Department of Labor: Preamble

Friday,
April 23, 2004
Part II
Department of Labor
Wage and Hour Division
29 CFR Part 541

Defining and Delimiting the Exemptions
for Executive, Administrative,
Professional, Outside Sales and Computer
Employees; Final Rule
Preamble
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22122 Federal Register / Vol. 69, No. 79 / Friday, April 23, 2004 / Rules and Regulations
DEPARTMENT OF LABOR www.dol.gov/esa/contacts/whd/ the Department’s view, this situation

america2.htm. cannot be allowed to continue.
Wage and Hour Division Allowing more time to pass without
SUPPLEMENTARY INFORMATION:
updating the regulations contravenes
29 CFR Part 541 I. Summary of Major Changes and the Department’s statutory duty to
Economic Impact ‘‘define and delimit’’ the section 13(a)(1)
RIN 1215–AA14
The minimum wage and overtime pay exemptions ‘‘from time to time.’’
Defining and Delimiting the requirements of the Fair Labor Accordingly, on March 31, 2003, the
Exemptions for Executive, Standards Act (FLSA) are among the Department published a Notice of
Administrative, Professional, Outside nation’s most important worker Proposed Rulemaking (68 FR 15560)
Sales and Computer Employees protections. These protections have suggesting changes to the Part 541
been severely eroded, however, because regulations, including the largest
AGENCY: Wage and Hour Division, increase of the salary levels in the 65
the Department of Labor has not
Employment Standards Administration, year history of the FLSA. The proposed
updated the regulations defining and
Labor. changes to the duties tests were
delimiting the exemptions for ‘‘white
ACTION: Final rule. designed to ensure that employees
collar’’ executive, administrative and
could understand their rights,
professional employees. By way of this
SUMMARY: This document provides the employers could understand their legal
rulemaking, the Department seeks to
text of final regulations under the Fair obligations, and the Department could
restore the overtime protections
Labor Standards Act implementing the vigorously enforce the law.
intended by the FLSA. During a 90-day comment period, the
exemption from minimum wage and Under section 13(a)(1) of the FLSA
overtime pay for executive, Department received 75,280 comments
and its implementing regulations, from a wide variety of employees,
administrative, professional, outside employees cannot be classified as
sales and computer employees. These employers, trade and professional
exempt from the minimum wage and associations, small business owners,
exemptions are often referred to as the overtime requirements unless they are
‘‘white collar’’ exemptions. To be labor unions, government entities, law
guaranteed a minimum weekly salary firms and others. In addition, the
considered exempt, employees must and perform certain required job duties.
meet certain minimum tests related to Department’s proposal prompted
The minimum salary level was last vigorous public policy debate in
their primary job duties and, in most updated in 1975, almost 30 years ago,
cases, must be paid on a salary basis at Congress and the media. The public
and is only $155 per week. The job duty commentary revealed significant
not less than minimum amounts as requirements in the regulations have not
specified in pertinent sections of these misunderstandings regarding the scope
been changed since 1949—almost 55 of the ‘‘white collar’’ exemptions, but
regulations. years ago.
EFFECTIVE DATE: These rules are effective
also provided many helpful suggestions
Revisions to both the salary tests and for improving the proposed regulations.
on August 23, 2004. the duties tests are necessary to restore After carefully considering all of the
FOR FURTHER INFORMATION CONTACT: the overtime protections intended by relevant comments, and as detailed in
Richard M. Brennan, Senior Regulatory the FLSA which have eroded over the this preamble, the Department has made
Officer, Wage and Hour Division, decades. In addition, workplace changes numerous changes from the proposed
Employment Standards Administration, over the decades and federal case law rule to the final rule, including the
U.S. Department of Labor, Room S– developments are not reflected in the following:
3506, 200 Constitution Avenue, NW., current regulations. Under the existing
Washington, DC 20210. Telephone: regulations, an employee earning only Scope of the Exemptions
(202) 693–0745 (this is not a toll-free $8,060 per year may be classified as an • New section 541.3(a) states that
number). For an electronic copy of this ‘‘executive’’ and denied overtime pay. exemptions do not apply to manual
rule, go to DOL/ESA’s Web site (http:/ By comparison, a minimum wage laborers or other ‘‘blue collar’’ workers
/www.dol.gov/esa), select ‘‘Federal employee earns about $10,700 per year. who perform work involving repetitive
Register’’ under ‘‘Laws and The existing duties tests are so operations with their hands, physical
Regulations,’’ and then ‘‘Final Rules.’’ confusing, complex and outdated that skill and energy. Thus, for example,
Copies of this rule may be obtained in often employment lawyers, and even non-management production-line
alternative formats (Large Print, Braille, Wage and Hour Division investigators, employees and non-management
Audio Tape or Disc), upon request, by have difficulty determining whether employees in maintenance, construction
calling (202) 693–0023 (not a toll-free employees qualify for the exemption. and similar occupations such as
number). TTY/TDD callers may dial The existing regulations are very carpenters, electricians, mechanics,
toll-free 1–877–889–5627 to obtain difficult for the average worker or small plumbers, iron workers, craftsmen,
information or request materials in business owner to understand. The operating engineers, longshoremen,
alternative formats. regulations discuss jobs like key punch construction workers and laborers have
Questions of interpretation and/or operators, legmen, straw bosses and always been, and will continue to be,
enforcement of regulations issued by gang leaders that no longer exist, while entitled to overtime pay.
this agency or referenced in this notice providing little guidance for jobs of the • New section 541.3(b) states that the
may be directed to the nearest Wage and 21st Century. exemptions do not apply to police
Hour Division District Office. Locate the Confusing, complex and outdated officers, fire fighters, paramedics,
nearest office by calling our toll-free regulations allow unscrupulous emergency medical technicians and
help line at 1–866–4USWAGE (1–866– employers to avoid their overtime similar public safety employees who
487–9243) between 8 a.m. and 5 p.m., obligations and can serve as a trap for perform work such as preventing,
in your local time zone, or log onto the the unwary but well-intentioned controlling or extinguishing fires of any
Wage and Hour Division’s Web site for employer. In addition, more and more, type; rescuing fire, crime or accident
a nationwide listing of Wage and Hour employees must resort to lengthy court victims; preventing or detecting crimes;
District and Area Offices at: http:// battles to receive their overtime pay. In conducting investigations or inspections
Federal Register / Vol. 69, No. 79 / Friday, April 23, 2004 / Rules and Regulations 22123
for violations of law; performing • The final rule retains the existing • 1.3 million currently exempt white-
surveillance; interviewing witnesses; requirement (deleted in the proposed collar workers who will gain overtime
interrogating and fingerprinting regulations) that exempt administrative protection;
suspects; preparing investigative employees must exercise discretion and • 2.6 million nonexempt salaried
reports; and similar work. independent judgment. white-collar workers who are at
• New section 541.4 clarifies that the Professional
particular risk of being misclassified;
FLSA provides minimum standards that and
may be exceeded, but cannot be waived • The final section 541.301(e)(2) • 2.8 million nonexempt workers in
or reduced. Employers must comply states that licensed practical nurses and blue-collar occupations whose overtime
with State laws providing additional other similar health care employees do protection will be strengthened because
worker protections (a higher minimum not qualify as exempt professionals. The their protection, which is based on the
wage, for example), and the Act does final rule retains the provisions of the duties tests under the current rules, will
not preclude employers from entering existing regulations regarding registered be automatic under the final rules
into collective bargaining agreements nurses. regardless of their job duties.
providing wages higher than the • As intended in the proposal, the The standard duties tests adopted in
statutory minimum, a shorter workweek final rule does not make any changes to the final regulation are equally or more
the educational requirements for the protective than the short duties tests
than the statutory maximum, or a higher
professional exemption. Further, the currently applicable to workers who
overtime premium (double time, for
Department never intended to allow the earn between $23,660 and $100,000 per
example).
professional exemption for any year. The final ‘‘highly compensated’’
Salary employee based on veterans’ status. The test might result in 107,000 employees
• The final rule nearly triples the final rule has been modified to avoid who earn $100,000 or more per year
any such misinterpretations. The losing overtime protection.
current $155 per week minimum salary
references to training in the armed Because the rules have not been
level required for exemption to $455 per
forces, attending a technical school and adjusted in decades, the final rule does
week—a $30 per week increase over the
attending a community college have impose additional costs on employers,
proposal and a $300 per week increase
been removed from final section including up to $375 million in
over the existing regulations.
541.301(d). additional annual payroll and $739
• The ‘‘highly compensated’’ test in • The final rule defines ‘‘work million in one-time implementation
the final rule applies only to employees requiring advanced knowledge,’’ one of costs. However, updating and clarifying
who earn at least $100,000 per year, a the three essential elements of the the rule will reduce Part 541 violations
$35,000 increase over the proposal. professional primary duties test, as and are likely to save businesses at least
• The ‘‘highly compensated’’ test in ‘‘work which is predominantly an additional $252.2 million every year
the final rule applies only to employees intellectual in character, and which that could be used to create new jobs.
who receive at least $455 per week on includes work requiring the consistent The final rule is not likely to have a
a salary basis. exercise of discretion and judgment.’’ substantial impact on small businesses,
• The final regulation adds a new As a result of these changes, made in state and local governments, or any
requirement that exempt highly response to public commentary, the other geographic or industry sector.
compensated employees also must final Part 541 regulations strengthen
‘‘customarily and regularly’’ perform overtime protections for millions of low- II. Background
exempt duties. wage and middle-class workers, while The FLSA generally requires covered
Executive reducing litigation costs for employers. employers to pay employees at least the
Both employees and employers benefit federal minimum wage for all hours
• The final rule deletes the special from the final rules. Employees will be worked, and overtime premium pay of
rules for exemption applicable to ‘‘sole better able to understand their rights to time-and-one-half the regular rate of pay
charge’’ executives. overtime pay, and employees who know for all hours worked over 40 in a single
• The final rule adds the requirement their rights are better able to complain workweek. However, the FLSA includes
that employees who own at least a bona if they are not being paid correctly. a number of exemptions from the
fide 20-percent equity interest in an Employers will be able to more readily minimum wage and overtime
enterprise are exempt only if they are determine their legal obligations and requirements. Section 13(a)(1) of the
‘‘actively engaged in its management.’’ comply with the law. The Department’s FLSA provides an exemption from both
• The final rule retains the ‘‘long’’ Wage and Hour Division will be better minimum wage and overtime pay for
duties test requirement that an exempt able to vigorously enforce the law. ‘‘any employee employed in a bona fide
executive must have authority to ‘‘hire The economic analysis found in executive, administrative, or
or fire’’ other employees or must make section VI of this preamble concludes professional capacity * * * or in the
recommendations as to the ‘‘hiring, that the final rule guarantees overtime capacity of outside salesman (as such
firing, advancement, promotion or any protection for all workers earning less terms are defined and delimited from
other change of status’’ which are ‘‘given than the $455 per week ($23,660 time to time by regulations of the
particular weight,’’ but provides a new annually), the new minimum salary Secretary, subject to the provisions of
definition of ‘‘particular weight.’’ level required for exemption. Because of the Administrative Procedure Act
the increased salary level, overtime * * *).’’ 29 U.S.C. 213(a)(1).
Administrative
protection will be strengthened for more Congress has never defined the terms
• The final rule eliminates the than 6.7 million salaried workers who ‘‘executive,’’ ‘‘administrative,’’
proposed ‘‘position of responsibility’’ earn between the current minimum ‘‘professional,’’ or ‘‘outside salesman.’’
test for the administrative exemption. salary level of $155 per week ($8,060 Although section 13(a)(1) was included
• The final rule eliminates the annually) and the new minimum salary in the original FLSA enacted in 1938,
proposed ‘‘high level of skill or training’’ level of $455 per week ($23,660 specific references to the exemptions in
standard under the administrative annually). These 6.7 million salaried the legislative history are scant. The
exemption. workers include: legislative history indicates that the
section 13(a)(1) exemptions were and Hour Division, U.S. Department of these exemptions and the myriad terms
premised on the belief that the workers Labor, Report and Recommendations of contained therein.
exempted typically earned salaries well the Presiding Officer (Harold Stein) at The Department notes, however, that
above the minimum wage, and they Hearings Preliminary to Redefinition much of the reasoning of the Stein,
were presumed to enjoy other (Oct. 10, 1940) (‘‘1940 Stein Report’’). Weiss and Kantor reports remains as
compensatory privileges such as above The Department issued the last major relevant as ever. This preamble notes
average fringe benefits and better revision of the duties test regulatory such instances, and articulates why the
opportunities for advancement, setting provisions in 1949. 14 FR 7705 (Dec. 24, reasoning is still sound. However, while
them apart from the nonexempt workers 1949). Also in 1949, an explanatory the Department carefully has reviewed
entitled to overtime pay. Further, the bulletin interpreting some of the terms these reports in undertaking this update,
type of work they performed was in the regulatory provisions was it is not bound by the reports. The
difficult to standardize to any time published as Subpart B of Part 541. 14 Department is responsible for updating
frame and could not be easily spread to FR 7730 (Dec. 28, 1949). See also, regulations that, with each passing
other workers after 40 hours in a week, Report and Recommendations on decade of inattention, have become
making compliance with the overtime Proposed Revisions of Regulations, Part increasingly out of step with the
provisions difficult and generally 541, by Harry Weiss, Presiding Officer, realities of the workplace. Indeed, under
precluding the potential job expansion Wage and Hour and Public Contracts this rulemaking, the Department is
intended by the FLSA’s time-and-a-half Divisions, U.S. Department of Labor charged with utilizing record evidence
overtime premium. See Report of the (June 30, 1949) (‘‘1949 Weiss Report’’). submitted in 2003 * * * not in the
Minimum Wage Study Commission, In 1954, the Department issued the last 1940s or 1950s * * * in exercising its
Volume IV, pp. 236 and 240 (June 1981). major revisions to the regulatory discretion to update the terms of this
Pursuant to Congress’ specific grant of interpretations of the ‘‘salary basis’’ test. Part.
rulemaking authority, the Department of 19 FR 4405 (July 17, 1954). After the Suggested changes to the Part 541
Labor has issued implementing initial minimum salary levels were set regulations have been the subject of
regulations, at 29 CFR Part 541, defining at $30 per week in 1938, the Department extensive public commentary for two
the scope of the section 13(a)(1) revised the Part 541 regulations to decades, including public comments
exemptions. Because the FLSA increase the salary levels in 1940, 1949, responding to an Advance Notice of
delegates to the Secretary of Labor the 1958, 1963, 1970 and 1975. 5 FR 4077 Proposed Rulemaking issued by the
power to define and delimit the specific (Oct. 15, 1940); 14 FR 7705 (Dec. 24, Department in November 1985,3 a
terms of these exemptions through 1949); 23 FR 8962 (Nov. 18, 1958); 28 March 1995 oversight hearing by the
notice-and-comment rulemaking, the FR 9505 (Aug. 30, 1963); 35 FR 883 (Jan. Subcommittee on Workforce Protections
regulations so issued have the binding 22, 1970); 40 FR 7092 (Feb. 15, 1975). of the Committee on Economic and
effect of law. See Batterton v. Francis, See also, Report and Recommendations Educational Opportunities, U.S. House
432 U.S. 416, 425 n. 9 (1977). on Proposed Revisions of Regulations, of Representatives, a report issued by
The existing Part 541 regulations Part 541, under the Fair Labor Standards the General Accounting Office (GAO) in
generally require each of three tests to Act, by Harry S. Kantor, Presiding September 1999,4 and a May 2000
be met for the exemption to apply: (1) Officer, Wage and Hour and Public hearing before the Subcommittee on
The employee must be paid a Contracts Divisions, U.S. Department of Workforce Protections of the Committee
predetermined and fixed salary that is Labor (March 3, 1958) (‘‘1958 Kantor on Education and the Workforce, U.S.
not subject to reductions because of Report’’).2 House of Representatives. In its 1999
variations in the quality or quantity of The framework of the existing Part report to Congress and at the May 2000
work performed (the ‘‘salary basis test’’); 541 regulation is based upon the 1940 hearing, the GAO chronicled the
(2) the amount of salary paid must meet Stein Report, the 1949 Weiss Report and background and history of the
minimum specified amounts (the ‘‘salary the 1958 Kantor report, which reflect exemptions, estimated the number of
level test’’); and (3) the employee’s job the best evidence of the American workers who might be included within
duties must primarily involve executive, workplace a half-century ago. The the scope of the exemptions, identified
administrative or professional duties as existing regulation, therefore, reflects the major concerns of employers and
defined by the regulations (the ‘‘duties the structure of the workplace, the type employees regarding the exemptions,
tests’’).1 of jobs, the education level of the and suggested possible solutions to the
The major substantive provisions of workforce, and the workplace dynamics issues of concern raised by the affected
the Part 541 regulations have remained of an industrial economy that has long interests. In general, the employers
virtually unchanged for 50 years. The been altered. As the workplace and contacted by the GAO were concerned
FLSA became law on June 25, 1938, and structure of our economy has evolved, that the regulatory tests are too
the first version of Part 541 was issued so, too, must Part 541 be modernized to complicated, confusing, and outdated
later that year in October. 3 FR 2518 remain current and relevant. This for the modern workplace, and create
(Oct. 20, 1938). After receiving many necessary adaptation forms the potential liability for violations when
comments on the original regulations, philosophical underpinnings of this errors in classification occur. Employers
the Wage and Hour Division issued update and reflects the Department’s were particularly concerned about
revised regulations in 1940. 5 FR 4077 efforts to remain true to the intent of potential liability for violations of the
(Oct. 15, 1940). See also, ‘‘Executive, Congress, which mandated that the DOL complex ‘‘salary basis’’ test, and
Administrative, Professional * * * ‘‘from time to time’’ define and delimit complained that the ‘‘discretion and
Outside Salesman’’ Redefined, Wage independent judgment’’ standard for
2 Revisions to increase the salary rates in January
administrative employees is confusing
1A number of states arguably have more stringent 1981 were stayed indefinitely. 46 FR 11972 (Feb.
exemption standards than those provided by 12, 1981). The Department also revised the
and applied inconsistently by the Wage
Federal law. The FLSA does not preempt any such regulations to accommodate statutory amendments
3 50FR 47696 (Nov. 11, 1985).
stricter State standards. If a State or local law to the FLSA in 1961, 1967, 1973, and 1992. 26 FR
establishes a higher standard than the provisions of 8635 (Sept. 15, 1961); 32 FR 7823 (May 30, 1967); 4 FairLabor Standards Act: White Collar
the FLSA, the higher standard applies. See Section 38 FR 11390 (May 7, 1973); 57 FR 37677 (Aug. 19, Exemptions in the Modern Work Place, GAO/
18 of the FLSA, 29 U.S.C. § 218. 1992); 57 FR 46744 (Oct. 9, 1992). HEHS–99–164, September 30, 1999 (GAO Report).
and Hour Division. They also noted the general opposition to the proposal. Rather than define the section 13(a)(1)
traditional limits of the exemptions These largely identical submissions exemptions in the statute, Congress
have blurred in the modern workplace. raise concerns that the proposal would, granted the Secretary of Labor broad
Employee representatives contacted by for example, ‘‘diminish the application authority to ‘‘define and delimit’’ these
the GAO, in contrast, were most of overtime pay and seriously erode the terms ‘‘from time to time by
concerned that the use of the 40 hour workweek’’ and lead to regulations.’’ Id. A unanimous Supreme
exemptions be limited to preserve ‘‘[c]utting overtime pay’’ which ‘‘would Court reaffirmed the broad nature of this
existing overtime work hour limits and really hurt America’s working families.’’ delegation in Auer v. Robbins, 519 U.S.
the 40-hour standard workweek for as The form letters, however, do not 452, 456 (1997), stating that the ‘‘FLSA
many employees as possible. They address any particular aspect of the grants the Secretary broad authority to
believed the tests have become changes being proposed to the existing ‘defin[e] and delimi[t]’ the scope of the
weakened as applied today by judicial regulations. Indeed, some letters and exemption for executive, administrative
rulings and do not adequately restrict emails appear to be from individuals and professionals employees.’’ See also
employers’ use of the exemptions. When who clearly perform non-exempt duties Addison v. Holly Hill Fruit Products,
combined with the low salary test and are not covered by the Part 541 Inc., 322 U.S. 607, 613 n.6 (1944)
levels, the employee representatives felt exemptions. (authority given to define and delimit
that few protections remain, particularly Approximately 600 of the comments the terms ‘‘bona fide executive,
for low-income supervisory employees. include substantive analysis of the administrative, professional’’);
The GAO Report noted that the proposed revisions. Virtually all of these Spradling v. City of Tulsa, Oklahoma,
conflicting interests affected by these 600 comments favor some change to the 95 F.3d 1492, 1495 (10th Cir. 1996) (the
rules have made consensus difficult and existing regulations. Among the Department ‘‘is responsible for
that, since the FLSA was enacted, the commenters there are a wide variety of determining the operative definitions of
interests of employers to expand the views on the merits of particular these terms through interpretive
white collar exemptions have competed sections of the proposed regulations. regulations’’), cert. denied, 519 U.S.
with those of employees to limit use of Acknowledging that there are strong 1149 (1997); Dalheim v. KDFW–TV, 918
the exemptions. To resolve the issues views on the issues presented in this F.2d 1220, 1224 (5th Cir. 1990) (the
presented, the GAO suggested that rulemaking, the Department has FLSA ‘‘empowers the Secretary of
employers’ desires for clear and carefully considered all of the Labor’’ to define by regulation the terms
unambiguous regulatory standards must comments and the arguments made for executive, administrative, and
be balanced with employees’ desires for and against the proposed changes. professional).
fair and equitable treatment in the The major comments received on the Several commenters, including the
workplace. The GAO recommended that proposed regulatory changes are AFL–CIO, claim that the proposal
the Secretary of Labor comprehensively summarized below, together with a exceeds the authority of the Secretary
review the regulations and restructure discussion of the changes that have been and will not be entitled to judicial
the exemptions to better accommodate made in the final regulatory text in deference. They assert that the proposal
today’s workplace and to anticipate response to the comments received. In improperly broadens the exemptions,
future workplace trends. addition to the more substantive fails to safeguard employees from being
Responding to the extensive public comments discussed below, the misclassified, and is not consistent with
commentary, on March 31, 2003, the Department received some editorial Congressional intent. As an initial
Department published proposed suggestions, some of which have been matter, the Supreme Court’s decision in
revisions to these regulations in the adopted and some of which have not. A Auer confirmed the Secretary’s ‘‘broad
Federal Register inviting public number of other minor editorial changes authority’’ to define and delimit these
comments for 90 days (see 68 FR 15560; have been made to better organize or exemptions. 519 U.S. at 456. Moreover,
March 31, 2003). In response to the structure the regulatory text. Finally, a as this preamble establishes, the final
proposed rule, the Department received number of comments were received on rule will simplify, clarify and better
a total of 75,280 comments during the issues that go beyond the scope or organize the regulations defining and
official comment period. The authority of these regulations (such as delimiting the exemptions for
Department received comments from a eliminating all exemptions from administrative, executive and
wide variety of individuals, employees, overtime, lowering the overtime professional employees. Rather than
employers, trade and professional threshold to fewer hours worked per broadening the exemptions, the final
associations, labor unions, week or per day, banning all mandatory rule will enhance understanding of the
governmental entities, Members of overtime, and basing overtime on a two- boundaries and demarcations of the
Congress, law firms, and others. week/80-hour limit), which the exemptions Congress created. The final
Most of the comments received were Department will not address in the rule will protect more employees from
form letters submitted by e-mail or discussion that follows. being misclassified and reduce the
facsimile. Form letters expressing likelihood of litigation over employee
general support of the proposal were III. Authority of the Secretary of Labor
classifications because both employees
received, for example, from members of Section 13(a)(1) of the FLSA provides and employers will be better able to
the Society for Human Resource exemptions from the minimum wage understand and follow the regulations.
Management and from individuals who and overtime requirements for Other commenters contend that the
identified themselves as being in employees ‘‘employed in a bona fide proposal violates the rule of
agreement with the HR Policy executive, administrative, or interpretation articulated in Arnold v.
Association or the National Funeral professional capacity or in the capacity Ben Kanowsky, Inc., 361 U.S. 388, 392
Directors Association. More than 90 of outside salesman * * *.’’ 29 U.S.C. (1960), that FLSA exemptions are to be
percent of the comments were form 213(a)(1). Congress included these ‘‘narrowly construed.’’ However, in Auer
letters generated by organizations exemptions in the original enactment of v. Robbins, 519 U.S. at 462–63, the
affiliated with the American Federation the FLSA in 1938, but the statute Supreme Court addressed the difference
of Labor and Congress of Industrial contains no definitions, guidance or between the ‘‘narrowly construed’’ rule
Organizations (AFL–CIO) expressing instructions as to their meaning. of judicial interpretation and the broad
authority possessed by the Secretary to employer conduct a self-audit of past regulations easier to understand and
promulgate these regulations: compliance concerning the positions at decipher when applying them to
Petitioners also suggest that the Secretary’s issue and would supervise payments of particular factual situations, and
approach contravenes the rule that FLSA up to two years of back wages, eliminate the confusion regarding the
exemptions are to be ‘‘narrowly construed excluding liquidated damages. The appropriate level of deference to be
against * * * employers’’ and are to be statute of limitations would be tolled given to the provisions in each subpart.
withheld except as to persons ‘‘plainly and during this administrative procedure. If
unmistakably within their terms and spirit.’’ The proposed regulations also
Arnold v. Ben Kanowsky, Inc., 361 U.S. 388,
the employer refused to perform a self- streamlined the existing regulations by
392, 80 S. Ct. 453, 456, 4 L. Ed. 2d 393 audit, or did not pay the back wages adopting a single standard duties test for
(1960). But that is a rule governing judicial due, the employee could then bring a each exemption category, rather than
interpretation of statutes and regulations, not lawsuit. The commenters cite FLSA the existing ‘‘long’’ and ‘‘short’’ duties
a limitation on the Secretary’s power to section 16(b) as the source of the tests structure. Because of the outdated
resolve ambiguities in his own regulations. A Department’s authority to implement
rule requiring the Secretary to construe his
salary levels, the ‘‘long’’ duties tests
such a program. Section 16(b) provides have, as a practical matter, become
own regulations narrowly would make little aggrieved employees a private right of
sense, since he is free to write the regulations effectively dormant. As the American
as broadly as he wishes, subject only to the
action that terminates upon the Payroll Association states, the ‘‘long’’
limits imposed by the statute. Department’s filing a lawsuit for back duties tests have ‘‘become ‘inoperative’
Thus, the commenters’ contentions are wages for such employees under section because of the extremely low minimum
unfounded because the ‘‘narrowly 17. Nothing in section 16(b) or in any salary test ($155 per week) and federal
construed’’ standard does not govern or other section of the statute authorizes courts’ refusal to apply the percentage
limit the Secretary’s broad rulemaking the Department to create the proposed restrictions on nonexempt work in the
authority. amnesty program. modern workplace.’’ The U.S. Chamber
Structure and Organization of Commerce similarly notes that the
IV. Summary of Major Comments
The existing Part 541 contains two ‘‘elements unique to the long test have
Effective Date subparts. Current Subpart A provides largely been dormant for some time due
There were very few comments the regulatory tests that define each to the compensation levels.’’ The U.S.
concerning the effective date of the category of the exemption (executive, House of Representatives’ Committee on
regulations. The National Association of administrative, professional, and Education and the Workforce also
Convenience Stores (NACS) outside sales). Current Subpart B comments that the ‘‘long’’ duties tests
recommends that the rules become provides interpretations of the terms have ‘‘become rarely, if ever, used.’’ The
effective 180 days after they are used in the exemptions. Subpart B was Fisher & Phillips law firm notes that
published, but in no event before the first issued as an explanatory bulletin in ‘‘the ‘long’ test has played little role in
passage of 90 days. NACS asserts that 1949 (effective in January 1950) to the executive exemption’s application
‘‘employers will need considerable time provide guidance to the public on how for many years.’’ Similarly, the
to make and implement important the Wage and Hour Division interpreted American Bakers Association notes that
business decisions about how to arrange and applied the exemption criteria the ‘‘long’’ duties tests ‘‘lack[] current
their affairs in light of the revisions,’’ when enforcing the FLSA. relevance.’’ Finally, the National
and that a ‘‘relatively long period is The Department proposed to Association of Federal Wage Hour
certainly justified.’’ The Department has eliminate this distinction between the Consultants states that the ‘‘long’’ duties
set an effective date that is 120 days ‘‘regulations’’ in Subpart A and the tests are ‘‘seldom used today in the
after the date of publication of these ‘‘interpretations’’ in Subpart B. The business community.’’ Faced with this
final regulations. The Department proposed rule also reorganized the reality, the Department decided that
believes that a period of 120 days will subparts according to each category of elimination of most of the ‘‘long’’ duties
provide employers ample time to make exemption, eliminated outdated and tests requirements is warranted,
any changes necessary to ensure uninformative examples, updated especially since the relatively small
compliance with the final regulations. definitions of key terms and phrases, number of employees currently earning
Moreover, a 120-day effective date and consolidated provisions relevant to from $155 to $250 per week, and thus
exceeds the 30-day minimum required several or all of the exemption tested for exemption under the ‘‘long’’
under the Administrative Procedure categories into unified, common duties tests, will gain stronger
Act, 5 U.S.C. 553(d), and the 60 days sections to eliminate unnecessary protections under the increased
mandated for a ‘‘major rule’’ under the repetition (e.g., a number of sections minimum salary level which, under the
Congressional Review Act, 5 U.S.C. pertaining to salary issues were final rule, guarantees overtime
801(a)(3)(A). proposed to be consolidated into a new protection for all employees earning less
The law firm of Morgan Lewis & Subpart G, Salary Requirements, than $455 per week ($23,660 annually).
Bockius and the Information discussed below). The proposed rule Further, as explained in the preamble to
Technology Industry Council request also streamlined, reorganized, and the proposed rule, the former tests are
that the Department establish a ‘‘short updated the regulations in other ways. complicated and require employers to
term ‘amnesty’ program’’ that would The proposed regulations utilized time-test managers for the duties they
exist for two years after the regulations’’ objective, plain language in an attempt perform, hour-by-hour in a typical
effective date. The program, the to make the regulations more workweek. Reintroducing these
commenters suggest, would either allow understandable to employees and effectively dormant requirements now
or require employees seeking unpaid employee representatives, small would add new complexity and burdens
overtime wages based on a business owners and human resource to the exemption tests that do not
misclassification occurring prior to the professionals. This proposed currently apply. For example,
effective date of the final regulations to restructuring of Part 541 was intended employers are not generally required to
submit their claims to the Department to consolidate and streamline the maintain any records of daily or weekly
for resolution. Under the program, the regulatory text, reduce unnecessary hours worked by exempt employees (see
Department would request that the duplication and redundancies, make the 29 CFR 516.3), nor are they required to
perform a moment-by-moment tests and deleting the former ‘‘long’’ test continues to believe that reducing the
examination of an exempt employee’s percentage limits on performing inherent complexity of the exemption
specific duties to establish that an nonexempt duties.5 For example, the criteria by replacing the subjective and
exemption is available. Yet reactivating U.S. Chamber of Commerce comments effectively dormant ‘‘long’’ test
the former strict percentage limitations that it was their members’ experience requirements is an essential goal to be
on nonexempt work in the existing that the percentage limitations have pursued in this rulemaking.
‘‘long’’ duties tests could impose been difficult to apply and have been of Streamlining and simplification of the
significant new monitoring little utility. The Associated Prevailing applicable standards is critical to
requirements (and, indirectly, new Wage Contractors states that the ensuring correct interpretations and
recordkeeping burdens) and require percentage requirements created proper application of the exemptions in
employers to conduct a detailed additional and needless recordkeeping the workplace today. It serves no
analysis of the substance of each requirements. The National Small productive interest if a complicated
particular employee’s daily and weekly Business Association comments that a regulatory structure implementing a
tasks in order to determine if an move away from a percentage basis test statutory directive means that few
exemption applied. When employers, will alleviate the burden on small people can arrive at a correct
employees, as well as Wage and Hour business owners. conclusion, or that many people arrive
Division investigators applied the However, some commenters oppose at different conclusions, when trying to
‘‘long’’ test exemption criteria in the these changes, asserting that they apply the standards to widely varying
past, distinguishing which specific weakened the requirements for and diverse employment settings. The
activities were inherently a part of an exemption, would allow manipulation extensive public comments on the
employee’s exempt work proved to be a of job titles to evade paying overtime to difficulties experienced under the
subjective and difficult evaluative task lower-level employees, would open the existing regulatory standards amply
that prompted contentious disputes. floodgates to misclassification of demonstrate the need for change, in the
Moreover, making such finite employees, and lead to more lawsuits. Department’s view. The comments
determinations would become even Some commenters state that the suggesting there is no need to change
more difficult in light of developments proposed language is too simple for this the current regulatory ‘‘long’’ and
in case law that hold that an exempt complex subject or that the proposed ‘‘short’’ test structure are not persuasive
employee’s managerial duties can be language continues to be vague in some when contrasted with the described
carried out at the same time the areas, making it susceptible to differing difficulties under the existing regulatory
employee performs nonexempt manual interpretations and a continuation of an standards, as confirmed by many other
tasks. See, e.g., Jones v. Virginia Oil Co., overly complex subject under the law. commenters. The Department also does
2003 WL 21699882, at *4 (4th Cir. 2003) Other dissenting comments point to a not agree with the comments suggesting
(assistant manager who spent 75 to 80 loss of judicial and opinion letter that elimination of the ‘‘long’’ test
percent of her time performing basic interpretative precedent that would percentage limitations on nonexempt
line-worker tasks held exempt because occur by changing the duties tests as the work, which are rarely applied today,
she ‘‘could simultaneously perform Department proposed.6 and retention of the primary duty
The Department has carefully
many of her management tasks’’); approach as currently interpreted by
considered these arguments, and
Donovan v. Burger King Corp., 672 F.2d federal courts, will somehow increase
221, 226 (1st Cir. 1982) (‘‘an employee 5 See, e.g., Comments of American Bakers
litigation or decrease the protections
can manage while performing other Association; American Corporate Counsel currently afforded to employees. Rather,
work,’’ and ‘‘this other work does not Association; American Hotel and Lodging we believe that employees are more
negate the conclusion that his primary Association; American Insurance Association; clearly protected by the final rule,
American Nursery and Landscape Association;
duty is management’’). Accordingly, American Payroll Association; American Network
which guarantees overtime protection to
given these developments, the of Community Options and Resources (ANCOR); all employees earning less than $455 per
Department believed that the percentage Associated Builders and Contractors; Associated week, than by the existing rule which
limitations on particular duties formerly Prevailing Wage Contractors; Colley & McCoy contains confusing and differing
Company; Contract Services Association of
applied under the ‘‘long’’ tests were not America; Financial Services Roundtable; Grocery requirements for employees earning
useful criteria that should be Manufacturers of America; National Association of between $155 and $455 per week.
reintroduced for defining the ‘‘white Chain Drug Stores; National Association of Moreover, as explained in more detail in
collar’’ exemptions in today’s Manufacturers; National Council of Agricultural Subpart B of the preamble, the
Employers; National Grocers Association; National
workplace, and that employees who Newspaper Association; National Restaurant Department’s final ‘‘standard’’ duties
would have been tested under the Association; National Small Business Association; test for the executive exemption
‘‘long’’ tests are better protected by the New Jersey Restaurant Association; Pennsylvania incorporates the ‘‘authority to hire or
final rule’s guarantee of overtime Credit Union Association; Public Sector FLSA fire’’ requirement from the existing long
Coalition; Society for Human Resource
protection to all employees earning less Management; State of Oklahoma Office of Personnel test.
than $455 per week. Management; Tennessee Valley Authority; the U.S. A number of commenters suggest that
Most comments addressing the Chamber of Commerce; and Virginia Department of the 20-percent limitation on nonexempt
Human Resource Management.
structure and organization of the 6 See, e.g., Comments of 9–5 National Association work is mandated by the FLSA itself
proposed rule generally favor the of Working Women; AFL-CIO; American Federation because, when amending the FLSA in
proposed restructuring, indicating the of State, County and Municipal Employees; 1961 to cover retail and service
consolidation of the former regulations American Federation of Teachers; Building and establishments, Congress added in
Construction Trades Department, AFL-CIO;
and interpretations into a unified set of Communication Workers of America; International
section 13(a)(1) that ‘‘an employee of a
rules and other proposed changes Association of Fire Fighters; International retail or service establishment shall not
provide needed simplification and more Association of Machinists and Aerospace Workers; be excluded from the definition of
clarity to a complex regulation. The International Federation of Professional & Technical employee employed in a bona fide
Engineers; National Employment Law Project; New
weight of comments support replacing York State Public Employees Federation; United
executive or administrative capacity
the former ‘‘long’’ and ‘‘short’’ test Food and Commercial Workers Union; Weinberg, because of the number of hours in his
structure with the proposed standard Roger and Rosenfeld; and World at Work. workweek which he devotes to activities
not directly or closely related to the the rules. Consequently, the Department through apprenticeships and on-the-job
performance of executive or has decided to adopt the proposed training, not through the prolonged
administrative activities, if less than 40 restructuring of the regulations into course of specialized intellectual
per centum of his hours worked in the separate subparts containing standard instruction required of exempt learned
workweek are devoted to such tests under each category of the professional employees such as medical
activities.’’ exemption, which do not include the doctors, architects and archeologists.
The Department does not believe that former ‘‘long’’ test requirements that Thus, for example, non-management
eliminating the 20-percent rule from the require calculating the 20-percent (or production-line employees and non-
new standard test contravenes Congress’ 40-percent in retail or service management employees in maintenance,
intent. By adding the 40-percent establishments) limits on the amount of construction and similar occupations
language in 1961, Congress intended time devoted to nonexempt tasks. such as carpenters, electricians,
that the 20-percent limitation in the mechanics, plumbers, iron workers,
‘‘long’’ tests would not be used to Subpart A, General Regulations
craftsmen, operating engineers,
prohibit employers from applying the Proposed Subpart A included several longshoremen, construction workers
exemption to retail and service general, introductory provisions and laborers are entitled to minimum
employees, even if they spent more than scattered throughout the existing wage and overtime premium pay under
20 percent of their time in nonexempt regulations. Proposed section 541.0 the Fair Labor Standards Act, and are
work. Thus, this statutory language is a combined an introductory statement not exempt under the regulations in this
limitation on the Department’s authority from existing section 541.99 and part no matter how highly paid they
to define certain employees as information currently located at section might be.’’
nonexempt—not a Congressional 541.5b regarding the application of the The new § 541.3(a) responds to
declaration that the Department can equal pay provisions in section 6(d) of comments revealing a fundamental
never reconsider the 20-percent the FLSA to employees exempt from the misunderstanding of the scope and
limitation. Congress could have minimum wage and overtime provisions application of the Part 541 regulations
imposed the 20-percent rule on all of the FLSA under section 13(a)(1). among employees and employee
employees in 1961, but it did not. In Proposed section 541.0 also provided representatives. To ensure employees
fact, the primary duty approach of the new language to reflect legislative understand their rights, the new
final regulations was first adopted by changes to the FLSA regarding subsection 541.3(a) clearly states that
the Department as part of the ‘‘short’’ computer employees and information manual laborers and other ‘‘blue collar’’
tests in 1949. When Congress amended regarding the new organizational workers cannot qualify for exemption
the FLSA in 1961, the primary duty structure of the proposed regulations. under section 13(a)(1) of the FLSA. The
tests were in effect and did not contain Proposed section 541.1 provided description of a ‘‘blue collar’’ worker as
mandatory percentage limitations on definitions of ‘‘Act’’ and an employee performing ‘‘work
nonexempt work. See 29 CFR 541.103 ‘‘Administrator’’ from their current involving repetitive operations with
(50 percent is ‘‘rule of thumb’’); Jones, location in section 541.0. Finally, their hands, physical skill and energy’’
2003 WL 21699882, at *3 (the 50 proposed section 541.2 provided a was derived from a standard dictionary
percent ‘‘rule of thumb’’ is not general statement that job titles alone definition of the word ‘‘manual.’’ See,
dispositive). Congress did not act to are insufficient to establish the exempt e.g., Adam v. United States, 26 Cl. Ct.
abrogate the primary duty tests, and the status of an employee. This fundamental 782, 792–93 (1992) (‘‘dictionary
Department believes that the ‘‘short’’ concept, equally applicable to all the definition of ‘manual’ is, ‘requiring or
duties tests are in no way inconsistent exemption categories, currently appears using physical skill and energy’ ’’). The
with section 13(a)(1) of the Act. in section 541.201(b) of the existing illustrative list of such ‘‘blue collar’’
In reaching its regulatory decisions, regulations regarding administrative occupations included in this subsection
the Department is mindful of its employees. is the same language included in the
obligations under the delegated The Department received few proposed and final section 541.601 on
statutory authority applicable in this comments on these general regulations. highly compensated employees.
situation, and other laws and Executive Thus, Subpart A is adopted as proposed, Section 541.3(b)(1) provides that the
Orders that apply to the regulatory except for the addition of a new section section 13(a)(1) exemptions and these
process, to define and delimit the ‘‘white 541.3 entitled ‘‘Scope of the section regulations also do not apply to ‘‘police
collar’’ exemption criteria in ways that 13(a)(1) exemptions’’ and a new section officers, detectives, deputy sheriffs, state
reduce unnecessary burdens (e.g., the 541.4 entitled ‘‘Other laws and troopers, highway patrol officers,
Paperwork Reduction Act, the collective bargaining agreements.’’ The investigators, inspectors, correctional
Regulatory Flexibility Act, the Department adds these new sections in officers, parole or probation officers,
Unfunded Mandates Reform Act, and response to public commentary which park rangers, fire fighters, paramedics,
Executive Orders 12866, 13272, and evidenced general confusion, especially emergency medical technicians,
13132). Under currently applicable among employees, regarding the scope ambulance personnel, rescue workers,
guidelines, implementation of of the exemptions and the impact of hazardous materials workers and similar
regulatory standards should, to the these regulations on state laws and employees, regardless of rank or pay
maximum extent possible within the collective bargaining agreements. level, who perform work such as
limits of controlling statutory authority The subsection 541.3(a) clarifies that preventing, controlling or extinguishing
and intent, strike an appropriate balance the section 13(a)(1) exemptions and the fires of any type; rescuing fire, crime or
and be compatible with existing Part 541 regulations do not apply to accident victims; preventing or
recordkeeping and other prudent manual laborers or other ‘‘blue collar’’ detecting crimes; conducting
business practices, not unduly workers who ‘‘perform work involving investigations or inspections for
disruptive of them. Regulatory repetitive operations with their hands, violations of law; performing
standards should also strive to apply physical skill and energy.’’ Such surveillance; pursuing, restraining and
plain, coherent, and unambiguous employees ‘‘gain the skills and apprehending suspects; detaining or
terminology that is easily knowledge required for performance of supervising suspected and convicted
understandable to everyone affected by their routine manual and physical work criminals, including those on probation
or parole; interviewing witnesses; fighters, paramedics and EMTs and experience and a field internship. The
interrogating and fingerprinting similar employees are not exempt court held that the paramedics and
suspects; preparing investigative because they usually cannot meet the EMTs were not exempt professionals
reports; or similar work.’’ Final requirements for exemption as executive because they were not required to have
subsection 541.3(b)(2) provides that or administrative employees. In a college degree. See also Dybach v.
such employees do not qualify as Department of Labor v. City of Sapulpa, State of Florida Department of
exempt executive employees because Oklahoma, 30 F.3d 1285, 1288 (10th Corrections, 942 F.2d 1562, 1564–65
their primary duty is not management of Cir. 1994), for example, the court held (11th Cir. 1991) (probation officer held
the enterprise in which the employee is that fire department captains were not not exempt professional because the
employed or a customarily recognized exempt executives because they were required college degree could be in any
department or subdivision thereof as not in charge of most fire scenes; had no field—‘‘ ‘nuclear physics, or * * *
required under section 541.100. Thus, authority to call additional personnel to corrections, or * * * physical education
for example, ‘‘a police officer or fire a fire scene; did not set work schedules; or basket weaving’’’—not in a
fighter whose primary duty is to participated in all the routine manual specialized field); Fraternal Order of
investigate crimes or fight fires is not station duties such as sweeping and Police, Lodge 3 v. Baltimore City Police
exempt under section 13(a)(1) of the Act mopping floors, washing dishes and Department, 1996 WL 1187049 (D. Md.
merely because the police officer or fire cleaning bathrooms; and did not earn 1996) (police sergeants and lieutenants
fighter also directs the work of other much more than the employees they held not exempt professionals, even
employees in the conduct of an allegedly supervised. In Reich v. State of though some possessed college degrees,
investigation or fighting a fire.’’ Final New York, 3 F.3d 581, 585–87 (2nd Cir. because college degrees were not
subsection 541.3(b)(3) provides that 1993), cert. denied, 510 U.S. 1163 required for the positions); Quirk v.
such employees do not qualify as (1994), the court granted overtime pay Baltimore County, Maryland, 895 F.
exempt administrative employees to police investigators whose duties Supp. 773, 784–86 (D. Md. 1995)
because their primary duty is not the included investigating crime scenes, (certified paramedics required to have a
performance of work directly related to gathering evidence, interviewing high school education and less than a
the management or general business witnesses, interrogating and year of specialized training are not
operations of the employer or the fingerprinting suspects, making arrests, exempt professionals).
employer’s customers as required under conducting surveillance, obtaining The Department has no intention of
section 541.200. Final subsection search warrants, and testifying in court. departing from this established case
541.3(b)(4) provides that such The court held that such police officers law. Rather, for the first time, the
employees do not qualify as exempt are not exempt administrative Department intends to make clear in
learned professionals because their employees because their primary duty is these revisions to the Part 541
primary duty is not the performance of conducting investigations, not regulations that such police officers, fire
work requiring knowledge of an administering the affairs of the fighters, paramedics, EMTs and other
advanced type in a field of science or department itself. See also Bratt v. first responders are entitled to overtime
learning customarily acquired by a County of Los Angeles, 912 F.2d 1066, pay. Police sergeants, for example, are
prolonged course of specialized 1068–70 (9th Cir. 1990) (probation entitled to overtime pay even if they
intellectual instruction or the officers who conduct investigations and direct the work of other police officers
performance of work requiring make recommendations to the court because their primary duty is not
invention, imagination, originality or management or directly related to
regarding sentencing are not exempt
talent in a recognized field of artistic or management or general business
administrative employees), cert. denied,
creative endeavor as required under operations; neither do they work in a
498 U.S. 1086 (1991); Mulverhill v. State
section 541.300. Final subsection field of science or learning where a
of New York, 1994 WL 263594
541.3(b)(4) also states that ‘‘although specialized academic degree is a
(N.D.N.Y. 1994) (investigators of
some police officers, fire fighters, standard prerequisite for employment.7
environmental crimes who carry Finally, such police officers, fire
paramedics, emergency medical firearms, patrol a sector of the state and
technicians and similar employees have fighters, paramedics, EMTs and other
conduct covert surveillance, and rangers public safety employees also cannot
college degrees, a specialized academic
who prevent and suppress forest fires, qualify as exempt under the highly
degree is not a standard prerequisite for
are not exempt administrative compensated test in final section
employment in such occupations.’’
This new subsection 541.3(b) employees). 541.601. As discussed below, final
responds to commenters, most notably Similarly, federal courts have held section 541.601(b) provides that the
the Fraternal Order of Police, expressing that police officers, paramedics, EMTs, highly compensated test ‘‘applies only to
concerns about the impact of the and similar employees are not exempt employees whose primary duty includes
proposed regulations on police officers, professionals because they do not performing office or non-manual work.’’
fire fighters, paramedics, emergency perform work in a ‘‘field of science or Federal courts have recognized that
medical technicians (EMTs) and other learning’’ requiring knowledge
first responders. The current regulations ‘‘customarily acquired by a prolonged 7 In addition to the case law and comments cited
do not explicitly address the exempt course of specialized intellectual above, when drafting this new section, the
Department also looked to the definitions of ‘‘fire
status of police officers, fire fighters, instruction’’ as required under the protection activities’’ and ‘‘law enforcement
paramedics or EMTs. This silence in the current and final section 541.301 of the activities’’ contained in Sections 3(y) and 7(k) of the
current regulations has resulted in regulations. The paramedic plaintiffs in FLSA, and their implementing regulations at 29
Vela v. City of Houston, 276 F.3d 659, CFR 553.210 and 553.211, which allow public
significant federal court litigation to agencies to pay overtime to fire and law
determine whether such employees 674–676 (5th Cir. 2001), for example, enforcement employees based on a 7 to 28 day
meet the requirements for exemption as were required to complete 880 hours of period, rather than the 40-hour workweek. These
executive, administrative or classroom training, clinical experience sections do not govern exempt status under section
13(a)(1) and, thus, are illustrative but not
professional employees. and a field internship. The EMT determinative of duties performed by nonexempt
Most of the courts facing this issue plaintiffs were required to complete 200 fire and law enforcement employees. See 29 CFR
have held that police officers, fire hours of classroom training, clinical 553.216.
such public safety employees do not supervision and inspection of Management Relations Act, which was
perform ‘‘office or non-manual’’ work. personnel, equipment and quarters; designed to minimize industrial strife
Adam v. United States, 26 Cl. Ct. at deciding how and where to allocate and to improve working conditions by
792–93, for example, involved border personnel; managing the distribution of encouraging employees to promote their
patrol agents who spent a significant equipment; maintaining inventory of interests collectively, the FLSA was
amount of time in the field, wore property and supplies; and directing designed to give specific minimum
‘‘uniforms and black work boots,’’ and operations at crime, fire or accident protections to individual workers and to
used ‘‘a handgun, a baton, night-vision scenes, including deciding whether ensure that each employee covered by
goggles, and binoculars.’’ Their work additional personnel or equipment is the Act would receive ‘[a] fair day’s pay
required ‘‘frequent and recurring needed. See, e.g., West v. Anne Arundel for a fair day’s work’ and would be
walking and running over rough terrain, County, Maryland, 137 F.3d 752 (4th protected from ‘the evil of overwork as
stooping, bending, crawling in restricted Cir.) (EMT captains and lieutenants), well as underpay.’ ’’) (citation omitted);
areas such as culverts, climbing fences cert. denied, 525 U.S. 1048 (1998); NLRB v. R & H Coal Co., 992 F.2d 46
and freight car ladders, and protecting Smith v. City of Jackson, Mississippi, (4th Cir. 1993) (purpose of FLSA is to
one’s self and others from physical 954 F.2d 296 (5th Cir. 1992) (fire chiefs); guarantee minimum level of
attacks.’’ Their work also involved ‘‘high Masters v. City of Huntington, 800 F. compensation to workers, regardless of
speed pursuits, boarding moving trains Supp. 363 (S.D.W. Va. 1992) (fire outcome of bargaining process; by
and vessels, and physical threat while deputy chiefs and captains); Simmons v. contrast, purpose of National Labor
detaining and arresting illegal aliens, City of Fort Worth, Texas, 805 F. Supp. Relations Act is to facilitate collective
smugglers, and other criminal 419 (N.D. Tex. 1992) (fire deputy and bargaining process and ensure that its
elements.’’ The court held that these district chiefs); Keller v. City of outcome is enforced). Thus, the new
border patrol agents are not exempt Columbus, Indiana, 778 F. Supp. 1480 section 541.4 states: ‘‘The Fair Labor
from the FLSA overtime requirements, (S.D. Ind. 1991) (fire captains and Standards Act provides minimum
stating that the ‘‘level of physical effort lieutenants). Another important fact standards that may be exceeded, but
required in the environment described considered in at least one case is that cannot be waived or reduced.
plainly cannot be characterized as exempt police and fire executives Employers must comply, for example,
‘office or other predominately generally are not dispatched to calls, but with any Federal, State or municipal
nonmanual work.’ A dictionary rather have discretion to determine laws, regulations or ordinances
definition of ‘manual’ is, ‘requiring or whether and where their assistance is establishing a higher minimum wage or
using physical skill and energy.’ * * * needed. See, e.g., Anderson v. City of lower maximum workweek than those
Non-manual work, therefore, would not Cleveland, Tennessee, 90 F. Supp.2d established under the Act. Similarly,
call for significant use of physical skill 906, 909 (E.D. Tenn. 2000) (police employers, on their own initiative or
or energy. Certainly, the agents’ job lieutenants ‘‘monitor the radio in order under a collective bargaining agreement
duties do not fit that definition.’’ See to keep tabs on their men and determine with a labor union, are not precluded by
also, Roney v. United States, 790 F. where their assistance is needed’’).8 the Act from providing a wage higher
Supp. 23, 25 (D.D.C. 1992) (Deputy U.S. A new section 541.4 highlights that than the statutory minimum, a shorter
Marshal entitled to overtime pay where the FLSA establishes a minimum workweek than the statutory maximum,
position requires ‘‘ ‘physical strength standard that may be exceeded, but or a higher overtime premium (double
and stamina to perform such activities cannot be waived or reduced. See time, for example) than provided by the
as long periods of surveillance, pursuing Brooklyn Savings Bank v. O’Neil, 324 Act. While collective bargaining
and restraining suspects, carrying heavy U.S. 697, 706 (1945). Section 18 of the agreements cannot waive or reduce the
equipment’ ’’ and the employee ‘‘ ‘may FLSA states that employers must Act’s protections, nothing in the Act or
be subject to physical attack, including comply ‘‘with any Federal or State law the regulations in this part relieves
the use of lethal weapons’ ’’) (citation or municipal ordinance establishing a employers from their contractual
omitted). minimum wage higher than the obligations under collective bargaining
Federal courts have found high-level minimum * * * or a maximum agreements.’’
police and fire officials to be exempt workweek lower than the maximum
Subpart B, Executive Employees
executive or administrative employees workweek established under the Act.’’
only if, in addition to satisfying the 29 U.S.C. 218. Similarly, employers, on Section 541.100 General Rule for
other pertinent requirements, such as their own initiative or in collective Executive Employees
directing the work of two or more other bargaining negotiations with a labor The Department’s proposal
full time employees as required for the union, are not precluded by the FLSA streamlined the existing regulations by
executive exemption, their primary duty from providing a wage higher than the adopting a single standard duties test in
is performing managerial tasks such as statutory minimum, a shorter workweek proposed section 541.100. The proposed
evaluating personnel performance; than provided by the FLSA, or a higher standard duties test provided that an
enforcing and imposing penalties for overtime premium (double time, for exempt executive employee must: have
violations of the rules and regulations; example) than provided by the FLSA. a primary duty of managing the
making recommendations as to hiring, See, e.g., Barrentine v. Arkansas-Best enterprise in which the employee is
promotion, discipline or termination; Freight System, Inc., 450 U.S. 728, 739 employed or of a customarily
coordinating and implementing training (1981) (‘‘In contrast to the Labor recognized department or subdivision
programs; maintaining company payroll 8 Some police officers, fire fighters, paramedics
thereof; customarily and regularly direct
and personnel records; handling and EMTs treated as exempt executives under the
the work of two or more other
community complaints, including current regulations may be entitled to overtime employees; and have the authority to
determining whether to refer such under the final rule because of the additional hire or fire other employees or have
complaints to internal affairs for further requirement in the standard duties test that an particular weight given to suggestions
exempt executive must have the authority to ‘‘hire
investigation; preparing budgets and or fire’’ other employees or make recommendations
and recommendations as to the hiring,
controlling expenditures; ensuring given particular weight on hiring, firing, firing, advancement, promotion or any
operational readiness through advancement, promotion or other change of status. other change of status of other
employees. This standard test, the AFL–CIO and others requesting that authority to make the ultimate decision
consisting of the current short test proposed subsection 541.100(a)(4) be regarding an employee’s status, such as
requirements plus a third objective changed to requiring ‘‘hiring or firing where a higher level manager or a
requirement taken from the long test, and advancement, promotion or any personnel board makes the final hiring,
was more protective than the existing other change of status.’’ An employee promotion or termination decision.
‘‘short’’ duties test applied to employees who provides guidance on any one of With this clarification, and with the
earning $250 or more per week ($13,000 the specified changes in employment clarification that this rule encompasses
annually). status may meet the section other tangible employment actions, we
The Department has retained this 541.100(a)(4) requirement. have determined that this requirement
standard test for the final rule but has The New York State Public should not pose a hardship since public
made minor changes to section Employees Federation suggests that the sector supervisory employees provide
541.100(a)(2). Subsection 541.100(a)(2) Department should provide a definition recommendations as to hiring, firing or
has been modified now to read ‘‘whose of the phrase ‘‘authority to hire or fire’’ other personnel decisions that are given
primary duty is management of the which would require that a significant ‘‘particular weight’’ to the extent
enterprise in which the employee is part of the employee’s responsibility allowed under civil service laws and
employed or of a customarily must involve either hiring or firing. The thus may meet this requirement for
recognized department or subdivision Department believes that these terms are exemption. As the National School
thereof.’’ This change was made in straightforward and should be Board Association comments, although
response to several commenters, such as interpreted in accordance with their state law may vest the school board with
the AFL–CIO, who felt that the change customary definition, i.e., to engage or the exclusive authority to discharge an
from ‘‘whose’’ primary duty as written disengage an individual for employee, such an action is precipitated
in the existing regulations to ‘‘a’’ employment. Therefore, the Department by a department supervisor who
primary duty as written in the proposal has determined that such a definition evaluates the employee’s performance
weakened this prong of the test by need not be incorporated into the final and recommends the action, and the
allowing for more than one primary regulation. superintendent’s recommendation to the
duty and not requiring that the most Several commenters from the public board is based on the department
important duty be management. As the sector, such as the Metropolitan supervisor’s recommendations. In
Department did not intend any Transportation Authority, the New York addition, such employees may also
substantive change to the concept that State Police, and the Public Sector FLSA qualify for exemption as administrative
an employee can only have one primary Coalition, indicate that the requirement or professional employees.
duty, the final rule uses the introductory in the proposal that an employee have
phrasing from the existing regulations. the authority to hire or fire will cause A number of employer groups urge
Several commenters state that the many exempt employees to lose exempt the Department to eliminate proposed
phrases ‘‘change in status’’ and status since employees in the public 541.100(a)(4) entirely. These
‘‘particular weight’’ contained in both sector do not have authority to make commenters argue that this requirement
the existing regulations and proposed such decisions. According to the will cause many employees to lose their
541.100(a)(4) are vague and should be Metropolitan Transportation Authority, exempt executive status because the
defined. The Department has added a ‘‘the authority to hire or fire (or to have ‘‘hire or fire’’ requirement is not
definition of ‘‘particular weight’’ based his recommendation to change an contained in the current short test and
on case law, which now appears in employee’s employment status given therefore has been effectively dormant
section 541.105, as discussed below. strong consideration) only exists at the for practical purposes as a measure of
Although the Department has not added highest levels in public employment’’ exempt executive status. The
a definition of ‘‘change of status’’ to the because of such factors as ‘‘unionization Department carefully reviewed these
final regulation, the Department intends within the state and local public sector comments and believes that this
that this phrase be given the same and statutory constraints, such as civil requirement may result in some
meaning as that given by the Supreme service laws, which have been currently exempt employees becoming
Court in defining the term ‘‘tangible developed to protect employees in the nonexempt; however, the number is too
employment action’’ for purposes of public sector from various factors, small to estimate quantitatively.
Title VII liability. In Burlington including the political process, Subsection 541.100(a)(4) is an important
Industries, Inc. v. Ellerth, 524 U.S. 742, favoritism or for other reasons.’’ The and objective measure of executive
761–62 (1998), the Supreme Court Society for Human Resource exempt status which is simple to
defined ‘‘tangible employment action’’ Management (SHRM) similarly states understand and easy to administer. As
as ‘‘a significant change in employment that this requirement would be the 1940 Stein Report stated at page 12:
status, such as hiring, firing, failing to ‘‘particularly troublesome’’ for public ‘‘[i]t is difficult to see how anyone,
promote, reassignment with entities governed by civil service rules whether high or low in the hierarchy of
significantly different responsibilities, that dictate the use of a board to make management, can be considered as
or a decision causing a significant hiring or firing decisions. SHRM employed in a bona fide executive
change in benefits.’’ The Department recommends that this requirement be capacity unless he is directly concerned
believes that this discussion provides deleted or that the Department define either with the hiring or the firing and
the necessary guidance to reflect the the term ‘‘particular weight’’ in the other change of status of the employees
types of employment actions a regulations. The Johnson County under his supervision, whether by
supervisor would have to make Government also asks for clarification of direct action or by recommendation to
recommendations regarding, other than the term ‘‘particular weight.’’ The those to whom the hiring and firing
hiring, firing or promoting, to meet this Department has evaluated these functions are delegated.’’ Although this
prong of the executive test. Because the comments and, as noted above, has new requirement may exclude a few
Department intends to follow the included a definition of the term employees from the executive
Supreme Court’s disjunctive definition ‘‘particular weight’’ in section 541.105. exemption, the Department has
of ‘‘tangible employment action’’ in That definition clarifies that an determined that it will have a minimal
Ellerth, we also reject comments from executive does not have to possess full impact on employers. Most supervisors
and managers should at least have their to recognize the special status of an the ‘‘sole charge’’ provision and
suggestions and recommendations as to owner, or partial owner, of an enterprise renumbers the remaining sections of
the hiring, firing, advancement, who is actively engaged in its Subpart B.
promotion or any other change of status management’’) (emphasis added). Under proposed section 541.102, an
of other employees be given particular The proposed rule contained no employee in sole charge of an
weight. Further, employees who cannot salary level or salary basis requirements independent or branch establishment
meet the ‘‘hire or fire’’ requirement in for the business owner. The Department would qualify for the executive
section 541.100(a)(4) may nonetheless requested comments on whether the exemption if the employee (1) is
qualify for exemption as administrative salary level and/or salary basis tests compensated on a salary basis at a rate
or professional employees. should be included in the provision. 65 of not less than $425 per week (or $360
FR 15560, 15565 (March 31, 2003). per week, if employed in American
Section 541.101 Business Owner Commenters typically favor the Samoa by employers other than the
Section 541.101 of the proposed rule exemption and agree with the Federal Government), exclusive of
provided that an employee ‘‘who owns Department that the salary requirements board, lodging or other facilities; (2) is
at least a 20-percent equity interest in are not necessary, given the likelihood the top and only person in charge of the
the enterprise in which the employee is that an employee who owns a bona fide company activities at the location where
employed, regardless of whether the 20-percent equity interest in the employed; and (3) has authority to make
business is a corporate or other type of enterprise will share in its profits. Thus, decisions regarding the day-to-day
organization,’’ is exempt as an executive this ownership interest is an adequate operations of the establishment and to
employee. substitute for the salary requirements. direct the work of any other employees
The Department made two Additionally, several commenters, for at the establishment or branch. Under
modifications to the provision in the example, the Workplace Practices the proposal, an ‘‘independent
final rule. First, we inserted the term Group, note that business owners at this establishment or physically separated
‘‘bona fide’’ before the phrase ‘‘20 level are able to receive compensation branch establishment’’ was defined as
percent equity interest.’’ Second, we in other ways and have sufficient ‘‘an establishment that has a fixed
added a duties requirement that the 20 control over the business to prevent location and is geographically separated
percent business owner must be abuse. Thus, in the final rule, as in the from other company property.’’ The
‘‘actively engaged in its management.’’ proposal, the salary requirements do not proposal permitted a leased department
These changes were made to address apply to a 20-percent equity owner. to qualify as a physically separated
commenter concerns that this section However, requiring a ‘‘bona fide’’ branch establishment when the lessee
could be subject to abuse. For example, ownership interest and that the 20 operated under a separate trade name,
the McInroy & Rigby law firm argues percent owner be actively engaged in with its own separate employees and
that the exemption would be subject to management will prevent abuses such records, and in other respects conducted
‘‘great abuse.’’ The firm speculates that as that described by commenters and in its business independent of the lessor’s
‘‘[s]mall business employers could grant Lavian v. Haghnazari, 884 F. Supp. 670, with regard to such matters as hiring
employees an illusory ownership 678 (E.D.N.Y. 1995). In Lavian, an uncle and firing of employees, other personnel
interest and avoid having to even pay invested more than $70,000 in his policies, advertising, purchasing,
the minimum wage to such employees. nephew’s pharmacy business in pricing, credit operations, insurance and
One would anticipate many sham exchange for a promise of 49 percent taxes.
transactions conveying illusory stock ownership interest in the closely- The final rule deletes this section in
ownership interests if the provision is held corporation. After working at the its entirety.
adopted.’’ Adding the modifier ‘‘bona pharmacy for two years without Commenters such as the AFL–CIO,
fide’’ before the phrase ‘‘20-percent compensation, and never receiving the National Employment Law Project,
equity interest’’ serves to emphasize that share certificates, the uncle sued. The the National Employment Lawyers
the employee’s ownership stake in the court denied a motion to dismiss an Association and the Goldstein,
business must be genuine. The AFL– FLSA claim, noting that the court must Demchak, Baller, Borgen & Dardarian
CIO argues that this section ‘‘cannot accept as true the uncle’s allegations law firm object to this provision as
stand’’ because it would allow the that his duties were ‘‘clerical, and allowing the exemption for employees
exemption for employees who perform lacking in actual supervisory and who perform mostly nonexempt tasks
no management duties: ‘‘an individual discretionary authority in relation to the (such as opening and closing up the
may have a 20 percent interest in an enterprise.’’ Id., at 680. The final rule location, ringing up cash register sales,
independent gas station, or a small food ensures that employees with such stocking shelves, answering phones,
mart. In order to break even, the limited job duties in a company would serving customers, etc.) and few, if any,
business stays open through the night, not meet the definition of ‘‘actively management functions. These
and as the minority owner that person engaged in its management.’’ commenters also believe that, when no
keeps the operations going during those other employees worked at the
hours. He makes no management Section 541.102 Management establishment, the provision would
decisions, supervises no one, and has no (Proposed § 541.103, ‘‘Management of allow an employee to qualify for the
authority over personnel, and could the Enterprise’’ and Proposed § 541.102, exemption without having supervisory
make less than the minimum wage. ‘‘Sole Charge Executive’’) responsibility for any other employees.
Under the Department’s proposal, this The proposed regulations at section The International Association of Fire
employee meets the test for the bona 541.102 provided a modified test for the Fighters expresses strong concerns that
