An Example of Administrative Exemption Error

Administrative ExemptionA few posts below, we discussed employer’s periodic over-reliance on the overtime exemption for administrative employees under the Fair Labor Standards Act. As noted, among the four primary exemptions under that act, we have found that employers most frequently misapply this exemption.

A recent federal appeals court decision highlights this point. In Whalen v. J.P. Morgan Chase & Co., the U.S. Court of Appeals for the Second Circuit held that a loan underwriter at J. P. Morgan Chase was not exempt from overtime entitlement under the administrative exemption.

J.P. Morgan Chase maintained that its loan underwriters were covered by this exemption because they met the minimum salary requirement, performed office work directly related to the general business operations, and exercised the requisite discretion and independent judgement. The trial court agreed, but the appeals court reversed that decision.

Central to the appeals court’s decision, the loan underwriter performed his duties according to detailed guidelines provided by the employer. He had no meaningful discretion to depart from those guidelines on his own. Thus, the appeals court said that the loan underwriter exercised no real independent judgment and discretion, which are key components of the exemption. Instead, the appeals court concluded that he was primarily involved in the “production” of the employer.

An employee primarily involved in the employer’s production of goods or its provision of the services it offers, in most cases, will not meet the requirements of the administrative exemption.

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