Of the three white collar exemptions, the administrative exemption is the vaguest and the hardest for an employer to prove.  In an important case, the First Circuit has weighed in on when that exemption applies and held that some employees did, and others did not, qualify for the exemption.  That split in the case highlights the nuances that are inherent in this standard.  The case is entitled Marcus v. American Contract Bridge League and issued from the First Circuit Court of Appeals.

To claim the exemption, the employer must show that the worker earned the required salary of $684 weekly, usually not an issue in these cases.  The employer must then prove that the employee’s 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 customers and, most importantly, that the employee exercises discretion and independent judgment with respect to matters of significance.

The American Contract Bridge League (ACBL) conducts bridge tournaments, up to national championship matches.  The employees at issue were in the following classifications: (1) Tournament Director, (2) National Tournament Director, (3) Associate National Tournament Director, (4) Field Supervisor, (5) Area Manager, and (6) Mentor.  The employer believed all positions were exempt, but the workers sued for overtime, claiming they were misclassified.  The lower court found all positions exempt, except for the tournament director job, which it held was involved in providing the service (i.e., in the stream of production) and thus was not exempt.

The district court concluded that all but the Tournament Director position qualified for the exemption.  The court held that the Tournament Director position was in the stream of production and was more involved with producing the “services;” i.e., the bridge tournaments themselves.  The other positions, whose duties included managing the tournaments, training directors, drafting manuals, and resolving disputes, did involve non-manual work directly related to the general business operations and required discretion and independent judgment in the exercise of those duties.

The First Circuit agreed that Tournament Directors were non-exempt, because they were producing the “product.”  The appellate court also agreed that the field supervisors, area managers, and mentors were also exempt because those employees not only supervised the other workers, but they also established the standards for these employees.  Thus, these duties were directly related to the management of the business, and they exercised discretion and independent judgment because they made higher level customer service decisions, as well as exercising supervision.

The appellate court, however, overturned the rulings on the National Tournament Directors and Associate National Tournament Directors.  The Court held that these positions, although they encompassed some FLSA administrative tasks, e.g., training, were involved with, as their primary duty, “producing” the service, i.e., the bridge tournaments.  Thus, as these jobs were within the stream of production and unrelated to the general, overall management of the business, they did not qualify for the exemption.

The Takeaway

The distinction between tasks involving general business operations (exempt) and the Company’s production of its services/products (non-exempt) remains vague and always will. One way to frame the distinction is to think of back-office functions (e.g., HR Director) versus front-line positions. Another way is to consider those positions that are “cost centers” as opposed to those that are revenue producing.  Even if you clear this hurdle, the employer still must decide whether the employee exercises discretion and independent judgment or is “merely” using skill and experience. 

No easy task…