fide executive.’’ The Department agrees executive exemption for an employee the sole charge provision would exempt
that such an employee should not who is in sole charge of an independent a low-ranking officer in charge of a fire
qualify for the exemption. Thus, we establishment or a physically separated station during a particular shift, even
have added the duties requirement that branch establishment. Proposed section though a higher ranking officer is in
the 20-percent owner be actively 541.103 defined the term ‘‘management charge of the overall management of the
engaged in management. See 1949 of the enterprise.’’ For the reasons station. The Department agrees with
Weiss Report at 42 (section is ‘‘intended discussed below, the final rule deletes these commenter concerns. In addition,
the Department recognizes that, materials, supplies, machinery or tools notes that management of processes,
although not intended, section 541.102 to be used or merchandise to be bought, projects or contracts are also
as proposed could be construed as stocked and sold; controlling the flow appropriately considered exempt
allowing the exemption for fairly low- and distribution of materials or administrative duties. The National
level employees with fewer merchandise and supplies; and Retail Federation asks that the list be
management duties than those required providing for the safety of the ‘‘augmented to confirm that additional
for ‘‘highly compensated’’ employees in employees or the property.’’ duties are exempt when performed by
final section 541.601. In response to comments, the retail employees in the course of
Before deciding to eliminate this Department has amended section managing: such as walking the floor,
section entirely, the Department 541.102 to rename the section as interacting with customers to determine
considered comments of groups such as ‘‘management,’’ add language to make satisfaction * * *, team building,
the U.S. Chamber of Commerce, the clear that the list is not exhaustive, and conducting inspections, evaluating
National Retail Federation, the National add the management functions of efficiency, monitoring or implementing
Association of Convenience Stores, the ‘‘planning and controlling the budget’’ legal compliance measures, training
Fisher & Phillips law firm, the National and ‘‘monitoring or implementing legal * * *, attending management meetings,
Association of Chain Drug Stores, the compliance measures.’’ planning meetings and developing
FLSA Reform Coalition, the Illinois Comments from the Fisher & Phillips meeting materials, planning and
Credit Union League, the Food law firm and the National Association of conducting marketing activities * * *,
Marketing Institute, the National Convenience Stores ask the Department and investigating or otherwise
Grocers Association, the International to change the phrase ‘‘management of addressing matters regarding personnel,
Mass Retail Association, the League of the enterprise’’ to ‘‘management,’’ proficiency, productivity, staffing or
Minnesota Cities and others that request pointing out that the current regulatory management issues.’’ The National
changes to expand the ‘‘sole charge’’ section is simply entitled ‘‘management’’ Council of Chain Restaurants suggests
provision. For example, these and the name ‘‘management of the that ‘‘handling customer complaints’’ is
commenters suggest eliminating the enterprise’’ suggests that these just as much a management function as
salary level and salary basis management duties apply to an entity handling employee complaints and
requirements; including in the broader than that required by section therefore should be added to the list of
exemption all employees who are in 541.100. Because section 541.100(a)(2) examples, along with ‘‘coaching
charge of an establishment at any time requires that the primary duty of the employees in proper job performance
during the day or week; allowing more employee involve management of the techniques and procedures.’’ The
than occasional visits by the sole charge ‘‘enterprise or of a customarily Department believes that it is not
executive’s superior; eliminating the recognized department or subdivision appropriate to further augment the list.
requirement that the independent thereof,’’ the Department has renamed
Although many of these suggestions are
establishment must be geographically the section ‘‘management’’ to avoid any
appropriate examples of ‘‘management’’
separate from other company property; confusion.
The Department also received a functions, some appear duplicative of
and eliminating the requirements that a functions already included in the
leased department must operate under a number of comments, including from
the Fisher & Phillips law firm, the section and others, such as ‘‘handling
separate trade name and be responsible customer complaints’’ and ‘‘conducting
for its own insurance, advertising, taxes, National Retail Federation, the National
Association of Federal Wage Hour inspections,’’ are functions that could
purchasing, pricing and credit
Consultants, the National Council of qualify as either management or
operations. In the existing regulations,
Chain Restaurants and the National production type functions depending on
the ‘‘sole charge’’ rule is an exception
Association of Chain Drug Stores, asking the specific facts involved. A case-by-
from the 20-percent restriction on
the Department to make clear that the case analysis would be more
nonexempt work in the ‘‘long’’ duties
list was not exhaustive and other types appropriate to determine whether such
test. After considering all comments,
of functions could constitute functions meet the definition of
and for the reasons stated above, the
‘‘management’’ activities. The ‘‘management.’’ Moreover, because the
Department concludes that this rule is
Department believes that such a change Department has added language to make
not appropriate as a stand-alone test for
is consistent with the current clear that the list is not exhaustive, such
the executive exemption.
Proposed section 541.103, defining interpretive guidelines which make functions could be considered
the term ‘‘management of the enterprise’’ clear the factors listed are just examples, management functions in appropriate
as used in subsection 541.100(a)(2), has and the final rule has been revised circumstances. For example, a customer
been renumbered as final section accordingly. service representative may routinely
541.102. The proposed definition of Several commenters did ask that handle customer complaints but not be
‘‘management’’ included the following specific functions be added to the list. acting in a management capacity. In
list of activities that would generally The Morgan Lewis & Bockius law firm contrast, a manager in a restaurant may
meet this definition: ‘‘interviewing, comments that the examples used in be the person responsible for handling
selecting, and training of employees; this section were too focused on such complaints as the individual
setting and adjusting their rates of pay supervision and suggested that this responsible for the functioning of the
and hours of work; directing the work section should recognize management of operation and therefore would be
of employees; maintaining production processes, projects and contracts in operating in a management capacity.
or sales records for use in supervision addition to employees. The Department Finally, the management function
or control; appraising employees’ agrees that management activities are listed as ‘‘appraising their productivity
productivity and efficiency; handling not limited to supervisory functions. and efficiency’’ has been augmented
employee complaints and grievances; Accordingly, the final rule adds the with the phrase from the current
disciplining employees; planning the management functions of ‘‘planning and regulations, ‘‘for the purpose of
work; determining the techniques to be controlling the budget’’ and ‘‘monitoring recommending promotions or other
used; apportioning the work among the or implementing legal compliance changes in their status.’’ The AFL-CIO
employees; determining the type of measures.’’ Further, the Department argues that the elimination of this
phrase would allow the definition of broadened to account for a functional Four half-time employees are also
management to include low-level unit which would provide for a more equivalent.’’ Proposed section
personnel functions. As the Department flexible or fluid organizational 541.105(b) stated that the ‘‘supervision
did not intend to change the meaning of philosophy. The National Council of can be distributed among two, three or
this phrase, this language has been Chain Restaurants asks for confirmation more employees, but each such
added to the final rule. of the Department’s historic employee must customarily and
enforcement position that ‘‘front of the regularly direct the work of two or more
Section 541.103 Department or
house’’ and ‘‘back of the house’’ are other full-time employees or the
Subdivision (Proposed § 541.104)
recognized subdivisions. The U.S. equivalent. Thus, for example, a
Proposed section 541.104 stated that Chamber of Commerce states that the department with five full-time
the phrase ‘‘department or subdivision’’ phrase ‘‘department or subdivision’’ is nonexempt workers may have up to two
is ‘‘intended to distinguish between a outdated and the applicable units exempt supervisors if each such
mere collection of employees assigned should provide for project teams. supervisor customarily and regularly
from time to time to a specific job or Finally, the League of Minnesota Cities directs the work of two of those
series of jobs and a unit with permanent questions whether a subdivision would workers.’’ However, under proposed
status and function.’’ The section include supervision of a day shift. subsections (c) and (d), an ‘‘employee
defined ‘‘department or subdivision’’ as The Department has decided not to who merely assists the manager of a
requiring ‘‘a permanent status and a expand the term ‘‘department or particular department and supervises
continuing function.’’ Proposed subdivision’’ because the phrase has not two or more employees only in the
subsection 541.104(b) recognized that caused confusion or excessive litigation. actual manager’s absence does not meet
‘‘when an enterprise has more than one Expanding the definition would unduly this requirement,’’ and ‘‘[h]ours worked
establishment, the employee in charge complicate this requirement and likely by an employee cannot be credited more
of each establishment may be lead to unnecessary litigation. Indeed, than once for different executives.’’
considered in charge of a recognized the courts already have provided Thus, ‘‘a shared responsibility for the
subdivision of the enterprise.’’ Proposed clarification of the phrase on a number supervision of the same two employees
subsection 541.104(c) stated that ‘‘a of occasions. For example, several in the same department does not satisfy
recognized department or subdivision courts have stated that a shift can this requirement.’’
need not be physically within the constitute a department or subdivision, Except for renumbering the section as
employer’s establishment and may which responds to the question raised 541.104, no other changes were made.
move from place to place’’ and provided by the League of Minnesota Cities. See In its proposal, the Department
that the ‘‘mere fact that the employee West v. Anne Arundel County, invited comments on whether the
works in more than one location does Maryland, 137 F.3d 752, 763 (4th Cir. supervision of ‘‘two or more employees’’
not invalidate the exemption if other 1998); Joiner v. City of Macon, 647 F. required for exemption should be
factors show that the employee is Supp. 718, 721–22 (M.D. Ga. 1986); modified to include ‘‘the customary or
actually in charge of a recognized unit.’’ Molina v. Sea Land Services, Inc., 2 F. regular leadership, alone or in
Finally, proposed subsection 541.104(d) Supp. 2d 185, 188 (D.P.R. 1998). The combination with others, of two or more
stated that ‘‘continuity of the same Department notes that the issue other employees.’’ See 61 FR 15565
subordinate personnel is not essential to identified by the National Retail (March 31, 2003). In response to this
the existence of a recognized unit with Federation as to whether ‘‘front of the request, the Department received a large
a continuing function. An otherwise house’’ in a store constitutes a number of comments both in support of
exempt employee will not lose the department or subdivision was and against the modification.
exemption merely because the employee answered by at least one court in the Commenters such as the U.S. Chamber
draws and supervises workers from a affirmative. See Debartolo v. Butera of Commerce, the National Association
pool or supervises a team of workers Finer Foods, 1995 WL 516990, at *4 of Manufacturers, the League of
drawn from other recognized units, if (N.D. Ill. 1995). Finally, the Department Minnesota Cities, the Financial Services
other factors are present that indicate observes that ‘‘groupings’’ or ‘‘teams’’ Roundtable, the National Automobile
that the employee is in charge of a may constitute a department or Dealers Association, the State of
recognized unit with a continuing subdivision under the existing Oklahoma, the State of Kansas
function.’’ definition, but a case-by-case analysis is Department of Administration Division
The only changes to proposed section required. See Gorman v. Continental of Personnel Services, the Tennessee
541.104 are to renumber the section as Can Co., 1985 WL 5208, at *6 (N.D. Ill. Valley Authority, the Public Sector
541.103 in the final rule, and to delete 1985) (department or subdivision can FLSA Coalition, and the FLSA Reform
the sentence in subsection (b) that ‘‘[t]he ‘‘include small groups of employees Coalition support the modified language
employee also may qualify for the sole working on a related project within a as more applicable to the realities of the
charge exemption, if all of the larger department, such as a group modern workforce. In contrast, other
requirements of § 541.102 are satisfied.’’ leader of four draftsmen in the gauge commenters believe this language
This sentence is no longer necessary section of a much larger department’’). would compromise the executive
because of the deletion of the ‘‘sole The Department believes these cases exemption or create confusion. For
charge’’ exemption in proposed section correctly define and delimit the term example, the National Employment
541.102. No other changes have been ‘‘department or subdivision.’’ Lawyers Association ‘‘disputes that
made. there is any need for modification
Several commenters request that the Section 541.104 Two or More Other changing the long-established
Department expand or clarify the phrase Employees (Proposed § 541.105) requirement that an exempt executive
‘‘department or subdivision.’’ The Proposed section 541.105 defined the must supervise two or more employees’’
Morgan Lewis & Bockius law firm asks term ‘‘two or more other employees’’ to because those ‘‘who supervise fewer
the Department to expand the phrase mean ‘‘two full-time employees or their than two employees are, as [a] practical
‘‘department or subdivision’’ to include equivalent. One full-time and two half matter, clearly not performing exempt
‘‘grouping.’’ The Public Sector FLSA time employees, for example, are activity at a level that could conceivably
Coalition suggests that the phrase be equivalent to two full-time employees. justify their characterization as bona
fide executives.’’ The Contract Services Several commenters ask that the not have authority to make the ultimate
Association of America states that the requirement of directing two or more decision as to the employee’s change in
‘‘word ‘leadership’ has too many employees be eliminated. Other status.
connotations to be practical in the work commenters state that the requirement This definition has been added in
environment.’’ should be lowered to directing only one response to comments received from
After full consideration of these other employee. Yet others argue that groups such as the Society for Human
comments, the Department has decided the number of employees supervised Resource Management, Leggett & Platt,
to retain the existing and proposed should be raised. For example, the the Food Marketing Institute, the League
language that the employee direct the National Association of Federal Wage of Minnesota Cities and the American
work of ‘‘two or more other employees’’ Hour Consultants states that the Council of Engineering Companies, who
to qualify as an executive under the requirement should be five employees indicate that this phrase is extremely
final rule. The Department agrees with while the Labor Board, Inc. suggests the vague and needs clarification. As one of
the comments opposing this change, number should be four employees. The the Department’s goals is to provide
and has rejected the ‘‘leadership’’ Department continues to believe that the clarity to the terms contained in the
modification because the present current requirement of directing two or regulations, we have defined ‘‘particular
requirement provides a well established, more employees is an appropriate weight’’ by incorporating factors relied
easily applied, bright-line test for measure of exempt status and to raise on by the courts to define this term
exemption, and the ambiguity attached the threshold would disproportionately under the current regulations. See, e.g.,
to the term ‘‘lead,’’ the Department harm small businesses that may not Baldwin v. Trailer Inns, Inc., 266 F.3d
believes, could spark needless litigation. have a large number of employees. See 1104, 1116 (9th Cir. 2001); Molina v.
Also, an employee whose primary duty 1940 Weiss Report at 45–46. Sea Land Services, Inc., 2 F. Supp. 2d
is management and who customarily Several commenters question whether 185, 188 (D.P.R. 1998); Wendt v. New
and regularly leads other employees, the requirement that an employee direct York Life Insurance Co., 1998 WL
alone or with another, may qualify for two or more other ‘‘employees’’ includes 118168, at *6 (S.D.N.Y. 1998); Passer v.
exemption under the administrative employees of a contractor. Several American Chemical Society, 749 F.
exemption. commenters also urge the Department to Supp. 277, 280 (D.D.C. 1990); Wright v.
The Department also received a expand this requirement to two or more Zenner & Ritter, Inc., 1986 WL 6152, at
number of other comments and requests ‘‘individuals’’ so as to count the *2 (W.D.N.Y. 1986); Kuhlmann v.
for clarification on this section. The supervision of volunteers, contractors, American College of Cardiology, 1974
FLSA Reform Coalition asks that the and other non-employees. The WL 1344, at *1 (D.D.C. 1974); Marchant
Department clarify what the term ‘‘full Department has evaluated these v. Sands Taylor & Woods Co., 75 F.
time’’ means, and requests that the comments and determined that no Supp. 783, 786 (D. Mass. 1948);
clarification include a statement that the changes should be made. The FLSA Anderson v. Federal Cartridge Corp., 62
itself defines the term ‘‘employee’’ as an F. Supp. 775, 781 (D. Minn. 1945).
term should be defined by the
‘‘individual employed by an employer,’’ As illustrated by these cases, factors
employer’s practices. The Department
and this definition has been subject to such as the frequency of making
does not believe additional clarification recommendations, frequency of an
is necessary, and stands by its current extensive judicial interpretation. See 29
U.S.C. § 203(e)(1). The Department also employer’s relying on an employee’s
interpretation that an exempt supervisor recommendations, as well as evidence
generally must direct a total of 80 observes, however, that the
administrative exemption may apply to that the employee’s job duties explicitly
employee-hours of work each week. As include the responsibility to make such
the Wage and Hour Division’s Field the employee who supervises
recommendations, are important
Operations Handbook (FOH) states, contractors, volunteers or other non-
considerations in determining whether
however, circumstances might justify employees if the other requirements for
‘‘particular weight’’ is given to the
lower standards. For example, firms in that exemption are met.
employee’s recommendations. Thus, for
some industries have standard Section 541.105 Particular Weight example, an employee who provides
workweeks of 371⁄2 hours or 35 hours for few recommendations which are never
their full-time employees. In such cases, Section 541.105 of the final rule
contains a new definition of the phrase followed would not meet the ‘‘hire or
supervision of employees working a fire’’ requirement in final section
total of 70 or 75 hours in a workweek ‘‘particular weight’’ as follows:
541.100(a)(4). Evidence that an
will constitute the equivalent of two To determine whether an employee’s employee’s recommendation are given
full-time employees. FOH 22c00. suggestions and recommendations are given ‘‘particular weight’’ could include
Several commenters, such as the ‘‘particular weight,’’ factors to be considered
witness testimony that
Financial Services Roundtable and the include, but are not limited to, whether it is
part of the employee’s job duties to make recommendations were made and
Mortgage Bankers Association of considered; the exempt employee’s job
such suggestions and recommendations; the
America, urge the Department to clarify frequency with which such suggestions and description listing responsibilities in
the phrase ‘‘in the manager’s actual recommendations are made or requested; and this area; the exempt employee’s
absence’’ in subsection (c). The the frequency with which the employee’s performance reviews documenting the
Department continues to believe that the suggestions and recommendations are relied employee’s activities in this area; and
phrase provides useful guidance in upon. Generally, an executive’s suggestions other documents regarding promotions,
defining the exempt executive, and and recommendations must pertain to demotions or other change of status that
intends that this phrase be interpreted employees whom the executive customarily
reveal the employee’s role in this area.
to mean that an employee who simply and regularly directs. It does not include an
supervises on a short-term basis, such as occasional suggestion with regard to the Section 541.106 Concurrent Duties
change in status of a co-worker. An (Proposed §§ 541.106 and 541.107)
during a lunch break or while a manager employee’s suggestions and
is on vacation, is not meeting the recommendations may still be deemed to Proposed section 541.106 entitled
requirement of customarily and have ‘‘particular weight’’ even if a higher ‘‘Working supervisors’’ stated:
regularly supervising two or more level manager’s recommendation has more ‘‘Employees, sometimes called ‘working
employees. importance and even if the employee does foremen’ or ‘working supervisors,’ who
have some supervisory functions, such subsection 541.106(a) also states: for the elimination of proposed section
as directing the work of other ‘‘Generally, exempt executives make the 541.106 and suggests that proposed
employees, but also perform work decision regarding when to perform section 541.107 apply to all supervisors,
unrelated or only remotely related to the nonexempt duties and remain as both working supervisors and retail
supervisory activities are not exempt responsible for the success or failure of supervisors have the same or very
executives if, instead of having business operations under their similar responsibilities such as
management as their primary duty as management while performing the scheduling employees, assigning work
required in § 541.100, their primary nonexempt work. In contrast, the and overseeing product quality. The
duty consists of either the same kind of nonexempt employee generally is County of Culpeper, Virginia, argues
work as that performed by their directed by a supervisor to perform the that proposed section 541.106 ignored
subordinates; work that, although not exempt work or performs the exempt the realities of small governments where
performed by their own subordinates, work for defined time periods. An department heads have to perform both
consists of ordinary production or sales employee whose primary duty is exempt management duties and
work; or routine, recurrent or repetitive ordinary production work or routine, nonexempt work.
tasks.’’ Proposed section 541.107 recurrent or repetitive tasks cannot Some commenters, including the New
entitled ‘‘Supervisors in retail qualify for exemption as an executive.’’ Jersey Business & Industry Association,
establishments’’ stated: ‘‘Supervisors in Final subsections 541.106(b) and (c) the National Retail Federation and the
retail establishments often perform work contain examples to further illustrate HR Policy Association, commend the
such as serving customers, cooking these general principles. Department for recognizing the special
food, stocking shelves, cleaning the The final section provides, as in the circumstances of retail supervisors. In
establishment or other nonexempt work. current regulations, that an employee contrast, the Society for Human
Performance of such nonexempt work with a primary duty of ordinary Resource Management, Senator Orrin G.
by a supervisor in a retail establishment production work is not exempt even if Hatch and others argue that a
does not disqualify the employee from the employee also has some supervisory distinction between retail and non-retail
the exemption if the requirements of responsibilities. As explained in the supervisors does not exist. The
§ 541.100 are otherwise met. Thus, an preamble to the proposed rule, this American Hotel & Lodging Association,
assistant manager whose primary duty situation often occurs in a factory the International Franchise Association,
includes such activities as scheduling setting where an employee who works the FLSA Reform Coalition, the National
employees, assigning work, overseeing on a production line also has some Association of Chain Drug Stores and
product quality, ordering merchandise, responsibility to direct the work of other the International Mass Retail
managing inventory, handling customer production line workers. Another Association argue that proposed section
complaints, authorizing payment of bills example is an employee whose primary 541.107 should be modified to cover
or performing other management duty is to work as an electrician, but both retail and service establishments.
functions may be an exempt executive who also directs the work of other Other commenters state that the
even though the assistant manager employees on the job site, orders parts description of ‘‘working supervisors’’
spends the majority of the time on and materials for the job, and handles was too broad. Such commenters argue
nonexempt work.’’ requests from the prime contractor. that fast-food managers who spend the
As the Department explained in the Nonexempt employees do not become majority of their time on nonexempt
preamble to the proposed rule, both exempt executives simply because they work should not be exempt. The
proposed section 541.106 and proposed direct the work of other employees upon National Employment Law Project states
section 541.107 were meant to address occasion or provide input on that the proposed language would make
the difficult issue of classifying performance issues from time to time it possible to exempt all line employees,
employees who have both exempt because such employees typically do provided they met the requirements of
supervisory duties and nonexempt not meet the other requirements of proposed section 541.100. The McInroy
duties. The Department invited section 541.100, such as having a & Rigby law firm argues that proposed
comments on whether these sections primary duty of management. section 541.107 should be eliminated
have appropriately distinguished The Department decided to combine since there was no policy justification
exempt and nonexempt employees. 61 proposed sections 541.106 and 541.107 for assistant managers in fast-food
FR 15565. into one section on ‘‘concurrent duties’’ establishments to be exempt from FLSA
Based on the comments received, the in response to a number of comments requirements. The Communications
Department has decided to combine indicating that the proposed separate Workers of America similarly opposes
these two proposed sections into one sections were duplicative and not any diminution of the existing
section entitled ‘‘concurrent duties.’’ helpful in understanding the distinction regulatory standards for exempt
The Department believes that a unified between exempt and nonexempt executives.
section on this topic will better employees. The National Council of The Department believes that the
illustrate when an employee satisfies Chain Restaurants argues that proposed proposed and final regulations are
the requirements of the executive section 541.106 should be eliminated consistent with current case law which
exemption. The final section 541.106 because of confusion created by having makes clear that the performance of
incorporates the general principles and two separate sections. The Fisher & both exempt and nonexempt duties
examples from both proposed section Phillips law firm and the National concurrently or simultaneously does not
541.106 and proposed section 541.107. Association of Convenience Stores argue preclude an employee from qualifying
The final section 541.106(a) thus that proposed section 541.106 should be for the executive exemption. Numerous
provides: ‘‘Concurrent performance of eliminated as no longer necessary courts have determined that an
exempt and nonexempt work does not because that section has always related employee can have a primary duty of
disqualify an employee from the to the percentage limitations on management while concurrently
executive exemption if the requirements nonexempt work from the existing long performing nonexempt duties. See, e.g.,
of § 541.100 are otherwise met.’’ To test. Similar comments were received Jones v. Virginia Oil Co., 2003 WL
further distinguish exempt executives from the U.S. Chamber of Commerce. 21699882, at *4 (4th Cir. 2003) (assistant
from nonexempt workers, the final The Workplace Practices Group argues manager who spent 75 to 80 percent of
her time performing basic line-worker section to make clear that, as stated in employer’s customers,’’ and hold ‘‘a
tasks held exempt because she ‘‘could current case law, an otherwise exempt position of responsibility with the
simultaneously perform many of her supervisory employee does not lose the employer.’’
management tasks’’); Murray v. exemption simply because the employee The final rule modifies both of the
Stuckey’s, Inc., 939 F.2d 614, 617–20 is simultaneously performing exempt proposed requirements for the
(8th Cir. 1991) (store managers who and nonexempt work. The Department administrative exemption. First, the
spend 65 to 90 percent of their time on also believes that the final section final rule provides that an exempt
‘‘routine non-management jobs such as 541.700, defining ‘‘primary duty,’’ states administrative employee is one ‘‘whose
pumping gas, mowing the grass, waiting clearly that there is no strict percentage primary duty is the performance of
on customers and stocking shelves’’ limitation on the performance of office or non-manual work directly
were exempt executives); Donovan v. nonexempt work. related to the management or general
Burger King Corp., 672 F.2d 221, 226 One commenter suggests that the business operations of the employer or
(1st Cir. 1982) (‘‘an employee can Department include in the final rule the employer’s customers.’’ Second, the
manage while performing other work,’’ language from the current interpretive final rule deletes the proposed ‘‘position
and ‘‘this other work does not negate the guidelines at 541.119(c) stating that the of responsibility’’ requirement and
conclusion that his primary duty is short test for highly compensated instead reinserts the current
management’’); Horne v. Crown Central executives cannot be applied to the requirement that an exempt
Petroleum, Inc., 775 F. Supp. 189, 190 trades. The final rule, however, includes administrative employee’s primary duty
(D.S.C. 1991) (convenience store even stronger language in new section include ‘‘the exercise of discretion and
manager held exempt even though she 541.3, which states that none of the independent judgment with respect to
performed management duties section 13(a)(1) exemptions apply to the matters of significance.’’
‘‘simultaneously with assisting the store skilled trades, no matter how highly In addition to the ‘‘discretion and
clerks in waiting on customers’’). compensated they are. Thus, the independent judgment’’ requirement
Moreover, courts have noted that Department believes that no further discussed more fully below, the final
exempt executives generally remain clarification is needed. rule makes two changes to the proposed
responsible for the success or failure of The State of Kansas Department of primary duty test. First, as under the
business operations under their Administration, Division of Personnel executive exemption, the AFL-CIO and
management while performing the Services, argues that proposed section other commenters state that changing
nonexempt work. See Jones v. Virginia 541.107 conflicts with language under from ‘‘whose’’ primary duty as written
Oil Co., 2003 WL 21699882, at *4 the administrative exemption regarding in the current regulations to the
(‘‘Jones’’ managerial functions were project leaders. The Department does proposed language of ‘‘a’’ primary duty
critical to the success’ of the business); not believe that there is any conflict was a major weakening of the test
Donovan v. Burger King Corp., 675 F.2d because the executive and because it allows for more than one
516, 521 (2nd Cir. 1982) (the employees’ administrative exemptions are primary duty. As the Department did
managerial responsibilities were ‘‘most independently defined and applied, and not intend any substantive change, the
important or critical to the success of whether one or both of the exemptions final rule uses the existing language
the restaurant’’); Horne v. Crown Central apply will depend on the specific job ‘‘whose primary duty.’’ Second, the final
Petroleum, Inc., 775 F. Supp. at 191 duties the employee performs. rule reinserts language from the current
(nonexempt tasks were ‘‘not nearly as The Information Technology Industry regulation that the work must be
crucial to the store’s success as were the Council, the U.S. Chamber of Commerce ‘‘directly’’ related to management or
management functions’’). and the Morgan Lewis & Bockius law general business operations.
The Department continues to believe firm argue that language regarding Commenters such as the National
that this case law accurately reflects the performance of production or sales work Treasury Employees Union, the
appropriate test of exempt executive should be eliminated from proposed National Employment Lawyers
status and is a practical approach that section 541.106, as it continues to Association, the American Federation of
can be realistically applied in the emphasize the production versus staff Television and Radio Artists, the Stoll,
modern workforce, particularly in dichotomy. This language has been Stoll, Berne, Lokting & Shlachter law
restaurant and retail settings. Since all firm, and the Rudy, Exelrod & Zieff law
removed from the final rule. The
of the prongs of the executive test need firm oppose the deletion of the word
Department has combined and
to be met to classify an employee as an ‘‘directly,’’ stating that an employee
streamlined proposed sections 541.106
exempt executive, the Department whose duties relate only indirectly or
and 541.107, and we do not believe that
believes the final rule has sufficient tangentially to administrative functions
this phrase was instructive in clarifying
safeguards to protect nonexempt should not qualify for exemption. As the
the concept of concurrent duties.
workers. Department did not intend any
The Department also received more Subpart C, Administrative Employees substantive change by deletion of the
specific comments on the language word ‘‘directly,’’ we have reinserted this
Section 541.200 General Rule for
contained in proposed sections 541.106 term to ensure that the administrative
and 541.107. The National Retail Administrative Employees primary duty test is not interpreted as
Federation argues that the time spent As in the executive exemption, the allowing the exemption to apply to
‘‘multi-tasking’’ should also be proposed regulations streamlined the employees whose primary duty is only
considered exempt work. A comment current regulations by adopting a single remotely or tangentially related to
from the Food Marketing Institute standard duties test in proposed section exempt work. The same change has
argues that it is critically important that 541.200. The proposed standard duties been made in other sections where the
proposed section 541.107 state test provided that an exempt term is used.
unequivocally that managers shall not administrative employee must have ‘‘a The final rule, however, retains the
be subject to arbitrary percentage time primary duty of the performance of proposed primary duty language that
limits on nonexempt work. The office or non-manual work related to the the exempt employee’s work must be
Department believes that sufficient management or general business related to ‘‘management or general
language already is included in this operations of the employer or the business operations,’’ rather than the
‘‘management policies’’ language of the better guidance on distinguishing be found exempt even if they had the
existing regulations. Although some exempt administrative employees. same degree of responsibility as
commenters object to this change, other The Department received numerous, employees working for small
commenters, such as the FLSA Reform widely divergent comments on these companies. Other commenters object to
Coalition, the HR Policy Association, proposed changes. Commenters such as the implication that some employees do
and the Fisher & Phillips law firm, the FLSA Reform Coalition, the U.S. not have responsibility at work. For
approve of the proposed deletion of the Chamber of Commerce, the HR Policy example, the Society for Human
word ‘‘policies’’ as recognizing that Association, the National Retail Resource Management states that, ‘‘each
while management policies are one Federation, the Morgan, Lewis & and every position in an organization is
component of management, there are Bockius law firm, and the National one of responsibility * * *.’’ Similarly,
many other administrative functions Association of Federal Wage Hour the Workplace Practices Group
that support managing a business. The Consultants generally approve of the recommends eliminating the term
Department agrees and has retained the ‘‘position of responsibility’’ ‘‘position of responsibility’’ because a
requirement, preferring it to the ‘‘basic tenet of modern management
proposed language in the final
mandatory ‘‘discretion and independent philosophy is empowering employees to
regulation. As explained in the 1949
judgment’’ requirement of the existing see their position in an organization,
Weiss Report, the administrative
regulations. They support, in particular, whatever it might be, as one of
operations of the business include the the proposal that employees with a
work of employees ‘‘servicing’’ the responsibility. This is true whether the
‘‘high level of skill or training’’ can position held is receptionist or customer
business, such as, for example, qualify as exempt administrative
‘‘advising the management, planning, service agent.’’ Finally, the American
employees, even if they use reference Corporate Counsel Association, while
negotiating, representing the company, manuals to provide guidance in
purchasing, promoting sales, and approving of the abandonment of the
addressing difficult or novel ‘‘discretion and independent judgment’’
business research and control.’’ 1949 circumstances. For example, the requirement, suggests that the ‘‘position
Weiss Report at 63. Much of this work, Morgan, Lewis & Bockius law firm states of responsibility’’ test has ‘‘the potential
but not all, will relate directly to that, ‘‘in today’s regulatory climate, few to result in significant uncertainty and
management policies. As the current employers can leave highly complex continued litigation. Employers often
regulations state at section 541.205(c), issues totally to the discretion of even seek to foster an atmosphere and
exempt administrative work includes high level employees.’’ The HR Policy develop workplace programs
not only those who participate in the Association states that this ‘‘new emphasizing that the work of every
formulation of management policies or requirement that an employee have a employee involves a degree of
in the operation of the business as a ‘high level of skill or training’ responsibility and contributes
whole, but it ‘‘also includes a wide distinguishes employees who are merely something substantially important to the
variety of persons who either carry out looking up information from those who success of the enterprise. Thus, it
major assignments in conducting the use the information in an analytical appears to us that both ‘white collar’
operations of the business, or whose way.’’ and ‘blue collar’ positions may be
work affects business operations to a However, even commenters who
positions of responsibility for which
substantial degree, even though their generally support the ‘‘position of
work of substantial importance is being
assignments are tasks related to the responsibility’’ structure also express
performed.’’
operation of a particular segment of the concerns about the vagueness and
business.’’ Therefore, the Department subjectivity of the new terms. For Other commenters strongly oppose
considers the primary duty test for the example, the National Association of the new ‘‘position of responsibility’’
administrative exemption to be as Manufacturers (NAM) states that it ‘‘is requirement as inappropriately
not sure what ‘position of responsibility’ weakening the requirements for
protective as the existing regulations.
means and fears that the Department is exemption. For example, the AFL-CIO
In addition to the primary duty test, substituting one vague term for states that neither ‘‘work of substantial
the proposed general rule for the another.’’ NAM also notes that, ‘‘using importance’’ nor ‘‘work requiring a high
administrative exemption also required the term ‘skill’ in the administrative level of skill or training’’ was an
that an employee hold a ‘‘position of employee definition can be problematic. adequate substitute for the ‘‘discretion
responsibility.’’ The proposal at section The term is often associated with and independent judgment’’ test.
541.202 further defined ‘‘position of nonexempt trade occupations—i.e., Similarly, the Rudy, Exelrod & Zieff law
responsibility’’ as performing ‘‘work of people who perform work and are not firm states that the FLSA does not
substantial importance’’ or ‘‘work exempt from the FLSA’s wage and exempt highly skilled or trained
requiring a high level of skill or overtime rules.’’ NAM states that ‘‘care employees, and such a regulatory
training.’’ The proposal also eliminated should be used when introducing into change would allow employers to
the current requirement that an exempt the white-collar exemption definitions a misclassify employees with duties
administrative employee perform work term that has been historically related to the production of the
‘‘requiring the exercise of discretion and associated with nonexempt workers.’’ company’s goods and services. In
independent judgment.’’ The Similarly, the American Bakers addition, the firm argues that such a
Department specifically invited Association states that the position of provision effectively and unreasonably
comments on these changes, including responsibility standard ‘‘is somewhat broadens the professional exemption, by
whether the ‘‘discretion and vague and subjective’’ and that it eliminating the advanced degree
independent judgment’’ requirement ‘‘appears to invite another generation of requirement. Professor David Walsh
should be deleted entirely; retained as a court litigation to clarify the meaning of similarly comments that the proposed
third alternative for meeting the its key terms.’’ The FLSA Reform language is not more easily applied than
‘‘position of responsibility’’ Coalition expresses concern that the the existing standard and ‘‘seems to
requirement; or retained in place of the standard would be applied to the conflate the administrative and
‘‘position of responsibility disadvantage of large companies, stating professional exemptions.’’ Commenters
requirement,’’ but modified to provide that ‘‘small fish in big ponds’’ might not such as the American Federation of
State, County and Municipal and independent judgment’’ standard as for clear and objective alternative
Employees, the Communications a required element for exemption. Such language.
Workers of America, the National commenters view deletion of this test as After careful consideration of the
Treasury Employees Union, the a substantial expansion of the public comments submitted, the
American Federation of Television and exemption. They cite the 1940 Stein Department agrees that the ‘‘position of
Radio Artists, the National Employment Report and 1949 Weiss Report as stating responsibility’’ standard does little to
Lawyers Association, and the Goldstein, that the ‘‘discretion and independent bring clarity and certainty to the
Demchak, Baller, Borgen & Dardarian judgment’’ requirement was necessary administrative exemption. In the
law firm express similar views, stating to minimize the opportunity for proposal, the Department attempted to
that the ‘‘position of responsibility’’ test employer abuse in categorizing the articulate a clear, simple, common sense
is not an equivalent substitute for the diverse group of employees who might test for exemption, but most
‘‘discretion and independent judgment be labeled as administrative. Moreover, commenters believe that we were not
requirement.’’ These commenters also such commenters generally view the
state that all workers possess skills and fully successful. Further, many
requirement as considerably more commenters believe that the term
training in one form or another. precise than the proposed ‘‘position of
Many commenters view the ‘‘position of responsibility’’ greatly
responsibility’’ replacement, and note
‘‘discretion and independent judgment’’ expanded the scope of the exemption—
that the ‘‘discretion and independent
standard of the existing regulations as a result which the Department did not
judgment’’ concept is also used under
vague, ambiguous and unworkable. intend. In addition, the Department
the National Labor Relations Act. Such
Commenters such as the FLSA Reform agrees with the concerns of the National
commenters often state that the need to
Coalition, the Society for Human Association of Manufacturers and other
address developing case law prohibiting
Resource Management, the HR Policy commenters that the ‘‘high level of skill
the use of manuals by exempt
Association, the Fisher & Phillips law or training’’ standard is problematic
employees does not necessitate the
firm, the National Retail Federation, the because it is too closely associated with
entire abandonment of the ‘‘discretion
National Association of Chain Drug nonexempt ‘‘blue collar’’ skilled trade
and independent judgment’’ standard.
Stores, and the National Council of occupations.
Finally, these commenters also state that
Chain Restaurants state that the decades of jurisprudence would be lost Accordingly, the final rule deletes the
‘‘discretion and independent judgment’’ if the ‘‘discretion and independent proposed ‘‘position of responsibility’’
requirement is the cause of confusion judgment’’ requirement is eliminated. requirement and its definition at
and unnecessary litigation. Such Accordingly, the commenters proposed section 541.202 as ‘‘work of
commenters commend the Department recommend retention of the ‘‘discretion substantial importance’’ or ‘‘work
for eliminating ‘‘discretion and and independent judgment’’ standard as requiring a high level of skill or
independent judgment’’ as a required an independent requirement for training.’’ Instead, as the second
element of the test for exemption. The exemption. requirement for the administrative
Fisher & Phillips law firm, for example, exemption, the final rule requires that
states that this standard ‘‘has been an The commenters’ widely divergent
views demonstrate the difficult task of exempt administrative employees
unending source of confusion, exercise ‘‘discretion and independent
ambiguity, and dispute.’’ clearly defining and delimiting the
administrative exemption. The GAO judgment with respect to matters of
Nevertheless, many of these same
Report documented the difficulty of significance.’’ Thus, consistent with the
commenters support inclusion of the
applying the ‘‘discretion and current short test, the final rule contains
‘‘discretion and independent judgment’’
standard as a third alternative to satisfy independent judgment’’ standard two independent, yet related,
the ‘‘position of responsibility’’ test. For consistently, causing uncertainty for requirements for the administrative
example, the National Association of good faith employers attempting to exemption. First, the employee must
Manufacturers suggests that the classify employees correctly. Even the have a primary duty of performing office
Department retain ‘‘discretion and 1949 Weiss Report noted that this or non-manual work ‘‘directly related to
independent judgment’’ as an optional standard ‘‘is not as precise and objective management or general business
independent alternative to the ‘‘position as some other terms in the regulations.’’ operations.’’ This first requirement
of responsibility’’ requirement. These 1949 Weiss Report at 65. Numerous refers to the type of work performed by
commenters state that decades of court commenters concur with our the employee, and is further defined at
decisions and opinion letters provide observation in the proposal that this section 541.201. Second, the employee’s
guidance on its interpretation. Retaining requirement has generated significant primary duty must include ‘‘the exercise
the standard as an alternative would confusion and litigation. However, most of discretion and independent judgment
thus provide a level of continuity commenters generally view both the with respect to matters of significance.’’
between the existing regulations and the ‘‘position of responsibility’’ and the As discussed below, the exercise of
new regulations, and avoid re-litigation ‘‘high level of skill or training’’ discretion and independent judgment
of jobs already held to be exempt under standards as similarly vague, ambiguous ‘‘involves the comparison and the
the current ‘‘discretion and independent and subjective. Most of the commenters evaluation of possible courses of
judgment’’ test. state that the ‘‘discretion and conduct and acting or making a decision
Other commenters such as the AFL– independent judgment’’ standard after the various possibilities have been
CIO, the American Federation of State, should be retained in some form, considered.’’ The term ‘‘matters of
County and Municipal Employees, the although there was sharp disagreement significance’’ refers to the level of
Communications Workers of American, on whether the standard should be a importance or consequence of the work
the National Treasury Employees mandatory requirement. Despite sharp performed. These terms are further
Union, the New York Public Employees criticism of both the current ‘‘discretion defined at final section 541.202. See,
Federation, the National Employment and independent judgment’’ e.g., Bothell v. Phase Metrics, Inc., 299
Lawyers Association, the Rudy, Exelrod requirement and the proposed ‘‘position F.3d 1120, 1125–26 (9th Cir. 2002)
& Zieff law firm and Women Employed of responsibility’’ standard, the (looking to both the ‘‘types of activities’’
oppose the deletion of the ‘‘discretion comments contain very few suggestions and the importance of the work).
Section 541.201 Directly Related to advertising, marketing or promotional concept and ensuring that it is not so
Management or General Business activities. Because no such categorical strictly construed so as to deny the
Operations change was intended, or is supported by exemption to an employee who should
The proposed section 541.201 defined current case law, the Department has be exempt.’’ Similarly, NAM supports
the phrase ‘‘related to the management restored the language from the current the proposed rule’s attempt to ‘‘reduce
or general business operations’’ as regulations. See, e.g., Reich v. John the emphasis on the production versus
referring ‘‘to the type of work performed Alden Life Insurance Co., 126 F.3d 1, 9– staff dichotomy.’’
by the employee’’ and requiring that the 10 (1st Cir. 1997) (promoting sales in the However, many of these commenters
exempt administrative employee insurance industry is exempt believe that the proposal did not go far
‘‘perform work related to assisting with administrative work). The Department enough, and that the final rule should
the running or servicing of the business, also notes that this phrase begins with strive to eliminate the dichotomy
as distinguished, for example, from the words ‘‘for example.’’ This final entirely. For example, the FLSA Reform
working on a manufacturing production phrase in section 541.201(a) provides Coalition states that the dichotomy
line or selling a product.’’ The proposal non-exclusive examples. Thus, the should be eliminated by allowing an
also provided examples of the types of concern of commenters such as the employee to qualify for the exemption
work that generally relate to Rudy, Exelrod & Zieff law firm that the either by performing work related to
management or general business reference to ‘‘working on a management or general business
manufacturing production line’’ operations, or by doing any work that
operations, including work in areas
suggests that ‘‘working on what might be includes the exercise of discretion and
such as tax, finance, accounting,
termed a ‘white collar production line’ independent judgment: ‘‘Thus, even if
auditing, quality control, advertising,
is different from working on a the employee’s work could arguably be
marketing, research, safety and health,
manufacturing production line for characterized as ‘‘production,’’ he or she
personnel management, human
purposes of the exemption’’ is would nonetheless be an exempt
resources, labor relations, and others.
unfounded. administrative employee if his or her job
Finally, the proposal stated that an The primary focus of most comments
employee also may qualify for the is a responsible, non-manual one that
on subsection 541.201(a) dealt with the includes the exercise of ‘discretion and
administrative exemption if the so-called ‘production versus staff’
‘‘employee performs work related to the independent judgment.’ ’’ Similarly, the
dichotomy. The preamble to the HR Policy Association recommends that
management or general business proposal stated that the Department
operations of the employer’s the Department ‘‘eliminate the
intended ‘‘to reduce the emphasis on the
customers,’’ such as employees acting as production dichotomy from the
so-called ‘‘production versus staff’’
advisers and consultants to their administrative exemption’’ because the
dichotomy in distinguishing between
employer’s clients or customers. confusion it causes is too great and it is
exempt and nonexempt workers, while
The Department made two changes in difficult to apply with uniformity. The
retaining the concept that an exempt
the final subsection 541.201(a). First, for Fisher & Phillips law firm also states
administrative employee must be
the reasons discussed above, the final that the Department should ‘‘eliminate
engaged in work related to the
rule reinserts the word ‘‘directly’’ the ‘dichotomy’ altogether.’’
management or general business
throughout this section. Some operations of the employer or of the The primary focus of these comments
commenters argue that the deletion of employer’s customers.’’ was the last sentence in proposed
the word ‘‘directly’’ from the existing Many commenters, including the subsection (a), which states that the
regulations would allow the exemption Society for Human Resource administrative exemption does not
for an employee whose duties relate Management (SHRM), the FLSA Reform apply if an employee is ‘‘working on
only indirectly or tangentially to Coalition, the National Association of manufacturing production line or
administrative functions. The Manufacturers (NAM), the U.S. selling a product.’’ Numerous
Department did not intend any Chamber of Commerce (Chamber), the commenters ask for clarification about
substantive change by deletion of the HR Policy Association, the Morgan, the scope and meaning of the statement.
word ‘‘directly’’ in the proposal, and Lewis & Bockius law firm and the Fisher For example, the Morgan, Lewis &
thus has reinserted this term to ensure & Phillips law firm, strongly support the Bockius law firm requests clarification
that the administrative duties test is not proposal’s intended diminution of the that not all sales work is excluded from
interpreted as allowing the exemption to production versus staff dichotomy, exemption, such as advertising,
apply to employees whose primary duty which they believe has little value in marketing and promotional activities,
is only remotely or tangentially related today’s service-oriented economy. For and for confirmation that some
to exempt work. Second, the words example, the Chamber states that the individuals who work on a production
‘‘retail or service establishment’’ have dichotomy ‘‘does not fit in today’s line, such as a safety and health
been reinserted from the current rule in workplace’’ because the ‘‘decline in administrator or quality control
the phrase: ‘‘as distinguished, for manufacturing and the rise in the specialist, may still be exempt. The U.S.
example, from working on a service and information industries has Chamber of Commerce also states that
manufacturing production line or rendered the production dichotomy an the Department should ‘‘revisit its
selling a product in a retail or service artifact of a different age.’’ SHRM approach, especially with regard to
establishment.’’ This addition returns ‘‘applauds the Department’s elimination treatment of employees who may be
the regulatory text more closely to the of much of the ‘production v. staff’ involved in some aspect of sales,’’ and
current section 541.205(a): ‘‘as language’’ but also ‘‘recognizes that the should clarify that sales work is not
distinguished from ‘production’ or, in a production versus staff in some inherently inconsistent with exempt
retail or service establishment, ‘sales’ circumstances can be a helpful aid in work. The HR Policy Association
work.’’ Commenters state that deletion determining whether an employee fits recommends that the Department delete
of the words ‘‘retail or service under the administrative exemptions the ‘‘working on a manufacturing
establishment’’ could be interpreted as and, therefore, supports the proposed production line or selling a product’’
denying the administrative exemption language. * * * This language strikes a phrase, or else clarify its meaning either
to any employee engaged in any sales, proper balance between retaining this in the regulations or this preamble.
A large number of commenters have to cover had ‘‘functional rather than Bothell v. Phase Metrics, Inc., 299 F.3d
the opposite view about the ‘‘production departmental authority,’’ meaning they 1120 (9th Cir. 2002), for example, the
versus staff’’ dichotomy, stating that did not ‘‘give orders to individuals.’’ The Ninth Circuit found the dichotomy
minimizing or deleting the dichotomy firm argues that nothing in the modern ‘‘useful only to the extent that it helps
would deprive the administrative workplace, involving production of clarify the phrase ‘work directly related
exemption of its meaning. Such services instead of manufactured goods, to the management policies or general
commenters, including the AFL–CIO, makes it improper to continue to draw business operations.’ ’’ Id. at 1126
the National Treasury Employees the line between employees who help to (citation omitted). The court further
Union, the American Federation of administer an employer’s general stated:
State, County and Municipal business operations and those The other pertinent cases from our sister
Employees, the Rudy, Exelrod & Zieff employees whose duties are related to circuits similarly regard the administration/
law firm, the National Employment the day-to-day production of the goods production dichotomy as but one piece of the
Lawyers Association, the American or services the employer sells. larger inquiry, recognizing that a court must
Federation of Television and Radio Commenters, thus, have very different ‘construe the statutes and applicable
Artists, the National Partnership for perspectives about how the Department regulations as a whole.’ Indeed, some cases
should approach the ‘‘production versus analyze the primary duty test without
Women and Families and the Stoll, referencing the § 541.205(a) dichotomy at all.
Stoll, Berne Lokting & Shlachter law staff’’ dichotomy and apply it to the
This approach is sometimes appropriate
firm, believe that the courts have found modern workplace. Except as stated because, as we have said, the dichotomy is
the dichotomy to be a useful and above, we have not adopted any of the but one analytical tool, to be used only to the
appropriate tool in analyzing workers in commenters’ suggestions for substantial extent that it clarifies the analysis. Only
a broad variety of non-manufacturing changes to the primary duty standard in when work falls ‘squarely on the production
contexts. They oppose any indication section 541.201(a). The Department side of the line,’ has the administration/
believes that our proposal struck the production dichotomy been determinative.
that the Department is minimizing the
dichotomy. proper balance on the ‘‘production * * * * *
versus staff’’ dichotomy. We do not Moreover, the distinction should only be
For example, the AFL–CIO notes that employed as a tool toward answering the
believe that it is appropriate to
the 1949 Weiss report explained that the ultimate question, whether work is ‘directly
eliminate the concept entirely from the
phrase ‘‘directly related to management related to management policies or general
administrative exemption, but neither business operations,’ not as an end in itself.
policies or general business operations’’ do we believe that the dichotomy has
describes those activities ‘‘relating to the ever been or should be a dispositive test Id. at 1127 (citations omitted). See, e.g.,
administrative as distinguished from the for exemption. The Department believes Piscione v. Ernst & Young, L.L.P., 171
‘production’ operations of a business.’’ that the dichotomy is still a relevant and F.3d 527, 538–39 (7th Cir. 1999) (even
Similarly, the 1940 Stein Report useful tool in appropriate cases to though the employee ‘‘produced’’ some
described administrative exempt identify employees who should be reports and filings, and such work might
employees as ‘‘those who can be excluded from the exemption. As the be viewed as production work, the work
described as staff rather than line Department recognized in the 1949 was directly related to the management
employees, or functional rather than Weiss Report at 63, this exemption is or general business operations); Spinden
departmental heads.’’ The AFL–CIO intended to be limited to those v. GS Roofing Products Co., 94 F.3d 421,
quotes Reich v. New York, 3 F.3d 581, employees whose duties relate ‘‘to the 428 (8th Cir. 1996) (employee held
588 (2nd Cir. 1993), cert. denied, 510 administrative as distinguished from the administratively exempt despite the fact
U.S. 1163 (1994), stating that the ‘production’ operations of a business.’’ that he ‘‘produced’’ certain specific
dichotomy ‘‘has repeatedly proven Thus, it relates to employees whose outputs), cert. denied, 520 U.S. 1120
useful to courts in a variety of non- work involves servicing the business (1997).
manufacturing settings,’’ and cites a itself—employees who ‘‘can be The final regulation is consistent with
number of court decisions applying the described as staff rather than line the Ninth Circuit’s approach in Phase
dichotomy in a variety of government employees, or as functional rather than Metrics: the ‘‘production versus staff’’
and service sector contexts. The departmental heads.’’ 1940 Stein Report dichotomy is ‘‘one analytical tool’’ that
National Treasury Employees Union at 27. The 1940 Stein Report further should be used ‘‘toward answering the
states that the ‘‘distinction which the described the exemption as being ultimate question,’’ and is only
Department would so casually discard is limited to employees who have determinative if the work ‘‘falls squarely
a key tool to help identify the specific ‘‘miscellaneous policy-making or policy- on the production side of the line.’’
class of office workers that Congress executing responsibilities’’ but who do As noted above, proposed section
intended to exempt: support staff not give orders to other employees. 1940 541.201(b) provided an illustrative list
contributing to business operations and Stein Report at 4. Based on these of the types of functional areas or
management. It is imperative to keep principles, the Department provided in departments, including accounting,
this narrow focus rather than blur the proposed section 541.201(a) that the auditing, marketing, human resources
distinction between support staff and administrative exemption covers only and public relations, typically
line workers * * *.’’ The Rudy, Exelrod employees performing a particular type administrative in nature. The
& Zieff law firm notes that, prior to of work—work related to assisting with commenters generally found this
1940, the Department did not separately the running or servicing of the business. illustrative list to be accurate and
define the administrative exemption The examples the Department provided helpful. For example, the FLSA Reform
from the executive exemption, because in proposed section 541.201(b) were Coalition states that it supported the
the Department recognized that the intended to identify departments or Department’s efforts to clarify the
administrative exemption ‘‘was intended subdivisions that generally fit this rule. administrative exemption by ‘‘focusing
to cover no more than a small subclass The Department’s view that the on the function performed by the
of ‘executive’ employees.’’ The firm ‘‘production versus staff’’ dichotomy has employee and providing examples of
states that the 1940 Stein Report always been illustrative—but not exempt, administrative functions.’’ The
concluded that the employees whom the dispositive—of exempt status is AFL–CIO comments that the list
administrative exemption was intended supported by federal case law. In includes areas ‘‘which are clearly
encompassed within the servicing commenter Karen Dulaney Smith urges independent judgment’’ requirement,
functions of a business, and which the Department to insert the word and defines that term at final section
substantially overlap with the servicing ‘business’ to clarify that the exemption 541.202. Some of the language in
examples set forth in current section does not apply to ‘‘individuals, whose proposed sections 541.203 and 541.204
541.205(b).’’ The U.S. Chamber of ‘‘business’’ is purely personal.’’ The was retained from the existing
Commerce also notes that the list is Department has not made either change. regulations and also appears in the final
similar to the examples in the existing Nothing in the existing or final regulations as described below. The
regulations and agrees that all of the regulations precludes the exemption language from proposed section 541.204
areas listed in the proposed regulation because the customer is an individual, regarding the use of manuals has been
‘‘are proper illustrations of exempt rather than a business, as long as the moved to a new section in Subpart H,
administrative work.’’ Some work relates to management or general Definitions and Miscellaneous
commenters suggest a variety of business operations. As stated by Provisions, and is discussed under that
additional areas of work that should be commenter Smith, the exemption does subpart.
added to the illustrative list. However, not apply when the individual’s The Department continues to believe,
the National Treasury Employees Union ‘business’ is purely personal, but as most commenters confirm, that the
cautions against exempting workers providing expert advice to a small current discretion and independent
based upon their job area or title. Other business owner or a sole proprietor judgment standard has caused
commenters similarly suggest that the regarding management and general confusion and unnecessary litigation.
Department should include fewer business operations, for example, is an Even in the 1949 Weiss Report, the
categories in the list, because employees administrative function. The 1949 Weiss Department recognized that the
doing routine work may be Report stated that the administrative ‘‘discretion and independent judgment’’
misperceived as exempt simply because exemption should not be read to standard was somewhat subjective, and
they work in an area like marketing, exclude ‘‘employees whose duties relate the difficulty of applying the standard
human resources, or research. directly to the management policies or consistently has increased with the
In light of these comments, we have to the general business operations of passing decades. As evidenced by the
added the language, ‘‘but is not limited their employers’ customers. For increasing court litigation, it has become
to,’’ to emphasize that the list is example, many bona fide administrative progressively more difficult to apply the
intended only to be illustrative. It is not employees perform important functions standard with the creation of many new
intended as a complete listing of exempt as advisors and consultants but are jobs that did not exist 50 years ago.
areas. Nor is it intended as a listing of employed by a concern engaged in Nonetheless, the vast majority of
specific jobs; rather, it is a list of furnishing such services for a fee * * *. commenters express concern that
functional areas or departments that Such employees, if they meet the other abandoning the ‘‘discretion and
generally relate to management and requirements of the regulations, should independent judgment’’ standard
general business operations of an qualify for exemption regardless of entirely would create even more
employer or an employer’s customers, whether the management policies or uncertainty and litigation. We also
although each case must be examined general business operations to which recognize the benefit of retaining the
individually. Within such areas or their work is directly related are those standard in some form so as not to
departments, it is still necessary to of the employers’ clients or customers, jettison completely decades of federal
analyze the level or nature of the work or those of their employer.’’ 1949 Weiss court decisions and agency opinion
(i.e., does the employee exercise Report at 65. Weiss also noted that a letters.
discretion and independent judgment as consultant employed by a firm of Accordingly, while retaining this
to matters of significance) in order to consultants is exempt if the employee’s standard from the existing regulations,
assess whether the administrative ‘‘work consists primarily of analyzing, final section 541.202 clarifies the
exemption applies. Commenters and recommending changes in, the definition of discretion and
recommend the inclusion of several business operations of his employer’s independent judgment to reflect existing
areas that we think are appropriate as client.’’ 1949 Weiss Report at 56. This federal case law and to eliminate
additional examples of areas that provision is meant to place work done outdated and confusing language in the
generally relate to management and for a client or customer on the same existing interpretive guidelines. The
general business operations. Therefore, footing as work done for the employer Department intends the final rule to
we are adding computer network, directly, regardless of whether the client clarify the existing standard and to
internet and database administration; is a sole proprietor or a Fortune 500 make the standard easier to understand
legal and regulatory compliance; and company, as long as the work relates to and apply to the 21st Century
budgeting to the illustrative list. ‘‘management or general business workplace.
Finally, proposed section 541.201(c) operations.’’ Final section 541.202(a) thus restates
provided that employees who perform the requirement that the exempt
work related to the management or Section 541.202 Discretion and administrative employee’s primary duty
general business operations of the Independent Judgment (Proposed must ‘‘include’’ the exercise of
employer’s customers, such as advisers ‘‘Position of Responsibility’’) discretion and independent judgment
and consultants, also may qualify for the As discussed above, the Department and includes the general definition of
administrative exemption. The has decided to eliminate the proposed this term, taken word-for-word from the
proposed rule included language from ‘‘position of responsibility’’ existing interpretive guideline at
existing sections 541.2(a)(2) and requirement. Thus, the final rule deletes subsection 541.207(a): ‘‘In general, the
541.205(d), and no substantive changes proposed section 541.202 defining exercise of discretion and independent
were intended. The commenters express ‘‘position of responsibility,’’ proposed judgment involves the comparison and
few substantive concerns with this section 541.203 defining ‘‘substantial the evaluation of possible courses of
provision. A small number of importance,’’ and proposed section conduct and acting or making a decision
commenters suggest that the regulation 541.204 defining ‘‘high level of skill or after the various possibilities have been
should provide that the employer’s training.’’ Instead, the final rule considered.’’ The requirement that the
customer could be an individual, while reinserts the ‘‘discretion and primary duty must ‘‘include’’ the
exercise of discretion and independent concept—that the work performed by an involved in planning long- or short-term
judgment—rather than ‘‘customarily and exempt administrative employee must business objectives; whether the employee
regularly’’ exercise discretion and be significant, substantial, important, or investigates and resolves matters of
significance on behalf of management; and
independent judgment—is not a change of consequence. See, e.g., Piscione v. whether the employee represents the
from current law. Although the Ernst & Young, L.L.P., 171 F.3d 527, company in handling complaints, arbitrating
Department is aware that there has been 535–43 (7th Cir. 1999). The words disputes or resolving grievances.
some confusion regarding the ‘‘substantial’’ and ‘‘significant’’ are
appropriate standard under the existing These factors were taken from the
synonyms. Existing section 541.207(d)
‘‘short’’ duties test, federal court existing regulations, see 541.205(b),
describes the ‘‘matters of significance’’
decisions have recognized that the 541.205(c) and 541.207(d), or developed
concept as requiring that ‘‘the discretion
current ‘‘short’’ duties test does not from facts which federal courts have
and independent judgment exercised
require that the exempt employee found relevant when determining
must be real and substantial, that is, whether an employee exercises
‘‘customarily and regularly’’ exercise they must be exercised with respect to
discretion and independent judgment, discretion and independent judgment.
matters of consequence.’’ Further, Federal courts generally find that
as does the effectively dormant ‘‘long’’ existing section 541.205 and existing
test. See, e.g., O’Dell v. Alyeska Pipeline employees who meet at least two or
section 541.207 use some of the same three of these factors are exercising
Service Co., 856 F.2d 1452, 1454 (9th examples (i.e., personnel clerks,
Cir. 1988) (district court erred in not discretion and independent judgment,
inspectors, buyers) to illustrate the although a case-by-case analysis is
applying more lenient ‘‘includes’’ meaning of ‘‘substantial importance’’
standard under short test which made a required. See, e.g., Bondy v. City of
and the meaning of ‘‘matters of Dallas, 2003 WL 22316855, at *1 (5th
difference in determining whether significance.’’
employee was exempt); Dymond v. Cir. 2003) (making recommendations to
Describing the same concept using management on policies and
United States Postal Service, 670 F.2d two different phrases in two different
93, 95 (8th Cir. 1982) (while the ‘‘long’’ procedures); McAllister v. Transamerica
sections of the existing interpretive Occidental Life Insurance Co., 325 F.3d
duties test for the administrative guidelines is duplicative and confusing.
exemption requires that the employee 997, 1000–02 (8th Cir. 2003)
Accordingly, the final rule chooses one (independent investigation and
‘‘customarily and regularly’’ exercise phrase—‘‘matters of significance’’—and
discretion and independent judgment, resolution of issues without prior
makes that phrase part of the regulatory approval; authority to waive or deviate
when an employee makes more than test for the administrative exemption,
$250 a week, ‘‘that requirement is from established policies and
rather than merely interpretive procedures without prior approval);
reduced to requiring that the employee’s guidance. As described below, final
primary duty simply ‘includes work Cowart v. Ingalls Shipbuilding, Inc., 213
subsections 541.202(b) through (f) F.3d 261, 267 (5th Cir. 2000)
requiring the exercise of discretion and combine language from existing section
independent judgment’’’). (developing guidebooks, manuals, and
541.205, existing section 541.207, and other policies and procedures for
Also retained from existing subsection current case law to more clearly define
541.207(a), the final subsection employer or the employer’s customers);
and delimit this concept. Piscione, 171 F.3d at 535–43 (making
541.202(a) provides that discretion and Final subsection 541.202(b) begins
independent judgment must be recommendations to management on
with language from existing section policies and procedures); Haywood v.
exercised ‘‘with respect to matters of 541.207(b) stating that the phrase
significance.’’ Final subsection North American Van Lines, Inc., 121
‘discretion and independent judgment’ F.3d 1066, 1071–73 (7th Cir. 1997)
541.202(a) states that the term ‘‘matters must be applied in the light of all the
of significance’’ refers to ‘‘the level of (negotiating on behalf of the employer
facts involved in the particular with some degree of settlement
importance or consequence of the work employment situation in which the
performed.’’ This concept of the authority; independent investigation
question arises.’’ Final subsection and resolution of issues without prior
importance or high level of work 541.202(b) then contains the following
performed does not appear as a approval; authority to waive or deviate
non-exclusive list of factors to consider from established policies and
regulatory requirement in existing when determining whether an employee
section 541.2, but is included twice in procedures without prior approval);
exercises discretion and independent O’Neill-Marino v. Omni Hotels
the existing interpretive guidance. judgment with respect to matters of
Existing section 541.205(a), defining the Management Corp., 2001 WL 210360, at
significance: *8–9 (S.D.N.Y. 2001) (negotiating on
primary duty requirement, states that
the administrative exemption is limited [W]hether the employee has authority to behalf of the employer with some degree
‘‘to persons who perform work of formulate, affect, interpret, or implement of settlement authority; developing
management policies or operating practices; guidebooks, manuals, and other policies
substantial importance to the whether the employee carries out major
management or operation of the and procedures for employer or the
assignments in conducting the operations of
business.’’ This language was the basis the business; whether the employee performs employer’s customers); Stricker v.
of the ‘‘work of substantial importance’’ work that affects business operations to a Eastern Off-Road Equipment, Inc., 935
option in the proposed definition of substantial degree, even if the employee’s F. Supp. 650, 656–59 (D. Md. 1996)
‘‘position of responsibility.’’ Existing assignments are related to operation of a (authority to commit employer in
section 541.207(a), defining the term particular segment of the business; whether matters that have financial impact);
