AMERICAN BAR ASSOCIATION LABOR AND EMPLOYMENT LAW SECTION FIFTH ANNUAL CLE CONFERENCE SEATTLE, WA NOVEMBER 2-5, 2011

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1 AMERICAN BAR ASSOCIATION LABOR AND EMPLOYMENT LAW SECTION FIFTH ANNUAL CLE CONFERENCE SEATTLE, WA NOVEMBER 2-5, 2011 WAGE & HOUR BOOT CAMP FLSA EXEMPTIONS PRESENTED BY: 1 FREDRIC C. LEFFLER, ESQ. PROSKAUER ROSE LLP 1 With the assistance of Nausheen Rokerya, Esq. and contributions by Caroline Dellatore, Esq. and Corinne Osborne, Esq. Ms. Rokerya and Ms. Dellatore are Associates in Proskauer s Newark, New Jersey office and Ms. Osborne is an Associate in Proskauer s New York City office. Fred Leffler is Senior Counsel and Co-Chair of Proskauer s Employment Law Counseling and Training Practice Group, and is resident in the firm s New York City office.

2 TABLE OF CONTENTS Page I. THE FLSA GENERALLY...1 A. What it means to be exempt...1 B Amendments to FLSA Regulations...1 C. Exemptions to be narrowly construed...1 II. THE WHITE COLLAR EXEMPTION TESTS...2 A. The White Collar Exemptions...2 B. Test To Determine Exempt Employees...2 C. Key Terms for the Standard Duties Test...3 III. EXECUTIVE EMPLOYEES...5 A. Standard for Executive Employees...5 B. Management of The Enterprise, Department or Subdivision...5 C. Customarily Recognized Department or Subdivision...6 D. Directs Two or More Other Employees...6 E. Authority to Hire or Fire Other Employees...6 F. Concurrent Performance of Exempt and Non-Exempt Work...7 G. Recent Litigation- Managers and Assistant Managers...7 IV. ADMINISTRATIVE EMPLOYEES...9 A. Standard for Administrative Employees...9 B. Directly Related To Management or General Business Operations...9 C. Discretion and Independent Judgment...10 D. Matters of Significance...11 E. Recent Litigation: Pharmaceutical Employees...11 F. Recent Litigation: Financial Services Employees...13 G. Recent Litigation: Account Managers...17 H. DOL Opinion Letter: IT Support Specialists...18 V. PROFESSIONAL EMPLOYEES...19 A. Standard for Professional Employees...19 B. Learned Professionals...19 C. Creative Professionals...25 i

3 VI. COMPUTER EMPLOYEES...26 A. Standard for Computer Employees...26 B. Educational Requirements...27 C. Computer Manufacture and Repair...27 D. Executive and Administrative Computer Employees...27 E. Highly Compensated Test Does Not Apply To Computer Professionals...28 F. Information Technology (IT) Support Specialists Are Non-Exempt...28 VII. OUTSIDE SALES EMPLOYEES...28 A. Standard for Outside Sales Employee Exemption...28 B. Primary Duty of Outside Salespersons...29 C. Making Sales or Obtaining Orders...29 D. Away From The Employer s Place of Business...29 E. Promotion Work...30 F. Drivers Who Deliver and Sell Products...31 G. Recent Litigation: Pharmaceutical Sales Representatives...31 H. Registered Representatives...32 VIII. EXCEPTION FOR PUBLIC SAFETY EMPLOYEES...33 IX. RETAIL SERVICES/COMMISSIONED EMPLOYEE EXEMPTION...34 A. Standard for Retail/Commissioned Employees...34 B. Retail and service establishments...34 C. Commissioned Employees...35 X. OTHER EXEMPTIONS...37 A. Lesser Known Exemptions...37 XI. THE SALARY BASIS TEST...40 A. Generally...40 B. Permissible Deductions...41 C. Improper Deductions May Destroy Exempt Status...41 D. Safe Harbor Provision...43 E. Additional Payments Remain Permissible...43 ii

