USCA1 Opinion

UNITED STATES COURT OF APPEALS

FOR THE FIRST CIRCUIT
____________________

No. 97-1053

ROBERT B. REICH, ETC.,

Plaintiff - Appellant,

v.

JOHN ALDEN LIFE INSURANCE COMPANY,

Defendant - Appellee.

____________________

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Nathaniel M. Gorton, U.S. District Judge]

___________________

____________________

Before

Selya, Circuit Judge,

_____________

Campbell, Senior Circuit Judge,

____________________

and Lagueux,* District Judge.

______________

_____________________

Anne Payne Fugett, Attorney,

__________________

with whom J. Davitt McAteer,

__________________

Acting Solicitor of Labor, Steven J. Mandel, Associate Solicitor,

________________
and

William J. Stone, Counsel

_________________

for

Appellate Litigation,

U.S.

Department of Labor, were on brief for appellant.

William J. Kilberg, with whom Eugene Scalia and Gibson, Dunn

__________________

_____________

____________

& Crutcher LLP were on brief for appellee.

______________

____________________

September 18, 1997

____________________
____________________

Of the District of Rhode Island, sitting by designation.

LAGUEUX, District Judge.

LAGUEUX, District Judge.

In

this appeal, the Court is

______________

asked to decide whether certain

employees of the John Alden Life

Insurance Company ("John Alden") are exempt from the overtime pay

provisions of the Fair Labor

("FLSA" or the "Act").

concerns

whether

representatives

"marketing

the

or

201-219

The particular question before the Court

employees at

marketing

representatives"),

employee" exemption, 29

"any

Standards Act, 29 U.S.C.

U.S.C.

issue,

specialists

fall within

known

as marketing

(collectively,

the

the

"administrative

213(a)(1), which

provides that

employee employed in a bona fide executive, administrative,

or professional capacity" is excluded from the Act's overtime pay

and recordkeeping provisions.

The United States Secretary of Labor ("the

filed this

action against John Alden on

Secretary")

May 4, 1995, seeking to

enjoin

the

company

recordkeeping

from

requirements

representatives.

violating

the

FLSA's

with

respect

to

The parties submitted

overtime

the

and

marketing

the case to the district

court on stipulated facts and cross-motions for summary judgment,

under Rule

56 of

Memorandum and

the Federal Rules

Order dated October

that the marketing

Alden.

Procedure.

8, 1996, Judge

representatives qualified as

employees" under 29 U.S.C.

Secretary's motion

of Civil

213(a)(1), and

In a

Gorton found

"administrative

therefore denied the

and granted summary judgment in favor of John

See Reich v. John Alden Life Ins. Co., 940 F. Supp.

___ _____
________________________

421-24 (D. Mass. 1996).

418,

For the reasons that follow, we affirm.

-2-

I.
I.

FACTUAL BACKGROUND
FACTUAL BACKGROUND

As noted above, the parties submitted this case

district

court on stipulated facts,

detailed account of

See id.
___ ___

at 419-20.

and Judge Gorton provides a

the parties' stipulation in

Thus, for the

Court needs only to highlight

to the

his memorandum.

purposes of this

appeal the

those facts that are most relevant

to the issue presented for review.

John

several states,

Alden is a Florida-based company that operates in

including Massachusetts,

office in Westborough.

various

where it

The company designs,

maintains an

creates, and sells

types of insurance products; its customers are typically

businesses,

who purchase

group

coverage

on

behalf

of

their

practice in the industry, John

Alden

employees.

As is the common

does

not

sell

customers, but

its

products

through

direct

instead relies on licensed

provide its customer base.

agent will recommend

a variety of insurance

Alden

products

and

prospective end-purchaser.

those

of

its

with

independent insurance

agents ("agents") to

John

contacts

In general, an

products, including

competitors,

to

When a customer decides to purchase a

John Alden product, the agent acts as an intermediary between the

company

and the

end-purchaser

to

transaction.

-3-

achieve

completion

of

the

The primary

duty of

the employees at issue here1

agent sales force,

the marketing representatives

-- is to cultivate this independent

and, thereby, ultimately to increase sales of

John Alden products.

To this end,

the marketing representatives

maintain constant contact with agents.

do not

"share" agents

list or "deck" of

typical

deck

Marketing representatives

with one another;

instead, each

keeps a

agents with whom he or she is in contact.

consists

representatives

--

of

continually

500-600

cull

agents,

their decks

and

to

The

marketing

maintain

an

active agent base.

As

an agent's

primary

contact

marketing

representative is responsible

agents up

to date on all

For instance,

with

Alden,

for keeping his

aspects of John Alden's

the marketing

John

representatives

or her

product line.

keep their

agents

apprised

of any new

from John Alden,

the

pricing

of

products or product

and make their agents

the

company's

combinations available

aware of any changes

products.

The

in

marketing

representatives also discuss how John Alden's products might meet

the

particular

needs

customers, and advise

of

an

agent's

current

agents as to which John

market against competing products.

or

prospective

Alden products to

Often, they help their agents

develop proposals for bidding on new business by recommending the

appropriate

combination

of

prospective customer's needs.

John

Alden

products

To further educate

to

fit

their agents,

____________________

All of

the marketing representatives

at issue in

work in John Alden's Westborough, Massachusetts office.

this case

-4-

marketing representatives sometimes pass along articles about the

company and/or its competitors, or give small-group presentations

about John Alden's products.

In dealing

do not

use prepared

guidance about

training period

with agents, the

scripts.

suggested points

and at

marketing representatives

Further,

although they

of emphasis

weekly sales

during an

meetings, these

receive

initial

employees

must

decide for

themselves

which products

to

emphasize to

particular agent, and which of their agents to contact on a given

day.

