informed judgment to which courts and
litigants may properly resort for guidance." Skidmore v. Swift & ________ _______
Co., 323 U.S. 134, 140 (1944). ___
The requirements of the administrative exemption are
set forth in the regulations at 29 C.F.R. 541.2. That
regulation outlines both a short and a long test for determining
whether an employee qualifies for the administrative exemption;
the short test is used for employees whose salaries are more than
$250 per week. 29 C.F.R. 541.2(e)(2). Since the parties have
stipulated that the marketing representatives earn more than $250
per week, there is no dispute that the short test governs the
instant case.
Under the short test, John Alden must demonstrate: (1)
that the primary duty of the marketing representative consists of
"[t]he performance of office or nonmanual work directly related
to management policies or general business operations of his
employer or his employer's customers," 29 C.F.R. 541.2(a)(1),5
____________________
5 To be more precise, the first prong of the short test set
forth at 541.2(e)(2) requires that the "primary duty consists
of the performance of work described in paragraph (a) of this
-15-
and (2) that such primary duty "includes work requiring the
exercise of discretion and independent judgment," 29 C.F.R.
541.2(e)(2). The district court found, and we agree, that the
marketing representatives meet both parts of this test.
A. Work Directly Related to Management or Operations A. Work Directly Related to Management or Operations
As stated above, under this first prong of the test
John Alden must show that its marketing representatives have as a
primary duty "office or nonmanual work directly related to
management policies or general business operations" of John Alden
or its customers. 29 C.F.R. 541.2(a)(1). In the parties'
stipulation, the "primary duty" of the marketing representatives
is described as follows:
to contact and deal with licensed independent
insurance agents ("agents"), and related
activities, to increase purchases of John
Alden insurance products by end-purchasers
who are in contact with the agents.
As there is no dispute that this statement describes "office or
nonmanual work," the only question that remains is whether this
primary duty is "directly related" to John Alden's management
policies or general business operations.
The interpretative regulations concerning the
administrative exemption are set forth at 29 C.F.R. 541.201
through 541.215. Of particular relevance is section 541.205,
which specifically addresses the "directly related to management
____________________
section." For the sake of simplicity, the Court has quoted
directly from paragraph (a) in setting out the short test.
-16-
policies or general business operations" language under
consideration. Subsection 541.205(a) provides as follows:
The phrase "directly related to management
policies or general business operations of
his employer or his employer's customers"
describes those types of activities relating
to the administrative operations of a
business as distinguished from "production"
or, in a retail or service establishment,
"sales" work. In addition to describing the
types of activities, the phrase limits the
exemption to persons who perform work of
substantial importance to the management or
operation of the business of his employer or
his employer's customers.
Thus, 541.205(a) of the interpretations further subdivides the
first prong of the short test into two subparts: (1) the
employee must be engaged in "administrative" rather than
"production" activity; and (2) this administrative activity must
be of "substantial importance" to management or operations.
The district court found that both parts of this test
had been satisfied, and thus concluded that the work of the
marketing representatives was "directly related" to John Alden's
business operations. See John Alden, 940 F. Supp. at 421-23. As ___ __________
the Fifth Circuit has noted, "[w]hether an employee's work is or
should be deemed 'directly related' to business operations is an
inference drawn from the historical facts." Dalheim, 918 F.2d at _______
1230. Thus, we review this finding for clear error. Id.; see ___ ___
also Newspapers of New England, 44 F.3d at 1073. ____ _________________________
1. The Administrative-Production Dichotomy 1. The Administrative-Production Dichotomy
Subsection 541.205(b) of the interpretations offers the
following definition of "administrative" work:
-17-
The administrative operations of the business
include the work performed by so-called white
collar employees engaged in "servicing" a
business as, for example, advising the
management, planning, negotiating,
representing the company, purchasing,
promoting sales, and business research and
control.
However, applying the administrative-production dichotomy is not
as simple as drawing the line between white-collar and blue-
collar workers. On the contrary, non-manufacturing employees can
be considered "production" employees in those instances where
their job is to generate (i.e., "produce") the very product or
service that the employer's business offers to the public. See, ___
e.g., Reich v. New York, 3 F.3d 581, 587-89 (2d Cir. 1993), cert. ____ _____ ________ _____
denied, 510 U.S. 1163 (1994) (police investigators conduct or ______
"produce" criminal investigations); Dalheim, 918 F.2d at 1230-31 _______
(television station's producers, directors, and assignment
editors "produced" newscasts, and were thus non-exempt).
