Supreme Court Declines to Review Second Circuit's Narrow Interpretation of Administrative Exemption

Posted on May 4, 2010 by Noel Tripp

The FLSA’s administrative exemption requires the party claiming exemption to establish that the employee was engaged in “administrative” work, as opposed to “production” work (the so-called administrative/production dichotomy). Determining whether an employee meets the administrative exemption can be challenging.   This determination is even more difficult in white-collar industries, where unlike in manufacturing, it is not so easy to differentiate between production and administrative work.

In 2009, the Second Circuit reversed a District Court and held an underwriter for Chase J.P. Morgan did not meet the administrative exemption since the employee “produced” the bank’s product, and did not service the business (like an accountant, Information Technology professional or human resources professional).   The Supreme Court yesterday declined to review the SecondCircuit’s decision.   Davis v. J.P. Morgan Chase & Co., 587 F.3d 529, 536 (2d Cir. 2009) cert denied 559 U.S. ___ (Supreme Court Case No. 09-1160, May 3, 2010). Therefore, in the Second Circuit white-collar employers need to evaluate the position in light of this decision before classifying employees as exempt administrators. This concern is underscored by the fact that the Second Circuit’s decision supports an argument that the exercise of independent discretion and judgment is not relevant to this analysis – if the employee is deemed to perform production work, a Court need not reach the question of the existence or lack of discretion and independent judgment.

This is a disappointing decision for employers hoping that the high court would grant cert and reverse Davis by holding that: 1) the District Court’s determination that the exemption applied in the case at bar was the proper one; and 2) the administrative/production dichotomy is of “limited assistance outside the manufacturing context.” Savage v. Unite Here, 2008 U.S. Dist. LEXIS 32219 (S.D.N.Y. Apr. 17, 2008).

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SDNY Judge Holds That Express Language In Offer Letter Precludes Bonus Claims

Posted on March 30, 2010 by Noel Tripp

While in New York all employees are at-will absent contractual language to the contrary, an employer may (intentionally or unintentionally) create a “contract” with an employee governing certain terms of employment (such as bonus compensation) without destroying the at-will nature of employment.  Properly drafted and agreed upon, such a contract can preclude employees from later claiming they were made oral promises regarding compensation and benefits at the time of hire (or later on) which are different than the terms reflected in the contract.  In Broyles v. J.P. Morgan Chase & Co., 2010 U.S. Dist. LEXIS 21861 (S.D.N.Y. Mar. 8, 2010), United States District Judge William Pauley rejected an employee’s attempt to do just that, finding that the letter of employment the Plaintiff had received and signed at the time of hiring: (1) was an enforceable contract, and (2) it contained “the entire understanding of the parties with respect to the terms and conditions of the offer of employment.”  Id. at * 7. 

When the Plaintiff was subsequently terminated, he brought suit claiming he had been orally promised a bonus for the year prior to the year in which he was terminated.  However, the letter of employment at issue provided that any bonuses were discretionary and would not be paid if the employee quit or was terminated.  The Court held that this clear language governing bonuses contained in the offer letter, coupled with an integration clause, precluded the employee’s claims that he was verbally promised a bonus.  The court found that the offer letter was an enforceable written agreement which precluded any oral agreements or quasi-contractual claims by the employee.  Finally, since the bonus was never “awarded” to the employee, he had no “vested” interest in it, and therefore could not pursue a claim for the unpaid bonus under the New York Labor Law.

It is difficult for employers to ensure that no statements regarding compensation are made by managers, co-workers or human resources during the hiring process.  Recruiters or other interviewers can unwittingly make oral promises or use poorly tailored language regarding the terms and conditions of employment.  To prevent such statements from causing issues down the road, employers should consider utilizing a well drafted employment letter, such as the one in Broyles, or a well drafted incentive compensation plan with an integration clause, in order to easily dispose of these claims if and when they do arise.

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