Thus, to make these decisions the marketing representatives

must rely

on their own

knowledge of their

specific

needs of their

agents' customers.

agent decks

and the

Consequently, they

spend most of their time (approximately seven hours a day) on the

phone with agents.

with whom they

While most of these calls are made to agents

are already familiar --

product developments,

up on

to

discuss current customer needs,

outstanding sales proposals

calls" to agents in

to advise agents

-- they also make

of new

or follow

some "cold

the deck with whom they are unfamiliar, both

acquaint the agents

agent's customer base.

with John Alden and

to learn about each

When a customer

Alden

product,

ultimately decides to purchase

marketing representative

acts

as

a John

a conduit

between the agent and prospective purchaser, on the one hand, and

John Alden's underwriting

department, on the other.

the marketing representative

who meets with the customer

sends an application to

Generally,

the agent,

to complete the necessary paperwork;

-5-

the agent then returns the completed application to the marketing

representative,

department.

who

While

representative will

needed

in the

arrange

in

turn forwards

the application

is

approval

process, such

is lacking.

to

the underwriting

pending, the

sometimes gather the

medical tests for

information

it

additional information

as

medical records,

the purchasers' employees

Beyond

this,

marketing

or

where such

however, the

marketing

representatives play no further role in the purchase transaction.

Thus,

they do not set or negotiate prices or terms of insurance,

nor do they have any authority to approve or deny an application,

as this is done solely by the underwriting department.

Typically,

graduates

initial

with two

period of

marketing

to six

representatives

years of

training at

are

college

marketing experience.

John Alden is

An

supplemented with

both

formal and informal

senior marketing

They also attend

Manager,

where

they

about

sales

effective.

At

these

representatives also pass

from agents --

competitor's new

selling well

at the

weekly sales meetings with a District

learn

information

are

and more

representatives throughout their tenure

company.

received

instruction from supervisors

about

new

techniques

sales

products

they

and

have

meetings,

exchange

found

the

along any information they

for instance, information

to

be

marketing

might have

concerning a

products or prices, or about which new products

-- that

might be

designing new products.

-6-

helpful to

the company

in

The marketing

representatives work

five days a

week,

typically working ten-hour days with a one-hour lunch break.2

noted earlier, they

agents,

spend most of

with the remaining

time spent completing

paperwork related to these agent

year marketing

million

in

their time on the

contacts.

representative will

sales

annually

for

phone with

and reviewing

On average, a first-

generate approximately

the

As

company,

while

$1.5

more

experienced representative will be credited with approximately $3

million in sales each year.

marketing

The average annual compensation for

representative

representatives can

is

earn as much

$50,000,

and

as $75,000.

In

more

senior

addition to a

base salary of $34,000 to $37,000, these employees earn quarterly

incentive and

bonus pay based

performance of the

decks.

on the number, value,

policies issued by the agents

To further encourage

and profit

in their agent

sales, the company sets a quarterly

sales goal for each marketing representative; anyone who fails to

meet this benchmark receives further training and counseling, and

ultimately risks termination if this failure persists for two

or

more consecutive quarters.

II.
II.

PROCEDURAL BACKGROUND
PROCEDURAL BACKGROUND

On May

4, 1995,

the Secretary

commenced this

action

against John Alden pursuant to section 17 of the

217, seeking

FLSA, 29 U.S.C.

to enjoin the company from violating the overtime

and recordkeeping

provisions of

the Act, 29

U.S.C.

207 and

____________________

Although John Alden

worked

by

its

does not maintain

marketing

representatives,

records of the
the

parties

stipulated that they average more than 40 hours per week.

-7-

hours

have

211, respectively, and from withholding unpaid overtime wages due

to the

marketing representatives.3

asserted

as

marketing

representatives

regulations

an

of

affirmative

the

FLSA

defense,

were

as

exempt

for

inter alia,
___________

from

the

Alden

that

the

applicable

under

213(a)(1).

parties submitted the

decision on

answer, John

"administrative employees"

section 13 of the Act, 29 U.S.C.

The

In its

cross-motions for

case to the

summary

their stipulation of facts as described above.

district court

judgment, based

on

It was undisputed

that the marketing representatives routinely worked more than 40-

hour workweeks without overtime pay

and that the company did not

keep

by each

records of

the hours

worked

Therefore, the only issue before

during a

the district court was

workweek.

whether

the marketing representatives could be considered "administrative

employees"

October

under the

8,

1996,

representatives

regulatory

FLSA.

the

court

satisfied

requirements

In

the

for the

a Memorandum

and Order

concluded

that

the

Department

of

Labor's

administrative

dated

marketing

("DOL")

exemption, and

therefore entered judgment in favor of John Alden.

See Reich v.
___ _____

John Alden Life Ins. Co., 940 F. Supp. 418 (D. Mass. 1996).
________________________

In

applied

the

finding these

regulatory

exemption, as set forth in

employees to

"short

test"

29 C.F.R.

be

for

exempt, the

the

court

administrative

541.2(e)(2).

First, the

court addressed whether a marketing representative's primary duty

____________________

Specifically, the Secretary

seeks to recover unpaid overtime

wages owed to 29 marketing representatives, 16 of whom were still

employed at John Alden at the time of the suit.

-8-

consists

of "[t]he

directly

related

performance

to

tasks

by

or

or

541.2(a)(1).

"primary duty" requirement

found that

office

management policies

operations," as required

this

of

had been

nonmanual

general

business

In concluding

met, the

marketing representatives perform

work

that

court first

the administrative

of "promoting sales" and "representing the company" within

the

meaning

C.F.R.

of

the DOL's

541.205(b).

The court

contention that, because

for

the

company,

administrative

541.205(a).

interpretative

regulations,

thus rejected

the Secretary's

they are concerned with

marketing

"production"

representatives

work, the

see 29
___

securing sales

perform

distinction

See John Alden, 940 F. Supp. at 421-22.

