What happens when an employee receives a fixed salary, performs management tasks but does not supervise anyone and does not have the authority to hire and fire anyone? We know from last week’s post (click here) that does not fit within the Executive Exemption. Does that automatically mean that an employer must pay overtime if s/he works more than 40 hours in a given week? Not necessarily. That employee may be subject to what is known as the Administrative Exemption. Join The Emplawyerologist after the jump to find out if this exemption might apply to one or more of your employees.
How does an employee fit within the administrative exemption? First, s/he must be paid on a “salary basis”. (Click here and here for a review.) In addition, the employer must be able to show the following:
- The employee’s primary responsibility is performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and
- The employee’s primary responsibility must include the exercise of discretion and independent judgment with respect to matters of significance.
Since a normal person’s commonsense interpretation of these criteria may not be in harmony with US Department of Labor or court views, what’s an employer to do? We can gain some insight by looking to DOL regulations, and some actual cases (also known as learning from other people’s mistakes).
According to DOL regulations 29 CFR 541.201(a) and (c), an employee’s primary functions are “directly related to the management or general business operations of the employer or the employer’s customers”, if they are “directly related to assisting with the running or servicing of the business. Here are some examples the regulations provide: accounting, finance, tax, budgeting, auditing, insurance, quality control, purchasing, procurement, advertising, marketing, research, safety and health, human resources, public relations, government relations, computer network, Internet and database administration and legal and regulatory compliance. That’s a lot of functions! Potentially then, if they are being paid on a salary basis, a number of your employees may be in jobs that satisfy the administrative exemption. Remember that an employee performing such functions for one or more of your customers may also satisfy the first prong of the administrative exemption.
How have courts decided this question? Just last month, the 7th Circuit Court of Appeals in Blanchar v. Standard Insurance Company No. 12-2745 Nov. 27, 2013, held that an employee who helps salespeople sell an insurance company’s financial products by fielding their phone calls, advising and educating them about the company’s different plans, and providing related training satisfies the requirement . The court, relying on a similar First-Circuit case Reich v John Alden Life Insurance 126 F.3d 1 (1st Circuit, 1997) reasoned that while Mr. Blanchar was not directly engaged in sales, his activities were aimed at “promoting sales generally”, which satisfied the first prong of the administrative exemption. Last year the 7th Circuit also found that pharmaceutical sales representatives, who did not actually sell, but worked to promote sales by influencing doctors’ preferences for their product qualified as work “directly related to management or general business operations of the employer” in Schaefer-LaRose v. Eli-Lilly & Co. 679 F.3d 560 (7th Cir 2012). These cases also relied heavily on DOL regulations, which clearly state that while one whose primary duty is sales is not exempt, one who provides consultation and advice to customers about a company’s financial products does fall within the administrative exemption. (You can find that regulation here.) What other types of positions may satisfy the first prong? The above regulations cite executive assistants to business owners/executives and purchasing agents and HR Manages as examples of those who meet the first prong and may meet the administrative exemption if they meet the second prong.
How much discretion and independent judgment must an employee have and what constitutes “matters of significance?” Let’s start with the examples listed in the regulations. If our Executive Assistant to the business owner/executive, “without specific instructions or prescribed procedures has been delegated authority regarding matters of significance” s/he likely falls under the administrative exemption. If the purchasing agent can act in a manner that binds the company, then likewise, s/he will fall under this exemption. Human Resource managers who formulate, implement and interpret policies will generally fall under this exemption as well. An insurance claims adjuster is also specifically listed as administratively exempt under 29 CFR 541.201(a). Non-executive managers, i.e. managers that do not have authority over anyone but perform other managerial functions, such as a restaurant manager who negotiates contracts and disburses funds, is afforded discretion in matters of significance Scarpinato v East Hampton Point Management Corp., (2013 US Dist. LEXIS, 131338 (E.D.N.Y. 2013) or a Supply Chain Security Program Manager, who was “responsible for assessing, documenting and incorporating multiple country level compliance programs into a single compliance system for international supplier assessments, thereby identifying tasks needed and ensuring project completion on her own Adams v. Bsi Mgmt. Sys. Am., 2013 U.S. App. LEXIS 14395 (11th Cir. July 17, 2013) entailed exercise of discretion and independent judgment on matters of significance. Most cases seem to involve employees who attempt to play down the amount of discretion their job entails, in an effort to get overtime pay.
What types of jobs do not fit within the Administrative Exemption? Here too, the DOL regulations oblige us and provides the following examples:
- Personnel clerks, who typically apply standards and procedures, set by the HR Manager (who is exempt);
- Inspectors (they too are usually applying standards set by someone else and any leeway in performing work is only in prescribed limits);
- Examiners or graders, who are comparing one product with another or with pre-determined standards (the fact that they may, with experience be able to rely on their knowledge and memory does not qualify as discretion and independent judgment);
- Most types of public sector investigators or inspectors.
See the common thread? If the employee is essentially following standards set by someone else, there is no discretion and independent judgment, even if the job requires specialized knowledge or training. Such jobs, are not administratively exempt.
OK, I am now going to exercise my own discretion and independent judgment and end here for now! Join for next week’s installment on the tricky exemption category, the Computer Professional.
Disclaimer: This post’s contents are for informational purposes only, are not legal advice and do not create an attorney-client relationship. Always consult with competent local employment counsel on any issues discussed here.
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