Applying this distinction, the district court held that
the marketing representatives were engaged in administrative
rather than production activities, a finding in which this Court
joins. As stated in the stipulation of facts, John Alden is in
the business of designing, creating, and selling insurance
policies to the public. It follows, as the district court
properly recognized, that the "products" generated by John Alden
are these insurance policies themselves. As the marketing
representatives are in no way involved in the design or
generation of insurance policies, the very product "that the
-18-
enterprise exists to produce and market," Dalheim, 918 F.2d at _______
1230, they cannot be considered production employees.
In its arguments both to the lower court and on appeal,
the Secretary has urged that the Third Circuit's decision in
Martin v. Cooper Electric Supply Co., 940 F.2d 896 (3d Cir. ________ ____________________________
1991), cert. denied, 503 U.S. 936 (1992), compels the conclusion ____________
that the employees at issue here are production employees.
However, both the district court and John Alden have properly
distinguished Cooper Electric from the instant case. The company _______________
at issue in Cooper Electric was a wholesaler that did not ________________
manufacture any products of its own, but instead sold products
made by other firms. Id. at 903. Thus, the parties stipulated __
that the wholesaler's primary business purpose was to produce
sales of electrical products. Id. Since the employees at issue __
in Cooper Electric, the company's salespeople, worked to generate _______________
the very product that the company existed to market -- sales of
electrical products -- the Third Circuit concluded that they were
non-exempt production employees. Id. at 903-04. Of course, the __
facts of Cooper Electric are clearly distinguishable from this _______________
case, as John Alden does indeed generate a product, insurance
policies, not merely sales of a product.
In an attempt to answer this argument, the Secretary
points out that the stipulation of facts describes John Alden's
business purpose as the design, creation, and sale of insurance ________
policies. Thus, the Secretary contends that, in addition to the
production of insurance policies, John Alden also produces sales,
-19-
and that any employee engaged in the generation of sales should
be deemed non-exempt under the logic of Cooper Electric.6 ________________
However, Cooper Electric itself provides an effective counter. ________________
In discussing the "servicing" component of the Secretary's
interpretations, see 29 C.F.R. 541.205(b), the Third Circuit ___
explained that "servicing a business" entailed "employment
activity ancillary to an employer's principal production _________
activity." Cooper Electric, 940 F.2d at 904 (emphasis in ________________
original). In the instant case, the activities of the marketing
representatives are clearly ancillary to John Alden's principal
production activity -- the creation of insurance policies -- and
therefore could be considered administrative "servicing" within
the meaning of section 541.205(b).
As the district court noted, the day-to-day activities
of marketing representatives are more in the nature of
"representing the company" and "promoting sales" of John Alden
products, two examples of exempt administrative work provided by
541.205(b) of the interpretations. As John Alden's primary
contact with the insurance market (via agent contacts), marketing
representatives represent the company by keeping the market
informed of changes in John Alden's product offerings and pricing
structure. Further, by advising agents as to which of John
____________________
6 In the context of a retail or service establishment, section
541.205(a) expressly provides that "sales" work is not
administrative. However, as the Secretary recognizes, insurance
companies are not retail or service establishments within the
meaning of the FLSA, see 29 C.F.R. 779.316, and thus this ___
provision is inapplicable to the present case.
-20-
Alden's products to market against competing products, and by
helping them put together proposals for bidding on new business,
marketing representatives are, again to quote Cooper Electric, _______________
engaged in "something more than routine selling efforts focused
simply on particular sales transactions." Id. at 905. Rather, ___
their agent contacts are "aimed at promoting (i.e., increasing,
developing, facilitating, and/or maintaining) customer sales
generally," id. (emphasis in original), activity which is deemed _________ ___
administrative sales promotion work under section 541.205(b).
Therefore, there was no error in the district court's finding
that John Alden's marketing representatives are engaged primarily
in administrative rather than production work.
