The Fair Labor Standards Act's (FLSA) administrative employee exemption continues to confound employers. A recent decision from the U.S. 7th Circuit Court of Appeals—which covers Illinois, Indiana and Wisconsin—reaffirms that many insurance industry professionals are exempt.

Make no small plans

In 2005, Standard Insurance Company introduced a new product for retirement plans offered by public schools and certain tax-exempt organizations. Soon afterward, it hired Thomas Blanchar to manage the new products.

Blanchar’s duties included training Standard’s sales staff on the new plans. He traveled to make presentations to salespeople. Blanchar provided guidance to sales consultants on how to sell the new plans to clients, but he wasn’t personally involved in doing the selling. He created talking points for Standard’s salespeople. He also conducted webinars and conferences, at which he used materials he had personally created.

In addition, Blanchar made recommendations to his supervisor, Robert Baumgarten, about products suitable for these special markets. He worked from home and met with Baumgarten only about once a year, yet Baumgarten routinely relied on his advice and guidance concerning the special market products. In short, Blanchar was Standard’s “answer man” for these specialized products.

Answer man wants answers

Blanchar sued Standard, claiming he was entitled to overtime pay for all hours he worked in excess of 40 per week. Standard argued that he was a bona fide exempt administrative employee and thus was owed no overtime. The district court agreed and entered judgment in Standard's favor. Blanchar appealed.

To establish that an employee is covered by the FLSA’s administrative employee exemption, an employer has the burden to show:

1. The employee is compensated on a salary basis of not less than $455 per week;
2. The employee’s primary duty is performing nonmanual work directly related to the management or general business operations of the employer or its customers; and
3. The employee’s primary duties include the exercise of discretion and independent judgment over matters of significance.

Both sides agreed that Blanchar (who earned a base salary of $102,000 per year plus incentive compensation) satisfied the first prong of the test. Thus, the issue before the 7th Circuit was whether Standard could carry its burden to prove Blanchar met the other two prongs.

And court obliges

The second prong of the test for the administrative employee exemption is sometimes divided into two subparts: (1) The employee must be engaged in “administrative” rather than “production” activity and (2) the administrative activity must be of substantial importance to management or operations.

Employees whose primary duty is to produce the commodity the employer exists to produce or market are engaged in “production” and aren’t exempt. Thus, an employee whose primary duty is selling financial products normally doesn’t qualify for the administrative exemption.

Blanchar claimed he performed sales work and thus was involved in selling Standard’s products rather than assisting in running the business. Not so, said the 7th Circuit. Blanchar didn’t actually sell Standard’s retirement products. Rather, he spent most of his time working with its salespeople to promote the products.

Thus, he was involved in advising salespeople, fielding questions, and promoting sales generally. Relying on a recent 7th Circuit decision applying the administrative exemption to pharmaceutical sales representatives who performed similar functions, the court found Blanchar’s responsibilities satisfied the “directly related” test.

Question of judgment

Blanchar also claimed he didn’t exercise sufficient discretion and independent judgment to qualify for the administrative exemption. However, as the 7th Circuit explained, an employee need not have final decision-making authority or unfettered discretion to qualify.
In this case, Blanchar scripted talking points to advance Standard’s sales. He developed presentation materials and answered questions from pension consultants. He worked largely alone, and his supervisor often sought and followed his recommendations.

Those duties entailed enough discretion and independent judgment to qualify Blanchar as an exempt administrative employee. Blanchar v. Standard Insurance Company, No. 12-2745 (7th Cir., Nov. 27, 2013).

What to remember

This case illustrates that the 7th Circuit continues to accept the administrative employee exemption, especially in cases involving insurance professionals. However, the case reminds us that the administrative employee exemption remains fact-specific, and its application depends on the particular duties of the employee in question—regardless of job titles.

This article was edited by the attorneys of Fox, Swibel, Levin & Carroll, LLP.