On Appeal from the United States District Court for the District of New Jersey; D.C. Civil Action No. 87-02568.
Becker, Nygaard and Higginbotham, Circuit Judges.
These cross-appeals follow a bench trial in which the district court decided that Cooper Electric Supply Co., Inc. and its President, Richard Cooper, (collectively, "Cooper") violated the overtime pay and record keeping provisions of the Fair Labor Standards Act, 29 U.S.C. 201 et seq. ("FLSA" or "Act"). Cooper contends the district court erred by concluding that Cooper's inside salespersons were not bona fide "administrative" employees, hence eligible for a statutory exemption from the Act's overtime and record keeping requirements.*fn1 The Secretary of Labor ("Labor") contends the district court erred by refusing to award liquidated damages on top of compensatory damages for Cooper's violations.
We will affirm the district court's decision that Cooper's inside salespersons are not exempt from the Act's requirements, but will reverse the district court's denial of liquidated damages and vacate the court's award of prejudgment interest.
Cooper Electric Supply Co., Inc. is a New Jersey corporation. Its primary business is selling electrical products. Cooper employs approximately 120 people including inside salespersons, counter salespersons, outside salespersons, purchasing agents and various clerical functionaries who handle payroll, receivables and credit.
In 1987, after Labor investigated Cooper's pay practices, it filed this action alleging that since 1985, Cooper had violated the overtime and record keeping provisions of the Act with respect to some of its employees, namely, assistant warehouse managers, computer operators, purchasing agents and inside salespersons. The Act requires that overtime wages, equivalent to one-and-one-half times the regular pay rate, be paid to employees who work in excess of 40 hours per week. See 29 U.S.C. § 207.
Labor sought to have Cooper pay outstanding unpaid overtime compensation, and to enjoin Cooper from violating the Act. Pursuant to section 16(c) of the Act, 29 U.S.C. § 216(c), Labor also requested that Cooper pay either liquidated damages in amounts equal to their unpaid compensation, or prejudgment interest.
In the Final Pretrial Order, Cooper stipulated that its assistant warehouse managers and computer operators were not exempt from the Act's record keeping and overtime pay provisions. Accordingly, the district court eventually awarded these employees unpaid overtime compensation and prejudgment interest. The company took the position that its inside salespersons and purchasing agents were bona fide "administrative" employees, exempt from the Act's overtime pay requirements under section 13(a)(1) of the statute, 29 U.S.C. § 213(a)(1).*fn2 That section exempts employees occupying "bona fide executive, administrative, or professional" positions from the maximum hour provisions of the FLSA; it also empowers the Secretary of Labor to define the statute's operative terms.
The district court decided Cooper had violated the Act's overtime and record keeping provisions as charged. The court concluded that the employees identified in Labor's complaint were entitled to the overtime pay mandated by the Act. It entered a $74,144 judgment against Cooper equal to the employees' unpaid overtime wages, and awarded them $26,291 in prejudgment interest. The district court did not award the liquidated damages requested by Labor, nor did it permanently enjoin Cooper from violating the Act's overtime pay and record keeping requirements.
The district court applied regulatory interpretations of section 13(a)(1) to determine that Cooper's inside salespersons and purchasing agents were not "administrative" employees eligible for the statutory exemption because they do not perform work "directly related to [Cooper's] management policies or general business operations". The court reasoned that Cooper's inside salespersons are "productive" rather than "administrative" employees within the meaning of 29 C.F.R. § 541.205(a) & (b); and that they do not perform "work of substantial importance" to Cooper's business within the meaning of 29 C.F.R. § 541.205(a) & (c).
Cooper appealed the district court's determination that Cooper's inside salespersons were not "administrative" employees exempt from FLSA overtime pay provisions.*fn3 Labor appealed the district court's refusal to award liquidated damages. Amici joined Cooper's appeal.
II. EXEMPTION UNDER SECTION 13(a)(1)
We must decide whether the district court erred by concluding that Cooper's inside salespersons are not eligible for section 13(a)(1)'s "administrative" employee exemption from the Act's overtime pay requirements.
Whether Cooper's inside salespersons fall within the exemption is a mixed question of law and fact. We review the district court's findings of historical fact under the "clearly erroneous" standard set forth in Federal Rule of Civil Procedure 52(a). Icicle Seafoods, Inc. v. Worthington, 475 U.S. 709, 713-14, 89 L. Ed. 2d 739, 106 S. Ct. 1527 (1986). See also Brock v. Claridge Hotel and Casino, 846 F.2d 180, 184 (3d Cir.), cert. denied, 488 U.S. 925, 109 S. Ct. 307, 102 L. Ed. 2d 326 (1988) ("We can review the historical facts only for clear error. Whether the district court properly applied these facts to the regulations is a legal question, over which we have plenary review.")