-21-
2. Substantial Importance to Management or Operations 2. Substantial Importance to Management or Operations
In addition to drawing the administrative-production
work dichotomy, 29 C.F.R. 541.205(a) limits the "directly
related" language to "persons who perform work of substantial
importance to the management or operation of the business of his
employer or his employer's customers." Of course, employees who
formulate management policies or oversee general business
operations easily satisfy this "substantial importance"
requirement. See 29 C.F.R. 541.205(c). However, the ___
interpretations make it clear that the exemption is not to be
limited solely to so-called "management" personnel:
As used to describe work of substantial
importance to the management or operation of
the business, the phrase "directly related to
management policies or general business
operations" is not limited to persons who
participate in the formulation of management
policies or in the operation of the business
as a whole. Employees whose work is
"directly related" to management policies or
to general business operations include those
[whose] work affects policy or whose
responsibility it is to execute or carry it
out. The phrase also includes a wide variety
of persons who either carry out major
assignments in conducting the operations of
the business, or whose work affects business
operations to a substantial degree, even
though their assignments are tasks related to
the operation of a particular segment of the
business.
29 C.F.R. 541.205(c). Examples of employees or positions that
generally meet the "substantial importance" requirement include
credit managers, claim agents and adjusters, wage-rate analysts,
securities brokers, and promotion men. See 29 C.F.R. ___
541.205(c)(5). However, the particular title given to an
-22-
employee is not determinative, as an employee's exempt status
must instead be predicated on whether his or her duties and
responsibilities meet all of the applicable regulatory
requirements. See 29 C.F.R. 541.201(b). ___
In applying these interpretations, the district court
first recognized that "the work of the marketing representatives
is critically important to John Alden's business," in that "[t]he
success of the company in New England depends in large part on
the success of the marketing representatives who promote sales of
John Alden products." John Alden, 940 F. Supp. at 422-23. ___________
Having thus found that the marketing representatives were engaged
in work that "affects business operations to a substantial
degree" -- one of the categories of work deemed to be of
"substantial importance" under 29 C.F.R. 541.205(c) -- the
district court concluded that their work met this prong of the
test. Id. __
On appeal, the Secretary contends that, in applying the
interpretations, the district court misconstrued the concept of
"substantial importance" so as to require plenary review of this
issue. In short, the Secretary submits that the lower court
improperly equated economic impact with substantial importance,
so that if an employee's work contributes to an employer's
financial well-being, that fact alone is sufficient to satisfy
the substantial importance requirement. If the court did indeed
misconstrue the concept of "substantial importance," then its
-23-
factual inferences were drawn with the wrong legal standard in
mind, and it would have erred as a matter of law.
We recognize that more than one circuit has held that
"[t]he financial effect of employee activity cannot alone show
work of 'substantial importance to the management or operation'
of an employer's business." Cooper Electric, 940 F.2d at 906; _______________
see also Dalheim, 918 F.2d at 1231.7 As stated by the Fourth _________ _______
Circuit in Clark v. J.M. Benson Co., 789 F.2d 282 (4th Cir. _____ ________________
1986), in assessing substantial importance it is necessary to
look at "the nature of the work, not its ultimate consequence." ______
Id. at 287 (emphasis in original). Further, the interpretive __
regulations clearly dismiss the view that this requirement can be
met simply by showing a link between poor performance and lost
profits:
A messenger boy who is entrusted with
carrying large sums of money or securities
cannot be said to be doing work of importance
to the business even though serious
consequences may flow from his neglect. An
employee operating very expensive equipment
may cause serious loss to his employer by the
improper performance of his duties. . . . But
such employees, obviously, are not performing
work of such substantial importance to the
management or operation of the business that
it can be said to be "directly related to
management policies or general business
operations" as that phrase is used in
541.2.
____________________
7 In Dalheim, the employer argued for substantial importance by _______
stressing that "if a producer performs poorly, KDFW's bottom line
might suffer." Dalheim, 918 F.2d at 1231. The Court held that _______
"[a]s a matter of law, that is insufficient to establish the
direct relationship required by 541.2 by virtue of the
'substantial importance' contemplated by 541.205(c)." Id. __
-24-
See 29 C.F.R. 541.205(c)(2). ___
Although the district court did not expressly set forth
the test in the above manner, our review of the district court's
reasoning convinces us that these principles were taken into
account in assessing substantial importance. Contrary to the
Secretary's assertion, the court did not simply equate
"substantial importance" with financial impact. Rather, after
noting the economic significance of their sales promotion work,
the court then proceeded to consider the nature of the work ______
undertaken by the marketing representatives, which the court
recognized required them to:
a) understand the nature of the evolving
insurance market, b) grasp the subtleties of
that market, c) familiarize themselves with
their agents, their competitors and the needs
of existing and prospective end-purchasers,
and d) respond quickly in identifying and
promoting a John Alden product when an agent
contemplates a particular competitive
product.
