By Robert G. Brody and Fintan S. Lalor
The Supreme Court recently denied a petition to review a First Circuit Appellate Court decision that held a wholesale plumbing and HVAC supply company’s Inside Sales Representatives were not exempt from overtime pursuant to the “administrative” employee exemption under the Fair Labor Standards Act (“FLSA”). The lawsuit was brought by the Federal Government after a Department of Labor’s (“DOL”) Wage and Hour Division investigation. The DOL alleged F.W. Webb Co., violated the FLSA by improperly classifying their sales reps as exempt administrative employees.
Under the FLSA, an employee is an administrative employee and exempt from minimum wage and overtime if the employee is compensated on a salary or fee basis that meets the threshold level, their primary duty is the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customer, and the employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance. This standard is rife with subjectivity.
The First Circuit Decision
Back in August 2024, the First Circuit affirmed the lower court’s decision that the sales reps were not administrative employees. In reaching this decision, the court relied on the “relational analysis” which is a test the First Circuit uses to analyze administrative exempt classifications. This test compares the worker’s primary duty to the company’s business purpose, to determine whether the duty directly relates to the company’s business purpose. If the worker’s primary duties are directly related to the company’s business purpose, then the worker is less likely to be deemed exempt. Here, the First Circuit agreed with the lower court that the sales reps’ primary duties are to help sell the company’s products, which is directly related to the company’s business purpose. The court found the workers’ “primary duties are not ‘administrative’ in any sense of the word.” Consequently, the workers were deemed ineligible for administrative exemption. The decision was appealed, but the Supreme Court declined to hear the case thereby upholding the First Circuit decision.
What now?
Companies that operate within the First Circuit’s jurisdiction (Maine, Massachusetts, New Hampshire, Puerto Rico, and Rhode Island) should review their classifications for exempt administrative employees. If the administrative employees are working directly on the main purpose of the business (e.g., selling or producing the company’s product), their exempt status should be reconsidered. In fact, this decision offers guidance across the country. If challenged, any court not using the relational analysis test is likely to fail under Supreme Court scrutiny, with the same result likely under the Federal DOL’s scrutiny. Employers should contact competent counsel with questions.
Brody and Associates regularly advises management on complying with the latest local, state, and federal wage and hour laws. If we can be of assistance in this area, please contact us at info@brodyandassociates.com or 203.454.0560.
