White-Collar Workers Challenge Overtime Exemptions

January 31, 2011 Published Work
Connecticut Law Tribune, Vol. 37, No. 5

Collective action lawsuits alleging vio­lations of the federal Fair Labor Stan­dards Act (FLSA) continue to proliferate at a dizzying rate. Many, if not most, of these suits challenge the classification of mid-level, white-collar jobs as exempt from the FLSA's overtime pay requirements.

While no employer is immune from this ongoing scourge of FLSA litigation, some industries are especially vulnerable, includ­ing many that are staples of the Connecti­cut economy. Among them are insurance companies, large retailers, fast-food and convenience store chains, drug manufac­turers and financial services firms.

This article focuses on recent develop­ments under the FLSA that are pertinent to employers in these targeted industries.

Insurance Claims Adjusters
Virtually every major insurer has been hit with a suit by adjusters claiming to have been misclassified as exempt. Generally, an adjuster qualifies for the administrative exemption if he or she is responsible for conducting interviews, inspecting damage and preparing estimates, evaluating cover­age, determining liability, and negotiating settlements.

There is, however, no bright-line rule, as vividly illustrated by a pair of decisions is­sued in separate suits brought against GEI­CO, one finding that GEICO's auto damage adjusters qualified for the administrative exemption as a matter of law, Robinson-Smith v. Government Employees Ins. Co., 590 F.3d 886 (D.C. Cir. 2010), and the other ruling that a factual dispute ex­isted as to the exempt status of similarly tasked claims representatives, Harper v. Government Employees Ins. Co., 2010 U.S. Dist. LEXIS 12210 (E.D.N.Y. Nov. 16, 2010).

Retail Stores
The 11th Circuit's decision in Morgan v. Family Dollar Stores Inc., 551 F.3d 1233 (11th Cir. 2008), was a wake-up call for large retailers. There, the court affirmed a jury's determination that Family Dollar's store managers were misclassified as exempt ex­ecutives largely because they spent 80 per­cent to 90 percent of their time performing manual labor and virtually every aspect of the stores' daily operations was controlled by an operations manual or directives is­sued by district managers.

By contrast, a Dollar General store man­ager who spent only slightly more time per­forming managerial functions was deemed to qualify for the executive exemption, with the court reasoning that "if the plaintiff did not stock shelves, run the register and clean the floors, the performance of the store would certainly be adversely affected; however, if she did not hire clerks, manage employee intake, make a work schedule, as­sign tasks, train employees, and supervise her staff, the store would cease to function." Roberts v. Dolgencorp, 2010 U.S. Dist. LEX­IS 122682 (M.D. Tenn. Nov. 18, 2010).

Fast Food Establishments
The exempt status of managers and assis­tant managers of fast food establishments and convenience stores has been at issue in numerous FLSA collective actions. These cases are highly fact-specific, and hence un­predictable.

A recent example is Guinip v. Petr-All Petroleum Corp., 2010 U.S. Dist. LEXIS 86280 (N.D.N.Y. Aug. 23, 2010), where the manager of a combination convenience store and gas station with responsibility for "interviewing and hiring new employees, scheduling, training, writing performance evaluations, reporting employee and cus­tomer injuries to corporate, discussing sales performance and promotions with corpo­rate, conducting surveys of competitors' gas prices and convenience store business, and controlling ‘shrink'" who made "recom­mendations to corporate regarding product ordering and pricing, new hire pay rates, employee discipline and termination, and certain ... security measures" was found to be properly classified as an exempt execu­tive.

Pharmaceutical Companies
A spate of collective actions brought by pharmaceutical sales representatives impli­cates both the administrative and outside sales exemptions. The latter exemption turns "make sales," an issue that arises because it is unlawful for representatives to sell prescrip­tion drugs directly to the target of their solic­itation activities, typically doctors, pharma­cies and health care institutions. Adopting a strict reading of the operative regulation, the U.S. Department of Labor has filed amicus briefs in several cases urging courts to find the outside sales exemption inapplicable to pharmaceutical representatives.

This tactic proved successful in In re No­vartis Wage and Hour Litigation, 611 F.3d 141 (2d Cir. 2010), where the 2nd Circuit deferred to the Labor Department and de­termined that Novartis' representatives did not qualify for the outside sales exemp­tion, reasoning that, "where the employee promotes a pharmaceutical product to a physician but can transfer to the physician nothing more than free samples and cannot lawfully transfer ownership of any quan­tity of the drug in exchange for anything of value, cannot lawfully take an order for its purchase, and cannot lawfully even obtain from the physician a binding commitment to prescribe it, ... it is not plainly erroneous to conclude that the employee has not in any sense, within the meaning of the statute or regulations, made a sale."

At least one district court found the No­vartis decision sufficiently compelling to reverse an initial determination that the outside sales exemption applied to pharma­ceutical representatives, Harris v. Auxilium Pharmaceuticals Inc., 2010 U.S. Dist. LEXIS 102730 (S.D. Tex. Sept. 28, 2010), while an­other declined to do so. Schaeffer-LaRose v. Eli Lilly and Co., 2010 U.S. Dist. LEXIS 105736 (S.D. Ind. Sept. 29, 2010).

The 2nd Circuit also held that because Novartis' representatives were subject to strict oversight and detailed work assign­ments they did not exercise the requisite degree of discretion or independent judg­ment to qualify for the administrative ex­emption. Novartis dictated the frequency of physician visits and provided scripted answers to common questions, from which the reps were directed not to deviate. The reps, moreover, did not have input on No­vartis' marketing strategy or the "core mes­sages" that drove their sales presentations. Novartis reps' interactions with doctors, the court observed, were predicated largely on skills gained or honed during training sessions run by Novartis and were not the product of independent thinking.

By contrast, in Smith v. Johnson & John­son, 593 F.3d 280 (3d Cir. 2010), the 3rd Cir­cuit determined that a pharmaceutical sales representative exercised sufficient discretion and independent judgment to come within the administrative exemption where she was "required ... to form a strategic plan designed to maximize sales in her territory" and func­tioned without direct supervisory oversight.

Financial Services Firms
Employees in the financial services indus­try generally meet the duties requirements for the administrative exemption if they are responsible for collecting and analyzing fi­nancial information, recommending invest­ments, and advising clients regarding the advantages and disadvantages of different investment vehicles. The 2nd Circuit has ob­served that "an employee in the financial sec­tor whose primary duty includes marketing, servicing or promoting the employer's finan­cial products likely falls under the adminis­trative exemption," but "an employee whose primary duty is selling financial products does not." Reiseck v. Universal Communications of Miami Inc., 591 F.3d 101 (2d Cir. 2010).

In a closely watched case, the 2nd Circuit ruled in Davis v. J.P. Morgan Chase & Co., 587 F.3d 529 (2d Cir. 2009) that underwrit­ers constrained by detailed credit guide­lines, such that their work was "primarily functional rather than conceptual," did not qualify for the administrative exemption. The financial services industry was dealt another blow with the federal Department of Labor's issuance of Administrator's In­terpretation No. 2010-1 (March 24, 2010), which reversed a long-held position that mortgage loan officers qualified for the ad­ministrative exemption.