John Alden, 940 F. Supp. at 423. In light of this, we are ___________
satisfied that the district court did not misconstrue the nature
of the "substantial importance" inquiry, as it considered the
nature of the employee's work as well as the consequences of that
work.8 Accordingly, because the district court was operating
____________________
8 While recognizing the Fourth Circuit's statement that "[t]he
regulations emphasize the nature of the work, not its ultimate ______
consequence," J.M. Benson, 789 F.2d at 287 (emphasis in ____________
original), we would find it difficult to conclude that a certain
kind of work was "substantially important" to business operations
without also considering the consequences of that work.
-25-
within the proper legal framework, we will review its inferential
factfinding on this issue for clear error.
Our review of the record finds ample support for the
lower court's conclusion. First and foremost, as John Alden's
primary contact with the independent agents, marketing
representatives are the insurance market's principle source for
information about John Alden and its products. Moreover, in the
course of their daily activities, these employees gather
information about their agents, the agents' customers, and the
insurance market as a whole -- such as information about changes
in consumer needs, or regarding the success of certain
competitors' offerings. The marketing representatives must then
use all of this information both to pique their agents' interest
in John Alden, and to suggest products or product combinations
that an agent's customers might find attractive. In addition,
the marketing representatives can pass along the information they
have compiled to their supervisors, who later relay the same to
John Alden's management, who can then factor it into decisions on
new product designs and offerings.
It is certainly reasonable to draw the inference that
this type of work, both by its nature and in its consequence,
would affect John Alden's business operations to a substantial
degree. Indeed, it would appear that work of this nature --
disseminating information to the marketplace, understanding
customers and competitors, and gathering available information to
be used in putting together proposals and packages that are
-26-
appropriate for those customers -- is directly related to
operations, and at the heart of John Alden's business success.
As such, we find no error in the district court's conclusion on
this issue.
Lastly, the Secretary attaches some significance to the
fact that John Alden employs a number of marketing
representatives in this region, stressing that the collective
economic impact of a group of employees is insufficient to
satisfy the substantial importance requirement. See Cooper ___ ______
Electric, 940 F.2d at 906. However, the Secretary's own ________
interpretative regulations provide a sufficient rejoinder:
The fact that there are a number of other
employees of the same employer carrying out
assignments of the same relative importance
or performing identical work does not affect
the determination of whether they meet this
test so long as the work of each such
employee is of substantial importance to the
management or operation of the business.
29 C.F.R. 541.205(c)(6). In the instant case, we find that the
work of each marketing representative, standing alone, has a
substantial effect on John Alden's business.9 As set out in the
parties' stipulation, the sixteen marketing representatives
currently employed in the regional office are responsible for the
promotion of the company's products throughout all of New England
(minus Connecticut). Moreover, each marketing representative is
individually responsible for a deck of 500-600 agents, with each
____________________
9 It is unclear from the district court's discussion whether it
considered the consequences of the marketing representatives'
work individually or as a whole. Thus, we consider this issue
based upon our own review of the record.
-27-
deck generating, on average, from $1.5 million to $3 million in
sales annually. In light of all this, we have little difficulty
in finding that each individual marketing representative carries
out a "major assignment[] in conducting the operations of the
business," and "affects business operations to a substantial
degree" through his or her own sales promotion activities. See ___
29 C.F.R. 541.205(c).
The district court was not clearly wrong in finding
that the marketing representatives are engaged in administrative
work of substantial importance to John Alden's business
operations. Accordingly, we agree that these employees are
engaged in administrative work "directly related to management
policies or general business operations," as required under the
first prong of the short test, 29 C.F.R. 541.2(a)(1). We now
turn to the court's analysis of the "discretion and independent
judgment" part of the test.
