Opinion ID: 197565
Heading Depth: 2
Heading Rank: 1

Heading: Work Directly Related to Management or Operations

Text: 36 As stated above, under this first prong of the test John Alden must show that its marketing representatives have as a primary duty office or nonmanual work directly related to management policies or general business operations of John Alden or its customers. 29 C.F.R. § 541.2(a)(1). In the parties' stipulation, the primary duty of the marketing representatives is described as follows: 37 to contact and deal with licensed independent insurance agents (agents), and related activities, to increase purchases of John Alden insurance products by end-purchasers who are in contact with the agents. 38 As there is no dispute that this statement describes office or nonmanual work, the only question that remains is whether this primary duty is directly related to John Alden's management policies or general business operations. 39 The interpretative regulations concerning the administrative exemption are set forth at 29 C.F.R. § 541.201 through § 541.215. Of particular relevance is section 541.205, which specifically addresses the directly related to management policies or general business operations language under consideration. Subsection 541.205(a) provides as follows: 40 The phrase directly related to management policies or general business operations of his employer or his employer's customers describes those types of activities relating to the administrative operations of a business as distinguished from production or, in a retail or service establishment, sales work. In addition to describing the types of activities, the phrase limits the exemption to persons who perform work of substantial importance to the management or operation of the business of his employer or his employer's customers. 41 Thus, § 541.205(a) of the interpretations further subdivides the first prong of the short test into two subparts: (1) the employee must be engaged in administrative rather than production activity; and (2) this administrative activity must be of substantial importance to management or operations. 42 The district court found that both parts of this test had been satisfied, and thus concluded that the work of the marketing representatives was directly related to John Alden's business operations. See John Alden, 940 F.Supp. at 421-23. As the Fifth Circuit has noted, [w]hether an employee's work is or should be deemed 'directly related' to business operations is an inference drawn from the historical facts. Dalheim, 918 F.2d at 1230. Thus, we review this finding for clear error. Id.; see also Newspapers of New England, 44 F.3d at 1073.
43 Subsection 541.205(b) of the interpretations offers the following definition of administrative work: 44 The administrative operations of the business include the work performed by so-called white collar employees engaged in servicing a business as, for example, advising the management, planning, negotiating, representing the company, purchasing, promoting sales, and business research and control. 45 However, applying the administrative-production dichotomy is not as simple as drawing the line between white-collar and blue-collar workers. On the contrary, non-manufacturing employees can be considered production employees in those instances where their job is to generate (i.e., produce) the very product or service that the employer's business offers to the public. See, e.g., Reich v. New York, 3 F.3d 581, 587-89 (2d Cir.1993), cert. denied, 510 U.S. 1163, 114 S.Ct. 1187, 127 L.Ed.2d 537 (1994) (police investigators conduct or produce criminal investigations); Dalheim, 918 F.2d at 1230-31 (television station's producers, directors, and assignment editors produced newscasts, and were thus non-exempt). 46 Applying this distinction, the district court held that the marketing representatives were engaged in administrative rather than production activities, a finding in which this Court joins. As stated in the stipulation of facts, John Alden is in the business of designing, creating, and selling insurance policies to the public. It follows, as the district court properly recognized, that the products generated by John Alden are these insurance policies themselves. As the marketing representatives are in no way involved in the design or generation of insurance policies, the very product that the enterprise exists to produce and market, Dalheim, 918 F.2d at 1230, they cannot be considered production employees. 47 In its arguments both to the lower court and on appeal, the Secretary has urged that the Third Circuit's decision in Martin v. Cooper Electric Supply Co., 940 F.2d 896 (3d Cir.1991), cert. denied, 503 U.S. 936, 112 S.Ct. 1473, 117 L.Ed.2d 617 (1992), compels the conclusion that the employees at issue here are production employees. However, both the district court and John Alden have properly distinguished Cooper Electric from the instant case. The company at issue in Cooper Electric was a wholesaler that did not manufacture any products of its own, but instead sold products made by other firms. Id. at 903. Thus, the parties stipulated that the wholesaler's primary business purpose was to produce sales of electrical products. Id. Since the employees at issue in Cooper Electric, the company's salespeople, worked to generate the very product that the company existed to market--sales of electrical products--the Third Circuit concluded that they were non-exempt production employees. Id. at 903-04. Of course, the facts of Cooper Electric are clearly distinguishable from this case, as John Alden does indeed generate a product, insurance policies, not merely sales of a product. 48 In an attempt to answer this argument, the Secretary points out that the stipulation of facts describes John Alden's business purpose as the design, creation, and sale of insurance policies. Thus, the Secretary contends that, in addition to the production of insurance policies, John Alden also produces sales, and that any employee engaged in the generation of sales should be deemed non-exempt under the logic of Cooper Electric. 