Opinion ID: 71474
Heading Depth: 1
Heading Rank: 2

Heading: Were Nicholson and Smith administrative employees?

Text: 12 When Congress passed the FLSA almost sixty years ago, it sought to end the presence in American commerce of labor conditions detrimental to the maintenance of the minimum standard of living necessary for health, efficiency, and general well-being of workers. 29 U.S.C. § 202(a). The levers Congress chose were a minimum wage, mandatory overtime pay and curbs on child labor. 29 U.S.C. §§ 206, 207, 212. As the Supreme Court observed in 1945, the Act seeks to eliminate substandard labor conditions, including child labor, on a wide scale throughout the nation. Roland Electrical Co. v. Walling, 326 U.S. 657, 669-70, 66 S.Ct. 413, 419, 90 L.Ed. 383 (1946). 13 The goal of ameliorating the uglier side of a modern economy did not imply that all workers were equally needful of protection. The chief financial officer of a company, for instance, would be less likely to be exploited than a janitor or assembly linesman. So Congress removed any employee employed in a bona fide executive, administrative, or professional capacity ... or in the capacity of outside salesman from the FLSA's strictures. 29 U.S.C. § 213(a)(1). Congress delegated authority to the Secretary of Labor to define these terms. 14 The implementing regulations create two tests, the long and the short, for whether a person is an administrative employee. 29 C.F.R. § 541.2. The long test includes five parts, all of which the employee's job must satisfy. The first four parts hone in on what kind of work the employee does: 15 (1) Is the employee's primary duty office or nonmanual work directly related to management policies or general business operations? 16 (2) Does the employee customarily and regularly exercise[ ] discretion and independent judgment? 17 (3) Does she regularly and directly assist[ ] a proprietor, or an employee employed in a bona fide executive or administrative capacity, or does she perform [specialized or technical work] under only general supervision, or execute under only general supervision special assignments and tasks? 18 (4) Do these tasks take up the bulk (80% for non-service employees, 60% for service and retail employees) of the employees' time? 29 C.F.R. § 541.2(a)-(d). If the answer to all four questions is yes, then the long test proceeds to the final question. 19 Assuming that an employee has met the previous four tests, the fifth requires that the employee is compensated for his services on a salary or fee basis at a rate of not less than $155 per week ... exclusive of board, lodging or other facilities. 29 C.F.R. § 541.2(e). The regulations also offer a short test, a safe harbor for employers, which an employee may satisfy even if she fails the long test. The short test exempts any employee who is compensated on a salary or fee basis at a rate not less than $250 per week (again exclusive of board, lodging, or other facilities), and who, roughly speaking, meets criteria (1) and (2) above. 29 C.F.R. § 541.2(e)(2). Smith and Nicholson argue that the phrase is compensated means just that--the employee must be actually paid. (Emphasis added.) If she is not paid at all, then she is not an administrative employee. 20 We are mindful of the Supreme Court's admonition that courts closely circumscribe the FLSA's exemptions. Any exemption from such humanitarian and remedial legislation must therefore be narrowly construed, giving due regard to the plain meaning of statutory language and the interest of Congress. A.H. Phillips, Inc. v. Walling, 324 U.S. 490, 493, 65 S.Ct. 807, 808, 89 L.Ed. 1095 (1945). But we are also heedful of the rationale for interpreting the FLSA in this way: To extend an exemption to other than those plainly and unmistakably within its terms and spirit is to abuse the interpretative process and to frustrate the announced will of the people. Id. (emphasis added). To read the FLSA blindly, without appreciation for the social goals Congress sought, would also do violence to the FLSA's spirit. 21 Before turning to the specifics of Nicholson's and Smith's argument, we put the salary test in context. 1 The test dates from an era during which whether an employees was on salary or was paid by the hour revealed much about his job. 2 Because being on salary indicated a certain status within a company, the regulations adopted the salary test as a rule-of-thumb for sorting out the kinds of employees that Congress intended the FLSA to protect from those it did not. We should not be surprised then to learn that the salary floor applies not just to administrative employees, but to executive and professional employees as well. 29 C.F.R. § 541.1, 541.3. 