‘‘discretion and independent judgment’’ the employee has authority to commit the Reich v. Haemonetics Corp., 907 F.
provides that an exempt administrative employer in matters that have significant Supp. 512, 517–18 (D. Mass. 1995)
financial impact; whether the employee has (negotiating on behalf of the employer
employee ‘‘has the authority or power to
authority to waive or deviate from with some degree of settlement
make an independent choice, free from established policies and procedures without
immediate direction or supervision and prior approval; whether the employee has
authority; authority to commit employer
with respect to matters of significance.’’ authority to negotiate and bind the company in matters that have financial impact);
The existing regulations use these two on significant matters; whether the employee Hippen v. First National Bank, 1992 WL
different phrases found in two different provides consultation or expert advice to 73554, at *6 (D. Kan. 1992) (authority to
sections to describe the same general management; whether the employee is commit employer in matters that have
financial impact). Other factors which work of the same relative importance Other examples reflect existing case
federal courts have found relevant in does not mean that the work of each law.
assessing whether an employee such employee does not involve the Final subsection 541.203(a) provides
exercises discretion and independent exercise of discretion and independent that insurance claims adjusters
judgment include the employee’s judgment with respect to matters of ‘‘generally meet the duties requirements
freedom from direct supervision, significance.’’ Final subsection for the administrative exemption,
personnel responsibilities, 541.202(e) contains language from whether they work for an insurance
troubleshooting or problem-solving existing sections 541.207(c)(1) and company or other type of company, if
activities on behalf of management, use 541.207(c)(2) stating that the exercise of their duties include activities such as
of personalized communication discretion and independent judgment interviewing insureds, witnesses and
techniques, authority to handle atypical ‘‘must be more than the use of skill in physicians; inspecting property damage;
or unusual situations, authority to set applying well-established techniques, reviewing factual information to prepare
budgets, responsibility for assessing procedures or specific standards damage estimates; evaluating and
customer needs, primary contact to described in manuals or other sources.’’ making recommendations regarding
public or customers on behalf of the As in existing section 541.205(c), final coverage of claims; determining liability
employer, the duty to anticipate subsection 541.202(e) provides that the and total value of a claim; negotiating
competitive products or services and exercise of discretion and independent settlements; and making
distinguish them from competitor’s judgment ‘‘does not include clerical or recommendations regarding litigation.’’
products or services, advertising or secretarial work, recording or tabulating This section was moved from proposed
promotion work, and coordination of data, or performing other mechanical, section 541.203(b)(2). Commenters, such
departments, requirements, or other repetitive, recurrent or routine work.’’ as National Employment Lawyers
activities for or on behalf of employer or Final subsection 541.202(f) includes Association (NELA), the Rudy, Exelrod
employer’s clients or customers. See, language from existing section & Zieff law firm and the Stoll, Stoll,
e.g., Hogan v. Allstate Insurance Co., 541.205(c)(2) that an employee ‘‘does Berne, Lokting & Shlachter law firm,
2004 WL 362378 (11th Cir. 2004); not exercise discretion and independent state that the Department should not
Demos v. City of Indianapolis, 302 F.3d judgment with respect to matters of single out insurance claims adjusters in
698 (7th Cir. 2002); Lutz v. Ameritech significance merely because the
the regulations. NELA states that this
Corp., 2000 WL 245485 (6th Cir. 2000); employer will experience financial
example ‘‘flies in the face of the basic
Lott v. Howard Wilson Chrysler- losses if the employee fails to perform
rule that titles are not dispositive in
Plymouth, Inc., 203 F.3d 326 (5th Cir. the job properly.’’
In sum, as in the existing regulations, determining whether employees are
2001); Heidtman v. County of El Paso, exempt. Many insurance claims
171 F.3d 1038 (5th Cir. 1999); Piscione the final administrative exemption
regulations establish a two-part inquiry adjusters perform routine production
v. Ernst & Young, L.L.P., 171 F.3d 527 work.’’ Such commenters state that the
(7th Cir. 1999); Shockley v. City of for determining whether an employee
performs exempt administrative duties. work of many adjusters involves the
Newport News, 997 F.2d 18 (4th Cir. day-to-day work of the company, such
1993); West v. Anne Arundel County, First, what type of work is performed by
the employee? Is the employee’s as whether to repair or replace a dented
Maryland, 137 F.3d 752 (4th Cir.), cert. fender, rather than work related to the
denied, 525 U.S. 1048 (1998); Reich v. primary duty the performance of work
directly related to management or management or general business
John Alden Life Insurance Co., 126 F.3d operations of the firm such as the
general business operations? Second,
1 (1st Cir. 1997); Wilshin v. Allstate overall methods used to process claims
what is the level or nature of the work
Insurance Co., 212 F. Supp. 2d 1360 generally. However, this provision of
performed? Does the employee’s
(M.D. Ga. 2002); Roberts v. National the proposed rule is consistent with
primary duty include the exercise of
Autotech, Inc., 192 F. Supp. 2d 672 existing section 541.205(c)(5) and an
discretion and independent judgment
(N.D. Tex. 2002); Orphanos v. Charles Administrator’s opinion letter issued on
with respect to matters of significance?
Industries, Ltd., 1996 WL 437380 (N.D. November 19, 2002, to which the court
See, e.g., Bothell v. Phase Metrics, Inc.,
Ill. 1996). in Jastremski v. Safeco Insurance Cos.,
299 F.3d 1120, 1125–26 (9th Cir. 2002)
Most of the remaining subsections in (looking to both the type of work and 243 F. Supp. 2d 743, 753 (N.D. Ohio
final 541.202 contain language from the the importance of the work). By 2003), deferred because it was a
existing regulations. Final subsection retaining the ‘‘discretion and ‘‘thorough, well reasoned, and accurate
541.202(c) contains language from independent judgment’’ standard from interpretation of the regulations.’’ See
existing section 541.207(a) and existing the existing regulations, as clarified to also Palacio v. Progressive Insurance
section 541.207(e) providing that reflect current case law, and combining Co., 244 F. Supp. 2d 1040 (C.D. Cal.
‘‘discretion and independent judgment the existing concepts of ‘‘substantial 2002). The final subsection 541.203(a)—
implies that the employee has authority importance’’ and ‘‘matters of like the opinion letter and the case
to make an independent choice, free significance,’’ the final rule provides law—does not rely on the ‘‘claims
from immediate direction or clarity while at the same time adjuster’’ job title alone. Rather, there
supervision.’’ However, ‘‘employees can maintaining continuity with the existing must be a case-by-case assessment to
exercise discretion and independent regulations. determine whether the employee’s
judgment even if their decisions or duties meet the requirement for
recommendations are reviewed at a Section 541.203 Administrative exemption. Thus, the final subsection
higher level.’’ Final subsection (c) also Exemption Examples (a) identifies the typical duties of an
retains the credit manager and The final regulations include a new exempt claims adjuster as, among
management consultant examples from section 541.203 which includes others, preparing damage estimates,
existing section 541.207(e)(2). Final illustrations of the application of the evaluating and making
subsection 541.202(d) contains language administrative duties test to particular recommendations regarding coverage of
from existing section 541.205(c)(6) occupations. Many of the examples are the claim, determining liability and total
providing that the ‘‘fact that many from sections 541.201, 541.205 and value of the claim, negotiating
employees perform identical work or 541.207 of the existing regulations. settlements, and making
recommendations regarding litigation. Wilshin v. Allstate Insurance Co., 212 F. emphasis in original), quoting Martin v.
The courts have evaluated such factors Supp. 2d 1360 (M.D. Ga. 2002), federal Cooper Electric Supply Co., 940 F.2d
to assess whether the employee is courts have found employees who 896, 905 (3rd Cir. 1991), cert. denied,
engaged in servicing the business itself. represent the employer with the public, 503 U.S. 936 (1992).
Moreover, as the court in Palacio negotiate on behalf of the company, and In Hogan v. Allstate Insurance Co.,
emphasized, claims adjusters are not engage in sales promotion to be exempt 2004 WL 362378, at *4 (11th Cir. 2004),
production employees because the administrative employees, even though the Eleventh Circuit held that insurance
insurance company is ‘‘in the business the employees also engaged in some agents who ‘‘spent the majority of their
of writing and selling automobile inside sales activities. In contrast, the time servicing existing customers’’ and
insurance,’’ rather than in the business court in Casas v. Conseco Finance performed duties including ‘‘promoting
of producing claims. Id. at 1046. Corp., 2002 WL 507059, at *9 (D. Minn. sales, advising customers, adapting
Because the vast majority of customers 2002), held that the administrative policies to customer’s needs, deciding
never make a claim against the policy exemption was not available for on advertising budget and techniques,
they purchase, the court concluded that employees who had a ‘‘primary duty to hiring and training staff, determining
claims adjusters do ‘‘not produce the sell [the company’s] lending products staff’s pay, and delegating routine
very goods and services’’ that the on a day-to-day basis’’ directly to matters and sales to said staff ’’ were
employer offered to the public. Id. at consumers and failed to exercise exempt administrative employees. The
1047. Similarly, federal courts have discretion and independent judgment. court held the insurance agents exempt
evaluated such factors to assess whether even though they also sold insurance
The John Alden case involved the
the employee’s exercises discretion and products directly to existing and new
exempt status of marketing
independent judgment. See, e.g., customers.
representatives working for a company The court in Wilshin v. Allstate
Palacio, 244 F. Supp. 2d at 1048 (claims that designed, created and sold
agent who spent half her time Insurance Co., 212 F. Supp. 2d 1360,
insurance products, primarily for 1377–79 (M.D. Ga. 2002), held that a
negotiating with claimants and businesses that were purchasing group
attorneys, who had independent neighborhood insurance agent met the
coverage for their employees. The requirements for the administrative
authority to settle claims between marketing representatives did not sell
$5,000 and $7,500, and whose exemption when his responsibilities
through direct contacts with the included such activities as
recommendations regarding offers for
ultimate customers, but instead relied recommending products and providing
larger claims often were accepted
upon licensed independent insurance claims help to different customers, as
exercised discretion and independent
agents to make sales of the employer’s well as using his own personal sales
judgment); Jastremski, 243 F. Supp. 2d
financial products. The marketing techniques to promote and close
at 757 (claims adjuster who planned and
representatives were responsible for transactions. He also was required to
carried out investigations, determined
maintaining contact with hundreds of represent his employer in the market,
whether the loss was covered by the
such independent sales agents to keep and be knowledgeable about the market
policy, negotiated settlements, had
them apprised of the employer’s and the needs of actual and potential
independent settlement authority up to
$15,000 and could recommend financial products, to inform them of customers. The Wilshin court found that
settlements, which were usually changes in prices, and to discuss how selling financial products to an
accepted, above his authority level the products might fit their customers’ individual, ultimate consumer—as
exercised discretion and independent needs. The marketing representatives opposed to an agent, broker or
judgment). also would inform the employer of company—was not enough of a
Consistent with existing case law, anything they learned from the distinction to negate his exempt status.
final subsection 541.203(b) provides independent sales agents, such as In contrast, the district court in Casas
that employees in the financial services information about a competitor’s v. Conseco Finance Corp., 2002 WL
industry ‘‘generally meet the duties products or pricing. The First Circuit 507059 (D. Minn. 2002), held that loan
requirements for the administrative ruled that these activities were directly originators were not exempt because
exemption if their duties include work related to management policies or they had a ‘‘primary duty to sell [the
such as collecting and analyzing general business operations and that the company’s] lending products on a day-
information regarding the customer’s marketing representatives were exempt. to-day basis’’ directly to consumers.
income, assets, investments or debts; Their activities involved ‘‘servicing’’ of 2002 WL 507059, at *9. The employees
determining which financial products the business because their work was ‘‘in called potential customers from a list
best meet the customer’s needs and the nature of ‘representing the company’ provided to them by the employer and,
financial circumstances; advising the and ‘promoting sales’ of John Alden using the employer’s guidelines and
customer regarding the advantages and products, two examples of exempt standard operating procedures, obtained
disadvantages of different financial administrative work provided by information such as income level, home
products; and marketing, servicing or § 541.205(b) of the interpretations.’’ 126 ownership history, credit history and
promoting the employer’s financial F.3d at 10. Thus, the court concluded property value; ran credit reports;
products. However, an employee whose that the marketing representatives’ forwarded the application to an
primary duty is selling financial contact with the independent sales underwriter; and attempted to match the
products does not qualify for the agents involved ‘something more than customer’s needs with one of Conseco’s
administrative exemption.’’ Several routine selling efforts focused simply on loan products. If the underwriter
commenters request a section regarding particular sales transactions.’ Rather, approved the loan, the originator
various occupations in the financial their agent contacts are ‘aimed at gathered documents for the closing,
services industry because of growing promoting (i.e., increasing, developing, verified the information, and ordered
litigation in this area. facilitating, and/or maintaining) the title work and appraisals. The court
In cases such as Reich v. John Alden customer sales generally,’ activity which concluded that this was the ordinary
Life Insurance Co., 126 F.3d 1 (1st Cir. is deemed administrative sales production work of Conseco, which has
1997), Hogan v. Allstate Insurance Co., promotion work under section the business purpose of designing,
2004 WL 362378 (11th Cir. 2004), and 541.205(b).’’ Id. (citations omitted, creating, and selling home lending
products, making them nonexempt management policies or general Although, as stated above, the
production employees. The court also business operations to which their work Department does not believe that the
found that the plaintiffs lacked is directly related are those of their executive exemption applies, an
discretion and independent judgment employer’s clients or customers or those employee who leads teams to complete
necessary to qualify for the exemption of their employer. See final rule section major projects may qualify for
since they followed strict guidelines and 541.201(c); existing sections exemption under the existing
operating procedures, and had no 541.201(a)(2), 541.205(c)(5) and administrative regulations. See current
authority to approve loans. 541.205(d); and Piscione v. Ernst & 29 CFR 541.205(c) (exemption applies to
The Department agrees that Young, L.L.P., 171 F.3d 527 (7th Cir. employees who ‘‘carry out major
employees whose primary duty is inside 1999). Finally, our approach is assignments in conducting the
sales cannot qualify as exempt consistent with existing section operations of the business’’). The final
administrative employees. However, as 541.207(d)(2), which provides that ‘‘a subsection (c) merely updates this
found by the John Alden, Hogan and customer’s man in a brokerage house’’ concept with a more modern example.
Wilshin courts, many financial services exercises discretion and independent Final subsection 541.203(d) includes
employees qualify as exempt judgment ‘‘in deciding what the example regarding executive
administrative employees, even if they recommendations to make to customers assistants and administrative assistants
are involved in some selling to for the purchase of securities,’’ but derived from existing sections
consumers. Servicing existing reflects the modernization of this 541.201(a)(1), 541.207(d)(2) and
customers, promoting the employer’s existing subsection for the 21st Century 541.207(e), and proposed at section
financial products, and advising workforce. 541.203(b)(4). Final subsection
customers on the appropriate financial Consistent with Hogan, the final rule 541.203(e) distinguishes exempt human
product to fit their financial needs are rejects the view that selling financial resources managers from nonexempt
duties directly related to the products directly to a consumer personnel clerks. The language in this
management or general business automatically precludes a finding of subsection appears in existing sections
operations of their employer or their exempt administrative status. 541.205(c)(3) and 541.207(c)(5), and was
employer’s customers, and which Application of the exemption should proposed at sections 541.203(b)(4) and
require the exercise of discretion and not change based only on whether the 541.203(c). Final subsection 541.203(f)
independent judgment. employees’ activities are aimed at an includes the purchasing agent example
Accordingly, consistent with this case end user or an intermediary. The final from proposed section 541.203(b)(4),
law, the final rule distinguishes between rule distinguishes the exempt and which was derived from existing
exempt and nonexempt financial nonexempt financial services employees sections 541.205(c)(4), 541.207(d)(2) and
services employees based on the based on the duties they perform, not 541.207(e)(2). Final subsection
primary duty they perform. Final the identity of the customer they serve. 541.203(g) contains the inspection work
section 541.203(b) thus provides: For example, a financial services example from existing section
employee whose primary duty is 541.207(c)(2) and proposed section
Employees in the financial services gathering and analyzing facts and 541.204(c). Final section 541.203(h)
industry generally meet the duties providing consulting advice to assist contains the examples regarding
requirements for the administrative
exemption if their duties include work such
customers in choosing among many examiners and graders from existing
as collecting and analyzing information complex financial products may be an sections 541.207(c)(3) and (4) and
regarding the customer’s income, assets, exempt administrative employee. An proposed section 541.204(c). Final
investments or debts; determining which employee whose primary duty is inside subsection 541.203(i) includes the
financial products best meet the customer’s sales is not exempt. comparison shopping example from
needs and financial circumstances; advising Final subsection 541.203(c) provides existing section 541.207(c)(6). No
the customer regarding the advantages and that an employee ‘‘who leads a team of substantive changes from current law
disadvantages of different financial products; other employees assigned to complete are intended in these examples.
and marketing, servicing or promoting the major projects for the employer (such as The Department received no
employer’s financial products. However, an purchasing, selling or closing all or part substantive comments with respect to
employee whose primary duty is selling of the business, negotiating a real estate the examples of nonexempt work. With
financial products does not qualify for the
administrative exemption.
transaction or a collective bargaining respect to administrative or executive
agreement, or designing and assistants, a number of commenters
The Department believes this implementing productivity assert that these employees should be
approach also is consistent with the improvements) generally meets the exempt if they assist a senior executive
case law and the final rule regarding duties requirements for the in a corporation below the level of
insurance claims adjusters, which administrative exemption, even if the proprietor or chief executive of a
emphasizes that employees performing employee does not have direct business. Other commenters express a
duties related to servicing the company, supervisory responsibility over the other countervailing concern that these terms
such as representing the company in employees on the team.’’ This could be applied too broadly to
evaluating the merits of claims against modification of proposed section employees with nonexempt duties, such
it and in negotiating settlements, 541.203(b)(3) responds to commenters as secretarial employees. The final rule
generally qualify for exemption. We also who express concern that the executive makes no changes to current law, and
believe that this approach is consistent exemption fails to reflect the modern thus this example should not expand
with the existing and final regulations practice of a company forming cross- the exemption to include secretaries or
providing that advisory specialists and functional or multi-department teams to other clerical employees. We do not
consultants to management, such as tax complete major projects. Several believe expansion of this example
experts, insurance experts, or financial commenters suggest that the manager or beyond current law is warranted on the
consultants, who are employed by a leader of such teams should be treated record evidence.
firm that furnishes such services for a as exempt even if the leader did not Final subsection 541.203(j) contains a
fee, should be treated the same as an in have traditional supervisory authority new example providing that ‘‘[p]ublic
house adviser regardless of whether the over the other members of the team. sector inspectors or investigators of
various types, such as fire prevention or (investigators); Wage and Hour Opinion constitute an educational establishment.
safety, building or construction, health Letter of 3/11/98, 1998 WL 852755 Wage and Hour Opinion Letter of April
or sanitation, environmental or soils (inspectors); and Wage and Hour 2, 1970 (1970 WL 26390). See also 2000
specialists and similar employees, Opinion Letter of 12/21/94, 1994 WL WL 33126562. Factors that are relevant
generally do not meet the duties 1004897 (probation officers). in assessing whether such post
requirements for the administrative Section 541.204 Educational secondary career programs are
exemption because their work typically Establishments (Proposed § 541.205) educational institutions include
does not involve work directly related to whether the school is licensed by a state
the management or general business The proposed rule established a agency responsible for the state’s
operations of the employer. Such separate exemption test for employees educational system or accredited by a
employees also do not qualify for the whose primary duty is ‘‘performing nationally recognized accrediting
administrative exemption because their administrative functions directly related organization for career schools.
work involves the use of skills and to academic instruction or training in an Gonzales v. New England Tractor
technical abilities in gathering factual educational establishment or Trailer Training School, 932 F. Supp.
department or subdivision thereof.’’ 697 (D. Md. 1996). Because such
information, applying known standards
Such employees are separately questions must be answered on a case-
or prescribed procedures, determining
identified in section 13(a)(1) of the by-case basis, it would not be prudent
which procedure to follow, or
FLSA and are separately addressed in for the Department to list just a few
determining whether prescribed
the existing regulation. The proposed types of schools that could qualify as
standards or criteria are met.’’ This new
rule defined the terms used and gave educational institutions. However, we
example responds to comments from examples of employees who are engaged
public sector employees and employer have included the above factors in final
in academic administrative functions subsection 541.204(b).
groups. The Public Sector FLSA and employees who are not so engaged.
Coalition, for example, comments that Under the proposed rule, the term The American Council of Education
because the existing rules were written ‘‘educational institution’’ was defined as suggests that we include admissions
with only the private sector in mind, the an ‘‘elementary or secondary school counselors and academic counselors on
proposed revisions offer an opportunity system, an institution of higher the list of examples of exempt academic
for the Department to include language education or other educational administrative employees. The
addressing issues unique to public institution.’’ Department has provided guidance on
sector concerns. The Public Sector As discussed below, the Department these positions in opinion letters dated
FLSA Coalition states that, although the has added a list of relevant factors for February 19, 1998 (1998 WL 852683),
discretion and independent judgment determining whether post-secondary and April 20, 1999 (1999 WL 1002391).
requirement is vague and unworkable, career programs qualify as ‘‘other In those letters, the Department
this standard retains the benefit of being educational institutions’’ to final addressed the exempt status of
the subject of several court decisions subsection 541.204(b), and added academic counselors and enrollment or
and opinion letters. These ‘‘academic counselors’’ to the list of admissions counselors. Those letters
interpretations have provided some examples of exempt academic elaborate on the regulatory requirement
guidance for Public Sector FLSA administrative employees in final that the academic administrative
Coalition members in assessing the subsection 541.204(c). Except for exemption is limited to employees
exempt status of certain positions in the adjustment of the salary levels, the engaged in work relating to the
public sector. Similarly, the Wisconsin Department has made no other academic operations and functions of a
Department of Employment Relations substantive changes to this section. school rather than work relating to the
suggests that the final regulations As the preamble to the proposed rule general business operations of the
include specific examples from the stated, this provision simply school. Thus, academic counselors
public sector relating to the discretion consolidated into a single section of the performing the job duties listed in the
and independent judgment standard. regulations a few provisions in the 1998 opinion letter were found to
Various public sector unions and existing regulation pertaining to the qualify for the academic administrative
employees express concern that administration of educational exemption because their primary duty
employees such as investigators, institutions, with no substantive involved work such as administering
inspectors and parole officers would changes intended. The Department the school’s testing programs, assisting
newly qualify for the administrative received very few comments on this students with academic problems,
exemption under the proposed section. advising students concerning degree
regulations. Thus, the final rule has A few commenters, including the requirements, and performing other
been modified to add examples of Morgan, Lewis & Bockius law firm, the functions directly related to the school’s
various types of inspection work found Air Force Labor Advisors and the Career educational functions. In contrast,
in the public sector that typically fail College Association, suggest that the enrollment counselors who engage in
the requirement for exercising regulations contain some additional general outreach and recruitment efforts
discretion and independent judgment. guidance regarding ‘‘other educational to encourage students to apply to the
The examples are straightforward and institutions’’ such as schools that school did not qualify for the academic
drawn from previous Wage and Hour provide adult continuing education or administrative exemption because their
opinion letters in which, based on the post-secondary technical and vocational work was not sufficiently related to the
facts presented, the work involved was training programs such as aircraft flight school’s academic operations. However,
considered to be based on the schools. Opinion letters currently the 1999 letter noted that, depending
employee’s use of skills and technical provide guidance about such upon the employees’ duties, they might
abilities, rather than exercising the institutions. For example, the qualify for the general administrative
requisite discretion and independent Department has stated that a flight exemption because their work related to
judgment specified in the regulations. instruction installation approved by the the school’s general business operations
See, e.g., Wage and Hour Opinion Letter Federal Aviation Administration under and involved work in the nature of
of 4/17/98, 1998 WL 852783 that agency’s regulations would general sales promotion work.
Consistent with these opinion letters, instruction and work experience.’’ As section 541.3, and proposed subsection
we have added academic counselors as discussed more fully under section (g) has been renumbered.
an example of exempt academic 541.301 below, some commenters view Commenters on the learned
administrative employees in final the addition of this language as a professional exemption focus most of
subsection 541.204(c), but not significant expansion of the learned their discussion on the educational
admissions counselors. professional exemption. No such result requirements for the exemption.
was intended. Rather, this proposed Proposed section 541.301(a) provided
Subpart D, Professional Employees that the advanced knowledge required
language was merely an attempt to
Section 541.300 General Rule for streamline and summarize the for exemption is ‘‘customarily acquired
Professional Employees discussion of the word ‘‘customarily’’ in through a prolonged course of
subsection 541.301(d) of the current specialized intellectual instruction,’’ but
The proposed general rule for the
regulations. may also ‘‘be acquired by alternative
professional exemption also streamlined
means such as an equivalent
the current regulations by adopting a Section 541.301 Learned Professionals combination of intellectual instruction
single standard duties test. The
Proposed section 541.301(a) restated and work experience.’’ Similarly,
proposed standard duties test provided
the duties tests for the learned proposed section 541.301(d) provided:
that an exempt professional employee
professional exemption and defined ‘‘However, the word ‘‘customarily’’
must have ‘‘a primary duty of
‘‘advanced knowledge’’ as ‘‘knowledge means that the exemption is also
performing office or non-manual work:
that is customarily acquired through a available to employees in such
(i) Requiring knowledge of an advanced
prolonged course of specialized professions who have substantially the
type in a field of science or learning same knowledge level as the degreed
customarily acquired by a prolonged intellectual instruction, but which also
may be acquired by alternative means employees, but who attained such
course of specialized intellectual knowledge through a combination of
instruction, but which also may be such as an equivalent combination of
intellectual instruction and work work experience, training in the armed
acquired by alternative means such as forces, attending a technical school,
an equivalent combination of experience.’’ The proposed subsection
(a) also included a list of traditional attending a community college or other
intellectual instruction and work intellectual instruction.’’ This new
experience; or (ii) Requiring invention, fields of science or learning such as law,
medicine, theology and teaching ‘‘that ‘‘equivalent combination’’ language
imagination, originality or talent in a generated sharp disagreement among
recognized field of artistic or creative have a recognized professional status
based on the acquirement of advanced the commenters.
endeavor.’’ Many commenters, including the
The final rule modifies the proposed knowledge and performance of work
FLSA Reform Coalition, the National
professional duties test in three ways, that is predominantly intellectual in
Restaurant Association, the Food
ensuring that the final professional test character as opposed to routine, mental,
Marketing Institute, the State of
is as protective as the existing short manual, mechanical or physical work.’’
Oklahoma Office of Personnel
duties test under which most employees The remaining subsections in proposed
Management, the Johnson County
are tested for exemption today. First, as section 541.301 defined the key terms in Government Human Resources
under the other exemptions, the final the duties test and provided examples of Department and Henrico County,
rule changes the phrase ‘‘a primary occupations which generally meet or do Virginia, generally support the proposal
duty’’ back to the current language of not meet the duties requirements for the as more appropriately focusing on an
‘‘whose primary duty’’ in response to learned professional exemption. employee’s knowledge level and
commenter concerns that this change The final section 541.301(a) has been application of such knowledge. Such
weakened the test for exemption. modified to track the existing learned commenters state that the proposal
Second, consistent with the existing professional duties test, and then list reflects the realities of the modern
regulations, the final rule deletes the separately the three elements of this workplace where employees may take
phrase ‘‘office or non-manual’’ work. duties test: ‘‘(1) The employee must an alternative educational path, but
This revision was made in response to perform work requiring advanced perform the same duties as the degreed
commenter concerns about the knowledge; (2) The advanced professionals. Comments filed by the
confusion that would result from knowledge must be in a field of science HR Policy Association, for example,
applying the ‘‘office and non-manual’’ or learning; and (3) The advanced recognize that the current regulations
requirement to the professional knowledge must be customarily allow some non-degreed employees to
exemption for the first time. Employer acquired by a prolonged course of be classified as exempt learned
commenters express concerns that specialized intellectual instruction.’’ professionals by providing that the
occupations clearly satisfying the Other text from proposed subsection (a) requisite knowledge is ‘‘customarily’’
requirements of the existing tests for has been moved as appropriate to final acquired by a prolonged course of
learned or creative professionals would subsection (b) defining the phrase intellectual instruction. However, the
not be exempt under the proposal ‘‘advanced knowledge,’’ final subsection HR Policy Association writes that the
because some aspect of the employee’s (c) defining the phrase ‘‘field of science Department has not provided sufficient
duties requires ‘‘manual’’ work, such as or learning,’’ and final subsection (d) guidance, under the current or proposed
a surgeon using a scalpel or a portrait defining the phrase ‘‘customarily regulations, on the application of this
artist using a brush. The Department did acquired by a prolonged course of ‘‘customarily’’ language. The HR Policy
not intend this result, and thus has specialized intellectual instruction.’’ Association endorses the Department’s
removed the ‘‘office and non-manual’’ The final subsection (e) contains proposal as providing a workable and
language from the professional examples, consistent with existing case reasonable standard which recognizes
exemption. Third, the final rule deletes law as detailed below, illustrating how that more workers today perform work
from subsection 541.300(a)(2)(i) the the learned professional duties test requiring professional knowledge
phrase, ‘‘but which also may be acquired applies to specific occupations. The without possessing a formal
by alternative means such as an language in proposed subsection (f) has professional degree. The Society for
equivalent combination of intellectual been deleted as redundant with the new Human Resource Management (SHRM)
expresses concern that the existing test technicians, licensed practical nurses, practical nursing, the skilled trades, and
requires an employer to classify and pay engineering technicians and other various engineering and repair
employees differently even if they who technical workers could be classified as technicians. These concerns are
perform the same work and if they exempt employees under the proposal. unfounded because they incorrectly
acquired their knowledge in different The American Federation of State, conflate the three separate elements of
ways. SHRM supports the proposal County and Municipal Employees the learned professional duties test as
because it would allow employers to claims that the Department’s proposed described in the 1940 Stein Report:
classify and pay employees the same rule would replace an existing ‘‘bright The first element in the requirement is that
when they have the same knowledge line’’ test with a confusing standard. the knowledge be of an advanced type. Thus,
level and perform the same work. The The National Treasury Employees generally speaking, it must be knowledge
Workplace Practices Group similarly Union argues that the proposal creates which cannot be attained at the high-school
notes that the existing rule arguably a new category of exempt technical level. Second, it must be knowledge in a field
creates difficulties for an employer who professionals, which the Department of science or learning. This in itself is not
must treat differently two employees lacks the statutory authority to do. The entirely definitive but will serve to
who perform the same work but American Federation of Government distinguish the professions from the
Employees (AFGE) describes the mechanical arts where in some instances the
acquired their knowledge in different knowledge is of a fairly advanced type, but
manners. The National Association of proposal as substituting ‘‘a vague and
not in a field of science or learning. * * *
Manufacturers (NAM) states that the unworkable ‘‘knowledge’’ test’’ for an The requisite knowledge, in the third place,
proposal reflects the realities of the 21st existing ‘‘workable educational must be customarily acquired by a prolonged
century workplace while remaining requirement.’’ The AFGE also claims course of specialized intellectual instruction
consistent with the purposes of the that the proposed professional and study.
FLSA. NAM agrees with the exemption ‘‘utterly destroys’’ the
1940 Stein Report at 38–39. All three of
Department’s proposal, stating that the requirement that an exempt professional
these essential elements must be
regulations should focus on the be in a recognized profession and
satisfied before an employee qualifies as
employee’s knowledge and application eliminates any requirement for an
an exempt learned professional under
of that knowledge, not on how the advanced education degree. The
the existing, proposed and final rule.
employee acquired such knowledge. International Association of Machinists
Thus, for example, a journeyman
Comments filed by the U.S. Chamber of and Aerospace Workers claims the
electrician may acquire advanced
Commerce (Chamber) supporting the proposal is an ‘‘unwarranted relaxation
of FLSA standards.’’ The International knowledge and skills through a
proposal discuss how the professions combination of training, formal
and professional education have Federation of Professional and
Technical Engineers argues that the apprenticeship, and work experience,
evolved since the current regulations but can never qualify as an exempt
were promulgated in 1940. The current proposal opens the door to classifying
beauticians, barbers, radiological learned professional because the
focus of the regulations, the Chamber electrician occupation is not a ‘‘field of
notes, is inconsistent with this technicians and technicians that test or
repair mechanical or electric equipment science or learning’’ as required for
evolution in how knowledge is exemption. A licensed practical nurse
acquired. as exempt learned professionals.
The Department believes the proposal may work in a ‘‘field of science or
Other commenters, however, argue was consistent with current case law, learning,’’ but cannot meet the
that the proposed ‘‘equivalent and that the proposal would not have requirements for the professional
combination’’ language would greatly caused substantial expansion of the exemption because the occupation does
and unjustifiably expand the scope of professional exemption. Nonetheless, not require knowledge ‘‘customarily
the professional exemption. The AFL– after careful consideration of all the acquired by a prolonged course of
CIO acknowledges that ‘‘on its face,’’ the comments, the Department has modified specialized intellectual instruction.’’
proposal ‘‘does not permit occupations sections 541.301(a) and (d) to ensure our The proper focus of inquiry is upon
that currently do not meet the test for intent cannot be so misconstrued. The whether all three required elements
learned professionals to qualify for the Department did not and does not intend have been satisfied, not upon any job
exemption under the new alternative to change the long-standing educational title or ‘‘status’’ the employee might
educational requirement.’’ The AFL– requirements for the learned have. Rather, only occupations that
CIO notes that the 1940 Stein Report professional exemption. Rather, the customarily require an advanced
recognized a need for flexibility in the revisions to these subsections were specialized degree are considered
professional duties test to allow the intended to provide additional guidance professional fields under the final rule.
exemption for the occasional employee on the existing language, ‘‘customarily For example, no amount of military
who did not acquire the requisite acquired’’ by a prolonged course of training can turn a technical field into
knowledge for exemption through a specialized intellectual instruction. a profession. Similarly, a veteran who
formal degree program. The AFL–CIO The Department has modified received substantial training in the
also acknowledges that the court in proposed section 541.301(a) in response armed forces but is working on a
Leslie v. Ingalls Shipbuilding, Inc., 899 to the comments evidencing confusion manufacturing production line or as an
F. Supp. 1578 (S.D. Miss. 1995), focused regarding the different elements of the engineering technician cannot be
on the knowledge level to find that an primary duty test for the learned considered a learned professional
engineer without a formal degree was an professional exemption. As noted above, because the employee is not performing
exempt professional. Nonetheless, the some commenters express concern that professional duties.
AFL–CIO argues that the proposal allowing the exemption for employees The Department intended, and still
would have the practical effect of with ‘‘an equivalent combination of intends, that these three essential
allowing employers to classify as intellectual instruction and work elements, as set forth in the 1940 Stein
exempt any employee who has some experience’’ would result in significant Report, remain applicable and relevant
post-high school education and job expansion of the exemption to new today. Accordingly, final section
experience. According to the AFL–CIO, occupations never before considered to 541.301(a) now separately lists the three
entire occupations such as medical be professions, such as licensed elements, thus ensuring that nothing in
this section can be interpreted as profession. Second, employees within have substantially the same knowledge
allowing the professional exemption to such a learned profession can then only level and perform substantially the same
be claimed for licensed practical nurses, qualify for the learned professional work as the degreed employees, but who
skilled tradespersons, engineering exemption if they either possess the attained the advanced knowledge
technicians and other occupations that requisite advanced degree or ‘‘have through a combination of work
cannot meet all three of the elements. substantially the same knowledge level experience and intellectual instruction.’’
Although the Department has and perform substantially the same Thus, a veteran who is not performing
removed the ‘‘equivalent combination’’ work as the degreed employees, but who work in a recognized professional field
language from the final section attained the advanced knowledge will not be exempt, regardless of any
541.301(a), the references to the through a combination of work training received in the armed forces.
educational requirements for the experience and intellectual instruction.’’ The International Federation of
professional exemption and the term The final subsection (d) thus Professional & Technical Engineers, for
‘‘customarily’’ are discussed in recognizes, as evidenced by many example, describes its members as
subsection (d). As the AFL–CIO notes, comments and recognized in the technicians who test and repair
the 1940 Stein Report recognized a need existing regulations, that some electronic or mechanical equipment
for flexibility in the professional duties employees, occasional though they may using knowledge gained through on-the-
test to allow the exemption for the be, have the same knowledge level and job training, military training and
occasional employee who does not perform the same work as degreed technical or community colleges. This
possess the specialized academic degree employees but obtain that advanced commenter states that such technicians
usually required for entry into the knowledge by a non-traditional path.’’ 9 ‘‘generally do not have specialized
profession. This flexibility is discussed An employee with the same knowledge college degrees in engineering or
in the existing regulations at section level and performing the same work in scientific fields, and do not have the
541.301(d) which states, in part: a professional field of science or detailed and sophisticated knowledge
learning as the degreed professionals that scientists or engineers possess.’’
Here it should be noted that the word
‘‘customarily’’ has been used to meet a
should be classified and paid in the Such technical workers are entitled to
specific problem occurring in many same manner as those degreed overtime under the existing and final
industries. As is well known, even in the professionals. This principle does not regulations because their work does not
classical profession of law, there are still a expand the learned professional require advanced knowledge in a field
few practitioners who have gained their exemption to new quasi-professional of science or learning customarily
knowledge by home study and experience. fields. Rather, it merely ensures, as in acquired by a prolonged course of
Characteristically, the members of the the current regulations, that employees specialized intellectual instruction.
profession are graduates of law schools, but performing the same work, and who met To further avoid any
some few of their fellow professionals whose the other requirements for exemption, misunderstanding of our intent, the
status is equal to theirs, whose attainments are treated the same—a common theme
are the same, and whose word is the same
final rule adds the following additional
did not enjoy that opportunity. Such persons
in employment law today. language to subsection (d):
are not barred from the exemption.
To ensure that the final rule is not
Thus, for example, the learned professional
interpreted to exempt entire exemption is available to the occasional
Thus, the existing section 541.301(d) occupations previously considered lawyer who has not gone to law school, or
states, the learned professional nonexempt by the Department, the final the occasional chemist who is not the
exemption is ‘‘available to the rule deletes the phrase in proposed possessor of a degree in chemistry. However,
occasional lawyer who has not gone to section 541.301(d) that equivalent the learned professional exemption is not
law school, or the occasional chemist knowledge may be obtained ‘‘through a available for occupations that customarily
who is not the possessor of a degree in combination of work experience, may be performed with the general
chemistry.’’ training in the armed forces, attending knowledge acquired by an academic degree
The final section 541.301(d), defining in any field, with knowledge acquired
a technical school, attending a through an apprenticeship, or with training
the phrase ‘‘customarily acquired by a community college or other intellectual in the performance of routine mental,
prolonged course of specialized instruction.’’ Instead, final section manual, mechanical or physical processes.
intellectual instruction,’’ retains these 541.301(d) provides that the word The learned professional exemption also
general concepts while providing ‘‘customarily’’ means ‘‘that the does not apply to occupations in which most
additional guidance to clarify when an exemption is also available to employees have acquired their skill by
employee working in a ‘‘field of science employees in such professions who experience rather than by advanced
or learning,’’ but without a formal specialized intellectual instruction.
degree, can qualify as an exempt learned 9 The preamble to the proposal, 68 FR at 15568, Some jobs require only a four-year
professional. The final subsection (d) invited comments on whether the regulations college degree in any field or a two-year
requires two separate inquiries. First, as should specify equivalencies of work experience
and other intellectual instruction that could
degree as a standard prerequisite for
in the existing regulations, the substitute for a specialized advanced degree. A few entrance into the field. Other jobs
occupation must be in a field of science commenters supported various specific require only completion of an
or learning where specialized academic equivalencies, but most commenters opposed them apprenticeship program or other short
because equivalencies might vary by industry or be
training is a standard prerequisite for an ‘‘arbitrary exercise subject to abuse.’’ The course of specialized training. The final
entrance into the profession. Thus, the Department has decided not to impose inflexible section 541.301(d), drawn from existing
learned professional exemption is equivalencies in the final regulations. However, we subsection 541.301(d) and proposed
available for lawyers, doctors and have added the phrase ‘‘and performs substantially section 541.301(f), makes clear that such
the same work’’ to the final section 541.301(d),
engineers, but not for skilled which should be a better guide for the regulated occupations do not qualify for the
tradespersons, technicians, beauticians community in determining when a non-degreed learned professional exemption.
or licensed practical nurses, as none of employee working in a recognized professional The decision in Palardy v. Horner,
these occupations require specialized field of science or learning can qualify as an exempt 711 F. Supp. 667 (D. Mass. 1989)
learned professional by focusing the inquiry on the
academic training at the level intended actual work performed by the employee. See, e.g.,
(applying Office of Personnel
by the regulations as a standard Leslie v. Ingalls Shipbuilding, Inc., 899 F. Supp. Management and FLSA regulations),
prerequisite for entrance into the 1578 (S.D. Miss. 1995). cited by the AFL–CIO, would not
change if analyzed under the proposed defining this requirement, the HR Policy Report at 37 (‘‘A prime characteristic of
or final regulations. The employees in Association states, have resulted in professional work is the fact that the
that case were technicians employed by confusion in its application and have employee does apply his special
the Navy at the GS–11 grade level who spawned numerous lawsuits. The HR knowledge or talents with discretion
performed ‘‘technical tasks relating to Policy Association notes that and judgment.’’). The Department has
the proper design, repair, testing and professional employees are increasingly been unable to identify any occupation
overhaul of naval ship systems and guided by operational parameters or that would meet the primary duty test
equipment, as well as the vessels standards because of the increased for the professional exemption, but not
themselves.’’ Id. at 668. The court acceptance of international standards, require the consistent exercise of
described the employees as ‘‘primarily especially in fields like engineering and discretion and judgment.
responsible for preparing drawings and science. According to the commenter, The Department observes that only a
schematics used in installing and this evolution in work performed by few courts have discussed the definition
reconfiguring equipment on navy professional employees has accelerated of the phrase ‘‘includes work requiring
vessels,’’ but these tasks were confusion with, and litigation over, the
the consistent exercise of discretion and
‘‘accomplished by consulting standard current professional exemption. The HR
judgment’’ in the existing ‘‘short’’
texts, guides and established formulas.’’ Policy Association also cites the
professional duties test, and how this
Id. The work was ‘‘practical rather than Rockwell Space Operations case to
standard differs from the phrase
theoretical,’’ with the more complex illustrate that the current test can lead
‘‘includes work requiring the exercise of
tasks performed by professional to illogical results.
Other commenters, such as the AFL– discretion and independent judgment’’
engineers. Id. at 668–69. The only in the existing ‘‘short’’ administrative
educational requirement for the CIO, the American Federation of State,
County and Municipal Employees, the duties test. See, e.g., Piscione v. Ernst &
positions was a high school diploma, Young, L.L.P., 171 F.3d 527, 536 (7th
and the skills needed to perform the National Treasury Employees Union,
the American Federation of Government Cir. 1999); Hashop, 867 F. Supp. at 1298
work were ‘‘obtained through on the job n.6. The Department also notes that the
training.’’ Id. The work did ‘‘not require Employees and the International
Federation of Professional and ‘‘consistent exercise of discretion and
an advanced course of academic study.’’ judgment’’ standard under the learned
Id. Such technicians would be entitled Technical Engineers, urge the
Department to restore ‘‘discretion and professional exemption is less stringent
to overtime pay under the final than the ‘‘includes work requiring the
regulations, because the standard judgment’’ as a requirement for the
professional exemption. Such exercise of discretion and independent
prerequisite for entry into such jobs is judgment’’ standard of the
only a high school education, not commenters argue that the exercise of
discretion and judgment demonstrates administrative exemption. See De Jesus
advanced specialized academic training. Rentas v. Baxter Pharmacy Services
In addition, the technicians would be the independence and authority that is
an inherent part of professional work. Corp., 286 F. Supp. 2d 235, 241 (D.P.R.
entitled to overtime pay under the final 2003) (noting that the discretion
regulations because they did not Similarly, the National Employment
Law Project contends that the required for the professional exemption
perform the same work as the is ‘‘a lesser standard’’ than the discretion
professional engineers. In contrast, the ‘‘discretion and judgment’’ requirement
‘‘is a key limiting factor of the required under the administrative
employee in Leslie v. Ingalls exemption).
Shipbuilding, Inc., 899 F. Supp. 1578 exemption and is intended to weed out
those workers who are not bona fide The Department continues to agree
(S.D. Miss. 1995), who had completed
exempt employees.’’ Some of these that a ‘‘prime characteristic of
three years of engineering study at a
commenters also believe that the professional work is the fact that the
university and had many years of
proposal eliminated the ‘‘long’’ duties employee does apply his special
experience in the field of engineering,
test requirement that exempt knowledge or talents with discretion
would continue to be properly classified
professionals perform work and judgment,’’ 29 CFR 541.305(b), and
as an exempt learned professional.
‘‘predominantly intellectual and varied did not intend to delete this concept
The Department also received in character.’’ Such commenters object entirely from the professional duties
substantial comments on the proposal to to the perceived deletion of the test. Thus, consistent with existing
eliminate the existing ‘‘short’’ test ‘‘predominantly intellectual’’ section 541.305(b), the Department has
requirement that an exempt professional requirement as further weakening the included the ‘‘consistent exercise of
employee ‘‘consistently exercise * * * requirements for exemption. discretion and judgment’’ in final
discretion and judgment.’’ Many The Department continues to believe subsection 541.301(b) as part of the
commenters such as the U.S. Chamber that having a primary duty of definition of ‘‘work requiring advanced
of Commerce (Chamber), the HR Policy ‘‘performing work requiring advanced knowledge,’’ one of three essential
Association, the Public Sector FLSA knowledge in a field of science or elements of the learned professional
Coalition, the National Restaurant learning customarily acquired by a primary duty tests:
Association, and the National prolonged course of specialized
Association of Chain Drug Stores intellectual instruction’’ includes, by its The phrase ‘‘work requiring advanced
support this change. The Chamber, for very nature, exercising discretion and knowledge’’ means work which is
example, notes that the ‘‘discretion and predominantly intellectual in character, and
independent judgment. Indeed, existing
judgment’’ requirement is inconsistent which includes work requiring the consistent
section 541.305 defines ‘‘discretion and
exercise of discretion and judgment, as
with modern workforce practices, citing judgment’’ under the professional distinguished from performance of routine
the case of Hashop v. Rockwell Space exemption by stating only that: ‘‘A mental, manual, mechanical or physical
Operations Co., 867 F. Supp. 1287, 1297 prime characteristic of professional work. An employee who performs work
(S.D. Tex. 1994) (employees with work is the fact that the employee does requiring advanced knowledge generally uses
degrees in electronic engineering and apply his special knowledge or talents the advanced knowledge to analyze, interpret
mathematics who trained Space Shuttle with discretion and judgment. Purely or make deductions from varying facts or
ground control personnel held not mechanical or routine work is not circumstances. Advanced knowledge cannot
exempt). Difficulties in articulating and professional.’’ See also 1940 Stein be attained at the high school level.
This language, consistent with electrical engineering, mathematics or survey of daily newspaper editors
existing section 541.305, acknowledges physics. Id. at 1296. Nonetheless, the conducted at the Ohio State Newspaper
that the exercise of ‘‘discretion and court found the plaintiffs did not finding that 86 percent of daily
judgment’’ is a prime characteristic of ‘‘consistently exercise discretion and newspaper entry-level hires just out of
professional work, while also providing judgment,’’ and thus were entitled to college had journalism and mass
a more substantive definition of overtime pay, because the appropriate communication degrees. The
‘‘advanced knowledge’’ than the responses to simulated Space Shuttle Department, however, has no further
definition in existing section 541.301(b), malfunctions were contained in a supporting information about the
which merely defines advanced manual. Id. at 1297–98. In the requirements for the profession and, as
knowledge as ‘‘knowledge which cannot Department’s view, the reliance by an such, declines to include journalists in
be attained at a high school level.’’ engineer or physicist on a manual the learned professional exemption at
These clarifications in the final rule are outlining appropriate responses to a this time. Further discussion regarding
based on current law, should make the Space Shuttle emergency (or a problem journalists is retained as in the existing
professional duties test easier to apply, in a nuclear reactor, as another example) regulations under the creative
and will not cause currently nonexempt should not transform an otherwise professional exemption.
employees to be classified as exempt learned professional scientist into a The record evidence is sufficient for
learned professionals. At the same time, nonexempt technician. The the Department to provide additional
the final rule recognizes that some clarifications to the professional duties guidance regarding the following
learned professionals in the modern test are designed to prevent such an occupations, some of which are covered
workplace are required to comply with absurd result. by the current regulations but repeated
The definition of ‘‘advanced here:
national or international standards or
knowledge’’ also retains the Nurses. The proposal retained the
guidelines. Certified Public Accountants
‘‘predominantly intellectual’’ concept Department’s existing interpretation
have not under current law, and will not
from the existing ‘‘long’’ duties test. The regarding the exempt status of registered
under the final rule, lose the learned
Department notes that the proposal did nurses (RNs). Simply stated, nurses who
professional exemption because they
not eliminate the requirement that are registered by an appropriate state
follow the Generally Accepted
exempt professional work must be licensing board satisfy the duties
Accounting Principles (GAAP).
predominantly intellectual. We agree requirements for exemption as learned
Similarly, a lawyer who follows with the commenters stating that
Security and Exchange Commission professional employees. This well-
professional work, by its very nature, established regulatory exemption for
rules to prepare corporate filings should must be intellectual. Thus, proposed
still qualify for exemption even though registered nurses has appeared in the
section 541.301(a) defined learned existing interpretative guidelines for
such rules today allow for little professions to include those
variation. In such cases, the exempt more than 32 years:
‘‘occupations that have a recognized Registered nurses have traditionally been
professional employee applies advanced professional status based on the
knowledge to identify and interpret recognized as professional employees by the
acquirement of advanced knowledge Division in its enforcement of the act.
varying facts and circumstances. As and performance of work that is Although, in some cases, the course of study
noted by several commenters, the predominantly intellectual in character has become shortened (but more
decision in Hashop v. Rockwell Space as opposed to routine mental, manual, concentrated), nurses who are registered by
Operations Co., 867 F. Supp. 1287 (S.D. mechanical or physical work.’’ the appropriate examining board will
Tex. 1994), demonstrates the absurd Nonetheless, the comments demonstrate continue to be recognized as having met the
result from too literally applying the requirement of § 541.3(a)(1) of the
that the proposal did not sufficiently regulations.
current ‘‘discretion and judgment’’ stress this concept, and may have been
requirement to a 21st century job. While unclear as to how the ‘‘predominantly 29 CFR 541.301(e)(1) (36 FR 22978,
this case has not been followed by any intellectual’’ requirement fits into the December 2, 1971). Final rule section
court in the decade since it was primary duty test. Moving the 541.301(e)(2) continues to provide that
decided, the Rockwell Space Operations ‘‘predominantly intellectual’’ language RNs satisfy the duties test for the
decision has caused confusion for to final section 541.301(b) should professional exemption, and clarifies
employers attempting to determine the address the commenter concerns that other nurses, such as licensed
exempt status of employees. The discussed above. practical nurses (LPNs), would not be
plaintiffs in the Rockwell Space A number of commenters ask the exempt from eligibility for overtime.
Operations case were instructors who Department to declare various The AFL–CIO, the American
trained ‘‘Space Shuttle ground control occupations as qualifying for the Federation of Teachers (AFT), the
personnel during simulated missions.’’ learned professional exemption, but American Nurses Association, the
Id. at 1291. The plaintiffs provided these commenters did not provide Maine State Nurses Association, the
‘‘instruction on all communications, sufficient information regarding the Minnesota Nurses Association, the
data, tracking, and telemetry educational requirements of the Service Employees International Union
information that ordinarily flows occupations necessary for us to make (SEIU) and United Food and
between the Space Shuttle and the that determination. For example, the Commercial Workers International
Johnson Space Center Mission Control Newspaper Association of America Union (UFCW), as well as many
Center.’’ Id. The plaintiffs were (NAA) suggests that the Department individual nurses, express reservations
responsible for assisting in development consider including a specific discussion about the knowledge equivalency
of the script for the simulated missions, on the applicability of the learned language of the proposal. They state that
running the simulation, and debriefing professional exemption to journalists, the proposed formulation of the
Mission Control on whether the trainees particularly given the guidance in the professional standard duty test would
handled simulated anomalies correctly. existing regulations that the learned exempt additional classes of healthcare
Id. at 1291–92. The plaintiffs also wrote professional exemption does not apply workers, such as LPNs. For example,
workbooks and technical guides. Id. The to ‘‘quasi-professions’’ such as AFT and SEIU note that LPNs have
plaintiffs had college degrees in journalism. The NAA cites a 1996 some level of formal education but do
not possess the same level to be satisfy the duties test for exempt learned commenters object to this section, the
considered degreed exempt employees, professionals, but LPNs do not. See final rule retains this long-standing
as are RNs. SEIU also argues that the Wage and Hour Opinion Letters dated recognition of physician assistants as
proposal ignored the differences in the April 1, 1999, June 23, 1983, May 16, exempt learned professionals. However,
permitted scope of practice between 1983 and November 16, 1976. As re the Department has modified the
RNs and LPNs. The UFCW argues that emphasized by the Administrator in an educational and certification
the difference between RNs and LPNs is October 19, 1999 Opinion Letter, ‘‘in requirements in final section
that the former typically enter the virtually every case, licensed practical 541.301(e)(4) in response to a comment
nursing profession by attending a nurses cannot be considered exempt, filed by the American Academy of
specialized school and obtaining a bona fide, professionals.’’ Similarly, the Physician Assistants (AAPA).
specialized nursing degree while the scant case law in this area is consistent. According to the AAPA, the standard
latter do not. The UFCW criticizes the For example, in Fazekas v. Cleveland prerequisite for practice as a physician
proposal as eliminating this distinction Clinic Foundation Health Care assistant is graduation from a physician
between RNs and LPNs, and for Ventures, Inc., 204 F.3d 673 (6th Cir. assistant program accredited by the
eliminating overtime for LPNs and other 2000), the parties did not dispute that Accreditation Review Commission on
technical workers who have experience the plaintiff RNs who made home health Education for the Physician Assistant
or training but do not have an advanced care visits possessed the requisite and certification by the National
degree in a recognized field of science knowledge of an advanced type in a Commission on Certification of
or learning. In describing the work and field of science to satisfy the duties test Physician Assistants (NCCPA). The
qualifications of LPNs, or a licensed for the professional exemption. There, AAPA states that the proposal, and thus
vocational nurse (LVNs) in the state of as in most reported cases involving section 22d23 of the FOH, describes the
California, UFCW comments that they claims by nurses for overtime pay, the educational background or experience
perform patient care tasks pursuant to issue was whether the nurses were paid typical of an individual who is admitted
the direct and close supervision of RNs on a fee basis that would meet the salary into an accredited physician assistant
or physicians. LPNs and LVNs are not or fee basis test. See also Elwell v. program and includes an abbreviated
required to have an advanced degree or University Hospitals Home Care version of the physician assistant
undergo a prolonged course of study in Services, 276 F.3d 832, 835–36 (6th Cir. educational curriculum—not the
a recognized field of science or learning. 2002) (dispute regarding whether home standard an individual must satisfy to
‘‘Typically, all that is required is a high health care nurse providing ‘‘skilled practice as a physician assistant. For
school education and a year’s training in nursing services’’ was paid on a salary entry into an accredited physician
a vocational school.’’ As for their job or fee basis, but no dispute that nurse assistant educational program, an
duties, UFCW states that LPNs and met the duties test); Klem v. County of individual should have a Bachelor’s
LVNs have limited discretion and little Santa Clara, California, 208 F.3d 1085, degree and 45 months of health care
supervisory or administrative duties; 1088–90 (9th Cir. 2000) (dispute on experience, according to the AAPA.
rather, they perform tasks such as whether RN was paid on a salary basis, Physician assistant programs are located
‘‘routine bedside care, including but no dispute that registered nurse met at schools of medicine or health
bathing, dressing, personal hygiene, the duties test for the learned sciences, universities and teaching
feeding, and tending to patients’ comfort professional exemption). hospitals and typically consist of 111
and emotional needs.’’ Since such The Department did not and does not weeks of instruction: 400 classroom and
nurses are nonexempt under the current have any intention of changing the laboratory hours in the basic sciences
regulatory framework, UFCW calls on current law regarding RNs, LPNs or with at least 70 hours in pharmacology,
the Department to expressly affirm that other similar health care employees, and more than 149 hours in behavioral
such nurses remain nonexempt under no language in the proposed regulations sciences and more than 535 hours in
the final regulations. The Minnesota suggested otherwise. Consequently, the clinical medicine. In the second year of
Nurses Association states that the final rule reiterates the long-standing the program, 2,000 hours are spent in
proposal would detrimentally affect the position that RNs satisfy the duties test clinical rotations divided between
nursing profession. Other organizations, for bona fide learned professional primary care medicine and various
such as the National Organization for employees. The Department further specialties. To practice as a physician
Women and Women Employed clarifies that LPNs and other similar assistant, an individual must pass a
Institute, also express similar concerns health care employees generally do not national certifying examination jointly
that nurses could be classified as qualify as exempt learned professionals, developed by the National Board of
exempt and no longer entitled to regardless of work experience and Medical Examiners and NCCPA.
overtime. training, because possession of a Physician assistants also must take
Some of these same commenters view specialized advanced academic degree continuing medical education credits
the proposal as classifying RNs as bona is not a standard prerequisite for entry and a recertification to maintain
fide professionals and thereby into such occupations. certification.
exempting them from overtime for the Physician Assistants. Proposed The Department recognizes that the
first time. For example, the American section 541.301(e)(4) included an FOH section has not been updated in
Nurses Association states that the enforcement policy articulated in many years and thus may be out of date.
proposal would add RNs as exempt section 22d23 of the Wage and Hour The information provided by the AAPA
from overtime. Also, the Maine State Division Field Operations Handbook reveals a more lengthy and involved
Nurses Association argues that RNs (FOH) that physician assistants who required course of study than is
should be treated as eligible for complete three years of pre-professional currently set forth in the FOH. The
overtime. study (or 2,000 hours of patient care national testing and certification
As noted above, the existing experience) and not less than one year requirement also is consistent with
regulations have treated RNs as of professional course work in a medical exempt learned professional status.
performing exempt learned professional school or hospital generally meet the Thus, the Department concludes that
duties since 1971. The Department’s duties requirements for the learned physician assistants who have
long-standing position is that RNs professional exemption. Although a few graduated from a program accredited by
the Accreditation Review Commission college degree’’ with ‘‘a four-year regarding floral designers and other
on Education for the Physician Assistant specialized academic degree’’ and states federal case law. See Wage and Hour
and who are certified by the National that cooks are not exempt professionals. Opinion Letter of September 4, 1970,
Commission on Certification of The final subsection 541.301(e)(6) thus 1970 WL 26442 (‘‘The requirement that
Physician Assistants generally meet the provides: ‘‘Chefs, such as executive work must be original and creative in
duties requirements for the learned chefs and sous chefs, who have attained character would be, generally speaking,
professional exemption. Final section a four-year specialized academic degree met by a flower designer who is given
541.301(e)(4) has been modified in a culinary arts program, generally a subject matter, theme or occasion for
accordingly. meet the duties requirements for the which a floral design or arrangement is
Chefs. Section 541.301(e)(6) of the learned professional exemption. The needed and creates the floral design or
proposal provided that chefs, such as learned professional exemption is not floral means of communicating an idea
executive chefs and sous chefs, ‘‘who available to cooks who perform for the occasion. Work of this type is
have attained a college degree in a predominantly routine mental, manual, original and creative and depends
culinary arts program, meet the primary mechanical or physical work.’’ This primarily on the invention, imagination
duty requirement for the learned language is consistent with industry and talent of the employee’’). See also
professional exemption.’’ The standard educational prerequisites as Freeman v. National Broadcasting Co.,
Department received few comments represented by the National Restaurant 80 F.3d 78, 82 (2nd Cir. 1996)
addressing this section. The National Association and distinguishes the (employees ‘‘talented’’ because they
Restaurant Association confirms that a exempt learned professional chef from have a ‘‘native and superior ability in
four-year college degree in culinary arts the nonexempt cook. The Department their fields’’); Reich v. Gateway Press,
is the standard prerequisite in the rejects the National Restaurant Inc., 13 F.3d 685, 700 (3rd Cir. 1994)
industry for executive chefs. The Association’s suggestion that the (‘‘developing an entirely fresh angle on
National Restaurant Association argues, regulations should broadly allow work a complicated topic’’); Shaw v. Prentice
however, that the Department should experience to substitute for a four-year Hall, Inc., 977 F. Supp. 909, 914 (S.D.
more explicitly allow work experience college degree in the culinary arts Ind. 1997) (‘‘employees who have been
to substitute for a college degree. In because it would inappropriately found to meet the artistic professional
contrast, the AFL–CIO expresses expand the scope of the learned exemption performed work that was
concern that the proposed language professional exemption. much more inventive and ‘artistic’’’).
unjustly would expand the ‘‘learned The National Restaurant Association However, there is a wide variation in
professional’’ exemption to cover also argues that certain chefs qualify as duties of chefs, and the creative
employees properly considered creative professionals. The Department professional exemption must be applied
nonexempt cooks. agrees that certain forms of culinary arts on a case-by-case basis with particular
The Department agrees that the have risen to a recognized field of focus on the creative duties and abilities
proposed language should be clarified to artistic or creative endeavor requiring of the particular chef at issue. The
better distinguish between exempt ‘‘invention, imagination, originality or Department intends that the creative
professional chefs with four-year talent.’’ The National Restaurant professional exemption extend only to
culinary arts degrees and nonexempt Association points to the Department’s truly ‘‘original’’ chefs, such as those who
ordinary cooks who perform Occupational Outlook Handbook, 2002– work at five-star or gourmet
predominantly routine mental, manual, 2003, stating at page 306 that ‘‘[d]ue to establishments, whose primary duty
mechanical or physical work. The their skillful preparation of traditional
requires ‘‘invention, imagination,
Department has no intention of dishes and refreshing twists in creating
originality, or talent.’’
departing from current law that ordinary new ones, many chefs have earned
cooks are not exempt professionals. See, fame* * *.’’ The National Restaurant Paralegals. The Department received a
e.g., Wage and Hour Opinion Letter of Association also references various number of comments from paralegals
February 18, 1983 (‘‘Cooks and bakers publications emphasizing the creative and legal assistants expressing concern
are not considered to be executive, nature of certain culinary innovation, that they would be classified as exempt
administrative, or professional including the specialization of creating under the proposed regulations. Other
employees within the meaning of the distinctive, unique dishes. Another commenters urge the Department to
regulations regardless of how highly commenter, a wage and hour consultant, declare that paralegals are exempt
skilled or paid such employees may also suggests that the Department learned professionals. However, none of
be’’). See also Cobb v. Finest Foods, Inc., consider the creative professional these commenters provided any
755 F.2d 1148, 1150 (5th Cir. 1985) exemption for such chefs, noting the information to demonstrate that the
(employee who directed the work of two ‘‘national acclaim’’ and ‘‘reputation and educational requirement for paralegals
or more employees and whose primary power in the industry’’ enjoyed by is greater than a two-year associate
duty was management of hot food certain chefs. degree from a community college or
section of cafeteria was exempt Accordingly, after careful equivalent institution. Although many
