In Modern Times, Just Who Is On The Production Line?

, The Connecticut Law Tribune

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In 2009, the U.S. Court of Appeals for the Second Circuit held in Davis v. J.P. Morgan Chase & Co., 587 F.3d 529 (2d Cir. 2009), that a mortgage loan underwriter was not exempt from the overtime provisions of the Fair Labor Standards Act because he did not fall into the law's exemption for "bona fide administrative employees."

Specifically, the plaintiff's primary duty was not "directly related to management policies or general business operations." 29 C.F.R. § 541.200(a). The Davis court employed the "administrative/production dichotomy" to reach this conclusion: that is, it held that producing loans was the proper way to characterize the plaintiff's primary duty.

The administrative/production dichotomy analysis is being applied in cases against financial institutions and insurance companies. While the products of these companies are intangible — mortgages, insurance policies, etc. — they are still the company's marketplace offerings. In an economy that has shifted away from manufacturing and has become more service-oriented, there are many more workers employed in these fields who merit wage protection.

Just because a person spends his or her time at a desk and not physically putting together the goods to be sold does not mean that he or she is not engaged in creating the employer's product.

Recently, courts around the country have applied the test to a disability advocate engaged in preparing applications for Social Security benefits (Colyer v. SSC Disability Services LLC, 2012 WL 882500 (S.D. Fla. March 14, 2012)); assistant managers at car rental establishments (In re Enterprise Rent-A-Car Wage & Hour Employment Practices Litigation, 2012 WL 3928278 (W.D. Penn. Sept. 7, 2012); investigators of suspicious insurance claims (Ahle v. Veracity Research Co., 738 F. Supp. 2d 896 (D. Minn. 2010)); "officials" at a horse racing venue (Desmond v. PNGI Charles Town Gaming LLC, 564 F.3d 688 (4th Cir. 2009); and a fund accounting specialist and fund accounting analyst (Hendricks v. J.P. Morgan Chase Bank N.A., 677 F. Supp. 2d 544 (D. Conn. 2009)); to name a few. None of these employees are engaged in the physical production of tangible items on a production line, but in all of these cases the courts refused to hold that they were "administrative" employees.

The recent U.S. Court of Appeals for the Sixth Circuit case, Foster v. Nationwide Mutual Insurance Co., 2013 WL 1149758 (6th Cir. March 21, 2013) has been cited by employers to limit the application of the production worker model. A fair reading of this case, however, shows that it is not persuasive on this topic. In Foster, special investigators, whose duties were to investigate suspicious insurance claims, claimed that they were entitled to overtime.

Nationwide claimed that they were administrative employees whose work related to the "general business operations" of the company. The Foster court held, with little discussion, that because the "business" of the defendant insurance company was "creating and marketing insurance policies to the public" instead of "actually selling the promise of asset protection," the plaintiff special investigators could not be production employees. Foster should therefore not be interpreted as a hit to the administrative/production dichotomy analysis itself. While it does mandate a narrower scope for the definition of "production" workers in the Sixth Circuit because of its definition of an insurance company's "business," it does not reject the dichotomy itself. Had the plaintiffs been more directly involved in "creating" insurance policies, as underwriters are, they may very well have been classified as non-exempt production workers by the court.

Post-Industrial Framework

In another recent case, Harris v. Superior Court, 53 Cal. 4th 170 (2011), the California Supreme Court held that insurance adjusters were administrative, and not production, workers under California state wage and hour law. The court reasoned, "because the dichotomy suggests a distinction between the administration of a business on the one hand, and the 'production' end on the other, courts often strain to fit the operations of modern-day, post-industrial, service-oriented businesses into the analytical framework formulated in the industrial climate of the late 1940s."

In fact, the administrative/production dichotomy is a very useful tool in applying the exemptions set forth in a very different economy to today's workers. The administrative exemption is designed to exempt employees whose duties involve the necessary and fungible duties of actually running the employer's business, such as: "tax; finance; accounting; budgeting; auditing; insurance; quality control; purchasing; procurement; advertising; marketing; research; safety and health; personnel management; human resources; employee benefits; labor relations; public relations, government relations; computer network, internet and database administration; legal and regulatory compliance; and similar activities." 29 C.F.R. § 541.201(b).

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