___ __________

non-

drawn

in

Completing

its analysis of the "primary duty" requirement, the court went on

to

find

that

the

work

"substantial importance

business" within

that

to the

the meaning

"[t]he success

large part on

performed

of the

the success of

by

the

management or

of

541.205(a)

company in

employees

is

operation of

and (c),

New England

Id. at 422-23.
___

the

noting

depends in

the marketing representatives

promote sales of John Alden products."

of

who

The court then

test,

of the short

which provides that an exempt administrative employee must

engage in

work

that requires

independent judgment."

that this

the exercise

29 C.F.R.

requirement had

well, noting

and use

turned to the second part

been met

541.2(e)(2).

on the

that marketing representatives

their own judgment

of "discretion

The court found

facts before

it as

exercise discretion

in deciding which agents

-9-

and

to contact

and which products to

24.

been

Thus,

emphasize on a given day.

having found that both

satisfied,

representatives

the

court

qualified as

See id. at 423___ ___

prongs of the short

concluded

that

the

administrative employees

test had

marketing

and were

thus exempt from the FLSA's overtime requirements.

Following the entry of judgment in favor of John Alden,

the Secretary filed a timely notice of appeal to this Court.

The

case is now in order for decision.

III.
III.

STANDARDS OF REVIEW
STANDARDS OF REVIEW

Rule 56(c) of the Federal Rules of Civil Procedure sets

forth the standard for ruling on a motion for summary judgment:

The

judgment

forthwith

if

sought
the

shall

pleadings,

be

rendered

depositions,

answers to interrogatories, and admissions on

file, together with

the affidavits, if

any,

show that there is no genuine issue as to any

material fact and

that the

moving party

is

entitled to a judgment as a matter of law.

The trial court

must view all facts

and draw all inferences

the light most favorable to the nonmoving party.

Cas. Co. v. Canadian Universal Ins. Co.,

_________
___________________________

Cir.

the

1991).

court

When

must

each

motion

inferences against each movant in turn.

F.3d 716, 721

when

there is

(1st Cir. 1996).

no

dispute

questions of law remain.

Because

the

Summary

as to

any

See Continental
___ ___________

924 F.2d 370, 373 (1st

deciding cross-motions for

consider

in

summary judgment,

separately,

drawing

See Blackie v. Maine, 75

___ _______
_____

judgment is appropriate

material fact

and

only

Id.
___

summary

judgment standard

requires

the

trial court to

make a legal determination rather

than to engage

-10-

in factfinding, appellate review is

novo standard.
____

generally governed by the de

__

See National Amusements, Inc. v. Town of Dedham,

___ __________________________
______________

43 F.3d 731, 735 (1st Cir.), cert. denied, 515 U.S.

____________

1103 (1995).

However, the particular procedural vehicle by which this case was

decided by

norm.

judgment

on

the district court

As noted

earlier, the

parties cross-moved

from the

for summary

on stipulated facts, with their legal arguments focused

the significance

to be

accorded to

Thus, in effect, the parties

court as a case stated.

v.

requires some deviation

the agreed-upon

submitted this case to the district

Cf. Equal Opportunity Employment Comm'n

___ ___________________________________

Steamship Clerks Union, Local 1066, 48

____________________________________

Cir.), cert. denied,

____________

116 S. Ct.

F.3d 594,

65 (1995).

in

nonjury

factual

inferences . . . that one might draw

more

basic

parties have drawn

.

. the

usual

to

which

the

the

the court's attention," .

district court
constraints

facts

concerns

basic

between

the

parties

"the

dispute

from

the

case,

is
that

603 (1st

As this Court

stated in a similar case:

[W]here,

facts.

freed from

the

attend

the

has

adjudication

of

summary

judgment

motions.

Federaci n de Empleados Tribunal Gen. de

_____________________________________________
Justicia v.
________
Cir.

Torres,
_______

747 F.2d

1984) (Breyer, J.).

engage in

a certain

factfinding,
inferences.
appeals

the

differential
sifting

of

By the same token, the court of

may

assume

that

"the

considered the matter to have been

below as

a case

merits."

Id.
___

appellate

(1st

The court may then

amount of

including

35, 36

ready for

parties
submitted

decision on

the

Consequently, the standard for

oversight

shifts

from

de novo
________

review to clear-error review.

Id. at 603.
___

Here,

as in Steamship Clerks, in reaching its decision

________________

the lower court was required first to engage in some differential

-11-

factfinding -- i.e.,

the drawing of factual

stipulated facts -- and then

upon these

facts.

Thus,

legal determinations.

inferences from the

to make a legal determination based

this appeal involves both

This Court will apply the more deferential

clear-error standard when reviewing the factual

by

the

court

application

below,

of the

factual and

law

id.,
___

to

while the

lower

the facts,

both

inferred, remains subject to de novo review.

_______

inferences drawn

court's

ultimate

those stated

Id.
___

and

In parsing out the questions of fact from the

legal

conclusion, we

are guided

Newspapers of New England, Inc.,

________________________________

where

the Court considered

by

our decision

44 F.3d 1060 (1st

whether certain

ultimate

in Reich
_____

v.

Cir. 1995),

newspaper employees

fell within the professional exemption to the FLSA's overtime pay

provisions, 29 U.S.C.

213(a)(1).

Adopting the approach used by

the Fifth Circuit in Dalheim v. KDFW-TV, 918 F.2d 1220, 1226 (5th
_______
_______

Cir.

1990), this Court recognized that "there are three distinct

types of findings involved in

exempt."

determining whether an employee is

Newspapers of New England, 44 F.3d at 1073.

_________________________

court must

make

findings concerning

the so-called

facts" of the case, such as determining an

duties.

Id.