executive); Noble v. 93 University Place consideration of this issue, the paralegals possess a Bachelor’s degree,
Corp., 2003 WL 22722958, at *10 Department concludes that to the extent there is no evidence in the record that
(S.D.N.Y. 2003) (summary judgment a chef has a primary duty of work a four-year specialized paralegal degree
denied because of factual dispute over requiring invention, imagination, is a standard prerequisite for entry into
whether employee was head chef and originality or talent, such as that the occupation. Because comments
kitchen manager with numerous involved in regularly creating or revealed some confusion regarding
managerial and supervisory designing unique dishes and menu paralegals, the final rule contains new
responsibilities or ‘‘simply a chef who items, such chef may be considered an language in section 541.301(e)(7)
spent 75 to 100 percent of his time exempt creative professional. providing that paralegals generally do
cooking’’). Recognizing that some chefs may not qualify as exempt learned
Accordingly, to avoid any qualify as exempt creative professionals professionals. The final rule, however,
misinterpretations, the final rule is consistent with the Department’s also states that the learned professional
replaces the proposed language ‘‘a long-standing enforcement policy exemption is available for paralegals
who possess advanced specialized NATA licensed trainers. At least 25 The other states fall somewhere in
degrees in other professional fields and percent of these clinical hours must be between: some requiring high school
apply advanced knowledge in that field obtained on location, at the practice or and mortuary college, and some
in the performance of their duties. For game, in one of many eligible sports requiring one year of post-secondary
example, if a law firm hires an engineer such as football, soccer, wrestling, education plus completion of the
as a paralegal to provide expert advice basketball or gymnastics. mortuary college program. Twelve states
on product liability cases or to assist on In light of the Owsley decision and the also require passage of a state or
patent matters, that engineer would comments evidencing the specialized national exam for licensure.
qualify for exemption. academic training required for Other commenters oppose recognizing
Athletic Trainers. The Department certification, the Department concludes licensed funeral directors or embalmers
requested and received a number of that athletic trainers certified by NATA, as learned professionals. For example,
comments on athletic trainers. or under an equivalent state certification the International Brotherhood of
Commenters describe an athletic procedure, would qualify as exempt Teamsters (Teamsters) contend that the
trainer’s duties as evaluation of injuries learned professionals. We have proposed rule would improperly
and illnesses of athletes; designing and modified the regulation accordingly by exempt most licensed funeral directors
administering care, treatment and adding a section on athletic trainers at and embalmers. The Teamsters argue
rehabilitation; keeping and maintaining final section 541.301(e)(8). that the specialized intellectual
records of injuries and progress; directly Funeral Directors. Comments from the instruction and apprenticeship that a
supervising student athletic trainers and National Funeral Directors Association licensed funeral director or embalmer
student team managers; and maintaining (NFDA) include detailed information on attains does not constitute the requisite
current catalogues and files on research the educational and licensure knowledge of an exempt professional.
and information related to sports requirements in each state for licensed The Teamsters state that a four-year
medicine. Athletic trainers are on call funeral directors and embalmers. The course of study is not a prerequisite to
24 hours a day to assist coaches and NFDA comments indicate that the licensure, and cites a November 23,
teams with athletic injuries, according licensing requirements for funeral 1999, Wage and Hour Opinion letter in
to the commenters, and often travel to directors or embalmers in 16 states support of its position. In this opinion
away competitions with teams. require at least two years of college plus letter, the Wage and Hour Division
In the past, the Department has taken graduation from an accredited college of wrote that ‘‘[a] prolonged course of
the position that athletic trainers are not mortuary science, which requires two specialized instruction and study
exempt learned professionals. However, years of study. According to NFDA, the generally has been interpreted to require
the court in Owsley v. San Antonio American Board of Funeral Service at least a baccalaureate degree or its
Independent School District, 187 F.3d Education (ABFSE) is the sole national equivalent which includes an
521 (5th Cir. 1999), cert. denied, 529 academic accreditation agency for intellectual discipline in a particular
U.S. 1020 (2000), rejected this position college and university programs in course of study as opposed to a general
and held that athletic trainers certified funeral service and mortuary science academic course otherwise required for
by the State of Texas qualified for the education, and the ABFSE is recognized a baccalaureate degree.’’ 1999 WL
learned professional exemption based by the U.S. Department of Education 33210905. The Teamsters also express
upon their possession of a specialized and Council on Higher Education concern that, under the proposal, more
advanced degree. Accreditation. The ABFSE- licensed funeral directors and
Further, the information submitted by recommended curriculum is used in all embalmers could be classified as
commenters indicates that athletic accredited mortuary colleges in the exempt professional employees because
trainers are nationally certified and that United States. The ABFSE stipulates they could obtain the requisite
a specialized academic degree is a that the minimum educational standard knowledge through a combination of
standard prerequisite for entry into the for the funeral service profession educational requirements,
field. Athletic trainers are nationally consists of 60 semester hours apprenticeships and on-the-job training.
certified by the Board of Certification of (equivalent to two years of college-level The issue of the exempt status of
the National Athletic Trainers credits) in public health and technical funeral directors and embalmers
Association (NATA) Inc. In order to studies, such as chemistry, anatomy and presents precisely the situation long
qualify for such certification, a pathology; business management, such contemplated by the existing regulations
candidate must meet NATA’s basic as funeral home management and at section 541.301(e)(2) that the ‘‘areas in
requirements that include a Bachelor’s merchandising and funeral directing; which professional exemptions may be
degree in a curriculum accredited by the social sciences, such as grief dynamics available are expanding. As knowledge
Commission on Accreditation of Allied and counseling; legal, ethical and is developed, academic training is
Health Education Programs (CAAHEP). regulatory subjects, such as mortuary broadened, degrees are offered in new
The CAAHEP-accredited curriculums law; and electives in general education and diverse fields, specialties are
are in specialized fields such as athletic or non-technical courses. Thus, licensed created and the true specialist, so
training, health, physical education or funeral directors or embalmers in 16 trained, who is given new and greater
exercise training, and require study in states must complete at least the responsibilities, comes closer to meeting
six particular courses—Human equivalent of four years of post the tests.’’ See also discussion of final
Anatomy, Human Physiology, secondary education which is sufficient, section 541.301(f), infra. In the past, the
Biometrics, Exercise Physiology, NFDA argues, to meet the educational Department has taken the position that
Athletic Training and Health/Nutrition. requirements for the learned licensed funeral directors and
Candidates are strongly encouraged to professional exemption. The NFDA embalmers are not exempt learned
take additional courses in the areas of comments also reveal that one state, professionals. The Department took this
Physics, Pharmacology, Recognition of Colorado, has no educational or position as amicus curiae in support of
Medical Conditions, Pathology of Illness licensing requirements for funeral a funeral director’s argument that he
and Injury, and Chemistry. Finally, a directors or embalmers, and five states was not an exempt learned professional
candidate must participate in extensive require funeral directors or embalmers in the case of Rutlin v. Prime
clinicals under the supervision of to have only a high school education. Succession, Inc., 220 F.3d 737 (6th Cir.
2000). However, the court in Rutlin did that game wardens were not exempt learning,’’ and that the knowledge
not agree with the Department’s professionals because ‘‘there is a lack of required to be a pilot is not ‘‘customarily
position and held that funeral directors uniformity among states as to the acquired by a prolonged course of
certified by the State of Michigan requirement and duties of game specialized intellectual instruction.’’
qualified for the learned professional wardens’’ was rejected by the court, See Wage and Hour Opinion Letter
exemption. In Rutlin, the district court which stated that ‘‘Wyoming may dated January 20, 1975; In re U.S. Postal
found that the plaintiff funeral director’s rightfully require more duties of its Service ANET and WNET Contracts,
work ‘‘required knowledge of an game wardens than other states’’). 2000 WL 1100166, at *7 (DOL Admin.
advance type in a field of science or Further, the only federal appellate Rev. Bd.).
learning customarily acquired by a courts to address this issue—the Sixth A contrary result was reached in Paul
prolonged course of specialized Circuit in Rutlin and the Seventh Circuit v. Petroleum Equipment Tools Co., 708
intellectual instruction and study in Szarnych—have held the licensed F.2d 168 (5th Cir. 1983). In Paul, the
* * *.’’ 220 F.3d at 742. Quoting from funeral directors and embalmers are Fifth Circuit allowed the learned
the lower court’s decision, the appellate exempt learned professionals. Indeed, professional exemption for a company
court agreed: the educational and licensing airline pilot who held an airline
As a funeral director and embalmer, requirements for funeral directors or transport pilot (ATP) certificate, a flight
plaintiff had to be licensed by the state. In embalmers in the 16 states that require instructor certificate, a commercial pilot
order to become licensed, plaintiff had to two years of post-secondary education certificate, an instrument flight rules
complete a year of mortuary science school and completion of a two-year program at (IFR) rating, and was authorized to fly
and two years of college, including classes an accredited mortuary college are both single and multiengine airplanes.
such as chemistry and psychology, take comparable to the educational The court examined the Federal
national board tests covering embalming, Aviation Authority regulations setting
requirements for certified medical
pathology, anatomy, and cosmetology,
technologists, who have long been forth the requirements for the licenses
practice as an apprentice for one year, and
pass an examination given by the state. recognized in the existing regulations as and ratings, finding the combination of
exempt professionals. Accordingly, instruction and flight tests sufficient to
Id. The appellate court characterized satisfy the requirement of a prolonged
consistent with the case law and the
plaintiff’s educational requirement as ‘‘a course of specialized instruction,
existing rule on medical technologists, a
specialized course of instruction ‘‘despite its distance from campus.’’ Id.
new subsection 541.301(e)(9) in the
directly relating to his primary duty of at 173.
final rule provides:
embalming human remains,’’ Despite Paul, the Department
notwithstanding the fact that plaintiff Licensed funeral directors and embalmers
who are licensed by and working in a state
continued to assert that pilots are not
‘‘was not required to obtain a bachelor’s exempt in Kitty Hawk Air Cargo, Inc. v.
that requires successful completion of four
degree.’’ Id. The court noted that ‘‘[t]he academic years of pre-professional and Chao, 2004 WL 305603 (N.D. Tex. 2004)
FLSA regulations do not require that an professional study, including graduation (Service Contract Act case), supported
exempt professional hold a bachelor’s from a college of mortuary science accredited by the decision in Ragnone v. Belo
degree; rather, the regulations require by the American Board of Funeral Service Corp., 131 F. Supp. 2d 1189, 1193–94
that the duties of a professional entail Education, generally meet the duties (D. Ore. 2001), holding that a helicopter
advanced, specialized knowledge’’ and requirements for the learned professional pilot was not exempt under section
concluded ‘‘that a licensed funeral exemption.
13(a)(1).
director and embalmer must have The Department recognizes, however, However, the district court in Kitty
advanced, specialized knowledge in that some employees with the job title Hawk, relying on Paul, ruled on January
order to perform his duties.’’ Id. See also of ‘‘funeral director’’ or ‘‘embalmer’’ 26, 2004, that the pilots at issue did in
Szarnych v. Theis-Gorski Funeral Home have not completed the four years of fact meet the requirements of the
Inc., 1998 WL 382891 (7th Cir. 1998) post-secondary education required in professional exemption. In addition, a
(licensed funeral director/embalmer in final subsection 541.301(d)(9). In fact, number of commenters argue that the
Illinois was exempt learned the NFDA comments reveal that the Department should reconsider its
professional). state of Colorado has no educational position on pilots. Such commenters
After carefully weighing the requirements for funeral directors and note that aviation degrees are now
comments and case law, the Department embalmers, and five other states require available from a few institutions of
concludes that some licensed funeral only a high school education. Such higher education. Further, pilots must
directors and embalmers may meet the employees, of course, cannot qualify as complete classroom training, hours of
duties requirements for the learned exempt learned professionals. flying with an instructor, pass tests and
professional exemption. The Teamsters Pilots. Most pilots are exempt from meet other requirements to obtain FAA
state that a four-year course of study is the FLSA overtime requirements under licenses. Because of the conflict in the
not a prerequisite for licensure as a section 13(b)(3) of the Act, which courts, and the insufficient record
funeral director or embalmer. However, exempts ‘‘any employee of a carrier by evidence on the standard educational
the detailed, state-by-state analysis air subject to the provisions of title II of requirements for the various pilot
submitted by NFDA evidences that four the Railway Labor Act.’’ Thus, pilots licenses, the Department has decided
years of post-secondary education, who are employed by commercial not to modify its position on pilots at
including two years of specialized airlines are exempt from overtime under this time.
intellectual instruction in an accredited section 13(b)(3). However, the exempt Other Professions. The final rule
mortuary college, is a prerequisite for status of other pilots, such as pilots of adopts without change subsection
licensure in many states. In such states, corporate jets, is determined under 541.301(e)(1) on medical technologists,
a prolonged course of specialized section 13(a)(1), and has been the subsection 541.301(e)(3) on dental
intellectual instruction has become a subject of recent litigation. hygienists and subsection 541.301(e)(5)
standard prerequisite for entrance into The Department has taken the on accountants. These subsections are
the profession. See, e.g., Reich v. State position that pilots are not exempt consistent with the existing regulations
of Wyoming, 993 F.2d 739, 742 (10th professionals. We have maintained that and long-standing policies of the Wage
Cir. 1993) (the Department’s argument aviation is not a ‘‘field of science or and Hour Division. None of the
comments received provided forth some general examples of fields of the lower court’s decision that the
information justifying departure from ‘‘artistic or creative endeavor.’’ Proposed plaintiffs were not exempt, the appellate
the current law. subsection (c) set forth more specific court evaluated the duties of reporters
Finally, consistent with the existing examples of creative professionals, and in light of the Department’s interpretive
regulations and the proposal, final proposed subsection (d) provided guidelines, current section 541.302(d),
section 541.301(f) recognizes that the guidance on journalists. which states: ‘‘The majority of reporters
areas in which the professional The final rule deletes the ‘‘office or do work which depends primarily on
exemption may be available are non-manual work’’ language in intelligence, diligence, and accuracy. It
expanding. Final section 541.301(f) also subsection 541.302(a) for the reasons is the minority whose work depends
now provides: discussed above under section 541.300. primarily on ‘invention, imaging [sic],
Accrediting and certifying organizations In addition, the words ‘‘or intellectual’’ or talent.’’’ The court concluded that the
similar to those listed in subsections (e)(1), have been reinserted from the existing duties of the weekly newspaper
(3), (4), (8) and (9) of this section also may regulations into subsection (a) because reporters did not require invention,
be created in the future. Such organizations its deletion in the proposal was imagination, or talent:
may develop similar specialized curriculums unintentional. To add further clarity to This work does not require any special
and certification programs which, if a the requirement of ‘‘invention, imagination or skill at making a complicated
standard requirement for a particular imagination, originality or talent,’’ final thing seem simple, or at developing an
occupation, may indicate that the occupation
has acquired the characteristics of a learned
subsection (c) adds: ‘‘The duties of entirely fresh angle on a complicated topic.
employees vary widely, and exemption Nor does it require invention or even some
profession.
as a creative professional depends on unique talent in finding informants or
This new language is adopted to the extent of the invention, imagination, sources that may give access to difficult-to-
ensure that final subsections obtain information.
originality or talent exercised by the
541.301(e)(1), (3), (4), (8) and (9) do not employee. Determination of exempt 13 F.3d at 700. However, the appellate
become outdated if the accrediting and creative professional status, therefore, court did recognize that not all fact-
certifying organizations change or if must be made on a case-by-case basis.’’ gathering duties are necessarily
new organizations are created. As described in more detail below, the nonexempt work. While some fact-
Accredited curriculums and final rule also makes substantial gathering would entail the skill or
certification programs are relevant to changes to subsection (d) regarding expertise of an investigative reporter or
determining exempt learned journalists. bureau chief, the court found that the
professional status to the extent they Because the proposal adopted the fact gathering performed by the
provide evidence that a prolonged primary duty test of the existing reporters in the Gateway case did not
course of specialized intellectual regulations with few changes, the rise to such level.
instruction has become a standard Department received few substantive The First Circuit reached a similar
prerequisite for entrance into the comments on this section except for conclusion in Reich v. Newspapers of
occupation as required under section comments regarding journalists. The New England, Inc., 44 F.3d 1060 (1st
541.301. Neither the identity of the American Federation of Television and Cir. 1995). In Newspapers of New
certifying organization nor the mere fact Radio Artists expresses concern that the England, the reporters had duties
that certification is required is proposed regulations would lead to an similar to those in the Gateway case. In
determinative, if certification does not across-the-board exemption of all finding such reporters nonexempt, the
involve a prolonged course of journalists, including employees of court observed that ‘‘the day-to-day
specialized intellectual instruction. For smaller news organizations, whom the duties of these three reporters consisted
example, certified physician assistants organization believes should not be primarily of ‘general assignment’ work,’’
meet the duties requirements for the exempt. In an opposing view, the and the reporters ‘‘[r]arely’’ were ‘‘asked
learned professional exemption because Newspaper Association of America and to editorialize about or interpret the
certification requires four years of the National Newspaper Association, an events they covered.’’ Rather, the focus
specialized post-secondary school organization of smaller newspapers,10 of their writing was ‘‘to tell someone
instruction; employees with support the proposed regulations who wanted to know what happened
cosmetology licenses are not exempt relating to journalists and would seek to * * * in a quick and informative and
because the licenses do not require a have all reporters of community understandable way.’’ Id. at 1075. Like
prolonged course of specialized newspapers classified as exempt. the Third Circuit in Gateway, the First
intellectual instruction. Proposed subsection (d) was intended Circuit concluded that the reporters
to reflect current federal case law ‘‘were not performing duties which
Section 541.302 Creative Professionals regarding the status of journalists as would place them in that minority of
Proposed section 541.302 provided creative professionals. Reich v. Gateway reporters ‘whose work depends
further guidance on the primary duties Press, Inc., 13 F.3d 685, 689 (3rd Cir. primarily on invention, imaging [sic], or
test for creative professionals. In the 1994), for example, involved the exempt talent.’’’ Id. (citation omitted). See also
proposal, subsection (a) set forth the status of reporters who worked for Bohn v. Park City Group Inc., 94 F.3d
general rule that creative professionals weekly newspapers either rewriting 1457 (10th Cir. 1996) (employee
must have ‘‘a primary duty of press releases under various topics such employed as a technical writer or
performing office or non-manual work as ‘‘what’s happening,’’ ‘‘church news,’’ documenter in software and training
requiring invention, imagination, ‘‘school lunch menus,’’ and ‘‘military departments did not perform work
originality or talent in a recognized field news,’’ or writing standard recounts of requiring artistic invention,
of artistic or creative endeavor as public information by gathering facts on imagination, or talent to qualify as an
opposed to routine mental, manual, routine community events. In affirming exempt artistic professional); Shaw v.
mechanical or physical work. The Prentice Hall, Inc., 977 F. Supp. 909,
exemption does not apply to work 10 Employees of small newspapers and small
914 (S.D. Ind. 1997), aff’d, 151 F.3d 640
which can be produced by a person radio and television stations are statutorily exempt
from the overtime pay requirement under sections
(7th Cir. 1998) (district court found that
with general manual ability and 13(a)(8) and 13(b)(9) of the Act, respectively. 29 production editor in book publishing
training.’’ Proposed subsection (b) set U.S.C. 213(a)(8); 29 U.S.C. 213(b)(9). industry did not qualify as exempt
creative professional because the ‘‘duty failed to update the journalism press releases or who write standard recounts
* * * to manage a book project through interpretations. of public information by gathering facts on
the editing and publishing process’’ did routine community events are not exempt
Id. at 85. Citing Sherwood v. creative professionals. Reporters also do not
not entail ‘‘invention, imagination, or Washington Post, 871 F. Supp. 1471, qualify as exempt creative professionals if
talent in an artistic field of endeavor.’’). 1482 (D.D.C. 1994), the NBC court their work product is subject to substantial
In addition to examining the nature of acknowledged that there is a control by the employer. However,
the journalists’ duties to determine fundamental difference between a journalists may qualify as exempt creative
exempt creative professional status, journalist working for a major news professionals if their primary duty is
courts have looked to whether an organization and a journalist working as performing on the air in radio, television or
employee’s work is subject to a small press reporter. It would be other electronic media; conducting
substantial control from management. investigative interviews; analyzing or
‘‘anachronistic, even irrational,’’ the interpreting public events; writing editorials,
For example, in Dalheim v. KDFW–TV, court wrote, ‘‘to continue to impose opinion columns or other commentary; or
918 F. 2d 1220, 1229 (5th Cir. 1990), the these guidelines on many journalists in acting as a narrator or commentator.
court found that while general- major news organizations.’’ 80 F.3d at
assignment reporters could be exempt 85. The court in Truex v. Hearst Section 541.303 Teachers
creative professionals, the reporters in Communications, Inc., 96 F. Supp. 2d The Department received few
this case were nonexempt because ‘‘their 652, 661 (S.D. Tex. 2000), denying the comments on this provision and does
day-to-day work is in large part dictated employer’s summary judgment motion not believe any substantive changes to
by management.’’ In addition, the court regarding a sportswriter, also this section are necessary in light of
held that news producers were not acknowledged the continuum that, on those comments.
exempt creative professionals because one end, consists of nonexempt
they performed work pursuant to ‘‘a Section 541.304 Practice of Law or
reporters who gather and ‘‘regurgitate’’
well-defined framework of management Medicine
facts and, on the other end, consists of
policies and editorial convention.’’ exempt creative professionals who The Department received few
In contrast, other courts have generate and develop ideas for stories in comments on this provision and does
recognized that some journalists print or broadcast, with little editorial not believe any substantive changes to
perform work requiring invention, input. this section are necessary in light of
imagination and talent, and thus qualify In proposed subsection (d), the those comments.
as exempt creative professionals. For Department intended to modify the
example, in Freeman v. National Subpart E, Computer Employees
existing regulations to reflect this
Broadcasting Co., 80 F.3d 78 (2nd Cir. federal case law. The Department did Sections 541.400–402
1996), the appellate court found that the not intend to create an across the board The proposed regulations
duties of a domestic news writer, exemption for journalists. As stated in consolidated all of the regulatory
domestic producer, and field producer the case law, the duties of employees guidance on the computer occupations
for television news shows involved a referred to as journalists vary along a exemption into a new regulatory
sufficient amount of creativity to qualify spectrum from the exempt to the Subpart E, by combining provisions of
them as exempt ‘‘employees whose nonexempt, regardless of the size of the the current regulations found at sections
primary duty consists of the news organization by which they are 541.3(a)(4), 541.205(c)(7), and 541.303.
performance of work requiring employed. The less creativity and Proposed Subpart E collected into one
invention, imagination, or talent in a originality involved in their efforts, and place the substance of the original 1990
recognized field of artistic endeavor.’’ the more control exercised by the statutory enactment, the 1992 final
Id. at 82. The court noted that employer, the less likely are employees regulations, and the 1996 statutory
technological changes and the more classified as journalists to qualify as enactment (section 13(a)(17) of the
sophisticated demands of the current exempt. The determination of whether a FLSA). Because the key regulatory
news consumer have caused changes in journalist is exempt must be made on a language that resulted from the 1990
the news industry, and stated that the case-by-case basis. The majority of enactment is now substantially codified
lower court erred in finding the journalists, who simply collect and in section 13(a)(17) of the FLSA, no
plaintiffs were nonexempt because it organize information that is already substantive changes were proposed to
relied on a nonbinding, outdated, and public, or do not contribute a unique or that language comprising the primary
inapplicable interpretation by the U.S. creative interpretation or analysis to a duty test for the computer exemption.
Department of Labor of the artistic news product, are not likely to be However, the proposal removed the
professional exemption, section exempt. additional regulatory requirement, not
541.302(a). One of the reasons the In order to reflect this case law more contained in section 13(a)(17) of the
appellate court gave scant weight to the accurately, the Department has modified FLSA, that an exempt computer
Department’s interpretation was the section 541.302(d) to state as follows: employee must consistently exercise
Department’s failure to reflect the vast discretion and judgment. Because of the
changes in the industry. The court Journalists may satisfy the duties
requirements for the creative professional tremendously rapid pace of significant
described the transition that modern changes occurring in the information
exemption if their primary duty is work
news organizations had experienced as requiring invention, imagination, originality technology industry, the proposal did
follows: or talent, as opposed to work which depends not cite specific job titles as examples of
Dizzying technological advances and the primarily on intelligence, diligence and exempt computer employees, as job
sophisticated demands of the news consumer accuracy. Employees of newspapers, titles tend to quickly become outdated.
have resulted in changes in the news magazines, television and other media are Based on the comments received and
industry over the past half-century. This is not exempt creative professionals if they only
particularly true of television news where the collect, organize and record information that
for reasons discussed below, several
same news may be communicated by a is routine or already public, or if they do not changes have been made in the final
variety of combined audio and visual contribute a unique interpretation or analysis rule to further align the regulatory text
presentations in which creativity is at a to a news product. Thus, for example, with the specific standards adopted by
premium. Yet, over this period, the DOL has newspaper reporters who merely rewrite the Congress for the computer employee
exemption in section 13(a)(17) of the included no delegation of rulemaking complex knowledge associated with
FLSA. Section 541.401 of the proposed authority to the Department of Labor to software languages, relational database
rule, which discussed the high level of further interpret or define the scope of applications, and/or communication or
skill and expertise in ‘‘theoretical and the exemption; however, the original operating system software should
practical application’’ of specialized 1990 statute was not repealed by the correlate with the exemption for
computer systems knowledge as a 1996 amendment. computer employees. The Information
prerequisite for exemption (a carry-over A number of employers and business Technology Industry Council and
from the rules in effect prior to the 1996 groups commenting on the proposal Organization Resources Counselors
statutory amendment), has been deleted believe that the Department should suggest the Department clarify that
from the final rule, as it goes beyond the update the computer exemption computer networks and the Internet are
scope of the specific standards adopted regulations to reflect the status of the included in the phrase ‘‘computer
by Congress in section 13(a)(17). many new job classifications that have systems,’’ and that high-level work on a
As described in the preamble to the arisen since the computer exemption computer’s database or on the Internet
proposed rule, the exemption for regulations were first promulgated in is covered by the reference to
employees in computer occupations has the early 1990s. They suggest that the programming or analysis.
a unique legislative and regulatory Department expand the computer The Workplace Practices Group notes
history. In November 1990, Congress employee exemption beyond the that past distinctions between software
enacted legislation directing the specific terms used in section 13(a)(17), and hardware positions have long
Department of Labor to issue regulations to include additional job titles like converged. Today, according to this
network managers, LAN/WAN commenter, enterprise applications run
permitting computer systems analysts,
administrators, database administrators, on sophisticated networks administered
computer programmers, software
web site design and maintenance by highly skilled and highly
engineers, and other similarly-skilled
specialists, and systems support compensated LAN/WAN professionals
professional workers to qualify as
specialists performing similar duties who typically understand both
exempt executive, administrative, or
with hardware, software and networking and telecommunications
professional employees under FLSA
communications networks. theory and practice, some of whom are
section 13(a)(1). This enactment also The Wisconsin Department of required to have a college degree in
extended the exemption to employees in Employment Relations notes that most computer science, management
such computer occupations if paid on computer professionals now work information systems, or the equivalent,
an hourly basis at a rate at least 61⁄2 within a personal computer, network- often with an additional preference that
times the minimum wage. Final based environment and recommends the individual have server or system-
implementing regulations were issued adding language to the duties test that level engineer certification.
in 1992. See 29 CFR 541.3(a)(4), addresses hardware, software, and The National Association of Computer
541.303; 57 FR 46744 (Oct. 9, 1992); 57 network-based duties, to make the test Consultant Businesses (NACCB) notes
FR 47163 (Oct. 14, 1992). However, more relevant and applicable to current that the computer employee exemption
when Congress increased the minimum computer environments. The HR Policy is unique in that it has a dual statutory
wage in 1996, Congress enacted, almost Association comments that the basis—section 13(a)(1) (from the 1990
verbatim, most—but not all—of the computer professionals exemption was law) and section 13(a)(17) (from 1996).
Department’s regulatory language written 11 years ago, and considerable NACCB urges that the Department
comprising the computer employee confusion exists over which jobs are explore how the exemption applies
‘‘primary duty test’’ as a separate covered. The commenter suggests that under the 1990 law to workers beyond
statutory exemption, under a new FLSA the Department provide additional those covered by section 13(a)(17) in
section 13(a)(17). Section 13(a)(17) guidance in the preamble through 1996, and address what other duties,
exempts ‘‘any employee who is a illustrative examples analyzing exempt apart from those listed in the proposed
computer systems analyst, computer computer jobs. The HR Policy regulations, should be included in the
programmer, software engineer, or other Association also recommends clarifying computer employee exemption in
similarly skilled worker, whose primary the duties for computer employees who accordance with the 1990 enactment.
duty is (A) the application of systems do not program yet have highly This commenter suggests an illustrative
analysis techniques and procedures, sophisticated roles in maintaining list of ‘‘similarly skilled workers’’
including consulting with users, to computer software and systems, such as covered by the exemption, to include
determine hardware, software or system network managers, systems integration database administrators, network or
functional specifications; (B) the design, professionals, programmers, certain system administrators, computer
development, documentation, analysis, help desk professionals, and those who support specialists including help desk
creation, testing or modification of provide end-user support. The U.S. technicians, and technical writers. This
computer systems or programs, Chamber of Commerce asks the commenter also suggests definitions for
including prototypes, based on and Department to recognize that the ‘‘system functional specifications,’’
related to user or system design computer exemption applies not only to ‘‘computer systems,’’ and ‘‘machine
specifications; (C) the design, analysts, programmers, and engineers, operating systems.’’
documentation, testing, creation or but also to those with similar skills, and Other commenters, in contrast,
modification of computer programs suggested amendments to the question the Department’s authority to
related to machine operating systems; or regulations to include network, LAN, expand the computer employee
(D) a combination of [the and database analysts and developers, exemption beyond the express terms
aforementioned duties], the Internet administrators, individuals used by the Congress in 1996 under
performance of which requires the same responsible for troubleshooting, those section 13(a)(17). The McInroy & Rigby
level of skills * * *.’’ The 1996 who train new employees, and those law firm states that the Department
enactment also froze the hourly who install hardware and software. The should not expand the computer
compensation test at $27.63 (which Financial Services Roundtable exemption, and that there is no
equaled 61⁄2 times the former $4.25 comments that the specialized justification for any such expansion.
minimum wage). The 1996 enactment education necessary to acquire the The Fisher & Phillips law firm states
that, unlike in section 13(a)(1), in as exempt beyond those cited in the such ‘‘outside sales’’ employees.11
section 13(a)(17) Congress granted no primary duty test of the statute itself. In Under proposed subsection 541.500(a),
authority to the Secretary of Labor to each instance, regardless of the job title the outside sales exemption applied to
define or delimit the computer involved, the exempt status of any any employee ‘‘with a primary duty of
employee exemption. This commenter employee under the computer (i) making sales within the meaning of
suggests that the final regulations clarify exemption must be determined from an section 3(k) of the Act, or (ii) obtaining
that references to section 13(a)(17) are examination of the actual job duties orders or contracts for services or for the
illustrative only and are not to be taken performed under the criteria in section use of facilities for which a
as affecting the scope or application of 13(a)(17) of the Act. In addition, the consideration will be paid by the client
that exemption in any respect. Department notes that certain jobs cited or customer.’’ In addition, to qualify for
The Workplace Practices Group also in the comments could in fact meet the exemption the outside sales employee
traces the evolution of the statutory duties test for the administrative must be ‘‘customarily and regularly
exemption for computer employees employee exemption and be exempt on engaged away from the employer’s place
noting that, while the Department has that basis where all those tests are met, or places of business in performing such
authority to define and delimit the as the proposed regulations pointed out primary duty.’’ Finally, proposed
section 13(a)(1) exemptions by (see proposed section 541.403) and subsection 541.500(b) stated that in
regulation, the Department has no such some commenters observe. determining the primary duty of an
authority under the computer Several commenters question whether outside sales employee, ‘‘work
exemption in section 13(a)(17). If it was an oversight for the Department performed incidental to and in
additional positions are to be found not to include the computer employee conjunction with the employee’s own
exempt under the computer exemption, exemption within the proposed special outside sales or solicitations, including
that status must be found clearly within exemption for highly compensated incidental deliveries and collections,
the provisions specified by Congress employees. As originally proposed in shall be regarded as exempt outside
under section 13(a)(17), according to section 541.601, an employee sales work.’’ Under this subsection,
this commenter. performing office or non-manual work other work that furthers the employee’s
While the Department recognizes that who is guaranteed total annual sales effort, including ‘‘writing sales
the computer employee exemption has compensation of at least $65,000 and reports, updating or revising the
been particularly confusing given its who performs any one or more of the employee’s sales or display catalogue,
history, and that comments were invited exempt duties or responsibilities of an planning itineraries and attending sales
on whether any further clarifications executive, administrative, or conferences,’’ is also considered exempt
were possible under the terms of the professional employee could be found work.
statute, the Department believes that exempt. Because Congress included a The Department has retained this
creating two different definitions for detailed primary duty test in the general rule as proposed.
computer employees exempt under computer exemption, the Department The only modification intended in the
sections 13(a)(1) and 13(a)(17) of the did not apply the highly compensated proposed regulations was removing the
FLSA would be inappropriate given that exemption to computer employees. We restriction that exempt outside sales
Congress recently spoke directly on this continue to believe that decision was employees could not perform work
issue in 1996 under section 13(a)(17). sound, and follows the statutory unrelated to outside sales for more than
Moreover, adopting such inconsistent primary duty standards adopted by the 20-percent of the hours worked in a
definitions would be confusing and Congress in section 13(a)(17) of the Act. workweek by nonexempt employees of
unwieldy for the regulated community. the employer. This revision was
It should also be noted that, for the same
Section 13(a)(17) exempts computer
reason, the Department in its proposal proposed for consistency with the
positions that are ‘‘similarly skilled’’ to
removed the limitation contained in ‘‘primary duty’’ approach adopted for
a systems analyst, programmer, or
section 541.303 of the current rule the other section 13(a)(1) exemptions. In
software engineer, but only if the
primary duty of the position in question (adopted prior to 1996) that limited the addition, the current outside sales 20
includes the specified ‘‘systems analysis exemption to employees who work in percent restriction is particularly
techniques * * * to determine software functions, as no such complicated and confusing since it
hardware, software, or system limitation exists in the statutory relies on the work hours of nonexempt
functional specifications’’ or a exemption enacted in 1996. Similarly, employees and requires tracking the
combination of duties prescribed in the Department rejects, as inconsistent time of employees who, by definition,
section 13(a)(17), ‘‘the performance of with the 1996 enactment, comments spend much of their time away from the
which requires the same level of skills.’’ suggesting that we reinsert the employer’s place of business.
Depending on the particular facts, some requirement that an exempt computer A large majority of the comments that
of the computer occupations mentioned employee must ‘‘consistently exercise address the outside sales exemption
in the comments could in fact meet this discretion and judgment.’’ Minor express support for the adoption of the
statutory primary duty test for the editorial revisions have been made to ‘‘primary duty’’ test in lieu of the 20
computer exemption without having to further conform the regulatory language percent rule. For example, the Society
specifically cite job titles in the to the statute, but no other suggested for Human Resource Management
regulations to qualify for exemption. revisions have been adopted. (SHRM) and Grocery Manufacturers of
Where the prescribed duties tests are America (GMA) state that this revision
Subpart F, Outside Sales Employees would provide a more practical method
met, the exemption may be applied
regardless of the job title given to the Section 541.500 General Rule for for employers to determine whether an
particular position. Since an employee’s Outside Sales Employees employee qualifies as an exempt outside
job duties, not job title, determine Section 13(a)(1) of the FLSA contains sales employee. According to SHRM, in
whether the exemption applies, we do a separate exemption for any employee 11 Although the statute refers to ‘‘salesman,’’ the
not believe it is appropriate, given the employed ‘‘in the capacity of outside final rule, without objection from commenters,
history of the computer employee salesman.’’ Proposed section 541.500 set replaces this gender-specific term with ‘‘outside
exemption, to cite additional job titles forth the general rule for exemption of sales employees.’’
order to keep an account of the with the underlying rationale for regulations and this example is
percentage of time that outside sales exempting outside salespersons. unnecessary.
employees spend on exempt versus Utilization of the primary duty concept
Section 541.502 Away From
nonexempt tasks, as required under the also provides a consistent approach
Employer’s Place of Business
20-percent rule, employers essentially between the outside sales exemption
have to track the hours of their outside and the exemptions for executive, An outside sales employee must be
sales employees. SHRM notes that it is administrative and professional customarily and regularly engaged
very difficult for employers to meet this employees. Finally, the Department is of ‘‘away from the employer’s place or
responsibility given that outside sales the view that concerns relating to places of business.’’ This phrase was
employees spend large amounts of time potential abuse under the new rule are defined in proposed section 541.502,
away from their employers’ regular addressed by the objective criteria and which began in subsection (a) by stating:
places of business. GMA shares these factors for determining an employee’s ‘‘The Administrator does not have
concerns, stating that keeping track of primary duty that are contained in authority to define this exemption for
an outside sales employee’s individual section 541.700. ‘outside’ sales under section 13(a)(1) of
activities to determine whether they are the Act as including inside sales work.
Section 541.501 Making Sales or Section 13(a)(1) does not exempt inside
exempt, nonexempt or incidental to
Obtaining Orders sales and other inside work (except
exempt sales activity is administratively
difficult, if not impossible. The National Proposed section 541.501 defined the work performed incidental to and in
Small Business Association comments term ‘‘sales’’ consistent with section 3(k) conjunction with outside sales and
that moving away from a percentage of the FLSA, to include ‘‘any sale, solicitations). However, section 7(i) of
basis to the new definition of ‘‘primary exchange, contract to sell, consignment the Act exempts commissioned inside
duty’’ will alleviate much of the for sale, shipment for sale, or other sales employees of qualifying retail or
administrative burden on small business disposition.’’ Proposed subsection (b) service establishments if those
owners. also stated that ‘‘sales’’ includes the employees meet the compensation
Two law firms commenting on the transfer of title to tangible property and requirements of section 7(i).’’ The actual
outside sales exemption (Goldstein transfer of tangible and valuable definition of ‘‘away from the employer’s
Demchak Baller Borgen & Dardarian and evidences of intangible property. place of business’’ was contained in
McInroy & Rigby) ask the Department to Proposed subsections (c) and (d) defined proposed subsection (b) which requires
retain the current 20-percent limit on the phrase ‘‘obtaining orders or contracts that an exempt outside sales employee
nonexempt work. Both firms express for services or for the use of facilities’’ make sales ‘‘at the customer’s place of
concern that the outside sales to include such activities as selling of business or, if selling door-to-door, at
exemption would be subject to abuse by time on radio or television; soliciting of the customer’s home.’’ Proposed
employers without a ‘‘bright-line’’ 20 advertising for newspapers and other subsection (b) also stated that: ‘‘Outside
percent test. In other words, employers periodicals; soliciting of freight for sales does not include sales made by
might misclassify sales personnel as railroads and other transportation mail, telephone or the Internet unless
exempt under the outside sales agencies; and taking orders for a service such contact is used merely as an
exemption by merely requiring that they which may be performed for the adjunct to personal calls. Thus, any
perform only minor amounts of outside customer by someone other than the fixed site, whether home or office, used
sales work. A few commenters, such as person taking the order. by a salesperson as a headquarters or for
the AFL-CIO, generally oppose The Department’s proposal removed telephonic solicitation of sales is
removing the 20-percent limitation on outdated examples and unnecessary considered one of the employer’s places
nonexempt work for the same reasons language from current section 541.501, of business, even though the employer
discussed above in connection with the but did not intend any substantive is not in any formal sense the owner or
executive, administrative and changes. The Department has retained tenant of the property.’’
professional exemptions. the proposed changes to section 541.501 Numerous commenters request that
After review of the relevant in the final rule. the Department delete the language in
comments, the Department continues to The Department received few proposed section 541.502(a) regarding
believe that the application of the comments on this section. However, one the Administrator’s lack of authority to
primary duty test to the outside sales commenter expresses concern regarding expand the outside sales exemption to
exemption is preferable to the 20 the Department’s decision to remove include inside sales work. For example,
percent tolerance test. As noted in current section 541.501(e), which states the U.S. Chamber of Commerce urges
several comments, the primary duty test that the outside sales exemption does the Department not to use expansive
is relatively simple, understandable and not apply to ‘‘servicemen even though language that could be read to render all
eliminates much of the confusion and they may sell the service which they inside sales employees nonexempt, even
uncertainty that are present under the themselves perform.’’ The commenter if they meet the requirements of the
existing rule. Cf. Ackerman v. Coca-Cola claims that, because of the removal of executive, administrative or
Enterprises, Inc., 179 F.3d 1260, 1267 subsection (e), service technicians professional exemptions.
(10th Cir. 1999) (citing existing would be classified as exempt outside The Department has decided to make
§ 541.505(a) to the effect that ‘‘ ‘[a] sales employees. The Department the changes requested by these
determination of an employee’s chief believes that subsection (e) is an commenters, not due to any inaccuracy
duty or primary function must be made unnecessary example, and its removal is in the sentence, but because we agree
in terms of the basic character of the job not a substantive change. The that this language might imply that sales
as a whole’ and that ‘‘the time devoted Department agrees with the commenter employees, inside or outside, can only
to the various duties is an important, that an employee whose primary duty is have exempt status by meeting the
but not necessarily controlling, to repair or service products (e.g., requirements for the section 13(a)(1)
element’ ’’), cert. denied, 528 U.S. 1145 refrigerator repair) does not qualify as ‘‘outside sales’’ exemption. Thus, the
(2000). It also avoids the necessity that an exempt outside sales employee. final rule eliminates most of the
employers track the hours of its outside However, we continue to believe that regulatory text in proposed section
sales employees, which is consistent this conclusion is obvious from the 541.502(a), including the language
regarding the Administrator’s lack of trade shows of short duration (i.e., one are nonetheless an integral part of the
authority to define the ‘‘outside’’ sales or two weeks) should not be considered sales process.
exemption to include ‘‘inside’’ sales as the employer’s places of business. The National Association of
work and the language regarding the Manufacturers (NAM) also expresses
Section 541.503 Promotion Work concern that the proposal does not take
section 7(i) exemption. The Department
is deleting this language to avoid any Under proposed section 541.503, into account the extent to which
misunderstanding that the outside sales ‘‘promotional work’’ is exempt outside modern technology affects the outside
exemption is the only exemption sales work if it ‘‘is actually performed sales exemption. NAM states, for
available for sales employees. Other incidental to and in conjunction with an example, that outside sales employees
exemptions in the statute, including the employee’s own outside sales or might lose their exempt status where
section 7(i) exemption for solicitations.’’ However, ‘‘promotional products stored in centralized
commissioned employees of retail and work that is incidental to sales made, or warehouses are ordered through the
service establishments, and the to be made, by someone else is not customer’s internal computerized
executive, administrative and exempt outside sales work.’’ Proposed purchasing system. In other words, such
professional exemptions, are also subsections 541.503(b) and 541.503(c) employees might not be viewed as
available for sales employees who can include examples to illustrate when having ‘‘consummated the sale’’ or
meet all the requirements for any of promotional activities are exempt versus ‘‘directed efforts toward the
those exemptions. nonexempt work. To address consummation of the sale.’’ NAM
The Department emphasizes, commenter concerns discussed below, comments that employees who have
however, that notwithstanding these the Department has made minor long functioned as outside sales
deletions to the proposed language of changes to section 541.503(c). employees may no longer be exempt
section 541.502(a), the Administrator Several commenters, including the under the proposed regulations because
does not have statutory authority to Grocery Manufacturers Association they no longer execute contracts or
exempt inside sales employees from the (GMA), ask the Department to eliminate write orders due to technological
FLSA minimum wage and overtime the emphasis upon an employee’s advances in the retail business.
requirements under the outside sales After reviewing the comments and
‘‘own’’ sales in the proposed regulations.
exemption. Those comments that ask current case law, the Department has
According to GMA, because of team
the Department to revise the regulatory made minor changes to section
selling, customer control of order
definition of an outside sales employee 541.503(c) to address commenter
processing, and increasing
to include inside sales employees, on concerns that technological changes in
computerization of sales and purchasing
the basis that they perform much the how orders are taken and processed
activities, many of its members do not should not preclude the exemption for
same functions as outside sales
analyze performance of their employees whose primary duty is
employees, must be rejected as beyond
salespersons by looking at their ‘‘own’’ making sales. As indicated in the
the statutory authority of the
sales. In other words, they do not proposal, the Department does not
Administrator. For example, the
evaluate their sales personnel based on intend to change any of the essential
National Association of Manufacturers
their ‘‘sales numbers,’’ but rather their elements required for the outside sales
(NAM) states that, because of
‘‘sales efforts.’’ GMA urges the exemption, including the requirement
technological advances, inside sales
Department to modify the outside sales that the outside sales employee’s
employees perform the same functions
as outside sales employees, with the regulations to exempt promotion work primary duty must be to make sales or
only distinction being an on-site visit by when it is performed incidental to and to obtain orders or contracts for services.
the outside sales employee. According in connection with an employee’s ‘‘sales An employer cannot meet this
to NAM, fax machines, voice-mail, efforts’’ and to delete the requirement requirement unless it demonstrates
teleconferencing, cellular phones, that such work be incidental to the objectively that the employee, in some
computers, and videoconferencing all employee’s ‘‘own’’ sales. GMA states sense, has made sales. See 1940 Stein
enable office-based sales personnel to this change is necessary to maintain the Report at 46 (outside sales exemption
emulate the customer contact formerly exemption where customers enter does not apply to an employee ‘‘who
within the exclusive province of outside orders into a computer system, rather does not in some sense make a sale’’)
salespersons. than by submitting a paper order to the (emphasis added). Extending the
Finally, the National Automobile outside sales employee whose outside sales exemption to include all
Dealers Association asks that the promotional efforts helped facilitate the promotion work, whether or not
definition of ‘‘away from the employer’s sale. connected to an employee’s own sales,
place of business’’ be expanded to The U.S. Chamber of Commerce would contradict this primary duty test.
encompass trade shows. The (Chamber) expresses similar concerns, See 1940 Stein Report at 46 (outside
Department believes that, if sales occur, stating that due to advances in sales exemption does not extend to
trade shows are similar to the ‘‘hotel computerized tracking of inventory and employees ‘‘engaged in paving the way
sample room’’ example in the current product shipment, the sales of for salesmen, assisting retailers, and
and proposed regulations. In trade manufactured goods are increasingly establishing sales displays, and so
shows, as in the hotel sample room, a driven by computerized recognition of forth’’).
sales employee displays the employer’s decreases in customer’s inventory, Nonetheless, the Department agrees
product over a short time period and for rather than specific face-to-face that technological changes in how
the purpose of promoting or making solicitations by outside sales employees. orders are taken and processed should
sales in a room not owned by the The Chamber states that, under these not preclude the exemption for
employer. Accordingly, we have added circumstances, the role of the outside employees who in some sense make the
language to clarify that an outside sales sales employee has, in many instances, sales. Employees have a primary duty of
employee does not lose the exemption changed to one of facilitation of sales. making sales if they ‘‘obtain a
by displaying the employer’s products The Chamber maintains that commitment to buy’’ from the customer
at a trade show. If selling actually promotional activities, even when they and are credited with the sale. See 1949
occurs, rather than just sales promotion, do not culminate in an individual sale, Weiss Report at 83 (‘‘In borderline cases
the test is whether the person is actually conferences; method of payment; and based on individual, group or corporate
engaged in activities directed toward the proportion of earnings directly goals and volumes.
consummation of his own sales, at least attributable to sales.’’ The Department believes that the
to the extent of obtaining a commitment The Department has made no phrase in question, ‘‘[a] driver * * *
to buy from the person to whom he is substantive changes to proposed section who receives compensation
selling. If his efforts are directed toward 541.504, although editorial changes commensurate with the volume of
stimulating the sales of his company have been made to final subsections products sold,’’ helps provide an
generally rather than the consummation 541.504(a) and 541.504(c)(4) as accurate example of an employee who
of his own specific sales his activities described below. has a primary duty of making sales. This
are not exempt’’). See also Ackerman v. The Grocery Manufacturers phrase generally describes an employee
Coca-Cola Enterprises, Inc., 179 F.3d Association (GMA) has several concerns paid on a commission basis, which is a
1260, 1266–67 (10th Cir. 1999) regarding proposed section 541.504. In commonly and frequently utilized
(substantial merchandising its comments, for example, GMA sees a method for compensating sales
responsibilities, including restocking of possible inconsistency between the personnel. Since section 541.504(c)(1) is
store shelves and setting up product language of proposed section 541.500(b) intended to provide guidance by
displays, did not defeat outside sales and proposed section 541.504(a). presenting an example of a driver who
exemption for soft drink advance sales Proposed section 541.500(b) states that may qualify as an exempt outside sales
reps and account managers where such ‘‘[i]n determining the primary duty of an employee and, as such, does not
responsibilities were ‘‘incidental to and outside sales employee, work performed foreclose the exemption for employees
in conjunction with’’ sales they incidental to and in conjunction with an who receive other types of
consummated at stores they visited), employee’s own outside sales or compensation, we have not made the
cert. denied, 528 U.S. 1145 (2000); Wirtz solicitations, including incidental requested change.
v. Keystone Readers Service, Inc., 418 deliveries and collections, shall be GMA also suggests that the
F.2d 249, 261 (5th Cir. 1969) (‘‘student regarded as exempt outside sales work.’’ Department delete the phrase ‘‘and
salesmen’’ not exempt where engaged in Proposed section 541.504(a) states with carrying an assortment of the employer’s
promotional activities incidental to respect to drivers who sell that ‘‘[i]f the products’’ from proposed section
sales thereafter made by others). employee has a primary duty of making 541.504(c)(4), because it should not
Exempt status should not depend on sales, all work performed incidental to matter whether the driver/salesperson is
whether it is the sales employee or the and in conjunction with the employee’s carrying one product or an assortment of
customer who types the order into a them. The Department agrees with the
own sales efforts * * * is exempt
computer system and hits the return comment that it is not necessary for a
work.’’ GMA believes that it is
button. The changes to proposed section driver to carry ‘‘an assortment’’ of
inconsistent with section 541.500(b) to
541.503(c) are intended to avoid such a products in order to qualify as exempt
make the inclusion of driver/
result. Finally, the Department notes under the outside sales exemption. The
salesperson’s incidental work within the
that outside sales employees may also availability of this exemption does not
outside sales exemption conditional
qualify as exempt executive, depend on either the volume or variety
upon the employee having a primary
administrative or professional of products carried by the driver/
duty of making sales. GMA therefore
employees if they meet the requirements salesperson in question. Accordingly,
urges the Department to delete the
for those exemptions. For example, an we have made the suggested change.
employee whose primary duty is conditional phrase ‘‘[i]f the employee
has a primary duty,’’ from the second Another commenter asks that the
promotion work such as advertising or Department clarify that ‘‘Professional
marketing—not selling—may not meet sentence of proposed section 541.504(a).
The Department had no intention of Drivers’’ are nonexempt. This
the requirements for the ‘‘outside sales’’ exemption covers drivers who have a
exemption, but could be an exempt creating a different standard regarding
incidental work for drivers who sell as primary duty of making sales. The
administrative employee. primary duty test offers an alternative to
opposed to other outside sales
Section 541.504 Drivers Who Sell employees. The two subsections at issue job titles that may not accurately reflect
Under proposed section 541.504(a), used different language to describe the job duties and actual performance.
drivers ‘‘who deliver products and also same concept, which could lead to Therefore, the Department believes that
sell such products may qualify as confusion. Accordingly, we have a blanket statement that ‘‘Professional
exempt outside sales employees only if modified final section 541.504(a) to Drivers’’ are not exempt employees
the employee has a primary duty of track the language from section would not serve the interest of a more
making sales.’’ Proposed subsection (b) 541.500(b). accurate rule.
provided factors that should be GMA also requests that the Finally, a commenter asks for more
considered when determining whether Department clarify section examples of outside sales employees,
the driver’s primary duty is making 541.504(c)(1), to the extent it describes including drivers who sell. Proposed
sales: ‘‘A comparison of the driver’s a driver who may qualify for the outside subsection 541.504(c) and 541.504(d)
duties with those of other employees sales exemption as one ‘‘who receives already contain a number of examples of
engaged as truck drivers and as compensation commensurate with the drivers who would or would not qualify
salespersons; possession of a selling or volume of products sold.’’ GMA does as exempt employees. The Department
solicitor’s license when such license is not believe that commissions alone does not believe that there will be any
required by law or ordinances; presence should be used to determine exempt value added to the regulation through
or absence of customary or contractual status. GMA therefore suggests that this additional examples.
arrangements concerning amounts of regulation be broadened to recognize Subpart G, Salary Requirements
products to be delivered; description of compensation systems which, while not
the employee’s occupation in collective commission-based, provide Section 541.600 Amount of Salary
bargaining agreements; the employer’s ‘‘compensation at least partially based Required
specifications as to qualifications for on the volume of products sold,’’ such Salary level tests have been included
hiring; sales training; attendance at sales as bonuses or other forms of recognition as part of the exemption criteria since
the original regulations of 1938. With a only qualify for exemption if they met rural areas of the country.’’ Similarly,
few exceptions, executive, a new ‘‘standard’’ test of duties. the National Grocers Association (NGA)
administrative and professional The final rule adopts the new comments that the $425 level ‘‘could
employees must earn a minimum salary structure of the proposal to include a prove problematic for some retail
level to qualify for the exemption.12 ‘‘standard’’ test of duties tied to a grocers operating in differing geographic
Employees paid below the minimum minimum salary level. However, the regions, such as rural areas and the
salary level are not exempt, irrespective proposed rule used the Bureau of Labor South where economic conditions vary
of their job duties and responsibilities. Statistics’ (BLS) year 2000 Current and pay scales are less.’’ Based on their
Employees paid a salary at or above the Population Survey Outgoing Rotation 2003 compensation survey, NGA
minimum level in the regulations are Group data set, the most recent data suggests that the Department lower the
only exempt if they also meet the salary available from BLS when the minimum salary level to $400 per week.
basis and job duties tests. To qualify for Preliminary Regulatory Impact Analysis Some owners of small retail and
exemption under the existing was completed. When the Regulatory restaurant businesses also filed
regulations, an employee must earn a Impact Analysis for this final rule was comments asserting that $425 per week
minimum salary of $155 per week completed, the most recent data is too high. An owner of four Dairy
($8,060/year) for the executive and available was the 2002 CPS data set. Queen stores in Austin, Texas, for
administrative exemptions, and $170 Based on the more recent data, and example, asks the Department to lower
per week ($8,840/year) for the taking into account numerous the minimum salary level to $400 per
professional exemption. Employees paid comments about the salary levels in the week because supervisor salaries in the
above these minimum salary levels must proposal, the Department has raised the area start at $21,000 per year. A
meet a ‘‘long’’ duties test to qualify for minimum weekly salary level required comment from Wesfam Restaurants
the exemption. The existing regulations for exemption in the final rule from requests that the Department lower the
also provide, under special provisions $425 per week to $455 per week, an minimum salary level to $350 per week
for ‘‘high salaried’’ employees (see 29 increase of $30 from the proposed because the Department’s proposed
CFR 541.119, 541.214 and 541.315), that regulations and an increase of $300 per $425 level will cost the company at least
employees paid above a higher salary week from the existing minimum salary $100,000 each year.
rate of $250 per week ($13,000/year) are level. As a result of this increase, 6.7
Other organizations representing
exempt if they meet a ‘‘short’’ duties million salaried workers who earn
employer interests generally support the
test. As the name implies, the short tests between $155 and $455 per week will
be guaranteed overtime protection, $425 salary level, but object to any
contain fewer duties requirements. further increase in this proposed
Because the salary levels have not been regardless of their duties.
The remaining subsections of 541.600 minimum. For example, the U.S.
increased since 1975, the existing salary Chamber of Commerce (Chamber) does
retained, without substantive change
levels are outdated and no longer useful not oppose the minimum salary level,
from the existing regulations, certain
in distinguishing between exempt and but states that a significant minority of
special provisions regarding the salary
nonexempt employees. A full-time its members oppose the proposed
requirements: Subsection (b) set forth
minimum wage worker, in comparison, compensation level as too high.
the minimum salary levels required if
earns $206 per week ($5.15/hour × 40 Nevertheless, the Chamber opposes an
the employee is paid on a biweekly,
hours)—an amount above the existing increase to $425 per week if
semimonthly or monthly basis;
‘‘long’’ test levels and closely ‘‘unaccompanied by significant changes
subsection (c) discussed the salary
approaching the existing ‘‘short’’ test in the duties and salary basis tests,’’ and
required for academic administrative
level. As a result, under the existing would oppose any compensation level
employees; subsection (d) set forth the
regulations, most employees are now salary required for computer employees; higher than $425. The FLSA Reform
tested for exemption under the ‘‘short’’ and subsection (e) provided that the Coalition, the Public Sector FLSA
duties tests. salary requirements do not apply to Coalition, the American Corporate
The Department proposed that the teachers, lawyers and doctors. The Counsel Association and the HR Policy
minimum salary level required for Department did not receive significant Association believe that the $425 per
exemption as an executive, comments on these subsections, and week minimum is reasonable. The
administrative, or professional thus no other changes have been made National Restaurant Association
employee be increased from $155 per to section 541.600. recognizes that the salary levels have
week ($8,060/year) to $425 per week Most commenters agree that the not been changed for many years, but
($22,100/year). Thus, under proposed minimum salary level needed to be states: ‘‘Under no circumstance should
section 541.600(a), all employees increased, but disagreed sharply the threshold be increased to a higher
earning less than $425 per week, either regarding the size of the increase. Some salary level [than $425 per week]. In
on an hourly or salary basis, would be commenters state that the proposed fact, the Association urges DOL to
guaranteed overtime protection, $425 minimum salary level is too high, review the methodology used to
irrespective of their job duties and other commenters say it is too low, and establish the proposed minimum salary
responsibilities. Employees earning some say it is just right. threshold of $425/wk. and reevaluate
$425 or more on a salary basis would Some employer commenters, such as the impact of this threshold on specific
the U.S. Small Business industry sectors, including restaurants
12 For many years, the regulations have contained Administration’s Office of Advocacy, and retail establishments. Strong
no salary level test for outside sales employees and the American Health Care Association, consideration should be given to
some professional employees (teachers, doctors,
lawyers). Such employees are exempt regardless of
and the Securities Industry adjusting the threshold downward to
their salary. The final rule makes no changes in this Association’s Human Resources reflect the realities of variations in
area. Also, in 1990, Congress amended the FLSA to Management Committee, strongly industry and regional compensation
exempt certain hourly-paid computer professionals oppose the $425 per week minimum levels.’’ Similarly, the National Council
paid at least 61⁄2 times the minimum wage (which
then totaled $27.63 per hour; $57,470 per year,
salary as too high. The Associated of Chain Restaurants asks the
assuming 40 hours per week). Congress froze this Builders and Contractors state that $425 Department to ‘‘resist any pressure to
compensation test at $27.63 per hour in 1996. per week ‘‘may be particularly high for raise the salary threshold to an even
higher level, which would wreak havoc judgment.’’ As the Department stated in the Department authority to set
on the chain restaurant industry, and 1949: minimum wages for executive,
retailers generally.’’ The Food Marketing [T]he salary tests, even though too low in administrative and professional
Institute also opposes increasing the the later years to serve their purpose fully, employees. These employees are exempt
minimum salary level above $425, have amply proved their effectiveness in from any minimum wage requirements.
noting that this salary level will already preventing the misclassification by The salary level test is intended to help
particularly affect independent, family- employers of obviously nonexempt distinguish bona fide executive,
employees, thus tending to reduce litigation. administrative, and professional
owned grocery stores. They have simplified enforcement by
employees from those who were not
On the other hand, organizations providing a ready method of screening out
the obviously nonexempt employees, making intended by the Congress to come
representing employee interests oppose
an analysis of duties in such cases within these exempt categories. Any
the standard salary level as being too
unnecessary. The salary requirements also increase in the salary levels from those
low. Such organizations advocate salary have furnished a practical guide to the contained in the existing regulation,
levels ranging from $530 per week to inspector as well as to employers and therefore, has to have as its primary
$1,000 per week. The AFL–CIO and the employees in borderline cases. In an objective the drawing of a line
International Association of Machinists overwhelming majority of cases, it has been separating exempt from nonexempt
and Aerospace Workers, for example, found by careful inspection that personnel
who did not meet the salary requirements employees. Moreover, it has long been
purporting to apply the approach set recognized that ‘‘such a dividing line
forth in the 1958 Kantor Report to the would also not qualify under other sections
of the regulations as the Divisions and the cannot be drawn with great precision
current ‘‘long’’ and ‘‘short’’ duties test courts have interpreted them. In the years of but can at best be only approximate.’’
structure, suggest salary levels of at least experience in administering the regulations, 1949 Weiss Report at 11.
$610 per week for the long test and $980 the Divisions have found no satisfactory
for the short test. The United Food and substitute for the salary test. Some of the comments opposed to the
Commercial Workers International proposed $425 minimum salary level
* * * * * question the Department’s methodology
Union would adjust the current salary Regulations of general applicability such as
levels for inflation using the Consumer these must be drawn in general terms to for setting the appropriate salary levels.
apply to many thousands of different The Department determined the
Price Index (CPI), resulting in a
situations throughout the country. In view of appropriate methodology for adjusting
‘‘minimum of $530/week for the first
the wide variation in their applicability the the salary levels after a thorough review
level ($580 for professionals), and $855 regulations cannot have the precision of a of the regulatory history of previous
for the second level.’’ The American mathematical formula. The addition to the increases. The initial minimum salary
Federation of State, County and regulations of a salary requirement furnishes level requirement for exemption,
Municipal Employees similarly a completely objective and precise measure
which is not subject to differences of opinion adopted in the 1938 regulations, was
comments that adjusting the current
or variations in judgment. The usefulness of $30 a week for executive and
salary levels to reflect changes in the
such a precise measure as an aid in drawing administrative employees. The 1938
CPI would increase the salary level
the line between exempt and nonexempt regulations did not include a salary
under the ‘‘long’’ test for executive and employees, particularly in borderline cases, requirement for professional employees,
administrative employees to $530 per seems to me to be established beyond doubt. or a ‘‘short test’’ salary level. We could
week ($580 for professional employees) find no regulatory history from 1938
1949 Weiss Report at 8–9. See also
and to $855 per week for the ‘‘short’’ regarding the rationale for setting the
1940 Stein Report at 42 (‘‘salary paid the
test. salary level at $30 a week. But see 1940
employee is the best single test’’); 1958
The Department has long recognized Kantor Report at 2–3 (salary levels Stein Report at 20–21 ($30 salary level
that the salary paid to an employee is ‘‘furnish a practical guide to the adopted from the National Industrial
the ‘‘best single test’’ of exempt status investigator as well as to employers and Recovery Act and State law). Since
(1940 Stein Report at 19), which has employees in borderline cases, and 1938, and as shown in Table 1, the
‘‘simplified enforcement by providing a simplify enforcement by providing a Department has increased the salary
ready method of screening out the ready method of screening out the levels on six occasions—in 1940, 1949,
obviously nonexempt employees’’ and obviously nonexempt employees’’). 1958, 1963, 1970 and 1975. Until 1975,
furnished a ‘‘completely objective and While the purpose of the FLSA is to the Department increased salary levels
precise measure which is not subject to provide for the establishment of fair every five to nine years, and the largest
differences of opinion or variations in labor standards, the law does not give increase was only $50 per week.
TABLE 1.—WEEKLY SALARY LEVELS FOR EXEMPTION