B. Work Requiring Discretion and Independent Judgment B. Work Requiring Discretion and Independent Judgment
To satisfy the second prong of the short test, John
Alden must demonstrate that its marketing representatives are
engaged in work that requires the exercise of discretion and
independent judgment. 29 C.F.R. 541.2(e)(2). The Secretary's
interpretations elaborate on this requirement as follows:
In general, the exercise of discretion and
independent judgment involves the comparison
and the evaluation of possible courses of
conduct and acting or making a decision after
the various possibilities have been
considered. The term . . . , moreover,
implies that the person has the authority or
power to make an independent choice, free
-28-
from immediate direction or supervision and
with respect to matters of significance.
29 C.F.R. 541.207(a). The interpretations further advise that
"the discretion and independent judgment exercised must be real
and substantial, that is, they must be exercised with respect to
matters of consequence." 29 C.F.R. 541.207(d)(1). However,
the exempt employee need not have final decisionmaking authority
over such matters; "[e]ven though an employee's work is subject
to approval, even to the extent that a decision may be reversed
by higher level management, it does not follow that the work did
not require the exercise of discretion and independent judgment."
Dymond v. United States Postal Serv., 670 F.2d 93, 96 (8th Cir. ______ ___________________________
1982); see also 29 C.F.R. 541.207(e). ________
The district court found, and we agree, that the
marketing representatives exercise discretion and independent
judgment in carrying out their duties. It is undisputed that
these employees have discretion in choosing which agents to
contact on any given day, and concerning which products to
discuss with each agent. In addition, the marketing
representatives rely on their own knowledge of an agent's
business to help tailor proposals for the agent's end-customers.
Further, they must be able to anticipate the competing products
that the agent's customers might be considering, and distinguish
John Alden's offerings from those of competitors. Thus, there is
clear support in the record for the district court's conclusion
that John Alden's marketing representatives exercise discretion
-29-
and independent judgment in the course of their day-to-day agent
contacts.
While recognizing that the marketing representatives do
exercise some discretion in their dealings with agents, the
Secretary argues that this discretion is not exercised with
respect to "matters of consequence" within the meaning of the
interpretive regulations. However, the matters on which these
employees exercise their discretion and judgment -- which agent
would be in the best position to sell a given product, and which
products would be most attractive to a given customer -- would
certainly appear to be "of consequence" to John Alden's business.
Indeed, this work would seem to be of equal or greater importance
than some of the work the Secretary's interpretations identify as
exempt, such as the duties of an administrative assistant to an
executive,10 or those of a customer's man in a brokerage house.11
See 29 C.F.R. 541.207(d)(2). Thus, we will not upset the ___
district court's decision on this ground.12
____________________
10 "The regulations . . . contemplate the kind of discretion and
independent judgment exercised by an administrative assistant to
an executive, who without specific instruction or prescribed
procedures, arranges interviews and meetings, and handles callers
and meetings himself where the executive's personal attention is
not required." 29 C.F.R. 541.207(d)(2).
11 The test includes "the kind of discretion and independent
judgment exercised by a customer's man in a brokerage house in
deciding what recommendations to make to a customer for the
purchase of securities." Id. ___
12 As the district court noted, the work of the marketing
representatives does not at all resemble the given examples of
nonexempt work where discretion is exercised on matters of
relatively little consequence: i.e., a truck driver's decision on
which route to follow; a shipping clerk's decision on the method
-30-
The Secretary also contends that the lower court
committed error by mistaking the mere "use of skill in applying
techniques, procedures, or specific standards," 29 C.F.R.
541.207(b), for the required discretion and independent
judgment. The Secretary submits that the marketing
representatives, in informing agents and persuading them to
recommend John Alden products, are simply applying the sales
techniques they learned in training sessions and weekly sales
meetings. The Secretary also points out that the marketing
representatives receive both formal and informal guidance about
which products and product features to emphasize, and about the
general points to make with agents. Thus, the Secretary avers
that rather than exercising discretion and independent judgment,
these employees are simply making decisions within a given set of
parameters, the type of work that would not qualify for the
exemption. See 29 C.F.R. 541.207(c).13 ___
However, as the district court found, the record simply
does not support the Secretary's assertion. These employees do
not use prepared scripts or read from a required verbatim
____________________
of packing and mode of shipment; and a bookkeeper's decision on
whether to post to one ledger or another first. See 29 C.F.R. ___
541.207(d)(1).