4 I. THE FLSA GENERALLY A. What it means to be exempt ABA Labor & Employment Law Section Fifth Annual CLE Conference Seattle, WA November 2-5, 2011 WAGE & HOUR BOOT CAMP FLSA EXEMPTIONS 1. The Fair Labor Standards Act ( FLSA or Act ), originally enacted in 1938, requires, among other things, employers engaged in interstate commerce to pay their non-exempt employees a minimum wage (currently under federal law set at $7.25 per hour) and to pay overtime for hours worked in excess of 40 per workweek, at a rate of one and one-half the employee s regular rate of pay. 29 U.S.C. 207(a) (2010). 2. The Act also provides for several exemptions from its coverage. As such, while covered non-exempt workers are entitled to overtime pay for hours worked in excess of 40 in a workweek, exempt workers are not eligible for overtime. B Amendments to FLSA Regulations 1. The United States Department of Labor ( DOL ) issued revised and updated regulations under the FLSA that took effect in August Most notably, these revisions eliminated the long and short test dichotomy utilized by the prior regulations for determining exempt status, replacing them with a standard duties test. Today, employees must earn at least $455 per week ($23,660 per year) in order to qualify for exempt status, with one or two exceptions. 2. The regulations clarified the duties required for each of the white collar exemptions - the Executive, Administrative, Professional, Computer Professional, and Outside Sales employee exemptions. 69 Fed. Reg. 22,122 22,274 (Apr. 23, 2004) (codified at 29 C.F.R. 541 (2011)). C. Exemptions to be narrowly construed 1. It is well settled law that the FLSA s exemptions are to be narrowly construed against the employers seeking to assert them. Arnold v. Ben Kanowsky Inc., 361 U.S. 388, 392 (1960). Employers bear the burden of proving that employees fit plainly and unmistakably within the exemption s terms. Ruggeri v. Boehringer Ingelheim Pharms Inc., 585 F. Supp. 2d 254, 261 (D. Conn. 2008) (quoting Bilyou v. Dutchess Beer Distribs., Inc., 300 F.3d 217, 222 (2d Cir. 2002). See also Baum v. Astrazeneca LP, 605 F. Supp. 2d 669, 674 (W.D. Pa. 2009) (citing

5 Friedrich v. U.S. Computer Servs., 974 F.2d 409, 412 (3d Cir. 1992)), cert. denied, 131 S. Ct. 332 (2010). II. THE WHITE COLLAR EXEMPTION TESTS A. The White Collar Exemptions 1. The FLSA exempts from its overtime provisions a wide variety of employees, including certain farm workers, certain airline employees, and certain commissioned sales people. 29 U.S.C. 213(a)(6), (a)(7), (b)(3) (2004). Among the most common exempt employees are the white-collar salaried exemptions Executive, Administrative, Professional, Computer and Outside Sales employees. 2. In updating its regulations, DOL reiterated that the FLSA provides minimum standards. States may opt to exceed those standards, and employers must comply with any Federal, State or municipal laws, regulations or ordinances establishing a higher minimum wage or lower maximum workweek..... Employers must also continue to abide by the contractual obligations of any collective bargaining agreements. 29 C.F.R (2004). B. Test To Determine Exempt Employees 1. For the Executive, Administrative and Professional exemptions, the regulations include a standard duties test and a minimum salary test. There is no minimum salary test for Outside Sales employees. Computer Professional employees (who meet the duties test) may be paid hourly, not less than $27.63 an hour, or on a salary or fee basis of not less than $455 weekly. There is now also a test for Highly Compensated Employees. a. Standard Duties Test. A standard duties test applies to all employees who are paid between $455 per week ($23,660 annually) and $100,000 per year on a salary basis. 29 C.F.R (a), (a) (2011). Overtime is guaranteed for all employees earning less than $455 per week. 29 C.F.R (a) (2011). b. Highly Compensated Employee Test. Employees with total annual compensation of at least $100, are exempt, if the employee customarily and regularly performs any one or more of the exempt duties or responsibilities of an Executive, Administrative or Professional employee. 29 C.F.R (2011). i. Total annual compensation must include at least $455 per week, paid on a salary or fee basis; however, it may include commissions, nondiscretionary bonuses, and other nondiscretionary compensation. 29 C.F.R (b)(1). It does not include board, lodging, life and/or medical insurance payments, retirement plan contributions, or the cost of fringe benefits. Id. 2