Executive Administrative Professional Short test
1938 ................................................................................................. $30 $30 None None

1940 ................................................................................................. 30 50 50 None
1949 ................................................................................................. 55 75 75 $100
1958 ................................................................................................. 80 95 95 125
1963 ................................................................................................. 100 100 115 150
1970 ................................................................................................. 125 125 140 200
1975 ................................................................................................. 155 155 170 250
The regulatory history of these six actual salaries and wages paid to experience under the National
increases reveals that, in determining exempt and nonexempt employees. In Industrial Recovery Act, and federal
appropriate salary levels, the 1940, the Department considered salary government salaries. 1940 Stein Report
Department has examined data on surveys by government agencies, at 9, 20, 31–32. The Department then
used these salary data to determine the week, for example, when the 1961 never completed, and the so-called
average salary that was the ‘‘dividing survey data showed that 13 percent of ‘‘interim’’ salary levels have remained
line’’ between exempt and nonexempt establishments paid one or more exempt untouched for 29 years.
employees, and to find the percentage of executives less than $100 per week; and In summary, the regulatory history
employees earning below various salary 4 percent of establishments paid one or reveals a common methodology used,
levels. The Department set the more exempt administrative employees with some variations, to determine
minimum required salary at levels less than $100 a week. 28 FR 7004 (July appropriate salary levels. In almost
below the average salary dividing 9, 1963). The professional salary level every case, the Department examined
exempt from nonexempt employees: was increased to $115 per week, when data on actual wages paid to employees
‘‘Furthermore, these figures are averages, the 1961 survey data showed that 12 and then set the salary level at an
and the act applies to low-wage areas percent of establishments surveyed paid amount slightly lower than might be
and industries as well as to high-wage one or more professional employees less indicated by the data. In 1940 and 1949,
groups. Caution therefore dictates the than $115 per week. 28 FR 7004. The the Department looked to the average
adoption of a figure that is somewhat Department noted that these salary salary paid to the lowest level of exempt
lower, though of the same general levels approximated the same employee. Beginning in 1958, however,
magnitude.’’ 1940 Stein Report at 32. percentages used in 1958: the Department set salary levels to
In 1949, the Department looked at Salary tests set at this level would bear exclude approximately the lowest-paid
salary data from state and federal approximately the same relationship to the 10 percent of exempt salaried
agencies, including the Bureau of Labor minimum salaries reflected in the 1961 employees. Perhaps the best summary of
Statistics (BLS). The Department survey data as the tests adopted in 1958, on this methodology appears in the 1958
considered wages in small towns and the occasion of the last previous adjustment, Kantor Report at pages 5–7:
low-wage industries, wages of federal bore to the minimum salaries reflected in a
comparable survey, adjusted by trend data to The salary tests have thus been set for the
employees, average weekly earnings for country as a whole * * * with appropriate
early 1958. At that time, 10 percent of the
exempt employees and starting salaries consideration given to the fact that the same
establishments employing executive
for college graduates. 1949 Weiss Report employees paid one or more executive salary cannot operate with equal effect as a
at 10, 14–17, 19. The Department employees less than the minimum salary test in high-wage and low-wage industries
compared weekly earnings in 1940 with adopted for executive employees and 15 and regions, and in metropolitan and rural
weekly earnings in 1949 to determine percent of the establishments employing areas, in an economy as complex and
the average percentage increase in administrative or professional employees diversified as that of the United States.
earnings. As in 1940, the Department paid one or more employees employed in Despite the variation in effect, however, it is
such capacities less than the minimum salary clear that the objectives of the salary tests
then set a salary level at a ‘‘figure
adopted for administrative and professional will be accomplished if the levels selected
slightly lower than might be indicated are set at points near the lower end of the
employees. (28 FR 7004).
by the data’’ because of concerns current range of salaries for each of the
regarding the impact of the salary level The Department continued to use this categories. Such levels will assist in
increases on small businesses: ‘‘The methodology when adopting salary level demarcating the ‘‘bona fide’’ executive,
salary test for bona fide executives must increases in 1970. In 1970, the administrative and professional employees
not be so high as to exclude large Department examined data from 1968 without disqualifying any substantial number
numbers of the executives of small Wage and Hour Division investigations of such employees.
establishments from the exemption.’’ and 1969 BLS wage data. The * * * * *
1949 Weiss Report at 15. Department increased the salary level It is my conclusion, from all the evidence,
In 1958, the Department considered for executive employees to $140 per that the lower portion of the range of
data collected during 1955 Wage and week when the salary data showed that prevailing salaries will be most nearly
Hour Division investigations on ‘‘the 20 percent of executive employees from approximated if the tests are set at about the
actual salaries paid’’ to employees who all regions and 12 percent of executive levels at which no more than about 10
employees in the West earned less than percent of those in the lowest-wage region, or
‘‘qualified for exemption’’ (i.e., met the
in the smallest size establishment group, or
applicable salary and duties tests), $130 a week. 35 FR 884 (January 22,
in the smallest-sized city group, or in the
grouped by geographic region, broad 1970). lowest-wage industry of each of the
industry groups, number of employees The last increase to the salary levels categories would fail to meet the tests.
and size of city. 1958 Kantor Report at was in 1975. Instead of following the Although this may result in loss of
6. The Department then set the salary prior approaches, in 1975 the exemption for a few employees who might
tests for exempt employees ‘‘at about the Department set the salary levels based otherwise qualify for exemption * * * in the
levels at which no more than about 10 on increases in the Consumer Price light of the objectives discussed above, this
percent of those in the lowest-wage Index, although it adjusted the salary is a reasonable exercise of the
region, or in the smallest size level downward to eliminate any Administrator’s authority to ‘‘delimit’’ as well
potential inflationary impact. 40 FR as define.
establishment group, or in the smallest-
sized city group, or in the lowest-wage 7091 (February 19, 1975) (‘‘However, in Using this regulatory history as
industry of each of the categories would order to eliminate any inflationary guidance, the Department reached the
fail to meet the tests.’’ 1958 Kantor impact, the interim rates hereinafter proposed minimum salary level of $425
Report at 6–7. specified are set at a level slightly below per week after considering available
The Department followed this same the rates based on the CPI’’). More to the data on actual salary levels currently
methodology when determining the point, the salary levels adopted were being paid in the economy, broken out
appropriate salary level increase in intended as interim levels ‘‘pending the by broad industry categories and
1963. The Department examined data on completion and analysis of a study by geographic areas. We reviewed a
salaries paid to exempt workers the Bureau of Labor Statistics covering preliminary report on actual salary
collected in a special survey conducted a six month period in 1975.’’ Id. Thus, levels based on the BLS year 2000
by the Wage and Hour Division in 1961. the Department again intended to Current Population Survey (CPS)
28 FR 7002 (July 9, 1963). The salary increase the salary levels based on Outgoing Rotations Group data set.
level for executive and administrative actual salaries paid to employees. These data included all full-time
employees was increased to $100 per However, the intended process was (defined as 35 hours or more per week),
salaried workers aged 16 and above, but Other commenters, including the salary level that is too high, rather than
excluded the self-employed, agricultural AFL–CIO, agree with the Department too low as the AFL–CIO contends:
workers, volunteers and federal that the 1958 Kantor Report ‘‘Instead of setting the threshold at the
employees (who are all not subject to methodology of looking to the ‘‘range of lowest 10% of the salaries reviewed as
the salary level tests in the Part 541 salaries actually paid’’ to employees is was done in 1958, the proposed cutoff
regulations). We considered the data in the ‘‘most accurate approach to set the has been set at 20%. * * * NACS
Table 2 below showing the salary levels salary levels,’’ but assert that the submits that, to remain faithful to the
of the bottom 10 percent, 15 percent and Department ‘‘misrepresented and wise principles of the Kantor Report, the
20 percent of all salaried employees, misused the Kantor Report.’’ Thus, Labor Department should use the 10%
and salaried employees in the lower- comments filed by the AFL–CIO, and guideline and should apply it to the
wage South and retail sectors: adopted by many of their affiliated salaries in the lowest geographical or
unions, state: industry sector (whichever of the two
TABLE 2.—WAGES OF FULL-TIME The Department has taken several
data sets is lower), rather than to
SALARIED EMPLOYEES (2000 CPS) approaches in the past to decide how to composite figures which represent a
increase the salary levels used in the combination of high-wage and low-wage
All South Retail regulations. The most accurate approach to geographical and/or industry sectors.’’
set salary levels for exempt executive, The Department recognizes the strong
10% ............. $18,195 $15,955 $15,600 administrative, and professional employees views in this area, and has carefully
15% ............. 21,050 19,950 19,400 is first to determine the range of salaries considered the comments addressing
20% ............. 24,455 22,200 21,800 actually paid to employees who qualify for the amount of the proposed minimum
the exemption in each of the three categories. salary level. The Department continues
As in the 1958 Kantor Report analysis, The Department took this approach when it to believe that its methodology is
the Department’s proposal looked to set new salary levels effective in 1959, based
consistent with the regulatory history
‘‘points near the lower end of the current on the Kantor Report. The Kantor Report also
noted, as the Department mentions in its and, most importantly, is a reasonable
range of salaries’’ to determine an
preamble, that: ‘‘the objectives of the salary approach to updating the salary level
appropriate salary level for the standard
tests will be accomplished if the levels tests. For example, instead of
test—although we relied on the lowest
selected are set at points near the lower end investigating the lowest 10% of exempt
20 percent of salaried employees in the
of the current range of salaries for each of the salaried employees, an approach that
South, rather than the lowest 10 categories. Such levels will assist in depends on uncertain assumptions
percent, because of the proposed change demarcating the bona fide executive, regarding which employees are actually
from the ‘‘short’’ and ‘‘long’’ test administrative, and professional employees exempt, the Department decided to set
structure and because the data included without disqualifying any substantial number the minimum salary level based on the
nonexempt salaried employees. of such employees.’’ 68 Fed. Reg. at 15570,
lowest 20% of all salaried employees.
Applying this analysis, the Department quoting Kantor Report at 5. The Department’s
present proposal purports to use the The Department felt this adjustment
proposed a standard salary level of $425 achieved much the same purpose as
per week, an increase of $270 per week approach of the Kantor Report. However
* * * the Department has completely restricting the analysis to a lower
over the existing rule’s salary level of percentage of exempt employees.
misrepresented and misused the Kantor
$155 per week.13 Using this level, Report. The actual methodology used in the Assuming that employees earning a
approximately the bottom 20 percent of Kantor Report would result today not in a lower salary are more likely non
all salaried employees covered by the ‘‘standard salary’’ of $425 as proposed by the exempt, both approaches are capable of
FLSA would fall below the minimum Department, but instead in a ‘‘long test’’ reaching exactly the same endpoint, as
salary requirement and be automatically salary of $610 per week and a ‘‘short test’’ discussed more fully below. The
entitled to overtime. salary of $980 per week. (Emphasis in
comment.)
Department, in order to address the
Many commenters find this many comments regarding this
methodology appropriate and The AFL–CIO claims that the assumption, decided for this final rule
reasonable. Comments filed by the U.S. Department ‘‘misused’’ the Kantor to directly test whether our method for
House of Representatives Committee on methodology by relying on year 2000 setting the salary threshold was robust
Education and the Workforce, for BLS data regarding salary levels of all to different analytical approaches. In
example, ‘‘commend the Department for salaried employees: ‘‘Kantor’s salary fact, the Department found that our
its thoughtful analysis of the prior survey was limited to those executive, proposed approach to setting salary
revisions to the salary level test,’’ and administrative and professional levels was very consistent with past
‘‘endorse the Department’s review of and employees who were found to be approaches. Therefore we disagree with
adherence to regulatory precedent.’’ exempt—that is, employees who were the AFL–CIO’s contention that the
However, some commenters who paid on a salary basis, and met the proposed analysis was flawed and not
oppose the proposed $425 minimum applicable salary and duties tests. * * * consistent with the Kantor approach.
salary level as too low argue that the Instead, the DOL survey encompasses The final rule reflects the
Department should adjust the existing the broadest possible group—all salaried Department’s long-standing tradition of
salary levels for inflation by applying employees in every occupation, even avoiding the use of inflation indicators
the Consumer Price Index. This those who could not be regarded by any for automatic adjustments to these
methodology would result in salary stretch of the imagination as executive, salary requirements. The 1949 Weiss
levels of $530 per week ($580 for administrative, or professional Report, for example, considered and
professionals) for the ‘‘long’’ duties test employees.’’ The AFL–CIO thus rejected proposals to increase salary
and $855 per week for the ‘‘short’’ duties suggests that the Department use more levels based upon the change in the cost
tests, according to the commenters. current salary data and look only at of living from the 1940 levels:
salaries of exempt employees. Actual data showing the increases in the
13 The Department’s proposal to eliminate the
The National Association of prevailing minimum salary levels of bona
different salary level associated with the
professional ‘‘long’’ duties test is adopted in the
Convenience Stores (NACS) also fide executive, administrative and
final regulations as most commenters supported believes the Department misapplied the professional employees since October 1940
this as simplifying the existing regulations. Kantor methodology, but resulting in a would be the best evidence of the appropriate
salary increases for the revised regulations. The self-employed, unpaid volunteers full-time salaried employees in the
* * * The change in the cost of living which and religious workers who are not South region earn approximately $450
was urged by several witnesses as a basis for covered by the FLSA; (2) agricultural per week. The lowest 20 percent of full-
determining the appropriate levels is, in my
opinion, not a measure of the rise in
workers, certain transportation workers, time salaried employees in the retail
prevailing minimum salary levels. and certain automobile dealerships industry earn approximately $455 per
employees who are exempt from week. The lowest 20 percent of all
1949 Weiss Report at 12. The overtime under other provisions of the salaried employees earn somewhere
Department continues to believe that Act; (3) teachers, academic between $475 and $500 per week.
such a mechanical adjustment for administrative personnel, certain
inflation could have an inflationary The Department maintains that this
medical professionals, outside sales
impact or cause job losses. We are slight departure from the Kantor Report
employees, lawyers and judges who are
particularly concerned about, and analysis was appropriate and within its
not subject to the Part 541 salary tests;
required to consider, the impact that an discretion. As the AFL–CIO itself noted,
and (4) federal employees who are not
inflation adjustment could have on the ‘‘Department has taken several
subject to the Part 541 regulations.
lower-wage sectors such as businesses approaches in the past to decide how to
Using this subset of the 2002 CPS
in rural areas, businesses in the retail increase the salary levels used in the
data, the final rule again follows the
and restaurant industry, and small regulations.’’ The regulatory history
1958 Kantor Report analysis and looks
businesses. described above reveals that these
Thus, as in the proposal, the to ‘‘points near the lower end of the
current range of salaries’’ to determine various approaches have three things in
Department determined the minimum common: (1) Relying on actual wages
salary level in the final rule by an appropriate salary level. The
Department acknowledges that the 1958 earned by employees; (2) setting the
examining available data on actual salary level slightly lower than
salary levels currently being paid in the Kantor Report used data regarding the
wages of exempt employees, and set the indicated by the data because of the
economy as suggested by the 1958 impact on lower-wage industries and
Kantor Report. In the proposed rule, we salary level so that ‘‘no more than about
10 percent’’ of such exempt employees regions; and (3) rejecting suggestions to
relied on year 2000 salary data because mechanically adjust the salary levels
it was the most current data available at ‘‘in the lowest-wage region, or in the
smallest size establishment group, or in based on an inflationary measure.
that time. However, the Department Historically, however, the Department
should rely on the most current salary the smallest-sized city group, or in the
lowest-wage industry of each of the has looked at different wage surveys in
data available. Thus, for the final rule, an effort to find the best data available.
we carefully reviewed a report on actual categories would fail to meet the tests.’’
salary levels based on the 2002 Current 1958 Kantor Report at pages 5–7. The Nonetheless, to address concerns of
Population Survey (CPS) Outgoing Department’s proposal used a different the AFL–CIO, the National Association
Rotation public use data set, the most data set—all salaried employees covered of Convenience Stores and other
current data available at the time the by the FLSA, rather than just exempt commenters regarding the Department’s
analysis was conducted.14 As explained employees. However, the proposal methodology, we also examined salary
in more detail under section VI of this accounted for these differences in data ranges for employees in the subset of
preamble, the CPS data is the best by setting a salary level excluding from 2002 CPS data who, applying a
available data source because of its size the exemptions approximately the methodology modified from the GAO
(more than 474,000 observations) and its lowest 20 percent of all salaried Report,15 likely qualify as exempt
breadth of detail (e.g., occupation employees, rather than the Kantor employees under Section 13(a)(1) of the
classifications, salary, hours worked and Report’s 10 percent of exempt FLSA and the existing Part 541
industry). Consistent with the proposal, employees. regulations. Section VI of this preamble
the Department examined a subset of In developing the salary level for the includes a detailed description of the
the 2002 CPS data, broken out by broad final rule, the Department first looked at Department’s methodology for
industry categories and geographic the proposed salary level of $425 per estimating the number and salary levels
areas, that included full-time (working week to determine what percentage of of exempt employees. The result of this
35 or more hours per week) employed salaried employees would fail to meet analysis is Table 4, showing salary
workers age 16 years and older who are the test. As shown in Table 3, ranges for likely exempt workers. As
both covered by the Fair Labor approximately 18 percent of full-time shown in Table 4, the lowest 10 percent
Standards Act and subject to the Part salaried employees in the South region of all likely exempt salaried employees
541 salary tests. Thus, the Department and in the retail industry would fail to earn approximately $500 per week. The
relied on a data set that excluded: (1) meet the $425 salary level. Because the lowest 10 percent of likely exempt
Department was concerned by this drop salaried employees in the South earn
14 The 2003 CPS data was made available after from the 20 percent level used in the just over $475 per week. The lowest 10
much of the economic analysis was completed. The proposal, we assessed the salary level
Department reviewed the 2003 data in order to percent of likely exempt salaried
ensure that it had considered the most current that would be necessary in order to employees in the retail industry earn
salary information available. As explained in detail exclude 20 percent of all salaried approximately $450 per week.
in Appendix B, an analysis of the 2003 data employees in the South region and in
demonstrates that using this data would not alter the retail industry. 15 Fair Labor Standards Act: White Collar
the determination of the minimum salary level
because the results are consistent under both data As shown in Table 3, applying the Exemptions in the Modern Work Place, GAO/
sets. 2002 CPS data, the lowest 20 percent of HEHS–99–164, September 30, 1999.
TABLE 3.—FULL-TIME SALARIED EMPLOYEES

