On November 20, 2009, the 2nd Circuit Court of Appeals held that a loan underwriter at J.P. Morgan Chase was not exempt from the overtime provisions of the Fair Labor Standards Act (FLSA).  In Whalen v. J.P. Morgan Chase & Co., the employer claimed that loan underwriters perform work directly related to management policies or business operations and regularly exercise discretion and independent judgment, in accordance with 29 C.F.R. § 541.2(a).  However, the Second Circuit looked to 29 C.F.R. § 541.205(a), which distinguishes exempt administrative work from nonexempt production work, and key to its holding was that Whalen was given a detailed set of manuals and guidelines that he was to use to evaluate and approve or decline loan applications.  As such he wasn’t exercising the requisite discretion and independent judgment that are the hallmarks of an exempt position.  Rather, the Whalen Court determined that Whalen was more involved in the production of loans and therefore was primarily involved with the day-to-day carrying out of the business rather than ‘the running of [the] business [itself]’ or determining its overall course or policies.  As such the employer had improperly classified him as exempt under the FLSA because Whalen was, in fact, not employed in a bona fide administrative capacity.

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On November 12, 2009, the 2nd Circuit Court of Appeals affirmed a lower court decision granting summary judgment in favor of an employee.  The case was Young v. Cooper Cameron Corp..  Young alleged that his employer willfully misclassified him as exempt from the overtime provisions of the Fair Labor Standards Act (FLSA), and he also claimed that it hired him into an exempt position while giving him the work of a non-exempt employee. 

Young originally applied as a Mechanical Designer, a non-exempt hourly position that requires experience but no college degree.  The employer hired him for a position that paid $62,000 annually and required 12 years of engineering-type experience but no college degree.  According to the employer, the salaried position fell under the “professional” exemption to the FLSA. 

In defense to the claim that the violation was willful, the employer cited research it performed prior to classifying the position as exempt.  However, the court found that classification of Young himself and not the position was what mattered.  Hiring Young into an exempt position to perform non-exempt work undermined their argument. 

Additionally, the Court found that while the nature of the position was technical and required experience, the intention of the law was to focus on highly educated professionals.  According to the Court, “[t]he typical symbol of the professional training and the best prima facie evidence of its possession is, of course, the appropriate academic degree, and in these professions an advanced academic degree is a standard (if not universal) prerequisite.”  It concluded that “[i]f a job does not require knowledge customarily acquired by an advanced educational degree… then, regardless of the duties performed, the employee is not an exempt professional under the FLSA”

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On Wednesday, October 14, 2009, the Secretary of Labor submitted an amicus curiae brief supporting the position of over 2,500 pharmaceutical sales representatives seeking payment for overtime.  The brief claims that the U.S. District Court for the Southern District of New York erred when it found that Novartis Pharmaceutical sales representatives are exempt from the overtime provisions of the Fair Labor Standards Act (“FLSA”).

At issue is whether the sales representatives were exempt under either the “outside sales” or “administrative” exemptions.  While pharmaceutical sales representatives engage in a number of activities similar to an “outside salesman,” no actual sales take place.  In fact, such sales are prohibited by federal law.  The sales actually take place between the pharmacy and Novartis.  According to the Department of Labor, the exemption in the FLSA requires the employee to actually make sales.  Since no sales are made, the representatives do not meet the qualifications for the “outside sales” exemption.

Regarding the claim that the representatives satisfy the “administrative” exemption, the Department of Labor states that the representatives are not permitted to “exercise discretion and independent judgment with respect to matters of significance,” as required by the exemption.  The representatives are told who to call, given calling goals, and are required to use company scripts, manuals, brochures, and other materials.  If a physician asks a question not covered by the materials, the representative must either dodge the question by referring back to the provided materials or direct the physician to the company’s medical experts.

The import of the Second Circuit’s decision will be significant, as if the Department of Labor’s position is accepted the result should be a reclassification of a large number of pharmaceutical sales representatives across the industry.  It would also mean that the effected employees should promptly seek legal counsel to determine what unpaid overtime they might be entitled to receive.

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On July 24, 2009, the federal minimum wage increased from $6.55 per hour to $7.25 per hour.  The increase is the third and final increase provided by the Fair Minimum Wage Act of 2007.  Under the increase, all employees covered by the Fair Labor Standards Act must be paid a minimum of $7.25 per hour.  Where the employee is covered by both state and federal law, the employee is entitled to the higher minimum hourly rate.  For more information on wage and hour laws, click here.