Likewise, where the district court was required to draw factual inferences from historical facts in order to apply Labor's regulations under section 13(a)(1), we review those inferences for clear error too. Walling v. General Industries Co., 330 U.S. 545, 550, 91 L. Ed. 1088, 67 S. Ct. 883 (1947) (inferences, which are drawn by district court from "evidentiary facts" and are material factors under Labor's regulations, should be left "undisturbed" by court of appeals unless "clearly wrong"). See also Icicle Seafoods, 475 U.S. at 713 ("facts necessary to a proper determination of the legal question whether an exemption to the FLSA applies in a particular case should be reviewed" under clearly erroneous standard); Dalheim v. KDFW-TV, 918 F.2d 1220, 1226 (5th Cir. 1990) (same). Such inferences include, for example, findings as to what work constitutes an employee's "primary duty" under 29 C.F.R. 541.214. Dalheim, 918 F.2d at 1226.
However, we exercise plenary review of the district court's construction of section 13(a)(1), and its ultimate determination that Cooper's inside salespersons are not exempt under the statute. Icicle Seafoods, 475 U.S. at 714; Dalheim, id. To the extent Labor's regulations interpreting the exemption are at issue, we recognize that these constitute the agency's "body of experience and informed judgment" about the statute, and so, they should be given "considerable and in some cases decisive weight." Skidmore v. Swift & Co., 323 U.S. 134, 140, 89 L. Ed. 124, 65 S. Ct. 161 (1944).
We also understand that section 13(a)(1)'s exemptions from the Act's requirements are to be "narrowly construed against the employers seeking to assert them and their application limited to those establishments plainly and unmistakably within their terms and spirit." Arnold v. Ben Kanowsky, Inc., 361 U.S. 388, 392, 4 L. Ed. 2d 393, 80 S. Ct. 453 (1960). The burden of proving these exemptions is upon the employer, and if the record is unclear as to some exemption requirement, the employer will be held not to have satisfied its burden. Idaho Sheet Metal Works, Inc. v. Wirtz, 383 U.S. 190, 206, 15 L. Ed. 2d 694, 86 S. Ct. 737 (1966).
Of the various exemptions provided by section 13(a)(1) of the Act, only the "administrative" exemption is at issue here. The statutory exemption provides as follows:
The provisions of section 206 [minimum wage requirements] . . . and section 207 [maximum hours and overtime requirements] shall not apply with respect to . . . any employee employed in a bona fide . . . administrative. . . capacity . . . as . . . defined and delimited from time to time by regulations of the Secretary . . . .
29 U.S.C. 213(a)(1) (emphasis added).
Labor has issued agency regulations interpreting the exemption for administrative employees. These regulations outline both "long" and "short" tests of bona fide administrative employee status. See 29 C.F.R. § 541.2(a)-(e) ("long test"); 29 C.F.R. §§ 541.2(e)(2) and 541.214 ("short test").*fn4 As the parties agree, the two-prong "short test" applies here because Cooper's inside salespersons are high salaried employees who earn not less than $250 per week.
Under the applicable short test, an employee qualifies as a bona fide administrative employee if: (1) the employee's " primary duty consists of either the performance of office or nonmanual work directly related to management policies or general business operations of the employer or the employer's customers"; and (2) "such primary duty includes work requiring the exercise of discretion and independent judgment." 29 C.F.R. § 541.214(a) (emphasis added). The district court concluded that the first requirement ("first prong") of the short test is dispositive of the exemption issue with respect to Cooper's inside salespersons. We agree.*fn5
Labor's regulations appearing at 29 C.F.R. § 541.205(a)-(d) establish the meaning of the first prong of the short test. Subsection "a" of the regulation reads as follows:
The phrase "directly related to management policies or general business operations of his employer or his employer's customers" describes those types of activities relating to the administrative operations of a business as distinguished from "production" or, in a retail or service establishment, "sales" work. In addition to describing the types of activities, the phrase limits the exemption to persons who perform work of substantial importance to the management or operation of the business of his employer or his employer's customers.
29 C.F.R. § 541.205(a) (emphasis added). Subsection "a" first establishes the analytical importance of an administrative/productive work dichotomy to be used when characterizing an employee's "primary duty" for purposes of first prong analysis. This dichotomy is not, however, relevant when the business under scrutiny is a retail or service establishment. See 29 C.F.R. § 541.205(a). Then the appropriate classifying dichotomy is between "administrative" and "sales" work. Id. Since Cooper is a wholesaler, the district court correctly chose to focus on the administrative/productive work dichotomy when it applied 29 C.F.R. § 541.205(a) to Cooper's inside salespersons.
Subsection "b" of the regulation explicates this dichotomy by fleshing out the character of "administrative" (as opposed to "productive") activity in a business:
The administrative operations of the business include the work performed by so-called white-collar employees engaged in " servicing" a business as, for example, advising the management, planning, negotiating, representing the company, purchasing, promoting sales, and business research and control. An employee performing such work is engaged in activities relating to the administrative operations of the business notwithstanding ...