Earnings Percentile
Weekly Annual All South Retail
$155 ......................................................................................................... $8,060 1.6 1.6 1.8

255 ........................................................................................................... 13,260 4.6 5.3 5.4
355 ........................................................................................................... 18,460 10.0 11.8 12.0
380 ........................................................................................................... 19,760 11.1 13.3 13.3
405 ........................................................................................................... 21,060 14.1 16.9 17.1
425 ........................................................................................................... 22,100 15.2 18.3 18.1
450 ........................................................................................................... 23,400 16.7 20.2 19.9
455 ........................................................................................................... 23,660 16.8 20.2 20.0
460 ........................................................................................................... 23,920 16.9 20.4 20.1
465 ........................................................................................................... 24,180 18.3 21.9 21.9
470 ........................................................................................................... 24,440 18.4 21.9 21.9
475 ........................................................................................................... 24,700 18.7 22.3 22.3
500 ........................................................................................................... 26,000 22.7 26.9 27.4
550 ........................................................................................................... 28,600 25.8 30.6 30.7
600 ........................................................................................................... 31,200 32.4 37.9 38.3
650 ........................................................................................................... 33,800 36.0 41.7 42.5
700 ........................................................................................................... 36,400 41.9 47.9 49.6
750 ........................................................................................................... 39,000 45.8 51.6 53.6
800 ........................................................................................................... 41,600 50.8 56.8 58.9
850 ........................................................................................................... 44,200 54.2 59.9 61.8
900 ........................................................................................................... 46,800 57.9 63.6 64.9
950 ........................................................................................................... 49,400 60.7 66.6 67.9
1,000 ........................................................................................................ 52,000 66.6 72.1 73.5
1,100 ........................................................................................................ 57,200 70.8 75.9 76.9
1,200 ........................................................................................................ 62,400 76.0 80.8 80.8
1,300 ........................................................................................................ 67,600 79.2 83.5 83.3
1,400 ........................................................................................................ 72,800 82.8 86.6 85.9
1,500 ........................................................................................................ 78,000 85.8 89.2 88.7
1,600 ........................................................................................................ 83,200 88.0 90.9 90.3
1,700 ........................................................................................................ 88,400 89.6 92.2 91.4
1,800 ........................................................................................................ 93,600 91.1 93.3 93.0
1,900 ........................................................................................................ 98,800 92.0 94.0 93.7
1,925 ........................................................................................................ 100,100 93.7 95.3 95.1
1,950 ........................................................................................................ 101,400 93.7 95.4 95.1
1,975 ........................................................................................................ 102,700 93.9 95.5 95.2
2,000 ........................................................................................................ 104,000 94.2 95.6 95.4
2,100 ........................................................................................................ 109,200 94.6 96.1 95.9
2,200 ........................................................................................................ 114,400 95.2 96.5 96.2
2,300 ........................................................................................................ 119,600 95.4 96.6 96.5
2,400 ........................................................................................................ 124,800 96.2 97.1 97.1
2,500 ........................................................................................................ 130,000 97.0 97.6 97.8
TABLE 4.—LIKELY EXEMPT EMPLOYEES

