Davis v. J.P. Morgan Chase & Co.
587 F.3d 529, 2009 U.S. App. LEXIS 25481, 15 Wage & Hour Cas.2d (BNA) 932 (2009)
Rule of Law:
An employee whose primary duty involves directly producing the core service or good that a business offers to the marketplace is considered a 'production' employee, not an 'administrative' employee, and therefore does not qualify for the administrative exemption from the Fair Labor Standards Act's overtime requirements under the 'directly related to management policies or general business operations' prong.
Facts:
- Andrew Whalen was employed by J.P. Morgan Chase ("Chase") as an underwriter for four years.
- As an underwriter, Whalen evaluated whether to issue loans to individual loan applicants.
- Whalen performed his evaluations by referring to a detailed set of guidelines, known as the Credit Guide, provided by Chase.
- The Credit Guide specified how underwriters should determine loan applicant characteristics (e.g., qualifying income and credit history) and criteria for loan product eligibility.
- Whalen was expected to approve loans that met the Credit Guide's standards, and some underwriters had the ability to make exceptions to these standards.
- Whalen claimed that he frequently worked over forty hours per week.
- During Whalen's employment, Chase treated underwriters as exempt from the FLSA's overtime requirements.
Procedural Posture:
- Andrew Whalen filed a complaint against J.P. Morgan Chase in the district court, seeking a declaratory judgment that Chase violated the FLSA by treating him as an exempt employee and failing to pay him overtime compensation.
- Both Whalen and Chase filed motions for summary judgment.
- The district court denied Whalen's motion for summary judgment and granted Chase's motion, dismissing Whalen's complaint.
- Whalen appealed the district court's decision to the United States Court of Appeals for the Second Circuit.
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Issue:
Is an underwriter, tasked with approving loans in accordance with detailed guidelines provided by their employer, considered an administrative employee exempt from the overtime requirements of the Fair Labor Standards Act?
Opinions:
Majority - Gerard E. Lynch, Circuit Judge
No, an underwriter tasked with approving loans based on detailed guidelines provided by their employer is not considered an administrative employee exempt from the overtime requirements of the Fair Labor Standards Act, because their work constitutes 'production' work rather than work 'directly related to management policies or general business operations.' The FLSA exempts employees in a 'bona fide executive, administrative, or professional capacity.' For the administrative exemption, a worker must perform work 'directly related to management policies or general business operations' and 'customarily and regularly exercises discretion and independent judgment.' The court applied the 'administrative/production dichotomy,' distinguishing between activities that relate to the administrative operations of a business (e.g., human resources, accounting, advertising) and work that constitutes 'production' or 'sales' of the business's primary goods or services. The court found that Whalen's primary duty was to 'produce' loans, which is the fundamental service provided and 'sold' by Chase. This type of work, even if skilled and important, falls on the 'production' side of the dichotomy because it directly generates the company's core offering. Evidence supporting this classification included Chase's internal categorization of underwriters as 'production' and their evaluation based on productivity metrics like 'total actions per day.' The court emphasized that the 'administration/production distinction' separates work related to the company's marketplace offerings from work contributing to 'running the business itself.' Unlike employees who set management policies or advise customers as a primary duty, Whalen merely applied existing credit policies and guidelines to approve loans. Because Whalen's work did not satisfy the first prong of the administrative exemption test, the court did not need to address whether he customarily and regularly exercised discretion and independent judgment.
Analysis:
This case significantly clarifies the scope of the administrative employee exemption under the FLSA, particularly for the financial services industry. It reinforces the 'administrative/production dichotomy,' establishing that employees who directly produce the core services a business sells, even if those services are intangible and require skilled application of detailed guidelines, are generally considered 'production' workers. This ruling limits employers' ability to classify such employees as administrative, thereby expanding FLSA overtime coverage. The decision highlights that the nature of the duties, specifically whether they relate to the enterprise's core product or its general administration, is paramount, rather than the perceived importance or skill level of the role.