13 The interpretive regulations offer the following examples of
work in which skill in applying standards or techniques can be
mistaken for discretion: inspectors who develop facts to assess
whether prescribed standards have been met; lumber "graders" who
inspect each "stick" and then place each into a well-defined
grading category; personnel clerks who screen applications and
reject those that do not meet prescribed minimum requirements.
See 29 C.F.R. 541.207(c)(1)-(6). ___
-31-
statement, nor do they operate within the contours of a
prescribed technique or "sales pitch". On the contrary, the
content of a given conversation with an agent is dictated by the
needs or customer base of that agent, or by the particular
information sought by the marketing representative during that
phone call. Further, to the extent that the marketing
representatives receive guidance about products to emphasize and
suggested points to make with agents, they nonetheless exercise
discretion in applying this instruction -- for instance, in
determining which agent may have an interest in that product, or
in fashioning bid proposals that meet the needs of the agent's
customers.14 See Atlanta Prof'l Firefighters Union, Local 134 v. ___ ____________________________________________
City of Atlanta, 920 F.2d 800, 805 (11th Cir. 1991) (employees ________________
who retained "discretion in implementing [the] directions" of
another meet discretion and independent judgment test). In light
of all this, we concur that the marketing representatives "are
not merely 'skilled' workers who operate within a strict set of
rules. Rather, they exercise significant discretion in their
daily contacts with various insurance agents." John Alden, 940 __________
F. Supp. at 423.
The district court did not commit error in finding that
the primary duty of the marketing representatives "includes work
____________________
14 By way of comparison, the Court notes that a "customer's man
in a brokerage house" likely receives similar training about
product features and points of emphasis. Under the interpretive
regulations, 29 C.F.R. 541.207(d)(2), this employee exercises
the requisite discretion when he or she applies this guidance to
make a recommendation to a customer for a securities purchase.
-32-
requiring the exercise of discretion and independent judgment"
within the meaning of 29 C.F.R. 541.2(e)(2). Therefore, we
conclude that the second prong of the administrative exemption
has been met in this case.
V. CONCLUSION V. CONCLUSION
For all of these reasons, we agree with the district
court's determination that John Alden's marketing representatives
are exempt administrative employees. Accordingly, the judgment
below is affirmed. affirmed ________
-33-
Related
Skidmore v. Swift & Co.
323 U.S. 134 (Supreme Court, 1944)
Arnold v. Ben Kanowsky, Inc.
361 U.S. 388 (Supreme Court, 1960)
National Amusements, Inc. v. Town of Dedham
43 F.3d 731 (First Circuit, 1995)
Reich v. Newspapers of New England, Inc.
44 F.3d 1060 (First Circuit, 1995)
Equal Employment Opportunity Commission v. Steamship Clerks Union, Local 1066
48 F.3d 594 (First Circuit, 1995)
Gregory B. Dymond and Samuel K. Gibbons v. United States Postal Service
670 F.2d 93 (Eighth Circuit, 1982)
Federacion De Empleados Del Tribunal General De Justicia v. Eulalio A. Torres
747 F.2d 35 (First Circuit, 1984)
Martha Skidmore Clark v. J.M. Benson Co., Inc.
789 F.2d 282 (Fourth Circuit, 1986)
Edward W. Dalheim v. Kdfw-Tv
918 F.2d 1220 (Fifth Circuit, 1990)
Dedham Water Co., Inc. v. Cumberland Farms Dairy, Inc.
972 F.2d 453 (First Circuit, 1992)
Reich v. John Alden Life Insurance
940 F. Supp. 418 (D. Massachusetts, 1996)
Reich v. New York
3 F.3d 581 (Second Circuit, 1993)
Martin v. Cooper Electric Supply Co.
940 F.2d 896 (Third Circuit, 1991)
§ 541.2 — Job titles insufficient.
29 C.F.R. § 541.2
§ 541.201 — Directly related to management or general business operations.
29 C.F.R. § 541.201
Cite This Page — Counsel Stack
Bluebook (online)
Reich v. John Alden, Counsel Stack Legal Research, https://law.counselstack.com/opinion/reich-v-john-alden-ca1-1997.