Earnings Percentile
$155 ......................................................................................................... $8,060 0.0 0.0 0.0

255 ........................................................................................................... 13,260 1.3 1.6 1.6
355 ........................................................................................................... 18,460 3.6 4.2 5.3
380 ........................................................................................................... 19,760 4.0 4.9 6.2
405 ........................................................................................................... 21,060 5.4 6.5 8.4
425 ........................................................................................................... 22,100 5.9 7.2 9.0
450 ........................................................................................................... 23,400 6.6 8.1 10.2
455 ........................................................................................................... 23,660 6.7 8.2 10.2
460 ........................................................................................................... 23,920 6.7 8.2 10.3
465 ........................................................................................................... 24,180 7.7 9.2 11.7
470 ........................................................................................................... 24,440 7.8 9.3 11.8
475 ........................................................................................................... 24,700 7.9 9.5 12.0
500 ........................................................................................................... 26,000 10.3 12.3 15.3
550 ........................................................................................................... 28,600 12.3 14.9 18.1
600 ........................................................................................................... 31,200 17.2 20.5 24.6
650 ........................................................................................................... 33,800 20.0 23.9 29.3
700 ........................................................................................................... 36,400 25.2 29.9 36.3
750 ........................................................................................................... 39,000 28.9 33.7 40.7
800 ........................................................................................................... 41,600 33.7 39.0 46.0
850 ........................................................................................................... 44,200 37.3 42.4 49.4
900 ........................................................................................................... 46,800 41.2 46.7 53.0
950 ........................................................................................................... 49,400 44.5 50.4 56.9
TABLE 4.—LIKELY EXEMPT EMPLOYEES—Continued

Earnings Percentile
1,000 ........................................................................................................ 52,000 51.3 57.2 63.5

1,100 ........................................................................................................ 57,200 56.7 62.2 67.6
1,200 ........................................................................................................ 62,400 63.5 69.3 72.9
1,300 ........................................................................................................ 67,600 67.9 73.3 76.4
1,400 ........................................................................................................ 72,800 73.1 77.9 80.4
1,500 ........................................................................................................ 78,000 77.5 81.9 83.7
1,600 ........................................................................................................ 83,200 80.8 84.7 85.9
1,700 ........................................................................................................ 88,400 83.3 86.8 87.7
1,800 ........................................................................................................ 93,600 85.7 88.6 90.0
1,900 ........................................................................................................ 98,800 87.2 89.8 90.8
1,925 ........................................................................................................ 100,100 89.8 92.0 92.7
1,950 ........................................................................................................ 101,400 89.9 92.1 92.8
1,975 ........................................................................................................ 102,700 90.1 92.3 92.9
2,000 ........................................................................................................ 104,000 90.6 92.6 93.1
2,100 ........................................................................................................ 109,200 91.3 93.3 93.6
2,200 ........................................................................................................ 114,400 92.2 93.9 94.1
2,300 ........................................................................................................ 119,600 92.6 94.2 94.4
2,400 ........................................................................................................ 124,800 93.9 95.0 95.4
2,500 ........................................................................................................ 130,000 95.2 95.9 96.4
TABLE 5.—FULL-TIME HOURLY WORKERS

Earnings Percentile
$155 ......................................................................................................... $8,060 1.2 1.3 2.0

255 ........................................................................................................... 13,260 7.6 9.5 13.7
355 ........................................................................................................... 18,460 25.8 30.4 41.4
380 ........................................................................................................... 19,760 31.4 36.6 47.9
405 ........................................................................................................... 21,060 38.5 44.4 55.9
425 ........................................................................................................... 22,100 41.3 47.5 59.1
450 ........................................................................................................... 23,400 46.1 52.4 64.1
455 ........................................................................................................... 23,660 46.4 52.8 64.5
460 ........................................................................................................... 23,920 47.3 53.6 65.4
465 ........................................................................................................... 24,180 47.9 54.3 65.9
470 ........................................................................................................... 24,440 48.3 54.8 66.4
475 ........................................................................................................... 24,700 48.7 55.2 66.9
500 ........................................................................................................... 26,000 54.8 61.5 71.9
550 ........................................................................................................... 28,600 60.6 67.0 76.7
600 ........................................................................................................... 31,200 68.2 73.9 82.6
650 ........................................................................................................... 33,800 72.2 77.5 85.8
700 ........................................................................................................... 36,400 76.3 81.1 88.7
750 ........................................................................................................... 39,000 79.6 83.9 90.9
800 ........................................................................................................... 41,600 83.6 87.1 93.2
850 ........................................................................................................... 44,200 85.9 88.9 94.1
900 ........................................................................................................... 46,800 88.0 90.7 95.1
950 ........................................................................................................... 49,400 89.6 92.0 95.7
1,000 ........................................................................................................ 52,000 91.9 93.9 96.7
1,100 ........................................................................................................ 57,200 94.0 95.5 97.4
1,200 ........................................................................................................ 62,400 95.8 96.9 98.0
1,300 ........................................................................................................ 67,600 96.7 97.6 98.3
1,400 ........................................................................................................ 72,800 97.6 98.2 98.8
1,500 ........................................................................................................ 78,000 98.2 98.6 99.1
1,600 ........................................................................................................ 83,200 98.7 99.0 99.4
1,700 ........................................................................................................ 88,400 99.0 99.2 99.5
1,800 ........................................................................................................ 93,600 99.2 99.4 99.6
1,900 ........................................................................................................ 98,800 99.3 99.4 99.6
1,925 ........................................................................................................ 100,100 99.4 99.5 99.7
1,950 ........................................................................................................ 101,400 99.4 99.5 99.7
1,975 ........................................................................................................ 102,700 99.4 99.5 99.7
2,000 ........................................................................................................ 104,000 99.5 99.6 99.7
2,100 ........................................................................................................ 109,200 99.6 99.6 99.7
2,200 ........................................................................................................ 114,400 99.6 99.6 99.7
2,300 ........................................................................................................ 119,600 99.7 99.7 99.8
2,400 ........................................................................................................ 124,800 99.7 99.7 99.8
2,500 ........................................................................................................ 130,000 99.8 99.8 99.8
Under the final rule, the minimum almost any yardstick. The $455 salary level is a $10.34 annual dollar
salary level for an employee to be minimum salary level, as shown in increase from 1975 to 2004, the highest
exempt is increased from $155 per week Table 6, is an unprecedented increase in annual dollar increase in the 65-year
($8,060/year) to $455 per week both absolute dollar amount and history of the FLSA.
($23,660/year), a large increase by percentage terms. The $455 minimum
TABLE 6.—COMPARISON OF SALARY LEVEL INCREASES

Years since last Executive long Average annual
Dollar change Percent change
increase test salary level dollar change
1949 ........................................................................... .......................... $55 .......................... .......................... ..........................