22 Plaintiffs are not the first exempted employees to try to convert a contract action for unpaid salary into an FLSA suit. And understandably so considerable advantages over a breach of contract claim would accrue if they succeeded. Piercing through insolvent corporations to reach the principals' presumably deep pockets is only the beginning. While the FLSA applies generally to modestly compensated workers, its punitive provisions can escalate the potential recovery to bigger money. Nicholson, for instance, seeks $45,000 on the FLSA claim, plus unpaid overtime; Smith, the smaller sum of $9,372.10, plus unpaid overtime. 23 We must agree with the reasoning of other courts that have defeated earlier efforts to transform contract actions into FLSA suits. Each of these courts has properly directed its analysis to what an employee was owed, not what he actually received. Donovan v. Agnew, 712 F.2d 1509, 1517 (1st Cir.1983); Reich v. Midwest Body Corp., 843 F.Supp. 1249, 1250 (N.D.Ill.1994); Kawatra v. Gardiner, 765 S.W.2d 771, 773-76 (Tenn.Ct.App.1988). Support for this position comes first from the regulations themselves. The exemption for administrative employees refers to employees compensated on a salary or fee basis. 29 C.F.R. § 541.2(e)(1)-(2). The definition of a salary basis underscores that it is the employment agreement that is determinative. For an employee to be on a salary basis, it must be that under his employment agreement he regularly receives each pay period ... a predetermined amount constituting all or part of his compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed. 29 C.F.R. § 541.118 (emphasis added); § 541.212 (applying definition to administrative employees). But the regulations are not enough in themselves, for they are somewhat contradictory and opaque. As Nicholson and Smith point out, an administrative employee is one who is compensated--a passive verb in the past tense that suggests an action completed, i.e., that the employee has actually been paid. 24 More decisive is Congressional intent. By focusing on the employment agreement, we respect the protective stance toward poorer and powerless workers that Congress took in the FLSA. President Franklin D. Roosevelt told Congress that the FLSA would  '[ ] extend the frontiers of social progress' by 'insuring to all our able-bodied working men and women a fair day's pay for a fair day's work.'  Phillips, 324 U.S. at 493, 65 S.Ct. at 808. In light of this goal, one way of illustrating the oddness of Nicholson's and Smith's interpretation is to show how far their logic would run. Administrative employees are not alone in having a salary floor as part of their classification; professional and executive employees do, too. If the plaintiffs' argument prevailed, it would apply to all three classes. Suppose that a company goes bankrupt and fails to pay its non-owner CEO her salary. Under plaintiffs' logic, that CEO could sidestep a contract action and instead invoke the FLSA. By creating the employee exemptions, Congress declined to ground this kind of action in federal labor law. Donovan, 712 F.2d at 1517. 25 Nicholson and Smith cite a series of cases in which reductions in pay led courts to strip the administrative/executive employee defense from employers. Avery v. City of Talladega, 24 F.3d 1337 (11th Cir.1994); Atlanta Professional Firefighters Union, Local 134 v. Atlanta, 920 F.2d 800 (11th Cir.1991); Harris v. District of Columbia, 709 F.Supp. 238 (D.D.C.1989). These cases pertain to a particular situation not present here. As noted above, the regulations state that if an employee is being paid on a salary basis, the employer must not subject [the salary] to reduction because of variations in the quality or quantity of the work performed. 29 C.F.R. § 541.118. The three cases that plaintiffs cite involve employees alleging precisely this--that their employers have reduced their salaries because of how much or how well they worked. Avery, 24 F.3d at 1340-41; Atlanta Professional Firefighters, 920 F.2d at 805; Harris, 709 F.Supp. at 240, 242. Nicholson and Smith allege nothing of the sort. 26 Understandably frustrated by their inability to recover in contract, Nicholson and Smith would have us approve an end-run around Congressional intent. We cannot accede to their request. 27