First, the

"historical

employee's day-to-day

Second, the court must draw factual inferences from

__

these historical facts,

for instance, to conclude

day-to-day duties require "invention,

required

by

applicable regulations.

court must reach

whether these

imagination, or talent" as

Id.
__

Finally,

the ultimate conclusion of whether

the trial

an employee

is exempt, based on both historical facts and factual inferences.

-12-

Id.
__

Having separated

out the

lower court's

this manner, we

concluded that the first two

as

factual

essentially

determinations,

clearly erroneous standard of review.

determinations in

types of findings,

were

Id.
__

subject

As for the

to

the

district

court's ultimate finding, we noted that "[a]lthough this is based

on

both

historical

facts

and

factual

inferences,

it

conclusion of law, over which we exercise plenary review."

The Court

will apply this

the decision at issue here.

findings to review,

the district

Id.
__

review of

Of course, there are no "first tier"

as the historical facts were

the parties' stipulation.

drawn by

framework in its

is

Accordingly,

court from the

agreed upon in

the factual

inferences

stipulated facts

reviewed for clear error, while the lower

will be

court's ultimate legal

determination engenders plenary review.

Finally, while

recognizing that

employee is

exempt is clearly

whether an

court's

duty

1073.

the determination

tied to

of

the district

inferential factfinding,4 we remain acutely aware of our

to engage in a

thorough review of the

record.

See id. at
___ ___

Moreover, we must review the decision below to ensure that

the court's factfinding was guided by the proper legal standards,

as "to the extent that findings of fact can be shown to have been

predicated

upon, or

induced by,

errors

of law,

they will

be

____________________

As

the Fifth Circuit has

cases, the district court's

it draws,

if carefully

noted, "[i]n the great

findings of fact and

set forth and

majority of

the inferences

supported by

the record,

will all but compel the legal conclusion that a given employee is
or is

not exempt.

conclusions

Absent some

fundamental legal

error, those

will usually stand undisturbed on appeal."

Dalheim,
_______

918 F.2d at 1226-27.

-13-

accorded

diminished respect

on appeal."

Dedham Water Co.

_________________

v.

Cumberland Farms Dairy, Inc., 972 F.2d 453, 457 (1st Cir. 1992).
____________________________

IV.
IV.

DISCUSSION
DISCUSSION

The FLSA establishes, as a general rule, that employees

must be compensated

at a

rate not

less than

one and

one-half

times

their regular rate

207(a)(1).

excess

The Act

of 40

for all overtime

hours.

further defines overtime

hours in a

single workweek.

overtime provision does not apply

29

U.S.C.

as employment

Id.
__

in

However, this

to "any employee employed in a

bona fide executive, administrative, or professional capacity . .

. (as such terms are defined

regulations

course,

of the

and delimited from time to time

Secretary)."

the remedial nature

29

of the

U.S.C.

statute requires

exemptions be "narrowly

construed against the

to

their

assert

them

and

establishments plainly

213(a)(1).

application

and unmistakably

by

Of

that FLSA

employers seeking

limited

within their

to

those

terms and

spirit."

Arnold v. Ben Kanowsky, Inc., 361 U.S. 388, 392 (1960).

______
__________________

Further,

it

is the

employer in

an

FLSA case

that

bears the

ultimate

burden of establishing

the exemption.

are not

articulated

regulations,

legislative

found to

fall within

See Newspapers of New England, 44 F.3d at 1070.

___ _________________________

The specific

exemption

that its employees

parameters of

set forth

in the DOL's

in

the FLSA's

the statute,

administrative

but are

instead

regulations and interpretations.

promulgated pursuant

to an

express delegation

The

of

authority, are to be given controlling weight unless

be arbitrary, capricious,

-14-

or contrary to

the statute.

See Chevron U.S.A. Inc. v. Natural Resources Defense Council, 467

___ ___________________
_________________________________

U.S. 837,

843-44 (1984).

On the

regulations

are not

Secretary's

official position on

conclusive, as

applied in specific contexts.

F.3d at 1070.

persuade, if

body

other hand,

the interpretive

they merely

set

forth the

how the regulations

should be

See Newspapers of New England, 44

___ _________________________

Even so, these interpretations have the "power

lacking power

of experience

to control," as

and informed

judgment to

litigants may properly resort for guidance."

Co., 323 U.S. 134, 140 (1944).

___

they "constitute

which courts

to

and

Skidmore v. Swift &

________
_______

The requirements

set

forth

in

the

of the

regulations at

regulation outlines both a short

whether an employee

administrative exemption

29

C.F.R.

541.2.

are

That

and a long test for determining

qualifies for the

administrative exemption;

the short test is used for employees whose salaries are more than

$250 per week.

29 C.F.R.

541.2(e)(2).

Since the

parties have

stipulated that the marketing representatives earn more than $250

per week, there

is no

dispute that the

short test governs

the

Under the short test, John Alden must demonstrate:

(1)

instant case.

that the primary duty of the marketing representative consists of

"[t]he performance of

to

management policies

employer

office or nonmanual work

or general

business

directly related

operations of

or his employer's customers," 29 C.F.R.

his

541.2(a)(1),5

____________________

To be more

forth at
of the

precise, the

first prong of

541.2(e)(2) requires that the

performance of

work described in

the short

test set

"primary duty consists

paragraph (a)

of this

-15-

and

(2) that

exercise of

541.2(e)(2).

such

primary duty

discretion and

"includes

work requiring

independent judgment,"

The district court

the

29 C.F.R.

found, and we agree,

that the

marketing representatives meet both parts of this test.

A.
A.

Work Directly Related to Management or Operations

Work Directly Related to Management or Operations

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).

stipulation, the "primary duty" of the

In the

parties'

marketing representatives

is described as follows:

to contact and deal with licensed independent

insurance
activities,
Alden

agents
to

insurance

("agents"),

and

increase purchases
products

related
of

John

by end-purchasers

who are in contact with the agents.