6 ii. The Highly Compensated Employee test only applies to employees whose primary duty is performing office or non-manual work. 29 C.F.R (d). This exemption does not apply to Computer Employees or Outside Sales Employees. iii. A high compensation level is a strong indicator of an employee s exempt status. 29 C.F.R (c). These employees need only customarily and regularly perform one (or more) of the exempt duties of an Executive, Administrative or Professional employee. Id. For example, an employee earning $120,000 annually who customarily and regularly directs the work of two or more employees will qualify as a Highly Compensated Employee. (1) In Ogden v. CDI Corp., No. CV PHX DGC, 2010 U.S. Dist. LEXIS 66686, *14 (D. Ariz. June 30, 2010), the Court denied summary judgment to the employer based on a finding that the plaintiff, a recruiter who made more than $100,000 per year, did not necessarily perform one or more of the duties of an Administrative employee customarily and regularly. Because the recruiter s supervisor made all the decisions regarding which candidates to forward to the company s clients, the court said his position was more akin to a non-exempt personnel clerk who screens applicants. Id. iv. If an employee s total annual compensation is not at least $100,000 by the last pay period of a 52-week period, the employer may make one final payment sufficient to achieve the required level during the last pay period or within one month after the end of the 52-week period. 29 C.F.R (b)(2). v. Employees who do not work a full year for the employer may still qualify for the exemption if the employee receives a pro rata portion of the minimum salary amounts based on the number of weeks the employee worked. 29 C.F.R (b)(3). C. Key Terms for the Standard Duties Test 1. The regulations use several key terms, which are defined in Subpart H, Definitions and Miscellaneous Provisions. 29 C.F.R (2011). 2. Primary Duty a. The standard duties test for each exemption requires that employers examine the primary duty, meaning: the principal, main, major or most important duty an employee performs to determine an employee s classification status. 3

7 29 C.F.R (a). As stated in the Preamble, 2 the major emphasis is placed on the character of the employee s job as a whole. 69 Fed. Reg. 22,122 at 22,186 (Apr. 23, 2004). b. Employees who spend less than 50% of their time performing exempt work can still satisfy the standard duties test for exemption provided other factors support their exempt status. However, the amount of time spent performing exempt work can be a useful guide in determining whether exempt work is the primary duty of an employee. 29 C.F.R (b). Thus, employees who spend the majority of their time performing exempt work, generally, meet the primary duty requirement. c. Factors to consider when determining the primary duty include: 1) the relative importance of the exempt duties as compared with other types of duties; 2) the amount of time spent performing exempt work; 3) the employee s relative freedom from direct supervision; and 4) the relationship between the employee s salary and the wages paid to other employees for the same kind of non-exempt work. 29 C.F.R (a)-(c). 3. Customarily and Regularly a. Greater than occasional frequency generally, this means work normally and recurrently performed every week, but does not include isolated or one-time tasks. 29 C.F.R (2011). 4. Directly and Closely Related a. Work that is directly and closely related to the performance of exempt work is also considered exempt work. 29 C.F.R (a) (2011). Work is directly and closely related if it contributes to or facilitates exempt work; even menial or manual tasks will be considered exempt work if an employee s exempt work could not properly be performed without these tasks. For examples of work considered directly and closely related exempt work, see 29 C.F.R (b)(1)-(10). 5. Discretion and Independent Judgment a. Exercising discretion and independent judgment implies that an employee has authority to make an independent choice without immediate direction or supervision. The regulations explain that employees can still exercise discretion and independent judgment even if a superior reviews their decisions or recommendations. The fact that an employee s decisions may, 2 In addition to the regulations, the DOL also published in the Federal Register (from pages 22,122 through 22,191) a Preamble containing supplementary information about the new regulations, including a summary of major comments, a discussion of relevant federal case law, and further explanatory insights concerning each section and subpart. Throughout this outline, citations to the Preamble will be to the appropriate pages of the Federal Register. 4

8 occasionally, even be reversed does not mean that the employee is not exercising discretion and independent judgment. 29 C.F.R (2011). b. The Administrative exemption requires that an employee exercise discretion and independent judgment with respect to matters of significance. 29 C.F.R (a). III. EXECUTIVE EMPLOYEES A. Standard for Executive Employees 1. An Executive employee is one: a. Who is compensated on a salary or fee basis at a rate of not less than $455 per week; and b. Whose primary duty is management of the enterprise in which the employee is employed or of a customarily recognized department or subdivision thereof ; c. Who customarily and regularly directs the work of two or more other employees ; and d. Who has the authority to hire or fire other employees or whose suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees are given particular weight. 29 C.F.R (a)(1)-(4) (2011) (emphasis added). 2. Business owner: Salary requirements do not apply to business owners, which are defined as any employee who owns at least a bona fide 20 - percent equity interest in the enterprise and who is actively engaged in its management. 29 C.F.R (2011). B. Management of The Enterprise, Department or Subdivision 1. Management includes, but is not limited to: interviewing, selecting and training employees; setting and adjusting employee pay rates and work hours; directing employees work; maintaining production or sales records for use in supervision or control; appraising employees productivity and efficiency for the purpose of recommending promotions or other changes in status; handling employee complaints and grievances; disciplining employees; planning work and determining the techniques to be used; apportioning work among employees determining the type of materials, supplies, machinery, equipment or tools to be used or merchandise to be bought, stocked and sold; providing for the safety and security of employees or property; controlling the flow and distribution of materials, merchandise and supplies; planning and controlling the budget; and monitoring or implementing legal compliance measures. 29 C.F.R (2011). 5