6 However, Cooper Electric itself provides an effective counter. In discussing the servicing component of the Secretary's interpretations, see 29 C.F.R. § 541.205(b), the Third Circuit explained that servicing a business entailed employment activity ancillary to an employer's principal production activity. Cooper Electric, 940 F.2d at 904 (emphasis in original). In the instant case, the activities of the marketing representatives are clearly ancillary to John Alden's principal production activity--the creation of insurance policies--and therefore could be considered administrative servicing within the meaning of section 541.205(b). 49 As the district court noted, the day-to-day activities of marketing representatives are more in the nature of representing the company and promoting sales of John Alden products, two examples of exempt administrative work provided by § 541.205(b) of the interpretations. As John Alden's primary contact with the insurance market (via agent contacts), marketing representatives represent the company by keeping the market informed of changes in John Alden's product offerings and pricing structure. Further, by advising agents as to which of John Alden's products to market against competing products, and by helping them put together proposals for bidding on new business, marketing representatives are, again to quote Cooper Electric, engaged in something more than routine selling efforts focused simply on particular sales transactions. Id. at 905. Rather, their agent contacts are aimed at promoting (i.e., increasing, developing, facilitating, and/or maintaining) customer sales generally, id. (emphasis in original), activity which is deemed administrative sales promotion work under section 541.205(b). Therefore, there was no error in the district court's finding that John Alden's marketing representatives are engaged primarily in administrative rather than production work. 50
51 In addition to drawing the administrative-production work dichotomy, 29 C.F.R. § 541.205(a) limits the directly related language to persons who perform work of substantial importance to the management or operation of the business of his employer or his employer's customers. Of course, employees who formulate management policies or oversee general business operations easily satisfy this substantial importance requirement. See 29 C.F.R. § 541.205(c). However, the interpretations make it clear that the exemption is not to be limited solely to so-called management personnel: 52 As used to describe work of substantial importance to the management or operation of the business, the phrase directly related to management policies or general business operations is not limited to persons who participate in the formulation of management policies or in the operation of the business as a whole. Employees whose work is directly related to management policies or to general business operations include those [whose] work affects policy or whose responsibility it is to execute or carry it out. The phrase also includes a wide variety of persons who either carry out major assignments in conducting the operations of the business, or whose work affects business operations to a substantial degree, even though their assignments are tasks related to the operation of a particular segment of the business. 53 29 C.F.R. § 541.205(c). Examples of employees or positions that generally meet the substantial importance requirement include credit managers, claim agents and adjusters, wage-rate analysts, securities brokers, and promotion men. See 29 C.F.R. § 541.205(c)(5). However, the particular title given to an employee is not determinative, as an employee's exempt status must instead be predicated on whether his or her duties and responsibilities meet all of the applicable regulatory requirements. See 29 C.F.R. § 541.201(b). 54 In applying these interpretations, the district court first recognized that the work of the marketing representatives is critically important to John Alden's business, in that [t]he success of the company in New England depends in large part on the success of the marketing representatives who promote sales of John Alden products. John Alden, 940 F.Supp. at 422-23. Having thus found that the marketing representatives were engaged in work that affects business operations to a substantial degree--one of the categories of work deemed to be of substantial importance under 29 C.F.R. § 541.205(c)--the district court concluded that their work met this prong of the test. Id. 55 On appeal, the Secretary contends that, in applying the interpretations, the district court misconstrued the concept of substantial importance so as to require plenary review of this issue. In short, the Secretary submits that the lower court improperly equated economic impact with substantial importance, so that if an employee's work contributes to an employer's financial well-being, that fact alone is sufficient to satisfy the substantial importance requirement. If the court did indeed misconstrue the concept of substantial importance, then its factual inferences were drawn with the wrong legal standard in mind, and it would have erred as a matter of law. 56 We recognize that more than one circuit has held that [t]he financial effect of employee activity cannot alone show work of 'substantial importance to the management or operation' of an employer's business. Cooper Electric, 940 F.2d at 906; see also Dalheim, 918 F.2d at 1231. 