As there is

no dispute that this statement

describes "office or

nonmanual work,"

primary duty

the only question that remains

is "directly

related" to

is whether this

John Alden's

management

policies or general business operations.

The

administrative

through

interpretative

regulations

exemption are set

541.215.

forth at

concerning

29 C.F.R.

Of particular relevance is section

which specifically addresses the

the

541.201

541.205,

"directly related to management

____________________

section."

For

the sake

of

simplicity, the

Court has

directly from paragraph (a) in setting out the short test.

-16-

quoted

policies

or

consideration.

The

general

phrase "directly
or general

employer

or his

describes those types

to

the

in

language

under

a retail
In

or

employer's

to

of

customers"

of activities relating
operations

of

"production"

service establishment,

addition to describing the

of activities,

exemption

management

business operations

distinguished from

"sales" work.
types

related to

administrative

business as
or,

operations"

Subsection 541.205(a) provides as follows:

policies
his

business

persons

substantial importance

the phrase
who

limits the

perform work

to the

operation of the business of his

of

management or
employer or

his employer's customers.

Thus,

541.205(a) of the interpretations further subdivides the

first

prong of

employee

must

the

be

short test

engaged

into

in

two

subparts:

"administrative"

(1)

the

rather

than

"production" activity; and (2) this administrative activity

must

be of "substantial importance" to management or operations.

The district court found

had

been satisfied,

and thus

that both parts of

concluded

marketing representatives was "directly

business operations.

that the

this test

work of

related" to John Alden's

See John Alden, 940 F. Supp. at 421-23.

___ __________

the Fifth Circuit has noted,

inference drawn from the historical facts."

Thus,

As

"[w]hether an employee's work is or

should be deemed 'directly related' to business operations

1230.

the

we review this finding

is an

Dalheim, 918 F.2d at

_______

for clear error.

also Newspapers of New England, 44 F.3d at 1073.

Id.; see
___ ___

____ _________________________

1.
1.

The Administrative-Production Dichotomy

The Administrative-Production Dichotomy

Subsection 541.205(b) of the interpretations offers the

following definition of "administrative" work:

-17-

The administrative operations of the business

include the work performed by so-called white
collar
business

employees
as,

for

engaged in
example,

"servicing"
advising

a
the

management,

planning,

representing
promoting

the

negotiating,

company,

sales, and

purchasing,

business research

and

control.

However, applying the

as

simple as

drawing

collar workers.

be considered

their job

administrative-production dichotomy is not

the line

between white-collar

and blue-

On the contrary, non-manufacturing employees can

"production"

is to generate

employees in

those instances

(i.e., "produce") the very

service that the employer's business

where

product or

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

(1994) (police

investigators conduct

"produce" criminal investigations); Dalheim,

_______

(television

station's

producers,

or

918 F.2d at 1230-31

directors,

and

assignment

editors "produced" newscasts, and were thus non-exempt).

Applying this distinction, the district court held that

the

marketing

rather than

joins.

the

representatives

were engaged

in

administrative

production activities, a finding in which this Court

As stated

business

of

in the stipulation of facts, John

designing,

insurance

properly

recognized, that the "products" generated by John Alden

representatives

generation

are

policies

in

of insurance

no

as

selling

to the

these insurance

It follows,

and

policies

are

public.

creating,

Alden is in

the district

themselves.

way

involved

policies, the

-18-

very

As

in

the

the

court

marketing

design

product "that

or

the

enterprise exists

to produce and

market," Dalheim, 918

_______

F.2d at

1230, they cannot be considered production employees.

In its arguments both to the lower court and on appeal,

the Secretary

has

urged that

the Third

Martin v. Cooper Electric Supply Co.,

________
____________________________

1991), cert. denied, 503 U.S. 936

____________

that

the employees

at

issue

Circuit's decision

940 F.2d

896 (3d

in

Cir.

(1992), compels the conclusion

here

are

production

employees.

However, both

the district

court and

John Alden

have properly

distinguished Cooper Electric from the instant case.

_______________

at

issue

in Cooper Electric
________________

manufacture any

products of its

made by other firms.

that the

was

sales of electrical products.

wholesaler that

own, but instead

Id. at 903.
__

wholesaler's primary

Thus,

did

not

sold products

the parties stipulated

business purpose

Id.
__

The company

was to

Since the employees

produce

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.

facts

of Cooper Electric
_______________

Id.
__

at 903-04.

Of course, the

are clearly distinguishable

from this

case, as

John Alden does

indeed generate

a product,

insurance

policies, not merely sales of a product.

In

an attempt to

points out that the

the Secretary

stipulation of facts describes John

business purpose as the

policies.

answer this argument,

design, creation, and sale

________

Thus, the Secretary

Alden's

of insurance

contends that, in addition to the

production of insurance policies, John Alden also produces sales,

-19-

and that any

be

deemed

employee engaged in the generation

non-exempt

of

Cooper Electric.6
________________

However, Cooper Electric itself

________________

provides an

effective counter.

In

component

discussing

the

interpretations,

that

activity

ancillary
_________

original).

the

"servicing"

see 29 C.F.R.
___

explained

activity."

under

"servicing

to

an

Cooper Electric,
________________

In the instant

representatives are

logic

of sales should

of

the

541.205(b), the

business"

employer's

940 F.2d

Secretary's

Third Circuit

entailed

"employment

principal

production

at

904

(emphasis

in

case, the activities of the marketing

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).

As

of

the district court noted, the day-to-day activities

marketing

"representing

products,

representatives

the company" and

are

more

in

the

"promoting sales" of

nature

of

John Alden

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

____________________

In

the context of a retail or

541.205(a)

expressly

provides

service establishment, section

that

"sales"

work

is

not

administrative.
companies are
meaning of

However, as the
not retail

the FLSA,

Secretary recognizes, insurance

or service

see 29
___

C.F.R.

establishments within
779.316,

and thus

the

this

provision is inapplicable to the present case.