9 C. Customarily Recognized Department or Subdivision 1. The phrase customarily recognized department or subdivision distinguishes between employees who are intermittently assigned to a specific job or series of jobs and a unit with permanent status and function. 29 C.F.R (a) (2011). 2. A department or subdivision need not be physically within the employer s establishment and can move from place to place. The key factor is whether the employee is actually in charge of a recognized unit with a continuing function in the organization. 29 C.F.R (a)-(d). D. Directs Two or More Other Employees 1. Direction or supervision must occur customarily and regularly of two or more other employees, meaning two full-time employees or their equivalent. 2. Employees who assist the manager of a department and fill in for the manager as a supervisor only in his/her absence do not qualify for the exemption. E. Authority to Hire or Fire Other Employees 1. This criterion is satisfied by an employee whose suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees are given particular weight. a. Factors to consider in determining whether an employee s suggestions and recommendations are given particular weight include, but are not limited to: 1) whether making such suggestions and recommendations are part of the employee s duties; 2) the frequency with which the employee makes suggestions or recommendations; and 3) the frequency with which the employee s suggestions are relied upon. 29 C.F.R (2011). b. In Vanstory-Frazier v. CHHS Hospital Co., Civ. No , 2010 U.S. Dist. LEXIS 387 (E.D. Pa. Jan. 4, 2010), the Court found that the plaintiff could not be considered exempt as an Executive employee because, although she had supervisory responsibility, she had no authority to hire or fire other employees, and there was no evidence that she made suggestions regarding any change in employee status that were given particular weight. c. In Pressler v. FTS USA, LLC, 2010 WL (Dec. 9, 2010), the Eastern District of Arkansas considered a quality control technician at a cable installation company for the Executive exemption. First, the Court found that Pressler s primary duties were not in management, since he used a standard form to check the work of others. He also did not control the flow or distribution of materials in any way. Second, he did not direct the work of two or more individuals. Even when another technician failed an inspection, 6

10 by his own admission, the matter was out of [his] hands after he turned in his forms. Finally, plaintiff could not hire or fire the technicians. Indeed, the form did not even allow for suggestions or recommendations, and the record lacked any evidence that his recommendations were otherwise informally given weight. For a discussion of the Court s Administrative exemption analysis in Pressler, see Section IV(C)(2)(b). F. Concurrent Performance of Exempt and Non-Exempt Work 1. Concurrent performance of exempt and non-exempt work will not disqualify an employee from the Executive exemption if the employee otherwise meets the salary and duty requirements. 29 C.F.R (2011). 2. Exempt employees, generally decide on their own initiative to perform nonexempt work and remain responsible for their business operations, whereas nonexempt employees generally perform exempt work only at the direction of a supervisor or for defined time periods. 29 C.F.R a. An assistant manager in a retail establishment who performs non-exempt work, such as cooking food, stocking shelves, cleaning, etc., will not lose the exemption if the assistant manager s primary duty is management. b. However, an employee who primarily performs non-exempt work but occasionally fills in as a relief manager will not become exempt as a result of those sporadic periods spent managing. 29 C.F.R (b)-(c). G. Recent Litigation- Managers and Assistant Managers 1. In a non-precedential decision, Soehnle v. Hess Corp, (3d Cir. 2010), the Third Circuit found a Hess Corporation gas station manager exempt, even though she spent at least 85 percent of her time performing non-exempt duties such as manning a cash register. In support of its finding that management was the plaintiff s primary duty, the Third Circuit noted that the plaintiff was accountable for the gas station s profits or losses; that she was subject to minimal supervision but fully responsible for the supervision of several employees whom she hired, trained and fired; and that she earned 40% more than non-exempt hourly employees at the gas station. See also Wage & Hour Op. Letter, FLSA , 2006 WL (Sept. 8, 2006) (duties such as printing the daily sales report in order to check inventory status and audit cash receipts, including delivering cash receipts to the bank, which only the manager can perform, are management functions for purposes of the primary duty test as these functions relate to the maintenance of production or sales records in order to provide for the security of the employer s property.) a. In stark contrast, in Morgan v. Family Dollar Stores, Inc., 551 F.3d 1233 (11th Cir. 2008), cert. denied, 130 S. Ct. 59 (2009), the Eleventh Circuit held that store managers who spent 80 to 90% of their time on non-exempt work - such as stocking shelves, unloading trucks, running cash registers and 7

