SECOND CIRCUIT FURTHER CLARIFIES SCOPE OF THE ADMINISTRATIVE EXEMPTION

On the heels of its recent decision in Davis v. J.P. Morgan Chase & Co., 587 F.3d 529 (2d Cir. 2009)—holding that certain underwriters did not qualify for the FLSA’s administrative exemption—the Second Circuit has once again disappointed employers by ruling in Reiseck v. Universal Communications of Miami, Inc., __ F.3d __, 2010 U.S. App. LEXIS 497 (2d Cir. Jan. 11, 2010) that a Regional Director of Sales for a travel magazine was primarily engaged in sales, as opposed to marketing, and so was non-exempt.

In her capacity as Regional Director of Sales for Universal Communications’ Elite Traveler magazine, Lynore Reiseck’s fundamental charge was to generate advertising sales in the northeastern United States and Canada from the travel and finance sectors.  Elite Traveler being a free publication, advertising sales were the magazine’s primary source of revenue.  In February 2004, Universal Communications terminated Reiseck’s employment, and shortly thereafter she filed suit against the company alleging various causes of action arising under the federal, New York State and New York City anti-discrimination statutes, as well as a claim for overtime compensation under the FLSA.  Universal Communications successfully moved for summary judgment on all counts; as to the FLSA claim, Universal Communications convinced the district judge that Reiseck was properly classified as an exempt administrative employee.  The subject appeal followed.

Applying the pre-August 2004 Department of Labor regulations in effect at the time of the alleged violation, the Second Circuit focused attention on whether Reiseck’s “primary duties consist[ed] of … the performance of office or non-manual work directly related to the management policies or general business operations of [her] employer [and] require[d] the exercis[e] of discretion and independent judgment.”  Since Reiseck obviously engaged in non-manual work, and it was undisputed that she exercised substantial discretion and independent judgment in the performance of her duties, at the heart of the matter was the proper interpretation of the term “directly related to management policies or general business operations.”  Particularly pertinent to the matter at hand, the then-operative regulations provided that sales promotion, or marketing, work was administrative in nature whereas selling was not.

At first glance, the Court of Appeals observed, Reiseck’s duties seemingly straddled the sales/marketing divide—“[o]n the one hand, plaintiff was a salesperson responsible for selling specific advertising space” whereas “[o]n the other hand, Reiseck also ‘promoted sales’ in some sense” because by its very nature advertising is a marketing device designed to generate sales of the product being advertised.  In an effort to refine the distinction between non-exempt sales work and exempt marketing work, the Second Circuit adopted the reasoning of the Third Circuit in Martin v. Cooper Electric Supply Co., 940 F.2d 896 (3d Cir. 1991) and honed in on the target of the employee’s overtures.  That is, according to the Second Circuit, “an employee making specific sales to individual customers is a salesperson for the purposes of the FLSA, while an employee encouraging an increase in sales generally amongst all customers is an administrative employee for the purposes of the FLSA.”  Viewed from this vantage point, it became clear to the Court that Reiseck’s primary duty was in the nature of selling, hence she was non-exempt.

Although, as noted, the case was not governed by the current DOL regulations, the Second Circuit noted that the “[r]ecent amendments to the interpretive regulations provide helpful guidance to support our conclusion” that Reiseck was misclassified by Universal Communications as an exempt administrative employee.  Drawing a parallel to the financial services industry, the Court pointed out that the now operative version of the regulations provide that “an employee in the financial sector whose primary duty includes ‘marketing, servicing or promoting the employer’s financial products’ likely falls under the administrative exemption… [b]ut the regulations then specify that ‘an employee whose primary duty is selling financial products does not qualify for the administrative exemption.”  (Emphasis in original).  The Second Circuit found that Reiseck’s primary duty more closely resembled the sale of financial products as opposed to the marketing, servicing or promoting of those products.

The Reiseck decision is certainly not helpful to employers, but the result is by no means surprising.  Sales-related tasks have always been classified as non-exempt work and Reiseck’s supervisor conceded she was a member of Universal Communications’ “‘sales staff’ and not the ‘marketing staff.’”  This admission, coupled with the fact that Reiseck was paid in part on a commission basis, went a long way toward sealing Universal Communications’ fate.

 By Lawrence Peikes and Jonathan Bardavid, Wiggin and Dana LLP

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