-20-

Alden's products

to market

against competing

products, and

helping them put together proposals for bidding on

marketing representatives

engaged in "something

are, again

to quote

more than routine selling

by

new business,

Cooper Electric,
_______________

efforts focused

simply on particular

sales transactions."

their agent contacts

are "aimed at promoting

905.

Rather,

(i.e., increasing,

developing,

facilitating,

generally,"
_________

id. (emphasis in original), activity which is deemed

___

administrative

Therefore, there

sales

and/or

Id. at
___

maintaining)

promotion work

was no

error in

under

customer

sales

section 541.205(b).

the district

court's finding

that John Alden's marketing representatives are engaged primarily

in administrative rather than production work.

-21-

2.
2.

Substantial Importance to Management or Operations

Substantial Importance to Management or Operations

In

work

addition to

dichotomy,

29

related" language

drawing the

C.F.R.

541.205(a)

to "persons

who perform

importance to the management or

formulate

management

operations

easily

See
___

interpretations make

policies

satisfy

29

C.F.R.

it clear

limits

the "directly

work of

substantial

operation of the business of his

employer or his employer's customers."

requirement.

administrative-production

or

this

Of course, employees who

oversee

general

"substantial

business

importance"

541.205(c).

However,

that the exemption

is not

the

to be

limited solely to so-called "management" personnel:

As

used

to

describe

work

of

substantial

importance to the management or operation

of

the business, the phrase "directly related to

management

policies

or

operations"

is not

limited

participate in the
policies or
as

Employees

to general business

who

work

whose

work

is

management policies or
operations include those

affects

responsibility it is

of

to persons

formulation of management

"directly related" to

out.

business

in the operation of the business

whole.

[whose]

general

policy

or

to execute or

whose
carry it

The phrase also includes a wide variety

persons

who

assignments in

either

conducting the

the business, or whose

operations

to

carry

out

major

operations of

work affects business

substantial

degree,

even

though their assignments are tasks related to

the

operation of a particular segment of the

business.

29 C.F.R.

541.205(c).

generally meet

Examples of employees or positions that

the "substantial importance"

requirement include

credit

managers, claim agents and adjusters, wage-rate analysts,

securities

brokers,

541.205(c)(5).

and

promotion

However,

men.

the particular

See
___

title

29

C.F.R.

given

to an

-22-

employee is

must

not determinative,

instead be

responsibilities

predicated on

meet

all

as an

whether

of

the

employee's exempt

his or

status

her duties

applicable

and

regulatory

requirements.

See 29 C.F.R.
___

In applying

first

541.201(b).

these interpretations, the

district court

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

degree"

--

"affects

one of

"substantial

district court

test.

Id.
__

the

business

operations

categories

importance" under

of

29 C.F.R.

concluded that their

work

to

substantial

deemed to

be

541.205(c) --

work met this prong

of

the

of the

On appeal, the Secretary contends that, in applying the

interpretations, the district

court misconstrued the concept

"substantial importance" so as to

issue.

In

short, the

so

that

if

financial

an

require plenary review of this

Secretary submits

improperly equated economic

that the

lower court

impact with substantial

importance,

employee's work

well-being, that fact

contributes

the

concept of

to

an employer's

alone is sufficient

the substantial importance requirement.

misconstrue

of

If

the court did indeed

"substantial importance,"

-23-

to satisfy

then its

factual inferences

were drawn with

the wrong legal

standard in

mind, and it would have erred as a matter of law.

We

"[t]he

recognize that more than

financial effect of

work of 'substantial

of an

Circuit in

1986), in

Clark
_____

employee activity cannot

importance to the management

employer's business."

see also Dalheim, 918

_________ _______

one circuit has held that

alone show

or operation'

Cooper Electric, 940 F.2d

_______________

F.2d at 1231.7

v. J.M. Benson Co.,

________________

assessing substantial

As stated

789 F.2d

importance it

at 906;

by the Fourth

282 (4th

is necessary

Cir.

to

look at "the

Id. at
__

nature of the work, not

______

287 (emphasis in

its ultimate consequence."

original).

Further, the

interpretive

regulations clearly dismiss the view that this requirement can be

met simply

by showing a

link between poor performance

profits:

messenger

boy

carrying large

who

is

sums of

entrusted

money or

with

securities

cannot be said to be doing work of importance

to

the

business

consequences may

even

though

serious

flow from his neglect.

employee operating

very expensive

An

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

it can

be said

management
operations"
541.2.

to be

policies
as

that

that

"directly related
or

general

phrase

to

business

is used

in

and lost

____________________

In Dalheim, the
_______

employer argued for substantial importance by

stressing that "if a producer performs poorly, KDFW's bottom line

might suffer."

Dalheim, 918 F.2d at 1231.

_______

"[a]s

of law,

direct

a matter

relationship

that is

required

by

insufficient to
541.2

'substantial importance' contemplated by

-24-

See 29 C.F.R.

541.205(c)(2).

The Court held that

by

establish the
virtue

541.205(c)."

of
Id.
__

the

___

Although the district court did not expressly set forth

the test in the above manner, our review of the

district court's

reasoning

were taken

into

Contrary to

the

convinces us

account in

that these

assessing substantial

Secretary's

assertion,

"substantial

importance" with

noting the economic

the

court then

undertaken

the

importance.

court

did

not

marketing

simply

financial impact.

significance of their sales

proceeded to

by the

principles

consider

Rather, after

promotion work,

the nature
______

representatives,

of the

which the

recognized required them to:

a)

understand

the

nature

of the

evolving

insurance market, b) grasp the subtleties

that market,

c) familiarize

of

themselves with

their agents, their competitors and the needs

of existing

and prospective

equate

end-purchasers,

work

court

and

d) respond

promoting a
contemplates

quickly

in identifying

and

John Alden product when an agent

a

particular

competitive

product.