11 cleaning their stores - did not qualify for the Executive exemption. The Eleventh Circuit held that spending only 10 to 20 percent of their time on managerial duties was "a far cry" from the FLSA regulations guidelines that exempt executives spend about 50 percent of their time on managerial tasks. b. Illustrative of how fact sensitive such determinations can be, the Fourth Circuit in Family Dollar FLSA Litigation, 637 F.3d 508 (4th Cir. 2011) (J. Niemeyer), held that a store manager who claimed that she spent 99 percent of her time on non-executive duties was nonetheless found to have sole management responsibility for the retail store, and therefore fell clearly within the parameters of the Executive exemption In Gellhaus v. Wal-Mart Stores, Inc., 769 F. Supp. 2d 1071 (E.D. Tex. 2011), the Court considered the Executive exemption as it applied to an assistant manager at Walmart. While the plaintiff testified to interviewing and hiring employees, and conducting employee coaching, (akin to performance reviews), she also spent much time stocking shelves and unloading inventory. Nevertheless, the Court found that her primary duty consisted of managerial activities including overseeing and directing her subordinates, participating in annual employee reviews, managing inventory and determining how to stock and display merchandise, authorizing or denying refunds, and conducting price adjustments. Moreover, the store supervisor testified at deposition that many of plaintiff s suggestions with respect to hiring and changes in employee status were implemented. Furthermore, plaintiff was responsible for disciplining employees under her supervision and these admonitions could result in a termination. Finally, because the employee regularly managed at least two employees and met the salary basis requirement, the Court concluded that she qualified for the Executive exemption, and granted Walmart s motion for summary judgment. 3. In Buechler v. DavCo Restaurants, Inc., No. WDQ , 2009 WL (D. Md. Nov.16, 2009), the Court considered another assistant manager position, this one at a fast food restaurant An assistant manager at this restaurant typically (1) trains, monitors, and enforces food safety procedures; (2) works with the management team to meet sales goals; (3) manages controllable expenses- e.g., food, labor, and paper costs; (4) monitors inventory, orders products, and executes company cash, property, product and equipment policies; (5) manages, directs, and monitors his crew to achieve quality, service, and cleanliness standards; (6) maximizes retention of crew and participates in recruitment by interviewing and recommending candidates; (7) provides training for crew members; (8) anticipates and identifies problems and takes corrective action; and (9) performs all other jobrelated duties. Id. at *1. The plaintiff argued that while he interviewed and recommended candidates for employment, his suggestions were not given particular weight in that they were not relied upon. Plaintiff further alleged that he spent a significant amount of time on non-exempt work during each of his 3 The pre-2004 FLSA regulations applied in this case. However, because the revised regulations did not alter the substance of the exemption s requirements, the holding remains authoritative. 8

12 shifts. While the Court did not dispute this fact, it noted that during his shifts, he was the only manager on duty and thus had the sole responsibility for the operation of the restaurant. As such, the Court found the assistant manager fell within the Executive exemption. 4. In Rodriguez v. Farm Stores Grocery, 518 F.3d 1259 (11th Cir. 2008), the Elventh Circuit rejected defendant s contention that its store managers who had responsibility over its free-standing business locations were, as a matter of law, exempt under the Executive exemption. The grocery chain employed between three and six workers in each of its 103 stores. The chain gave the title store manager to one worker at each store and paid him or her a weekly salary and called the others sales associates and paid them hourly wages. The Court noted that managers spent about 30 percent of their time cleaning, 50 percent on customer attention or service, 10 percent on merchandise receiving, and another 10 percent in stacking racks. Several store managers testified that their stores were actually run by district managers. The Court stated that a jury could reasonably conclude from this that at least some of the store managers spent no time performing managerial duties during most weeks. Id. at 11. Further, the Court noted that [w]hile other managers conceded that they spent some time each week performing managerial tasks, all of them insisted it was not the majority of their work. Id. As such, the Court determined, a jury could reasonably conclude that plaintiff store managers were non-exempt employees. IV. ADMINISTRATIVE EMPLOYEES A. Standard for Administrative Employees 1. An Administrative employee is one: a. Who is compensated on a salary or fee basis at a rate of not less than $455 per week; b. Whose primary duty is the performance of office or non-manual work directly related to the management or general business operations of the employer or of the employer s customers; and c. Whose primary duty includes the exercise of discretion and independent judgment with respect to matters of significance. 29 C.F.R (a)(2)- (3) (2011) (emphasis added). B. Directly Related To Management or General Business Operations 1. An Administrative employee s primary duty must be the performance of work directly related to management or general business operations. Such work is directly related to the running or servicing of the business, as opposed to working on a manufacturing production line or selling a product in a retail or service establishment. 29 C.F.R (a) (2011). 9