7 As stated by the Fourth Circuit in Clark v. J.M. Benson Co., 789 F.2d 282 (4th Cir.1986), in assessing substantial importance it is necessary to look at the nature of the work, not its ultimate consequence. Id. at 287 (emphasis in original). Further, the interpretive regulations clearly dismiss the view that this requirement can be met simply by showing a link between poor performance and lost profits: 57 A messenger boy who is entrusted with carrying large sums of money or securities cannot be said to be doing work of importance to the business even though serious consequences may flow from his neglect. An employee operating very expensive equipment may cause serious loss to his employer by the improper performance of his duties.... But such employees, obviously, are not performing work of such substantial importance to the management or operation of the business that it can be said to be directly related to management policies or general business operations as that phrase is used in § 541.2. 58 See 29 C.F.R. § 541.205(c)(2). 59 Although the district court did not expressly set forth the test in the above manner, our review of the district court's reasoning convinces us that these principles were taken into account in assessing substantial importance. Contrary to the Secretary's assertion, the court did not simply equate substantial importance with financial impact. Rather, after noting the economic significance of their sales promotion work, the court then proceeded to consider the nature of the work undertaken by the marketing representatives, which the court recognized required them to: 60 a) understand the nature of the evolving insurance market, b) grasp the subtleties of that market, c) familiarize themselves with their agents, their competitors and the needs of existing and prospective end-purchasers, and d) respond quickly in identifying and promoting a John Alden product when an agent contemplates a particular competitive product. 61 John Alden, 940 F.Supp. at 423. In light of this, we are satisfied that the district court did not misconstrue the nature of the substantial importance inquiry, as it considered the nature of the employee's work as well as the consequences of that work. 8 Accordingly, because the district court was operating within the proper legal framework, we will review its inferential factfinding on this issue for clear error. 62 Our review of the record finds ample support for the lower court's conclusion. First and foremost, as John Alden's primary contact with the independent agents, marketing representatives are the insurance market's principle source for information about John Alden and its products. Moreover, in the course of their daily activities, these employees gather information about their agents, the agents' customers, and the insurance market as a whole--such as information about changes in consumer needs, or regarding the success of certain competitors' offerings. The marketing representatives must then use all of this information both to pique their agents' interest in John Alden, and to suggest products or product combinations that an agent's customers might find attractive. In addition, the marketing representatives can pass along the information they have compiled to their supervisors, who later relay the same to John Alden's management, who can then factor it into decisions on new product designs and offerings. 63 It is certainly reasonable to draw the inference that this type of work, both by its nature and in its consequence, would affect John Alden's business operations to a substantial degree. Indeed, it would appear that work of this nature--disseminating information to the marketplace, understanding customers and competitors, and gathering available information to be used in putting together proposals and packages that are appropriate for those customers--is directly related to operations, and at the heart of John Alden's business success. As such, we find no error in the district court's conclusion on this issue. 64 Lastly, the Secretary attaches some significance to the fact that John Alden employs a number of marketing representatives in this region, stressing that the collective economic impact of a group of employees is insufficient to satisfy the substantial importance requirement. See Cooper Electric, 940 F.2d at 906. However, the Secretary's own interpretative regulations provide a sufficient rejoinder: 65 The fact that there are a number of other employees of the same employer carrying out assignments of the same relative importance or performing identical work does not affect the determination of whether they meet this test so long as the work of each such employee is of substantial importance to the management or operation of the business. 66 29 C.F.R. § 541.205(c)(6). In the instant case, we find that the work of each marketing representative, standing alone, has a substantial effect on John Alden's business. 9 As set out in the parties' stipulation, the sixteen marketing representatives currently employed in the regional office are responsible for the promotion of the company's products throughout all of New England (minus Connecticut). Moreover, each marketing representative is individually responsible for a deck of 500-600 agents, with each deck generating, on average, from $1.5 million to $3 million in sales annually. In light of all this, we have little difficulty in finding that each individual marketing representative carries out a major assignment[ ] in conducting the operations of the business, and affects business operations to a substantial degree through his or her own sales promotion activities. See 29 C.F.R. § 541.205(c). 67 The district court was not clearly wrong in finding that the marketing representatives are engaged in administrative work of substantial importance to John Alden's business operations. Accordingly, we agree that these employees are engaged in administrative work directly related to management policies or general business operations, as required under the first prong of the short test, 29 C.F.R. § 541.2(a)(1). We now turn to the court's analysis of the discretion and independent judgment part of the test. 68