John Alden,
___________

of this,

we are

satisfied that the district court did not misconstrue the

nature

of the

940 F.

Supp. at

423.

"substantial importance"

In light

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

____________________

While recognizing

regulations emphasize
consequence,"

the Fourth Circuit's statement

the nature of
______

J.M. Benson,
____________

original), we would find it

789

the work, not

F.2d

at

287

that "[t]he

its ultimate
(emphasis

in

difficult to conclude that a certain

kind of work was "substantially important" to business operations

without also considering the consequences of that work.

-25-

within the proper legal framework, we will review its inferential

factfinding on this issue for clear error.

Our review of

lower

primary

the record finds

court's conclusion.

contact

representatives are

with

ample support for

First and foremost,

the

independent

the insurance market's

the

as John Alden's

agents,

marketing

principle source for

information about John Alden and

course

of

their

information

daily

activities,

about their agents,

insurance market as a whole

in

consumer

needs,

or

competitors' offerings.

Alden, and to

that an agent's

these

Moreover, in the

employees

gather

the agents' customers,

and the

-- such as information about changes

regarding

the

success

of

The marketing representatives

use all of this information

in John

its products.

certain

must then

both to pique their agents' interest

suggest products or

customers might find

product combinations

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.

It is certainly

reasonable to draw the

inference that

this type

would

degree.

of work, both

affect John Alden's

Indeed, it

disseminating

by its

nature and in

business operations to

would appear

information

its consequence,

to

the

that work of

marketplace,

a substantial

this nature

--

understanding

customers and competitors, and gathering available information to

be

used in

putting

together proposals

-26-

and

packages that

are

appropriate

for

those

operations, and

As such,

customers

at the heart

we find no error in

--

is

directly

of John Alden's

related

to

business success.

the district court's conclusion on

this issue.

Lastly, the Secretary attaches some significance to the

fact

that

John

Alden

representatives in

economic

satisfy

Electric,
________

impact

the

940

employs

this region,

of a

group

substantial

F.2d

at

number

stressing

of

of

marketing

that the

collective

employees is

insufficient

importance requirement.

906.

However,

the

See
___

The fact

that there

employees of
assignments of

are a

number of

the same employer

the same

Cooper
______

Secretary's

interpretative regulations provide a sufficient rejoinder:

other

carrying out

relative importance

to

own

or performing identical work

the determination
test

so

long

as

does not affect

of whether they
the

work

employee is of substantial

of

meet this
each

such

importance to the

management or operation of the business.

29 C.F.R.

work

541.205(c)(6).

of each

In the instant case, we find that the

marketing representative,

standing

substantial effect on John Alden's business.9

parties'

stipulation,

the

sixteen

marketing

alone, has

As set out in the

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

individually responsible for a deck

representative is

of 500-600 agents, with each

____________________

It is unclear from the district court's discussion

considered

the

consequences of

work individually or

as a whole.

the

whether it

marketing representatives'

Thus, we consider

this issue

based upon our own review of the record.

-27-

deck generating, on

sales annually.

In light of

in finding that each

out

average, from $1.5 million to

"affects

degree" through his

all this, we have little difficulty

individual marketing representative carries

a "major assignment[]

business," and

$3 million in

in conducting

the operations

business operations

or her own sales promotion

to

of the

substantial

activities.

See
___

29 C.F.R.

541.205(c).

The district

court was

not clearly

that the marketing representatives

work

of

substantial

operations.

engaged

policies or general

John

that

Alden's

business

these

employees are

"directly related

to management

business operations," as required

first prong of the short test,

turn to the court's

to

we agree

in administrative work

finding

are engaged in administrative

importance

Accordingly,

wrong in

29 C.F.R.

under the

541.2(a)(1).

analysis of the "discretion

We

now

and independent

judgment" part of the test.

B.
B.

Work Requiring Discretion and Independent Judgment

Work Requiring Discretion and Independent Judgment

To

Alden must

satisfy the

demonstrate

second prong of

that its

the short

test, John

marketing representatives

are

engaged

in work

that

requires the

independent judgment.

29 C.F.R.

exercise of

541.2(e)(2).

discretion and

The Secretary's

interpretations elaborate on this requirement as follows:

In general,

the exercise

of discretion

independent judgment involves

and

the

evaluation of

and

the comparison

possible

courses of

conduct and acting or making a decision after

the

various

considered.

possibilities
The

term .

implies that the person has the

power

to make

an

have
.

, moreover,
authority or

independent choice,

-28-

been

free

from immediate

direction or

supervision and

with respect to matters of significance.

29

C.F.R.

541.207(a).

"the discretion and

The interpretations further advise that

independent judgment exercised must

and substantial, that is, they

matters of

the

over

consequence."

29

be real

must be exercised with respect to

C.F.R.

541.207(d)(1).

However,

exempt employee need not have final decisionmaking authority

such matters; "[e]ven though

to approval,

an employee's work is subject

even to the extent that

by higher level

a decision may be reversed

management, it does not follow that the work did

not require the exercise of discretion and independent judgment."

Dymond v. United States Postal Serv., 670 F.2d

______
___________________________

1982); see also 29 C.F.R.

541.207(e).

93, 96 (8th Cir.

________

The

marketing

representatives

judgment in

these

district court

carrying out

employees

contact

on

discuss

have

any

with

representatives

business

rely

we

agree,

their duties.

day, and

and

It is

choosing

concerning

independent

which

which

In

addition,

the

on

own

knowledge

of

be able to anticipate

agents to

products to

marketing

an

agent's

the competing products

the agent's customers might be considering, and distinguish

John Alden's offerings from those of competitors.

clear

the

undisputed that

agent.

their

that

to help tailor proposals for the agent's end-customers.