13 2. Functional areas that would be considered directly related to management or general business operations include, but are not limited to: 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 (b). 3. An employee s work may also be directly related to the management or general business operations of the employer s customers. Thus, employees acting as advisors or consultants to their employer s clients or customers may be exempt. 29 C.F.R (c). a. Production v. Staff Dichotomy: This dichotomy is useful in analyzing classification status, but the DOL regards it as only one analytical tool to be used in answering the ultimate question. C. Discretion and Independent Judgment 1. [T]he 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. It implies that the employee has authority to make an independent choice, free from immediate direction or supervision. 29 C.F.R (a), (c) (2011). 2. The regulations clearly distinguish discretion and independent judgment from the use of skill in applying well-established techniques, procedures or specific standards described in manuals or other sources. 29 C.F.R (e). Thus, performing mechanical, repetitive, recurrent, or routine work does not reflect the exercise of discretion and independent judgment. a. Manuals. The use of manuals, guidelines or other established procedures containing or relating to highly technical, scientific, legal, financial, or other similarly complex matters that can be understood or interpreted only by employees with advanced or specialized knowledge or skill does not preclude exemption. The manuals or guidelines can provide guidance in addressing difficult or novel circumstances. However, employees who simply apply well-established techniques or procedures described in manuals or other sources within closely prescribed limits to determine the correct response to an inquiry or set of circumstances are likely not exempt. 29 C.F.R (2011). b. In Pressler v. FTS USA, LLC, 2010 WL (Dec. 9, 2010), the Court found that plaintiff s qualify-control work was non-manual and directly related to FTS s cable-installation operations. However, Pressler s evaluation of other technicians work using a standard form was ordinary inspection 10

14 work. The Court explained that since ordinary inspection work is usually performed along standardized lines involving well established techniques, it leaves inspectors very little leeway in the performance of their work. As such, the Court found that this position failed to meet the exemption s criteria. 3. In order to determine whether an employee exercises discretion and independent judgment, the regulations list ten criteria, including whether the employee: 1) has authority to formulate, affect, interpret, or implement management policies or operating practices; 2) carries out major assignments in conducting the operations of the business; 3) performs work that affects business operations to a substantial degree, even if the employee s assignments are related to operation of a particular segment of the business; 4) has authority to commit the employer to matters that have significant financial impact; 5) has authority to waive or deviate from established policies and procedures without prior approval; 6) has authority to negotiate and bind the company on significant matters; 7) provides consultation or expert advice to management; 8) is involved in planning long- or short-term business objectives; 9) investigates and resolves matters of significance on behalf of management; and 10) represents the company in handling complaints, arbitrating disputes, or resolving grievances. 29 C.F.R (b). In the Preamble to the final regulations, the DOL explains that employees who satisfy at least two or three of the factors generally exercise discretion and judgment, although a case-by-case analysis is required. 69 Fed. Reg. 22,122 at 22,144. D. Matters of Significance 1. Refers to the level of importance or consequence of the work being performed. 29 C.F.R (a). The Administrative exemption is limited to persons who perform work of substantial importance to the management or operation of the business. 69 Fed. Reg. 22,122 at 22, Whether an employee exercises discretion and independent judgment is not established merely because the employer will experience financial losses if the employee fails to perform the job properly. 29 C.F.R (f). E. Recent Litigation: Pharmaceutical Employees 1. One of the most active areas of FLSA litigation over the last couple of years has involved pharmaceutical sales representatives. The issue with respect to these employees is usually whether or not they satisfy the Outside Sales employee exemption. However, many of the courts entertaining this question have also addressed the applicability of the Administrative exemption. 2. Earlier this year, the Supreme Court denied certiorari in In re Novartis Wage and Hour Litig., 611 F.3d 141 (2d Cir. 2010), cert. denied, 131 S. Ct (2011). There, the Second Circuit held that highly compensated pharmaceutical sales representatives did not satisfy the requirements of the Administrative exemption, 11

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