Further, they must

that

and

exercise discretion

discretion in

given

each

found,

support in the record for

that John Alden's

Thus, there is

the district court's conclusion

marketing representatives exercise

discretion

-29-

and independent judgment in the

course of their day-to-day agent

contacts.

While recognizing that the marketing representatives do

exercise

Secretary

some

discretion

argues

that

in their

dealings

this discretion

is

with

not

agents, the

exercised with

respect to "matters

interpretive

of consequence"

regulations.

employees exercise their

However,

meaning of

the

the matters on

which these

discretion and judgment --

which agent

would be in the best position to

products would

within the

be most attractive

sell a given product, and which

to a given customer

-- would

certainly appear to be "of consequence" to John Alden's business.

Indeed, this work would seem to be of equal or greater importance

than some of the work the Secretary's interpretations identify as

exempt, such as

the duties of an administrative

assistant to an

executive,10 or those of a customer's man in a brokerage house.11

See
___

29 C.F.R.

541.207(d)(2).

Thus,

we will

not upset

the

district court's decision on this ground.12

____________________

10

"The regulations . . . contemplate the kind of discretion and

independent judgment exercised by an administrative

an

executive, who

without

specific

assistant to

instruction or

prescribed

procedures, arranges interviews and meetings, and handles callers

and

meetings himself where the executive's personal attention is

not required."

11

The test

29 C.F.R.

includes "the kind

judgment exercised
deciding

As

what recommendations

the district

representatives
nonexempt

of discretion

by a customer's

purchase of securities."

12

541.207(d)(2).

man in a brokerage
make to

house in

customer for

the

Id.
___

court

does not at

work where

to

and independent

noted, the

work of

all resemble the

discretion

is

exercised

the

marketing

given examples of
on

matters

of

relatively little consequence: i.e., a truck driver's decision on

which route to follow; a

shipping clerk's decision on the method

-30-

The

Secretary

committed error by

techniques,

judgment.

meetings.

The

Secretary

in

required

the

agents

learned in

that

and

simply

points out

to make with

agents.

court

C.F.R.

independent

the

marketing

persuading

them to

applying the

sales

and weekly

sales

that

both formal and informal

products and product features to

29

and

training sessions

also

lower

skill in applying

discretion

products, are

The Secretary

general points

that

standards,"

submits

informing

representatives receive

which

specific

the

John Alden

techniques they

or

for

representatives,

contends

mistaking the mere "use of

procedures,

541.207(b),

recommend

also

the marketing

guidance about

emphasize, and about the

Thus, the

Secretary avers

that rather than exercising discretion and independent

judgment,

these employees are simply making decisions within a given set of

parameters,

exemption.

the type

of work

See 29 C.F.R.
___

that

would not

qualify for

the

541.207(c).13

However, as the district court found, the record simply

does not

support the Secretary's assertion.

not

prepared

use

scripts

or read

from

These employees do

required

verbatim

____________________

of packing and
whether to post

mode of shipment; and a

to one ledger or

bookkeeper's decision on

another first.

See
___

29 C.F.R.

541.207(d)(1).

13

The interpretive regulations offer the following examples of

work in

which skill in

mistaken for discretion:

whether

applying standards or techniques

inspectors who

can be

develop facts to assess

prescribed standards have been met; lumber "graders" who

inspect

each "stick"

grading category;
reject

place

personnel clerks

those that do

See 29 C.F.R.
___

and then

each into

a well-defined

who screen applications

not meet prescribed

and

minimum requirements.

541.207(c)(1)-(6).

-31-

statement,

nor

do

they

prescribed

technique or

operate

"sales

within

pitch".

the

On the

contours

or customer

base

of

that agent,

or

contrary, the

content of a given conversation with an agent is dictated

needs

of

by the

by the

particular

information

phone

sought by the

call.

Further,

representatives

to

the

in

make with agents, they

applying

this instruction

determining which agent may have

in fashioning

customers.14

bid proposals that

that

the

marketing

nonetheless exercise

--

for

instance, in

an interest in that product, or

meet the needs of

the agent's

See Atlanta Prof'l Firefighters Union, Local 134 v.

___ ____________________________________________

City of Atlanta, 920 F.2d

________________

who retained

extent

during that

receive guidance about products to emphasize and

suggested points to

discretion

marketing representative

"discretion in

800, 805 (11th Cir.

implementing

1991) (employees

[the] directions"

another meet discretion and independent judgment test).

of

all this, we

concur that the

not merely 'skilled'

of

In light

marketing representatives "are

workers who operate within a

strict set of

rules.

Rather, they

daily contacts with

exercise significant

discretion in

various insurance agents."

their

John Alden, 940

__________

F. Supp. at 423.

The district court did not commit error in finding that

the

primary duty of the marketing representatives "includes work

____________________

14

By way of comparison, the

in

a brokerage

product

Court notes that a "customer's man

house" likely

receives

features and points of emphasis.

regulations, 29 C.F.R.

similar training

Under the interpretive

541.207(d)(2), this employee

the requisite discretion when he

about

exercises

or she applies this guidance to

make a recommendation to a customer for a securities purchase.

-32-

requiring the

within the

conclude

exercise of

meaning of

discretion and independent

29 C.F.R.

that the second

541.2(e)(2).

prong of the

judgment"

Therefore, we

administrative exemption

has been met in this case.

V.
V.

CONCLUSION
CONCLUSION

For all of

these reasons, we

agree with the

district

court's determination that John Alden's marketing representatives

are exempt administrative employees.

below is affirmed.
affirmed
________

Accordingly, the

judgment

-33-