1958 ........................................................................... 9 80 25 45.5 2.78
1963 ........................................................................... 5 100 20 25.0 4.00
1970 ........................................................................... 7 125 25 25.0 3.57
1975 ........................................................................... 5 155 30 24.0 6.00
2004 ........................................................................... 29 455 300 193.5 10.34
The Department believes that a $455 sizes and geographic regions. Kantor the South and in the retail industry. We
minimum salary level for exemption is Report at 5. also considered but rejected comments
consistent with the Department’s Similarly, the AFL–CIO’s attempt to requesting a special rule for part-time
historical practice of looking to ‘‘points apply the Kantor Report analysis, employees. The regulations have never
near the lower end of the current range yielding a result of $610 per week, is included a different salary level for part-
of salaries’’ to determine an appropriate also flawed. Rather than starting with time employees, and such a rule appears
salary level. A minimum salary level of the 2002 CPS data, the AFL–CIO began unnecessary.
$455 per week represents the lowest its analysis by identifying the salary Second, some commenters ask the
10.2 percent of likely exempt employees level for the lowest 10 percent of likely Department to provide for future
in the lower-wage retail industry; the exempt employees from the 1998 data in automatic increases of the salary levels
lowest 8.2 percent of likely exempt the GAO Report. Then, the AFL–CIO tied to some inflationary measure, the
employees in the South; and the lowest adjusted that salary level for inflation by minimum wage or prevailing wages.
6.7 percent of all likely exempt applying the Employment Cost Index. Other commenters suggest that the
employees. The $455 level also The problem with this approach is that Department provide some mechanism
represents the lowest 20.0 percent of the GAO Report methodology, as for regular review or updates at a fixed
salaried employees in the retail discussed in Section VI, inappropriately interval, such as every five years.
industry; the lowest 20.2 percent of excludes from the analysis exempt Commenters who made these
salaried employees in the South; and employees in lower-wage regions and suggestions are concerned that the
the lowest 16.8 percent of all salaried industries. The AFL–CIO then Department will let another 29 years
employees. As shown in Table 5, the exacerbates the GAO’s biased result by pass before the salary levels are again
$455 minimum salary level also using the ECI to adjust the 1998 data, increased. The Department intends in
automatically excludes 46.4 percent of rather than using the available 2002 the future to update the salary levels on
hourly workers from the exemptions. In data. Table 4 contains more accurate a more regular basis, as it did prior to
addition, based on the comments from data on current salary ranges of likely 1975, and believes that a 29-year delay
the business community, the exempt employees. Applying these data, is unlikely to reoccur. The salary levels
Department believes this increase is the AFL–CIO suggestion of a $610 salary should be adjusted when wage survey
clearly at the upper boundary of what is level represents approximately the data and other policy concerns support
capable of being absorbed by employers lowest 17 percent of all likely exempt such a change. Further, the Department
without major disruptions to local labor salaried employees, the lowest 21 finds nothing in the legislative or
markets. Accordingly, the Department percent of such employees in the South, regulatory history that would support
concludes that a minimum salary level and the lowest 25 percent of such indexing or automatic increases.
of $455 per week ‘‘will assist in employees in retail—not the lowest 10 Although an automatic indexing
demarcating the ‘bona fide’ executive, percent used by Kantor. mechanism has been adopted under
administrative and professional Finally, the comments raise a number some other statutes, Congress has not
employees without disqualifying any of additional issues which the adopted indexing for the Fair Labor
substantial number of such employees.’’ Department considered but did not find Standards Act. In 1990, Congress
Kantor Report at 5. persuasive. First, several commenters modified the FLSA to exempt certain
Concerns by employer groups that a urge the Department to adopt different computer employees paid an hourly
$455 per week salary level will salary levels for different areas of the wage of at least 61⁄2 times the minimum
disproportionately impact small country (or urban and rural areas) or for wage, but this standard lasted only until
businesses, businesses in rural areas, different kinds or sizes of businesses. the next minimum wage increase six
and retail businesses are misplaced. The The Department does not believe that years later. In 1996, Congress froze the
Department examined the 2002 CPS this approach is administratively minimum hourly wage for the computer
data broken out by industry and feasible because of the large number of exemption at $27.63 (61⁄2 times the 1990
geographic area, and as in the Kantor different salary levels this would minimum wage of $4.25 an hour). In
Report, selected a salary level ‘‘near the require. In addition, we believe that the addition, as noted above, the
lower end of the current range of traditional methodology addresses the Department has repeatedly rejected
salaries’’ to ensure the minimum salary concerns of such commenters by requests to mechanically rely on
level is practicable over the broadest looking toward the lower end of the inflationary measures when setting the
possible range of industries, business salary levels and considering salaries in salary levels in the past because of
concerns regarding the impact on lower- tests entirely. These commenters point detailed analysis of the employee’s job
wage geographic regions and industries. out that this approach would eliminate duties,’’ and provided an example to
This reasoning applies equally when concerns about how the salary levels illustrate the duties requirement
considering automatic increases to the might affect lower wage regions and applicable to highly compensated
salary levels. The Department believes industries. They argue that the duties employees under this rule: ‘‘an
that adopting such approaches in this tests have been the only active tests for employee may qualify as a highly
rulemaking is both contrary to some time, given the erosion of the compensated executive employee, for
congressional intent and inappropriate. value of the salary levels in the prior example, if the employee directs the
Third, the Puerto Rico Chamber of existing rule. Fairfax County states that work of two or more other employees,
Commerce recommends a special salary the salary test should be eliminated even though the employee does not
test for Puerto Rico of $360 per week because of the wide variation across the have authority to hire and fire.’’
(the same as the proposed salary level country in living costs and labor market Proposed subsection (d) provided that
test for American Samoa). The viability. The National Automobile the highly compensated rule applied
Department considered this comment Dealers Association and others only to employees performing office or
and concluded that such a differential comment that the salary tests were non-manual work, and was not
in Puerto Rico would be inconsistent simply unnecessary. The Central Iowa applicable to ‘‘carpenters, electricians,
with the FLSA Amendments of 1989 Society for Human Resource mechanics, plumbers, iron workers,
(Pub. L. 101–157), which deleted Puerto Management comments that job content craftsmen, operating engineers,
Rico and the Virgin Islands from the should be the deciding factor, not salary longshoremen, construction workers,
special industry wage order proceedings level. On the other hand, many teamsters and other employees who
under section 6(a)(1) of the FLSA commenters oppose this approach. The perform manual work * * * no matter
allowing industry minimum wage rates Department has carefully considered the how highly paid they might be.’’16
that are lower than the U.S. mainland comments in this area and has not The final section 541.601 raises the
minimum wage. Before 1989, Puerto adopted this alternative, among other total annual compensation required for
Rico, the Virgin Islands, and American reasons, because this approach would exemption as a highly compensated
Samoa all had minimum wages below be inconsistent with the Department’s employee to $100,000, an increase of
the U.S. mainland and consequently long-standing recognition that the $35,000 from the proposal. The final
lower salary level tests traditionally amount of salary paid to an employee is rule also makes a number of additional
were established for employees in these the ‘‘best single test’’ of exempt status. changes, including: Requiring that the
jurisdictions. However, since Puerto 1940 Stein Report at 19. Moreover, this total annual compensation must include
Rico is now subject to the same alternative would require a significant at least $455 per week paid on a salary
minimum wage as the U.S. mainland, restructuring of the regulations and or fee basis; modifying the definition of
there is no longer a basis for a special probably the use of more rigid duties ‘‘total annual compensation’’ to include
salary level test. The final rule tests. Thus, this alternative conflicts commissions, nondiscretionary bonuses
maintains the special minimum salary with a key purpose of this rulemaking, and other nondiscretionary
level for employees in American Samoa namely, to simplify and streamline compensation even if they are not paid
at approximately the same ratio to the these regulations. to the employee on a monthly basis;
mainland test (84 percent) used under allowing the make-up payment to be
the existing rule—which computes to Section 541.601 Highly Compensated
paid within one month after the end of
$380 per week. Employees
the year and clarifying that such a
Fourth, the National Association of Proposed section 541.601 set forth a payment counts toward the prior year’s
Chain Drug Stores (NACDS) comments new rule for highly compensated compensation; allowing a similar make
that the exception to a minimum salary employees. Under the proposed rule, an up payment to employees who
test for physicians should apply to employee who had a guaranteed total terminate employment before the end of
pharmacists. The NACDS states that the annual compensation of at least $65,000 the year; and deleting the word
educational requirements and was deemed exempt under section ‘‘guaranteed’’ to clarify that compliance
professional standards for pharmacists 13(a)(1) of the Act if the employee with this provision does not create an
have increased substantially since these performed an identifiable executive, employment contract. In addition, the
regulations were last revised. For administrative or professional function final rule modifies the duties
example, pharmacists graduating today as described in the standard duties tests. requirement to provide that the
complete a doctoral program before they Subsection (b) of the proposed rule employee must ‘‘customarily and
are licensed to practice. In the defined ‘‘total annual compensation’’ to regularly’’ perform one or more exempt
Department’s view, pharmacists can include ‘‘base salary, commissions, non duties. Finally, subsection (d) in the
qualify, along with doctors, teachers, discretionary bonuses and other non final rule has been modified to better
lawyers, etc., as professionals under the discretionary compensation’’ as long as reflect the language of new subsection
FLSA exemption. However, the fact that that compensation was ‘‘paid out to the 541.3(a) and now provides:
the standards for the profession are employee as due on at least a monthly
basis.’’ Proposed subsection (b) also This section applies only to employees
rising does not mean that the minimum
performing office or non-manual work. Thus,
salary requirement to be exempt should provided for prorating the $65,000 for example, non-management production-
be removed. The Department also annual compensation for employees line workers and non-management
considered but rejected suggestions who work only part of the year, and employees in maintenance, construction and
from commenters that we remove the allowed an employer to make a lump- similar occupations such as carpenters,
salary requirements for registered nurses sum payment sufficient to bring the electricians, mechanics, plumbers, iron
and others. The Department does not employee to the $65,000 level by the workers, craftsmen, operating engineers,
think it is appropriate to expand the next pay period after the end of the year.
16 Even if the requirements of section 541.601 are
original, limited number of professions Proposed subsection (c) stated that a
not met, an employee may still be tested for
that were not subject to the salary test. ‘‘high level of compensation is a strong exemption under the standard tests for the
Fifth, several commenters favor a final indicator of an employee’s exempt executive, administrative or professional
rule that would eliminate the salary status, thus eliminating the need for a exemption.
longshoremen, construction workers, laborers need for an expensive and potentially single exempt duty once a year. The
and other employees who perform work confusing legal inquiry into whether the Department never intended to exempt as
involving repetitive operations with their employee’s duties truly are exempt. ‘‘highly compensated’’ employees those
hands, physical skill and energy are not The Department agrees with the AFL–
exempt under this section no matter how
who perform exempt duties only on an
highly paid they might be.
CIO that the Secretary does not have occasional or sporadic basis.
authority under the FLSA to adopt a Accordingly, to clarify this duties
Comments on proposed section ‘‘salary only’’ test for exemption, and requirement for highly compensated
541.601 disagree sharply. The AFL–CIO rejects suggestions from employer employees and ensure exempt duties
and other affiliated unions object groups to do so. Section 13(a)(1) of the remain a meaningful aspect of this test,
entirely to section 541.601, claiming the FLSA requires that the Secretary ‘‘define the final rule adds to section 541.601(a)
section is beyond the scope of the and delimit’’ the terms executive, that an employee must ‘‘customarily and
Department’s authority. The unions administrative and professional regularly’’ perform work that satisfies
characterize this section as a ‘‘salary employee. The Department has always one or more of the elements of the
only’’ test that will exempt every maintained that the use of the phrase standard duties test for an executive,
employee earning above the highly ‘‘bona fide executive, administrative or administrative or professional
compensated salary level. The unions professional capacity’’ in the statute employee.
argue that Congress did not intend to requires the performance of specific The Department has the authority to
exempt all employees who are paid over duties. For example, the 1940 Stein adopt a more streamlined duties test for
a certain level. If Congress intended to report stated: ‘‘Surely if Congress had employees paid at a higher salary level.
exempt employees who are paid over a meant to exempt all white collar Indeed, no commenter challenges this
certain level, the unions argue, it could workers, it would have adopted far more authority. The Part 541 regulations have
easily have done so. Comments general terms than those actually found contained special provisions for ‘‘high
submitted by unions and other in section 13(a)(1) of the act.’’ 1940 salaried’’ employees since 1949.
employee advocates also argue that the Stein Report at 6–7. In fact, as the AFL– Although commonly referred to as the
highly compensated test should be CIO and other unions note, Congress ‘‘short’’ duties tests today, the existing
deleted entirely because proposed rejected several statutory amendments regulations actually refer to these tests
section 541.601 will allow the during the FLSA’s early history which as the ‘‘special proviso for high salaried
exemption for employees traditionally would have established ‘‘salary only’’ executives’’ (29 CFR 541.119), the
entitled to overtime pay. Such tests. In 1940, for example, Congress ‘‘special proviso for high salaried
commenters also argue that the rejected an amendment which would administrative employees’’ (29 CFR
proposed $65,000 level is too low and have provided the exemption to all 541.214), and the ‘‘special proviso for
the proposed duties requirements too employees earning more than $200 per high salaried professional employees’’
lax. week. H.R. 8624, 76th Cong. (1940). See (29 CFR 541.315). Perhaps the courts
In contrast, organizations representing also Deborah Malamud, Engineering the appropriately refer to these special
employer interests generally support the Middle Class: Class Line-Drawing in provisions as the ‘‘short’’ tests today
new provision, although a number of New Deal Hours Legislation, 96 Mich. L. because the associated salary level is
these commenters ask for technical Rev. 2212, 2299–2303 (August 1998) only $250 per week ($13,000
modifications. However, some employer (discussing four separate proposals to annually)—hardly ‘‘high salaried’’ in
commenters argue that the total annual exempt all highly paid employees today’s economy.
compensation requirement of $65,000 between 1939 and 1940). Finally, as the In any case, these special provisions
per year is too high. In addition, a unions also correctly note, in Jewell applying more lenient duties standards
significant number of employer Ridge Coal Corp. v. United Mine to employees earning higher salaries
commenters find a duties requirement Workers of America, Local No. 6167, have been in the Part 541 regulations for
in proposed section 541.601 325 U.S. 161, 167 (1949), the Supreme 52 years. The rationale for a highly
unnecessary, and ask the Department to Court stated that ‘‘employees are not to compensated test was set forth in the
eliminate it. The Morgan, Lewis & be deprived of the benefits of the Act 1949 Weiss Report and is still valid
Bockius law firm, for example, argues simply because they are well paid.’’ See today:
that the duties test for highly also Overnite Motor Transportation Co.
compensated employees can be The experience of the Divisions has shown
v. Missel, 316 U.S. 572, 578 (1942) (the that in the categories of employees under
eliminated because employees paid primary purposes of the overtime consideration the higher the salaries paid the
more than 80 percent of all full-time provisions were to ‘‘spread more likely the employees are to meet all the
salaried workers are not the persons employment’’ and assure workers requirements for exemption, and the less
Congress sought to protect from additional pay ‘‘to compensate them for productive are the hours of inspection time
exploitation when it passed the FLSA. the burden of a workweek beyond the spent in analysis of the duties performed. At
The U.S. Chamber of Commerce hours fixed in the Act’’). the higher salary levels in such classes of
comments that a ‘‘bright line’’ (i.e., However, the Department rejects the employment, the employees have almost
salary only) test for highly compensated invariably been found to meet all the other
view that section 541.601 does not
requirements of the regulations for
employees would add significant clarity contain a duties test. As noted above, exemption. In the rare instances when these
to the regulations and is consistent with the proposed section did require that an employees do not meet all the other
the historical approach of guaranteeing exempt highly compensated employee requirements of the regulations, a
overtime protections to workers earning perform ‘‘any one or more exempt duties determination that such employees are
below the minimum salary level, or responsibilities of an executive, exempt would not defeat the objectives of
regardless of duties performed. The administrative or professional employee section 13(a)(1) of the act. The evidence
Society for Human Resource identified in subparts B, C or D of this supported the experience of the Divisions,
Management adds that high and indicated that a short-cut test of
part.’’ Some commenters find this
exemption along the lines suggested above
compensation is indicative of likely language insufficient and confusing, would facilitate the administration of the
exempt status and a bright line rule for arguing that it would allow employees regulations without defeating the purposes of
highly compensated employees based to qualify for exemption under section section 13(a)(1). A number of management
on earnings alone would eliminate the 541.601 even if they performed only a representatives stated that such a provision
would facilitate the classification of Reform Coalition endorse the proposed to meet all the other requirements of the
employees and would result in a $65,000 level as appropriately serving regulations for exemption.’’ 1949 Weiss
considerable saving of time for the employer. the purposes of the FLSA. However, Report at 22. Thus, the highly
The definition of bona fide ‘‘executive,’’ other employer groups state that the compensated earnings level should be
‘‘administrative,’’ or ‘‘professional’’ in terms
of a high salary alone is not consistent with
salary level is too high. The U.S. set high enough to avoid the unintended
the intent of Congress as expressed in section Chamber of Commerce asks the exemption of large numbers of
13(a)(1) and would be of doubtful legality Department to lower the earnings level employees—such as secretaries in New
since many persons who obviously do not to $50,000 per year. The National Retail York City or Los Angeles—who clearly
fall into these categories may earn large Federation also suggests a $50,000 level, are outside the scope of the exemptions
salaries. The Administrator would arguing that the $65,000 standard is and are entitled to the FLSA’s minimum
undoubtedly be exceeding his authority if he prohibitively high for most retailers. wage and overtime pay protections.
included within the definition of these terms The National Grocers Association and Accordingly, the Department rejects
craftsmen, such as mechanics, carpenters, or the International Mass Retail the comments from employer groups
linotype operators, no matter how highly Association similarly state that $65,000 that the highly compensated salary level
paid they might be. A special proviso for should be reduced to as low as $36,000
high salaried employees cannot be based on
is far too high a level, particularly in the
salary alone but must be drawn in terms retail industry. The National per year, and instead sets the highly
which will actually exclude craftsmen while Association of Convenience Stores compensated test at $100,000 per year.
including only bona fide executive, suggests that the Department should set In the Department’s experience,
administrative, or professional employees. the salary level for highly compensated employees earning annual salaries of
The evidence indicates that this objective can employees at $36,000 per year or, in the $36,000 often fail the duties tests for
best be achieved by combining the high alternative, at a level related to the exemption, while virtually every
salary requirements with certain qualitative minimum salary level for exemption, salaried ‘‘white collar’’ employee with a
requirements relating to the work performed such as $44,200 per year, twice the total annual compensation of $100,000
by bona fide executive, administrative or proposed minimum. per year would satisfy any duties test.
professional employees, as the case may be. Other commenters, including labor Employees earning $100,000 or more
Such requirements will exclude craftsmen
and others of the type not intended to come
unions, argue that $65,000 is too low. per year are at the very top of today’s
within the exemption. The National Employment Lawyers economic ladder, and setting the highly
Association argues that the $65,000 compensated test at this salary level
1949 Weiss Report at 22–23. proposed level is not much higher than provides the Department with the
Section 541.601 is merely a the annualized level of $57,470 per year confidence that, in the words of the
reformulation of such a test. Although for computer employees exempt under Weiss report: ‘‘in the rare instances
final section 541.601 strikes a slightly section 13(a)(17) of the FLSA, which when these employees do not meet all
different balance than the existing retains substantial duties tests. The other requirements of the regulations, a
regulations ‘‘ a much higher salary level National Association of Wage Hour determination that such employees are
associated with a more flexible duties Consultants notes that, although the top exempt would not defeat the objectives
standard ‘‘ that balance, in the 20 percent of salaried employees earn of section 13(a)(1) of the Act.’’ 1949
experience of the Department, still $65,000 in base wages, that number Weiss Report at 22–23.
meets the goals of the 1949 Weiss does not include other types of Only roughly 10 percent of likely
Report of providing a ‘‘short-cut test’’ compensation (e.g., commissions) that exempt employees who are subject to
that combines ‘‘high salary requirements the proposal includes within the the salary tests earn $100,000 or more
with certain qualitative requirements definition of ‘‘total annual per year (Table 4). This is broadly
relating to the work performed by bona compensation.’’ Accordingly, this symmetrical with the Kantor approach
fide executive, administrative or commenter argues, the Department of setting the minimum salary level for
professional employees,’’ while either should raise the salary level to exemption at the lowest 10 percent of
excluding ‘‘craftsmen and others of the $80,000 per year or modify the likely exempt employees. In contrast,
type not intended to come within the provision to exclude non-salary approximately 35 percent of likely
exemption.’’ Thus, the final section compensation. The American exempt employees subject to the salary
541.601 provides that an exempt highly Federation of Government Employees tests exceed the proposed $65,000 salary
compensated employee must earn suggests that the salary level should be threshold. In addition, less than 1
$100,000 per year and ‘‘customarily and fixed at the rate for a federal GS–15/step percent of full-time hourly workers (0.6
regularly’’ perform exempt duties, and 1 employee ($85,140 per year, at the percent) earn $100,000 or more (Table
that ‘‘carpenters, electricians, time the comment was submitted, 5). Thus, at the $100,000 or more per
mechanics, plumbers, iron workers, without the locality pay differentials year salary level, the highly
craftsmen, operating engineers, that can raise the total to in excess of compensated provision will not be
longshoremen, construction workers, $100,000). Two employers suggest that available to the vast majority of both
laborers and other employees who the section 541.601 salary level should salaried and hourly employees. Unlike
perform work involving repetitive conform to the Internal Revenue Service the $65,000 or more per year salary
operations with their hands, physical pay threshold for highly compensated level, setting the highly compensated
skill and energy are not exempt under employees, which is currently $90,000 test at the $100,000 avoids the potential
this section no matter how highly paid per year. of unintended exemptions of large
they might be.’’ The Department continues to find that numbers of employees who are not bona
The Department also received a employees at higher salary levels are fide executive, administrative or
substantial number of comments on the more likely to satisfy the requirements professional employees. At the same
proposed $65,000 earnings level. Some for exemption as an executive, time, because the Department believes
commenters such as the National administrative or professional that many employees who earn between
Association of Manufacturers, the employee. The purpose of section $65,000 and $100,000 per year also
American Corporate Counsel 541.601 is to provide a ‘‘short-cut test’’ satisfy the standard duties tests, the
Association, the Society for Human for such highly compensated employees section 13(a)(1) exemptions will still be
Resource Management and the FLSA who ‘‘have almost invariably been found available for such employees. The
Department believes this $100,000 level a select group of employees for modified the final subsection
is also necessary to address exemption. We believe that the test for 541.601(b)(1) to provide:
commenters’ concerns regarding the highly compensated employees should ‘‘Total annual compensation’’ must include
associated duties test, the possibility remain straightforward and easy to at least $455 per week paid on a salary or fee
that workers in high-wage regions and administer by maintaining a single, basis. Total annual compensation may also
industries could inappropriately lose overall compensation figure applicable include commissions, nondiscretionary
overtime protection, and the effect of to every employee. Determining the bonuses and other nondiscretionary
future inflation. The Department variety of reasons that might qualify for compensation earned during a 52-week
deduction, such as for a medical leave period. Total annual compensation does not
recognizes that the duties test for highly include board, lodging and other facilities as
compensated employees in final section of absence, a military leave of absence, defined in § 541.606, and does not include
541.601 is less stringent than the or an educational leave of absence, and payments for medical insurance, payments
existing ‘‘short’’ duties tests associated establishing rules about the lengths of for life insurance, contributions to retirement
with the existing special provisions for time such absences must cover before plans and the cost of other fringe benefits.
‘‘high salaried’’ employees (29 CFR deductions could be made, would Fifth, the final rule also continues to
541.119, 541.214, 541.315). But this unnecessarily complicate this rule. permit a catch-up payment at the end of
change is more than sufficiently off-set Third, because the final rule increases
the year. Such a catch-up payment is
by the $87,000 per year increase in the the compensation level significantly,
necessary because, according to some
highly compensated level. Under the from $65,000 to $100,000, the
commenters, many highly compensated
existing regulations, a ‘‘high salaried Department agrees with comments that
employees receive commissions, profit
executive’’ earns only $13,000 annually, the definition of ‘‘total annual
compensation’’ should include sharing and other incentive pay that
which is approximately 60 percent may not be calculated or paid by the
higher than the minimum salary level of commissions, nondiscretionary bonuses
and other nondiscretionary end of the year. However, some
$8,060. Under the final rule, a highly commenters state that it would be
compensated employee must earn compensation earned during a 52-week
period, even if such compensation is not difficult to compute the amount of any
$100,000 per year, which is more than such payment due by the first pay
400 percent higher than the final ‘‘paid out to the employee as due on at
least a monthly basis’’ as proposed in period following the end of the year, as
minimum salary level of $23,660 required by proposed section
annually.17 subsection 541.601(b)(1). Numerous
commenters state that such payments 541.601(b)(2). They emphasize that it
A number of commenters question the takes some time after the close of the
definition of ‘‘total annual often are paid on a quarterly or less
frequent basis. Accordingly, we have year to compute the amounts of any
compensation’’ and the mechanics of commissions or bonuses that are due,
applying the highly compensated test. deleted this requirement from the final
rule. However, we have not adopted such as those based on total sales or
First, a number of commenters are profits. Thus, for example, the Mortgage
concerned that the requirement that an comments suggesting that discretionary
bonuses should be included in ‘‘total Bankers Association, the Consumer
employee must be ‘‘guaranteed’’ the total Bankers Association and the Consumer
annual compensation amount would be annual compensation’’ because there is
not enough information in the record on Mortgage Coalition suggest that
interpreted as creating an employment employers be allowed one month to
contract for an employee who otherwise the frequency, size and types of such
payments. The Department also does make the catch-up payment. The
would be an at-will employee. Because Department recognizes that an employer
the Department did not intend this not agree with comments that the costs
of employee benefits, such as payments may need some time after the close of
result, we have deleted the word the year to make calculations and
‘‘guaranteed.’’ for medical insurance and matching
401(k) pension plan payments, should determine the amount of any catch-up
Second, several commenters, payment that is due. Accordingly, we
including the Morgan, Lewis & Bockius be included in computing total annual
compensation. The inclusion of such have clarified that such a payment may
law firm, the Securities Industry be made during the last pay period of
Association and the HR Policy costs in the calculations for testing
highly compensated employees would the year or within one month after the
Association, suggest that employers close of the year. The final rule also
should be permitted to prorate the total make the test administratively
unwieldy. provides that a similar, but prorated,
annual compensation amount if an catch-up payment may be made within
Fourth, final subsection 541.601(b)(1)
employee uses leave without pay, such one month after termination of
contains a new safeguard against
as under the Family and Medical Leave employment for employees whose
possible abuses that are of concern to
Act. The Department does not believe employment ends before the end of the
some commenters, including the AFL–
that such deductions are appropriate. 52-week period. Finally, the final rule
CIO: the ‘‘total annual compensation’’
The test for highly compensated clarifies that any such payments made
must include at least $455 per week
employees is intended to provide an after the end of the year may only be
paid on a salary or fee basis. This
alternative, simplified method of testing counted once, toward the ‘‘total annual
change will ensure that highly
17 In addition, the final compensation level of
compensated employees will receive at compensation’’ for the preceding year.
$100,000 for highly compensated employees is least the same base salary throughout To ensure appropriate evidence is
almost twice the highest salary level that the AFL– the year as required for exempt maintained of such catch-up payments,
CIO advocates as necessary to update the salary employees under the standard tests, employers may want to document and
level associated with the existing ‘‘short’’ duties while still allowing highly compensated advise the employee of the purpose of
tests. The AFL–CIO did not suggest an alternative
salary level for section 541.601, likely because of its
employees to receive additional income the payment, although this is not a
strong objections to this section as a whole. in the form of commissions and requirement of the final rule.
However, the AFL–CIO suggests that the salary nondiscretionary bonuses. As explained Finally, some commenters suggest
level associated with the existing ‘‘short’’ duties test below, the salary basis requirement is a applying the highly compensated test to
should be increased either to $855 per week
($44,460 annually) if based on inflation or to $980
valuable and easily applied criterion outside sales and computer employees.
per week ($50,960 annually) if based on the Kantor that is a hallmark of exempt status. Outside sales employees have never
Report. Accordingly, the Department has been subject to a salary level or a salary
basis test as a requirement for subsection (b) also added a new that is captured by a salary test. Id. Also,
exemption, and the Department did not exception to the salary basis rule for because ‘‘executive’’ employees are
propose to add these requirements. deductions for ‘‘unpaid disciplinary denied the protection of the Act, ‘‘[i]t
Since outside sales employees are not suspensions of a full day or more must be assumed that they enjoy
subject to the standard salary level test, imposed in good faith for infractions of compensatory privileges,’’ including a
it would not be appropriate to apply the workplace conduct rules,’’ such as rules salary ‘‘substantially higher’’ than the
highly compensated test to these prohibiting sexual harassment or minimum wages guaranteed under the
employees. We have not applied the workplace violence. Such suspensions Act. Id. The 1940 Stein Report
highly compensated test to computer must be imposed ‘‘pursuant to a written recommended a salary test for
employees because, as explained under policy applied uniformly to all executives that would be satisfied if the
subpart E, Congress has already created workers.’’ ‘‘employee is guaranteed a net
special compensation provisions for this The Department’s final rule retains compensation of not less than $30 a
industry in section 13(a)(17) of the Act. both the requirement that an exempt week ‘free and clear.’ ’’ Id. at 23
employee must be paid on a ‘‘salary (emphasis added). The Report
Section 541.602 Salary Basis basis’’ and the exceptions to this rule concluded that the inclusion of a salary
In its proposal, the Department specified in the proposal, with only a test was vital in defining administrative
retained the requirement that, to qualify few minor modifications. We have and professional employees as well. Id.
for the executive, administrative or changed the phrase ‘‘a full day or more’’ at 26 (‘‘[A] salary criterion constitutes
professional exemption, an employee to read ‘‘one or more full days’’ the best and most easily applied test of
must be paid on a ‘‘salary basis.’’ throughout section 541.602 to clarify the employer’s good faith in claiming
Proposed section 541.602(a) set forth the that certain deductions can only be that the person whose exemption is
general rules for determining whether made for full day increments. In desired is actually of such importance to
an employee is paid on a salary basis, addition, the final rule modifies the text the firm that he is properly describable
which were retained virtually of the new disciplinary deduction as an employee employed in a bona fide
unchanged from the existing regulation. exception to indicate more clearly that administrative capacity’’); id. at 36 ([I]n
Under this subsection (a), an employee the disciplinary policy must be order to avoid disputes, to assist in the
must regularly receive a ‘‘predetermined applicable to all employees. effective enforcement of the act and to
amount’’ of salary, on a weekly or less A number of commenters, such as the prevent abuse, it appears essential
frequent basis, that is ‘‘not subject to Fisher & Phillips law firm, the National * * * to include a salary test in the
reduction because of variations in the Association of Convenience Stores and definition [of professional]’’).
quality or quantity of the work the American Bakers Association, urge Based on the 1940 Stein Report’s
performed.’’ With a few identified the Department to abandon the salary recommendation, the Department
exceptions, the employee ‘‘must receive basis test entirely, arguing that this promulgated regulations providing that
the full salary for any week in which the requirement serves as a barrier to the an exempt executive must be
employee performs any work without appropriate classification of exempt ‘‘compensated for his services on a
regard to the number of days or hours employees. These comments note that salary basis at not less than $30 per
worked.’’ Subsection (a) also provides the explanation in the proposal that week.’’ 29 CFR 541(e) (1940 Supp.). The
that an ‘‘employee is not paid on a salary payment on a salary basis is the quid regulations required that exempt
basis if deductions from the employee’s pro quo for an exempt employee not administrative and professional
predetermined compensation are made receiving overtime pay reflects an employees (except physicians and
for absences occasioned by the inappropriate regulation of the attorneys) must be paid ‘‘on a salary or
employer or by the operating compensation of an otherwise exempt fee basis at a rate of not less than $200
requirements of the business. If the employee. per month.’’ 29 CFR 541.2(a)
employee is ready, willing and able to In contrast, commenters such as the (administrative), 541.3(b) (professional)
work, deductions may not be made for AFL–CIO and the Goldstein, Demchak, (emphasis added).
time when work is not available.’’ Baller, Borgen & Dardarian law firm In 1944, the Wage and Hour Division
Exempt employees, however, ‘‘need not view the salary basis requirement as a issued Release No. A–9, which
be paid for any workweek in which they hallmark of exempt status. In fact, many addressed the meaning of ‘‘salary basis.’’
perform no work.’’ commenters such as the New York State The Release stated that an employee
Proposed subsection (b) included Public Employees Federation, the will be considered to be paid on a salary
several exceptions to the salary basis National Employment Lawyers basis if ‘‘under his employment
rules that are in the existing regulations. Association, and the National agreement he regularly receives each
An employer may make deductions Employment Law Project, request that pay period, on a weekly, biweekly,
from the guaranteed pay: when the the salary basis test be tightened. semi-monthly, monthly or annual basis,
employee is ‘‘absent from work for a full After considering the salary basis test a predetermined amount constituting all
day for personal reasons, other than in light of its historical context and or part of his compensation, which
sickness or disability’’; for absences of a judicial acceptance, the Department has amount is not subject to reduction
full day or more due to sickness or decided that it should be retained. As because of variations in the number of
disability, if taken in accordance with a early as 1940, the Department noted that hours worked or in the quantity or
bona fide plan, policy or practice there was ‘‘surprisingly wide quality of the work performed during
providing wage replacement benefits; agreement’’ among employers and the pay period.’’ Release No. A–9 (Aug.
for any hours not worked in the initial employees ‘‘that a salary qualification in 24, 1944), reprinted in Wage & Hour
and final weeks of employment; for the definition of the term ‘executive’ is Manual (BNA) 719 (cum. ed. 1944–
hours taken as unpaid FMLA leave; as a valuable and easily applied index to 1945). The Release further explained
offsets for amounts received by an the ‘bona fide’ character of the that because ‘‘bona fide executive,
employee for jury or witness fees or employment. * * * ’’ 1940 Stein Report administrative, and professional
military pay; or for penalties imposed in at 19. The basis of that agreement was employees are normally allowed some
good faith for ‘‘infractions of safety rules that ‘‘[t]he term ‘executive’ implies a latitude with respect to the time spent
of major significance.’’ The proposed certain prestige, status, and importance’’ at work,’’ such employees should
generally be free to go home early or understanding that employees with the permit employers to hold exempt
occasionally take a day off without requisite status to be bona fide employees to the same standards of
reduction in pay. Id. executives, administrators or conduct as that required of their
After hearings conducted in 1947, the professionals have discretion to manage nonexempt workforce. At the same time,
Wage and Hour Division recommended their time. Such employees are not paid as one commenter notes, it will avoid
retention of the salary basis test in the by the hour or task, but for the general harsh treatment of exempt employees—
1949 Weiss Report, stating: value of services performed. See Kinney in the form of a full-week suspension—
The evidence at the hearing showed clearly v. District of Columbia, 994 F.2d 6, 11 when a shorter suspension would be
that bona fide executive, administrative, and (D.C. Cir. 1993); Brock v. Claridge Hotel appropriate. It also takes into account,
professional employees are almost & Casino, 846 F.2d 180, 184 (3d Cir.), as the comments of Representative
universally paid on a salary or fee basis. cert. denied, 488 U.S. 925 (1988). There Norwood, Representative Ballenger and
Compensation on a salary basis appears to is nothing in this rulemaking record that the American Bakers Association
have been almost universally recognized as contradicts the Department’s long- recognize, that a growing number of
the only method of payment consistent with standing view. The comments accusing
the status implied by the term ‘‘bona fide’’ laws governing the workplace have
executive. Similarly, payment on a salary (or the Department of improperly regulating placed increased responsibility and risk
fee) basis is one of the recognized attributes the wages of exempt employees miss the of liability on employers for their
of administrative and professional mark. The quid pro quo referenced in exempt employees’ conduct. See
employment. the proposal was simply a way to Burlington Industries, Inc. v. Ellerth,
1949 Weiss Report at 24. Based on the explain that payment on a salary basis 524 U.S. 742 (1998); Faragher v. City of
Weiss Report recommendations, the reflects an employee’s discretion to Boca Raton, 524 U.S. 775 (1998)
Department issued revised Part 541 manage his or her time and to receive (liability for sexual harassment by
regulations in 1949 that retained the compensatory privileges commensurate supervisory employees may be imputed
salary basis test. 29 CFR 541.1(f), with exempt status. to the employer where employer fails to
Many commenters, including the take prompt and effective remedial
541.2(e), 541.3(e) (1949 Supp.). Shortly
FLSA Reform Coalition, the Fisher & action). At the same time, the
thereafter, the Department published the
Phillips law firm, the U.S. Chamber of Department does not intend that the
first version of 29 CFR 541.118 (1949
Commerce, the HR Policy Association term ‘‘workplace conduct’’ be construed
Supp.) in a new Subpart B, entitled
and the Oklahoma Office of Personnel expansively. As the term indicates, it
‘‘Interpretations.’’ Section 541.118(a) Management, support the proposed new
provided as follows: refers to conduct, not performance or
exception to the salary basis rule for attendance, issues. Moreover, consistent
An employee will be considered to be paid ‘‘unpaid disciplinary suspensions of a
on a salary basis within the meaning of the with the examples included in the
full day or more imposed in good faith regulatory provision, it refers to serious
regulations in Subpart A of this part, if under for infractions of workplace conduct
his employment agreement he regularly workplace misconduct like sexual
rules.’’ These commenters note that this harassment, violence, drug or alcohol
receives each pay period on a weekly, or less
frequent basis, a predetermined amount additional exception will permit violations, or violations of state or
constituting all or part of his compensation, employers to apply the same progressive federal laws. Although we believe that
which amount is not subject to reduction disciplinary rules to both exempt and this additional exception to the general
because of variations in the number of hours nonexempt employees, and is needed in no-deduction rule is warranted (as was
worked in the workweek or in the quality or light of federal and state laws requiring the exception added in 1954 for
quantity of the work performed. The employers to take appropriate remedial
employee must receive his full salary for any infractions of safety rules of major
action to address employee misconduct.
week in which he performs any work without significance), it should be construed
A number of commenters ask the
regard to the number of days or hours narrowly so as not to undermine the
Department to construe the term
worked. essential guarantees of the salary basis
‘‘workplace misconduct’’ more broadly
In 1954, the Administrator issued a test. See Mueller v. Reich, 54 F.3d 438
to include off-site, off-duty conduct. The
revised section 541.118(a) that retained (7th Cir. 1995). However, the fact that
National Association of Manufacturers
the salary basis test, but added a number the employee misconduct occurred off
suggests that the term should be
of exceptions to the rule. In 1958, the the employer’s property should not
clarified, at a minimum, to refer to the
Wage and Hour Division again preclude an employer from imposing a
standards of conduct imposed by state
conducted hearings for the purpose of and federal anti-discrimination laws. disciplinary suspension, as long as the
determining whether the salary levels In contrast, commenters such as the employer has a bona fide workplace
should be changed. Although the AFL–CIO, the Communications Workers conduct rule that covers such off-site
resulting 1958 Kantor Report related of America, the New York State Public conduct.
primarily to the salary levels, it Employees Federation and the National Commenters such as the FLSA Reform
reiterated that salary is a ‘‘mark of [the] Employment Law Project oppose the Coalition, the Fisher & Phillips law firm
status’’ of an exempt employee, and new exception, arguing that the current and the National Association of Chain
reaffirmed the criterion’s importance as rule properly recognizes that receiving a Drug Stores urge the Department to
an enforcement tool, noting that the salary includes not being subject to delete the proposed requirement that
Department had ‘‘found no satisfactory disciplinary deductions of less than a any pay deductions for workplace
substitute for the salary tests.’’ 1958 week. These commenters argue that conduct violations must be imposed
Kantor Report at 2–3. Since 1954, the employers have other ways to discipline pursuant to a ‘‘written policy applied
salary basis test has remained exempt employees without violating the uniformly to all workers.’’ These
unchanged. salary basis test. commenters question the need for the
The Department thus has determined The final rule includes the exception policy to be in writing, and are
over the course of many years that to the salary basis requirement for concerned that the uniform application
executive, administrative and deductions from pay due to suspensions requirement would breed litigation and
professional employees are nearly for infractions of workplace conduct diminish employer flexibility to take
universally paid on a salary basis. This rules. The Department believes that this individual circumstances into account.
practice reflects the widely-held is a common-sense change that will The American Corporate Counsel
Association notes that it ‘‘would not significance, for leave under the Family computer system, whether the employer
object if the present draft were further and Medical Leave Act, or in the first promptly corrects the errors, and the
modified to condition full-day docking and last weeks of employment. feasibility of correcting the payroll
on the employer either adopting a Third, several commenters, such as system programming to eliminate the
written policy notifying employees of the Morgan, Lewis & Bockius law firm, errors.
the potential for a suspension without suggest an additional exception to the Sixth, a few commenters, such as the
pay as a disciplinary measure or general no-docking rule: payments in National Association of Chain Drug
providing the employee with written the nature of restitution, fines, Stores and the National Council of
notice of a finding of job-related settlements or judgments an employer Chain Restaurants, suggest that
misconduct.’’ The Department has must make based on the misconduct of employers should be able to recover
decided to retain the requirement that an employee. Such an additional leave and salary advances from an
the policy be in writing, on the exception, in our view, would be employee’s final pay. Recovery of salary
assumption that most employers would inappropriate and unwarranted because advances would not affect an
put (or already have) significant conduct it would grant employers unfettered employee’s exempt status, because it is
rules in writing, and to deter misuse of discretion to dock large amounts from not a deduction based on variations in
this exception. This provision is a new the salaries of exempt employees in the quality or quantity of the work
exception to the salary basis test, and questionable circumstances (judgments performed. Recovery of partial-day leave
the Department does not believe against employers because of advances, however, essentially are
restricting this new exception to written discriminatory employment actions deductions for personal absences and
disciplinary policies will lead to taken by an exempt employee, for would constitute an impermissible
changes in current employer practices example). The new disciplinary deduction. Whether recovery for a full-
regarding such policies. However, the deduction exception only allows day leave is permissible depends on
written policy need not include an deductions for unpaid suspensions of whether such a leave is covered by one
exhaustive list of specific violations that one or more days—not fines, settlements of the section 541.602(b) exceptions.
could result in a suspension, or a or judgments which could arguably be Seventh, the New York State Public
definitive declaration of when a blamed on an exempt employee. Employees Federation requests that if
suspension will be imposed. The Fourth, the U.S. Chamber of the Department retains the disciplinary
written policy should be sufficient to Commerce and a few other commenters deduction provision, it should eliminate
put employees on notice that they could request that the Department expand the current pay-docking rule applicable
be subject to an unpaid disciplinary proposed section 541.602 (b)(7) to to public employers. The public
suspension. We have clarified the include employee absences under an accountability rationale for the public
regulatory language to provide that the employer’s family or medical leave employer pay-docking rule (section
written policy must be ‘‘applicable to all policy. Subsection (b)(7) provides an 541.709) continues to be valid, however,
employees,’’ which should not preclude exception from the no-deduction rule and is not affected by the new exception
an employer from making case-by-case for weeks in which an exempt employee for disciplinary suspensions.
disciplinary determinations. Thus, for takes unpaid leave under the Family Finally, a number of commenters,
example, the ‘‘written policy’’ and Medical Leave Act (FMLA). This including the Society for Human
requirement for this exception would be exception was mandated by Congress Resource Management, the National
satisfied by a sexual harassment policy, when it passed the FMLA in 1993. 29 Association of Chain Drug Stores, the
distributed generally to employees, that U.S.C. 2612(c) (‘‘Where an employee is National Council of Chain Restaurants
warns employees that violations of the otherwise exempt under regulations and the National Retail Federation, ask
policy will result in disciplinary action issued by the Secretary pursuant to the Department to confirm that certain
up to and including suspension or section 13(a)(1) of the Fair Labor payroll and record keeping practices
termination. Standards Act of 1938, * * * the continue to be permissible under the
Commenters raise a number of other compliance of an employer with this new rules. We agree that employers,
issues related to deductions from salary. title by providing unpaid leave shall not without affecting their employees’
First, in response to comments from the affect the exempt status of the exempt status, may take deductions
National Association of Convenience employee. * * * ’’). There is no basis to from accrued leave accounts; may
Stores and the Fisher & Phillips law enlarge the statutory exception. We also require exempt employees to record and
firm, we have changed the phrase ‘‘of a would note that deductions may be track hours; may require exempt
full day or more’’ to ‘‘one or more full made for absences of one or more full employees to work a specified schedule;
days’’ in sections 541.602(b)(1), (2) and days occasioned by sickness under and may implement across-the-board
(5), to clarify that a deduction of one section 541.602(b)(2). changes in schedule under certain
and one-half days, for example, is Fifth, several commenters, including circumstances. See, e.g., Webster v.
impermissible. the National Association of Public School Employees of
Second, commenters, such as the Manufacturers and the American Washington, Inc., 247 F.3d 910 (9th Cir.
National Association of Chain Drug Corporate Counsel Association, urge the 2001) (accrued leave accounts); Douglas
Stores, the U.S. Chamber of Commerce, Department expressly to recognize that v. Argo-Tech Corp., 113 F.3d 67 (6th
the HR Policy Association and the compensation shortages resulting from Cir. 1997) (record and track hours);
National Retail Federation, suggest that payroll system errors may not constitute Aaron v. City of Wichita, Kansas, 54
partial day deductions be permitted for impermissible ‘‘dockings.’’ We do not F.3d 652 (10th Cir.) (accrued leave
any leave requested by an employee, believe it is appropriate to provide such accounts, record and track hours), cert.
including for sickness or rehabilitation, a general rule in the context of this denied, 516 U.S. 965 (1995); Graziano v.
or for disciplinary suspensions. We rulemaking. Whether payroll system The Society of the New York Hospital,
believe that partial day deductions errors constitute impermissible 1997 WL 639026 (S.D.N.Y. 1997)
generally are inconsistent with the ‘‘dockings’’ depends on the facts of the (accrued leave accounts); Wage and
salary basis requirement, and should particular case, including the frequency Hour Opinion Letter of 2/23/98, 1998
continue to be permitted only for of the errors, whether the errors are WL 852696 (across-the-board changes in
infractions of safety rules of major caused by employee data entry or the schedule); Wage and Hour Opinion
Letter of 4/15/95 (accrued leave The final rule makes a number of Reform Coalition, the National
accounts); Wage and Hour Opinion substantive changes to the proposed Association of Manufacturers, the U.S.
Letter of 3/30/94, 1994 WL 1004763 section 541.603. We have modified the Chamber of Commerce and the AFL–
(accrued leave accounts); and Wage and first two sentences of subsection (a) to CIO, express concern that the phrase
Hour Opinion Letter of 4/14/92, 1992 better clarify that the effect of improper ‘‘pattern and practice of not paying
WL 845095 (accrued leave accounts). deductions depends upon whether the employees on a salary basis’’ in
Section 541.603 Effect of Improper facts demonstrate that the employer proposed subsection 541.603(a) was
Deductions From Salary intended to pay employees on a salary ambiguous and would engender
basis, and to substitute the phrase litigation and perhaps result in
Proposed section 541.603 discussed ‘‘actual practice’’ of making improper unintended consequences. The final
the effect of improper deductions from deductions for the ‘‘pattern and rule clarifies that the central inquiry to
salary and established a new ‘‘safe practice’’ language in proposed determine whether an employer who
harbor’’ rule. Subsection (a) of the subsection (a). The final subsection (a) makes improper deductions will lose
proposal set forth the general rule that: makes four changes in the factors to the exemption is whether ‘‘the facts
‘‘An employer who makes improper consider when determining whether an demonstrate that the employer did not
deductions from salary shall lose the employer has an actual practice of intend to pay employees on a salary
exemption if the facts demonstrate that making improper deductions: (1) basis.’’ The final subsection (a) replaces
the employer has a pattern and practice Adding consideration of ‘‘the number of the proposed ‘‘pattern and practice’’
of not paying employees on a salary employee infractions warranting language with the phrase ‘‘actual
basis. A pattern and practice of making discipline’’ as compared to the number practice,’’ and also states that an ‘‘actual
improper deductions demonstrates that of deductions made; (2) modifying the practice of making improper deductions
the employer did not intend to pay written policy factor to state, ‘‘whether demonstrates that the employer did not
employees in the job classification on a the employer has a clearly intend to pay employees on a salary
salary basis.’’ Factors for determining communicated policy permitting or basis.’’ The phrase ‘‘pattern and
whether an employer had such a prohibiting improper deductions’’ (3) practice’’ is a legal term of art in other
‘‘pattern and practice’’ listed in this deleting the ‘‘size of employer’’ factor; employment law contexts which we had
subsection included: The ‘‘number of and (4) deleting the ‘‘whether the no intent to incorporate into these
improper deductions; the time period employer corrected the improper regulations. These changes should
during which the employer made deductions’’ factor. The final rule moves provide better guidance to the regulated
improper deductions; the number and
the language regarding isolated or community.
geographic location of employees whose
inadvertent improper deductions to Most commenters support the listed
salary was improperly reduced; the
subsection (c), and inserts language, factors in subsection (a) for determining
number and geographic location of
developed from the existing regulations, when an employer has an actual
managers responsible for taking the
requiring an employer to reimburse practice of making improper
improper deductions; the size of the
employees for isolated or inadvertent deductions. Responding to comments
employer; whether the employer has a
improper deductions. The ‘‘safe harbor’’ submitted by the Fisher & Phillips law
written policy prohibiting improper
provision, found in final section firm and the National Association of
deductions; and whether the employer
541.603(d), substitutes ‘‘clearly Convenience Stores, the final rule states
corrected the improper pay
deductions.’’ Proposed subsection (a) communicated policy’’ for the proposed that the number of improper deductions
also provided that ‘‘isolated or ‘‘written policy’’; adds that the policy should be considered ‘‘particularly as
inadvertent’’ deductions would not must include a complaint mechanism; compared to the number of employee
result in loss of the exemption. deletes the term ‘‘repeatedly’’; clarifies infractions warranting discipline.’’ The
Proposed section 541.603(b) further that the safe harbor is not available if Second Circuit in Yourman v. Giuliani,
provided: ‘‘If the facts demonstrate that the employer ‘‘willfully violates the 229 F.3d 124, 130 (2nd Cir. 2000), cert.
the employer has a policy of not paying policy by continuing to make improper denied, 532 U.S. 923 (2001), provided
on a salary basis, the exemption is lost deductions after receiving employee the following useful comparison: an
during the time period in which complaints’’; and clarifies that if an employer that regularly docks the pay of
improper deductions were made for employer fails to reimburse employees managers who come to work five hours
employees in the same job classification for any improper deductions or late has more of an ‘‘actual practice’’ of
working for the same managers continues to make improper deductions improper deduction than does an
responsible for the improper after receiving employee complaints, the employer that only sporadically docks
deductions. Employees in different job exemption is lost during the time period the pay of managers who come to work
classifications who work for different in which the improper deductions were five minutes late, even though the
managers do not lose their status as made for employees in the same job penalties imposed by this second
exempt employees.’’ Finally, proposed classification working for the same employer could far outnumber the
section 541.603(c) included a new ‘‘safe manager responsible for the actual penalties imposed by the first. Thus, it
harbor’’ provision: ‘‘If an employer has improper deductions. is the ratio of deductions to infractions
a written policy prohibiting improper Proposed subsection 541.603(a) that is most informative, rather than
pay deductions as provided in contained the general rule regarding the simply the number of deductions,
§ 541.602, notifies employees of that effect of improper deductions from because the total number of deductions
policy and reimburses employees for salary on the exempt status of is significantly influenced by the size of
any improper deductions, such employees: ‘‘An employer who makes the employer. In light of this change, we
employer would not lose the exemption improper deductions from salary shall have also deleted the size of the
for any employees unless the employer lose the exemption if the facts employer as a relevant factor in final
repeatedly and willfully violates that demonstrate that the employer has a subsection (a), as we did not intend that
policy or continues to make improper pattern and practice of not paying this section be applied differently
deductions after receiving employee employees on a salary basis.’’ Many depending on the size of the employer,
complaints.’’ commenters, including the FLSA and have deleted ‘‘whether the employer
has corrected the improper pay In contrast, commenters such as the erroneous or inconsistent with the
deductions’’ as a relevant factor in AFL–CIO, the McInroy & Rigby law regulation.’’
determining whether an employer has firm, the National Employment Law * * * * *
an actual practice of improper pay Project, the Goldstein, Demchak, Baller, Petitioners complain that the Secretary’s
deductions. We have modified the Borgen & Dardarian law firm and the interpretation comes to us in the form of a
written policy factor to state: ‘‘Whether National Employment Lawyers legal brief; but that does not, in the
circumstances of this case, make it unworthy
the employer has a clearly Association urge the Department to of deference.
communicated policy permitting or modify the proposed provision to state
prohibiting improper deductions’’ that employees will lose their exempt Id. at 461–62 (citations omitted). Thus,
because, as discussed below under status if they are subject to an in Auer, the Supreme Court relied on
subsection 541.603(d), the U.S. Small employment policy permitting arguments made in the Department’s
Business Administration Office of impermissible deductions, even absent amicus brief interpreting ambiguous
Advocacy and other commenters state any actual deductions. These comments regulations existing at the time of the
that the written policy factor may be note that the Supreme Court in Auer decision. The ‘‘significant likelihood’’
prejudicial to small businesses. deferred to the Department’s view, as test is not found in the FLSA itself or
expressed in its legal briefs to the Court, anywhere in the existing Part 541
Final subsection 541.603(b), as in the regulations. Moreover, nothing in Auer
proposal, addresses which employees that employees should lose their exempt
status if there is either an actual practice prohibits the Department from making
will lose the exemption, and for what changes to the salary basis regulations
time period, if an employer has an of making impermissible deductions or
an employment policy that creates a after appropriate notice and comment
actual practice of making improper rulemaking. See Keys v. Barnhart, 347
deductions. The proposal provided that significant likelihood of such
deductions. F.3d 990, 993 (7th Cir. 2003).
the exemption would be lost ‘‘during the We are concerned with those
time period in which improper After giving this complex issue employees who actually suffer harm as
deductions were made for employees in careful consideration, the Department a result of salary basis violations and
the same job classification working for has decided to retain in final subsection want to ensure that those employees
the same managers responsible for the 541.603(b) the proposed approach that receive sufficient back pay awards and
improper deductions.’’ The comments an employer who has an actual practice other appropriate relief. We disagree,
express strongly contrasting views on of making improper deductions will however, with those comments arguing
whether proposed section 541.603(b) lose the exemption during the time that only employees who suffered an
should be retained or modified either to period in which the improper actual deduction should lose their
mitigate the impact on employers or to deductions were made for employees in exempt status. An exempt employee
expand the circumstances in which the same job classification working for who has not suffered an actual
employees would lose their exempt the same managers responsible for the deduction nonetheless may be harmed
status. Commenters such as the Federal actual improper deductions. The final by an employer docking the pay of a
Wage Hour Consultants, the Society for regulation also retains the language that similarly situated co-worker. An exempt
Human Resource Management and the employees in different job employee in the same job classification
National Association of Chain Drug classifications or who work for different working for the same manager
Stores support the proposal as resolving managers do not lose their status as responsible for making improper
many of the misunderstandings that exempt employees. Any other approach, deductions, for example, may choose
exist under the existing regulations and on the one hand, would provide a not to leave work early for a parent-
current case law. Other commenters, windfall to employees who have not teacher conference for fear that her pay
however, including the FLSA Reform even arguably been harmed by a will be reduced, and thus is also
Coalition, the U.S. Chamber of ‘‘policy’’ that a manager has never suffering harm as a result of the
Commerce, the National Council of applied and may never intend to apply, manager’s improper practices. Because
Chain Restaurants, the National Retail but on the other hand, would fail to exempt employees in the same job
Federation, the HR Policy Association, recognize that some employees may classification working for the same
and the County of Culpeper, Virginia, reasonably believe that they would be managers responsible for the actual
suggest that improper deductions subject to the same types of improper deductions may reasonably
should affect only the exempt status of impermissible deductions made from believe that their salary will also be
the individual employees actually the pay of similarly situated employees. docked, such employees have also
subjected to the impermissible pay The final rule represents a departure suffered harm and therefore should also
deductions. These commenters argue from the Department’s position in Auer lose their exempt status. The
that the possibility that employees who v. Robbins, 519 U.S. 452 (1997). In Auer, Department’s construction best furthers
have never experienced a salary the Supreme Court, deferring to the purposes of the section 13(a)(1)
reduction could also lose their exempt arguments made in an amicus brief filed exemptions because it realistically
status was first raised by the decision in by the Department, found that the assesses whether an employer intends to
Abshire v. County of Kern, California, existing salary basis test operated to pay employees on a salary basis. For the
908 F.2d 483 (9th Cir. 1990), cert. deny exempt status when ‘‘there is same reasons, final subsection (a)
denied, 498 U.S. 1068 (1991), and has either an actual practice of making such provides that ‘‘whether the employer has
led to extensive litigation thereafter. The deductions or an employment policy a clearly communicated policy
HR Policy Association states that the that creates a ‘significant likelihood’ of permitting or prohibiting improper
Supreme Court in Auer v. Robbins, 519 such deductions.’’ Id. at 461. In deductions’’ is one factor to consider
U.S. 452 (1997), ‘‘did not rectify the deferring to the Department, the when determining whether the
central flaw in the current Supreme Court stated: employer has an actual practice of not
interpretation: that a few deductions Because the salary-basis test is a creature paying employees on a salary basis.
made against a couple of employees of the Secretary’s own regulations, his A number of commenters, such as the
arguably converts whole classes of interpretation of it is, under our FLSA Reform Coalition, the U.S.
employees to nonexempt.’’ jurisprudence, controlling unless ‘‘plainly Chamber of Commerce and the National
Employment Lawyers Association, ask remedy improper deductions and avoid believes that the new ‘‘safe harbor’’ is
the Department to clarify how section further liability.’’ We agree with the best approach going forward.
541.603(b) would apply if deductions commenters who state that employees However, we recognize that some cases,
result from a corporate-wide policy or whose salary has been improperly based on events arising before the
the advice a manager receives from the docked should be reimbursed, even if effective date of these revisions, will be
human resources department. We the improper deductions were isolated governed by the prior version of the
believe that final section 541.603 calls or inadvertent. Thus, final subsection (c) ‘‘window of correction.’’ This final rule
for a case-by-case factual inquiry. Thus, provides: ‘‘Improper deductions that are is not intended to govern those cases in
for example, under final subsection either isolated or inadvertent will not any way, or to express a view regarding
541.603(a), a corporate-wide policy result in loss of the exemption for any the correct interpretation of the prior
permitting improper deductions is some employees subject to such improper version of the ‘‘window of correction.’’
evidence that an employer has an actual deductions, if the employer reimburses Instead, we intend only to adopt a
practice of not paying employees on a the employees for such improper different approach going forward for the
salary basis, but not sufficient evidence deductions.’’ The Department continues reasons stated herein.
by itself to cause the exemption to be to adhere to current law that Many commenters, including the
lost if a manager has never used that reimbursement does not have to be National Association of Manufacturers,
policy to make any actual deductions made immediately upon the discovery the Society for Human Resource
from the pay of other employees. that an improper deduction was made. Management, the Federal Wage Hour
Moreover, in such a circumstance, the See, e.g., Moore v. Hannon Food Consultants, the American Health Care
existence of a clearly communicated Service, Inc., 317 F.3d 489, 498 (5th Association and the American Bakers
policy prohibiting such improper Cir.), cert. denied, 124 S. Ct. 76 (2003) Association, generally support the
deductions would weigh against the (reimbursement made five days before proposed safe harbor provision, moved
conclusion that an actual practice exists. trial held sufficient because to subsection (d) in the final rule. These
Final subsection (c) contains language reimbursement ‘‘may be made at any commenters state that the proposal was
taken from proposed subsection time’’). an ‘‘excellent common sense approach’’
541.603(a) and the existing ‘‘window of The existing ‘‘window of correction’’ that promoted proactive steps by
correction’’ in current subsection is not a model of clarity. It has been employers to protect employees without
541.118(a)(6) regarding the effect of difficult for the Department to risking liability and resolved a conflict
‘‘isolated’’ or ‘‘inadvertent’’ improper administer, been the source of in the case law. Other commenters,
deductions. Some commenters request considerable litigation, and produced however, while supporting the goal of
additional clarification regarding the divergent interpretations in the courts of the proposed safe harbor, believe it to be
meaning of these terms. Inadvertent appeals. Most notably, federal courts confusing and suggest modifications.
deductions are those taken have reached different conclusions The American Corporate Counsel
unintentionally, for example, as a result regarding the interpretation and Association, for example, notes that the
of a clerical or time-keeping error. See, application of existing section interplay between sections 541.603(a),
e.g., Jones v. Northwest Telemarketing, 541.118(a)(6), ‘‘or is made for reasons (b) and (c) ‘‘is not immediately obvious
Inc., 2000 WL 568352, at *3 (D. Or. other than lack of work.’’ Compare to trained professionals responsible for
2000); Reeves v. Alliant Techsystems, Moore v. Hannon Food Service, Inc., securing compliance.’’ The U.S.
Inc., 77 F. Supp. 2d 242, 251 (D.R.I. 317 F.3d 489 (5th Cir.), cert. denied, 124 Chamber of Commerce (Chamber)
1999). See also Furlong v. Johnson S. Ct. 76 (2003), with Takacs v. Hahn comments that the phrase ‘‘repeatedly
Controls World Services, Inc., 97 F. Automotive Corp., 246 F.3d 776 (6th and willfully’’ in the proposed
Supp. 2d 1312, 1317 (S.D. Fla. 2000) Cir.), cert. denied, 534 U.S. 889 (2001), provision was vague, and the Chamber
(partial day deductions, made pursuant Whetsel v. Network Property Services, supports the construction of the
to the employer’s mistaken belief that L.L.C., 246 F.3d 897 (7th Cir. 2001), ‘‘window of correction’’ in Moore v.
the employee’s absences were covered Yourman v. Giuliani, 229 F.3d 124 (2nd Hannon Food Service, Inc., 317 F.3d
by the Family and Medical Leave Act’s Cir. 2000), cert. denied, 532 U.S. 923 489 (5th Cir.), cert. denied, 124 S. Ct. 76
statutory exemption to the salary basis (2001), and Klem v. County of Santa (2003). The Chamber also argues that
test due to the employee’s Clara, 208 F.3d 1085 (9th Cir. 2000). the proposal only provides an incentive
representations and actions, are There is no need to resolve the for employers to adopt policies
considered inadvertent). Whether conflict between these cases for prohibiting improper deductions, but
deductions are ‘‘isolated’’ is determined purposes of the final rule because of the not to take corrective action; believes
by reference to the factors set forth in changes made in this subsection (c) and that the requirement for a written policy
final subsection 541.603(a). Other the new safe harbor provision in final was impractical; and suggests
commenters object to the proposed subsection (d). Under final subsection eliminating the provision denying use of
‘‘isolated or inadvertent’’ language (c), isolated and inadvertent improper the safe harbor to employers that make
because the proposal did not require deductions do not result in loss of the improper deductions after receiving
employees to be reimbursed for the exemption if the employer reimburses employee complaints. The U.S. Small
improper deductions that are isolated or the employee for such improper Business Administration Office of
inadvertent. deductions. Further, as discussed Advocacy also objects to the written
The AFL–CIO, for example, states that below, for other actual improper policy requirement as excluding some
the ‘‘underlying purpose of the window deductions, employers can preserve the small businesses. The National
of correction is not simply to ensure that exemption by taking advantage of the Association of Manufacturers objects to
an employer does not lose the FLSA safe harbor provision. The safe harbor the elimination of the phrase ‘‘for
exemption because of inadvertent or provision applies regardless of the reasons other than lack of work’’ in the
isolated incidents of improper pay reason for the improper deduction— existing regulations.
deductions, but rather to provide a whether improper deductions were Commenters such as the AFL–CIO,
means for an employer who has made for lack of work or for reasons the National Employment Lawyers
demonstrated an objective intention to other than lack of work. For the reasons Association, the National Employment
pay its employees on a salary basis to discussed below, the Department Law Project and the Public Justice
Center oppose the proposed safe harbor final subsection 541.603(b), final employee handbook or publishing the
provision, arguing that it eviscerated the subsection (c) also provides that, if an policy on the employer’s Intranet.’’ For
salary basis requirement by permitting employer fails to reimburse employees small businesses, the ‘‘clearly
an employer to avoid overtime liability for any improper deductions or communicated policy’’ could be a
even after making numerous continues to make improper deductions statement to employees that the
impermissible deductions. after receiving employee complaints, employer intends to pay the employees
After careful consideration of the ‘‘the exemption is lost during the time on a salary basis and will not make
comments and case law, the Department period in which the improper deductions from salary that are
continues to believe that the proposed deductions were made for employees in prohibited under the Fair Labor
safe harbor provision is an appropriate the same job classification working for Standards Act; such a statement would
mechanism to encourage employers to the same managers responsible for the also need to include information
adopt and communicate employment actual improper deductions.’’ regarding how the employees could
policies prohibiting improper pay The comments raise several complain about improper deductions,
deductions, while continuing to ensure additional issues. First, as previously such as reporting the improper
that employees whose pay is reduced in noted, some commenters object to the deduction to a manager or to an
violation of the salary basis test are requirement that an employer have a employee responsible for payroll. To
made whole. Thus, the final rule retains written policy in order to utilize the safe further assist small businesses, the
the proposed language with several harbor. The U.S. Small Business Department intends to publish a model
changes. In our view, this provision Administration Office of Advocacy, for safe harbor policy that would comply
achieves the goals, supported by many example, notes that small business with final subsection 541.603(d).
Second, some commenters, such as
comments, of both encouraging representatives express concern that the
the HR Policy Association and the
employers to adopt ‘‘proactive safe harbor’s requirement for a pre
National Employment Lawyers
management practices’’ that existing written policy ‘‘may exclude
Association, support a requirement in
demonstrate the employers’ intent to some small businesses which do not
the subsection (d) safe harbor provision
pay on a salary basis, and correcting produce written compliance materials
that the employer must ‘‘promise to
violative payroll practices. Cf. Kolstad v. in the ordinary course of business.’’ The
comply’’ in the future. Although other
American Dental Ass’n, 527 U.S. 526, U.S. Chamber of Commerce similarly
commenters oppose such a requirement,
545 (1999) (Title VII of the Civil Rights heard concerns from its small business we believe that this promise is inherent
Act is intended to promote prevention members that the requirement for a in adopting the required employment
and remediation). In addition, written policy would be impractical. It policy and the duty to cease making
employees will benefit from this suggests that ‘‘[w]hile employers seek to improper deductions after receiving
additional notification of their rights comply with the law, the safe harbor employee complaints. Thus, the
under the FLSA and the complaint seems geared to those already Department has included as an explicit
procedures. We intend this safe harbor sufficiently versed in the law and is requirement for the safe harbor rule in
provision to apply, for example, where likely to be of little effect to less final subsection (d) that the employer
an employer has a clearly sophisticated employers.’’ Other make a good faith commitment to
communicated policy prohibiting commenters, such as the American comply in the future. There may be
improper deductions, but a manager Health Care Association, the American many ways that an employer could
engages in an actual practice (neither Corporate Counsel Association, and the make and evidence its ‘‘good faith
isolated nor inadvertent) of making National Association of Manufacturers, commitment’’ to comply in the future
improper deductions. In this situation, believe that adopting a written policy is including, but not limited to: adopting
regardless of the reasons for the an essential part of the employer’s or re-publishing to employees its policy
deductions, the exemption would not be responsibility. We intend the safe prohibiting improper pay deductions;
lost for any employees if, after receiving harbor to be available to employers of posting a notice including such a
and investigating an employee all sizes. Thus, although a written commitment on an employee bulletin
complaint, the employer reimburses the policy is the best evidence of the board or employer Intranet; providing
employees for the improper deductions employer’s good faith efforts to comply training to managers and supervisors;
and makes a good faith commitment to with the Part 541 regulations, we have reprimanding or training the manager
comply in the future. We believe it concluded, consistent with an who has taken the improper deduction;
furthers the purposes of the FLSA to employer’s obligation under Farragher or establishing a telephone number for
permit the employer who has a clearly and Ellerth, that a written policy is not employee complaints.
communicated policy prohibiting essential. However, the policy must Third, to avoid confusion that some
improper pay deductions and a have been communicated to employees commenters noted with the ‘‘actual
mechanism for employee complaints, to prior to the actual impermissible practice’’ determination under final
reimburse the affected employees for the deduction. Thus, final subsection (d) subsection (a), we have changed the
impermissible deductions and take good provides that the safe harbor is available phrase ‘‘repeatedly and willfully’’ to
faith measures to prevent improper to employers with a ‘‘clearly ‘‘willfully,’’ and defined ‘‘willfully’’ as
deductions in the future. This is communicated policy’’ prohibiting continuing to make improper
generally consistent with trends in improper pay deductions. To protect deductions after receiving employee
employment law. An employer, for against possible abuses, final subsection complaints. This definition of
example, that has promulgated a policy (d) adds the requirement that the clearly ‘‘willfully’’ is consistent with
against sexual harassment and takes communicated policy must include a McLaughlin v. Richland Shoe, 486 U.S.
corrective action upon receipt of a ‘‘complaint mechanism.’’ Final 128, 133–35 (1988) (‘‘willfulness’’ means
complaint of harassment may avoid subsection (d) also states that the that ‘‘the employer either knew or
liability. See Faragher v. City of Boca ‘‘clearly communicated’’ standard may showed reckless disregard for the matter
Raton, 524 U.S. 775 (1998), and be met, for example, by ‘‘providing a of whether its conduct was prohibited
Burlington Industries, Inc. v. Ellerth, copy of the policy to employees at the by the statute’’). Thus, as stated above,
524 U.S. 742 (1998). Consistent with time of hire, publishing the policy in an an employer with a clearly
communicated policy that prohibits Section 541.604 Minimum Guarantee Department list the range of
improper pay deductions and includes Plus Extras compensation options, such as cash
a complaint mechanism will not lose Under proposed section 541.604, an overtime in any increment,
the exemption for any employee if the exempt employee may receive compensatory time off, and shift or
employer reimburses employees for the additional compensation beyond the holiday differentials, that employers
improper deductions after receiving minimum amount that is paid as a may provide in addition to the
employee complaints and makes a good guaranteed salary. For example, an guaranteed salary without violating the
faith commitment to comply in the employee may receive, in addition to salary basis requirement. NAM gave the
future. This rule applies, moreover, the guaranteed minimum paid on a specific example of an employer who
regardless of the reasons for the salary basis, extra compensation from allows an exempt worker to take a day
improper pay deductions. The safe commissions on sales or a percentage of off as a reward for hours worked on a
harbor is available both for improper the profits. An exempt employee may weekend outside the employee’s normal
deductions made because there is no schedule. The proposed regulation
also receive additional compensation for
work available and for improper provided some examples and stated that
extra hours worked beyond the regular
deductions made for reasons other than additional compensation ‘‘may be paid
workweek, such as half-time pay,
lack of work. If the employer fails to on any basis.’’ We agree that the
straight time pay, or a flat sum.
reimburse the employees for improper examples described above would not
Proposed section 541.604(b) provided
deductions or continues to make violate the salary basis test. However,
that an exempt employee’s salary may
improper deductions after receiving we have not and could not include in
be computed on an hourly, daily or shift
employee complaints, final subsection the regulations every method employers
basis, if the employee is given a
(d) clarifies that ‘‘the exemption is lost might use to provide employees with
guarantee of at least the minimum
during the time period in which the extra compensation for work beyond
weekly required amount paid on a
improper deductions were made for their regular workweek. Thus, we have
employees in the same job classification salary basis regardless of the number of added only one of the examples NAM
working for the same managers hours, days or shifts worked, and ‘‘a suggests regarding compensatory time
responsible for the actual improper reasonable relationship exists between off.
deductions.’’ the guaranteed amount and the amount The National Technical Services
Fourth, the HR Policy Association, the actually earned.’’ The reasonable Association states that it was unclear
U.S. Chamber of Commerce, the relationship requirement is satisfied whether the reasonable relationship
National Association of Chain Drug where the weekly guarantee is ‘‘roughly requirement applies in all cases to
Stores and others ask the Department to equivalent’’ to the employee’s actual employees who receive a salary and
allow employers a reasonable amount of usual earnings. Thus, for example, the additional compensation. We have
time to investigate after receiving an proposal stated that where an employee clarified that this requirement applies
employee complaint to determine is guaranteed at least $500 per week, only when an employee’s actual pay is
whether the deductions were improper, and the employee normally works four computed on an hourly, daily or shift
to take action to halt any improper or five shifts per week and is paid $150 basis. Thus, for example, if an employee
deductions, and to correct any improper per shift, the reasonable relationship receives a guaranteed salary plus a
deductions. We have not changed the requirement is satisfied. commission on each sale or a percentage
text of the regulation in response to this The final rule does not make any of the employer’s profits, the reasonable
suggestion because the Department substantive changes to the proposed relationship requirement does not
views it as self-evident that, before rule, but does make a number of apply. Such an employee’s pay will
reimbursing the employee or taking clarifying changes. The reasonable understandably vary widely from one
other corrective action, an employer relationship requirement incorporates in week to the next, and the employee’s
will need a reasonable amount of time the regulation Wage and Hour’s long- actual compensation is not computed
to investigate an employee’s complaint standing interpretation of the existing based upon the employee’s hours, days
that an improper deduction was made. salary basis regulation, which is set or shifts of work.
The amount of time it will take to forth in the agency’s Field Operations A few commenters, including the
complete the investigation will depend Handbook and in opinion letters. The National Association of Convenience
upon the particular circumstances, but courts also have upheld the reasonable Stores, the Fisher & Phillips law firm
employers should begin such relationship requirement. See, e.g., and the American Council of
investigations promptly. The mere fact Brock v. Claridge Hotel & Casino, 846 Engineering Companies, advocate the
that other employee complaints are F.2d 180, 182–83 (3rd Cir.) (salary basis elimination of the reasonable
received by the employer before timely requirement not met where employees relationship test. They question whether
completion of the investigation should are paid by the hour and the guarantee it was appropriate for the Department to
not, by itself, defeat the safe harbor. is ‘‘nothing more than an illusion’’), cert. require a reasonable relationship
Finally, a number of commenters, denied, 488 U.S. 925 (1988). Some between the guaranteed salary and the
such as the Food Marketing Institute, commenters, although not a significant employee’s actual usual compensation
ask the Department to clarify the number, object to the reasonable when the payments are based on the
burdens of proof. We do not intend to relationship requirement or question the employee’s quantity of work, when the
modify the burdens that courts currently clarity of the regulatory text, while Department does not have such a
apply. See Schaefer v. Indiana Michigan others ask for additional specificity requirement for salaries plus
Power Co., 358 F.3d 394 (6th Cir. 2004) about the various types of additional commissions or other similar
(employer has the burden to show compensation that may be paid above compensation. They state that, so long
employee was paid on a salary basis); and beyond the guaranteed salary. The as the employee also is guaranteed
Yourman v. Giuliani, 229 F.3d 124 (2nd Department has made minor wording compensation of not less than the
Cir. 2000) (employee has the burden to changes in response to the comments to minimum required amount, it ought to
show actual practice of impermissible clarify this provision. be irrelevant how an employee’s pay is
deductions), cert. denied, 532 U.S. 923 The National Association of computed. Moreover, they state that the
(2001). Manufacturers (NAM) suggests that the terms ‘‘reasonable relationship’’ and
‘‘roughly equivalent’’ are uncertain and nurse into an hourly employee not paid Elwell v. University Hospitals Home
will be subject to litigation. Fisher & overtime, or a salaried employee whose Care Services, 276 F.3d 832 (6th Cir.
Phillips also states that the first pay was reduced due to variations in the 2002), held that a compensation plan
sentence of proposed section 541.604(a) quantity of work performed. However, that combines fee payments and hourly
is ambiguous because it suggests that under the final rule, if an employee is pay does not qualify as a fee basis
the extra compensation must somehow compensated on an hourly basis, or on because it ties compensation, at least in
be paid consistent with the salary basis a shift basis, there must be a reasonable part, to the number of hours or days
requirements. The Department does not relationship between the amount worked and not on the accomplishment
agree with the comments suggesting the guaranteed per week and the amount of a given single task. It asks the
elimination of the reasonable the employee typically earns per week. Department to amend the rule to permit
relationship requirement. If it were Thus, if a nurse whose actual combining the payment of a fee with
eliminated, an employer could establish compensation is determined on a shift additional, non-fee-based compensation.
a pay system that calculated exempt or hourly basis usually earns $1,200 per The Department has decided not to
employees’ pay based directly upon the week, the amount guaranteed must be change the long-standing fee basis rule
number of hours they work multiplied roughly equivalent to $1,200; the because the only appellate decision that
by a set hourly rate of pay; employees employer could not guarantee such an addresses this issue accepted the ‘‘fee
could routinely receive weekly pay of employee only the minimum salary only’’ requirement, and Fisher &
$1,500 or more and yet be guaranteed required by the regulation. Phillips conceded that this is an ‘‘arcane
only the minimum required $455 (thus Another commenter states that and rarely-used’’ provision. We
effectively allowing the employer to allowing an exempt employee to be paid continue to believe that payment of a fee
dock the employees for partial day based on an hourly computation is is best understood to preclude payment
absences). Such a pay system would be inconsistent with the general of additional sums based on the number
inconsistent with the salary basis requirement that exempt employees of days or hours worked. Another
concept and the salary guarantee would must be paid on a salary basis. This commenter asks the Department to
be nothing more than an illusion. We comment does not take account of the revise the rule to eliminate the necessity
believe that the proposed regulation fact that the employees affected by the for ‘‘employers to track hours on a
provided clear guidance about the reasonable relationship requirement project or assignment in order to
reasonable relationship requirement. must receive a salary guarantee that determine the exempt status of
The Department has never suggested a applies in any week in which they employees.’’ However, as in the current
particular percentage requirement in perform any work. The tolerance for rule, the final rule reasonably prescribes
prior opinion letters, and this issue has computing their actual pay on an that in determining the adequacy of a
rarely arisen in litigation over the years. hourly, shift or daily basis is for fee payment, reference should be made
The proposed rule clarified these terms computation purposes only; it does not to a standard workweek of 40 hours.
by stating that an employee who is negate the fact that such employees Thus, ‘‘[t]o determine whether the fee
guaranteed compensation of ‘‘at least must receive a salary guarantee that will payment meets the minimum amount of
$500 for any week in which the be in effect any time the employer does salary required for exemption under
employee performs any work, and who not provide sufficient hours or shifts for these regulations, the amount paid to
normally works four or five shifts each them to reach the guarantee. We believe the employee will be tested by
week, may be paid $150 per shift that the reasonable relationship determining the time worked on the job
requirement, which has been a Wage
consistent with the salary basis and whether the fee payment is at a rate
and Hour Division policy for at least 30
requirement.’’ Therefore, we have not that would amount to at least $455 per
years (see FOH § 22b03), ensures that
made any changes to the proposal in week if the employee worked 40 hours.’’
the salary guarantee for such employees
this regard. However, we have modified
is a meaningful guarantee rather than a Section 541.606 Board, Lodging or
the introductory sentence to clarify that
mere illusion. Other Facilities
the extra compensation does not have to
be paid on a salary basis. Section 541.605 Fee Basis Proposed section 541.606 defined the
One commenter states that the Proposed section 541.605 simplified terms, ‘‘board, lodging or other
‘‘minimum guarantee plus extras’’ the fee basis provision in the current facilities.’’ The Department did not
concept allows too much flexibility and rule, but made no substantive change. receive substantive comments on this
essentially allows an employer to Thus, the proposed rule provided that section, and has made no changes in the
circumvent the prohibition against administrative and professional final rule.
docking for absences due to a lack of employees may be paid on a fee basis, Subpart H, Definitions and
work. The commenter gives the example rather than a salary basis: ‘‘An employee Miscellaneous Provisions
of registered nurses whose average pay may be paid on a ‘fee basis’ within the
is $30 per hour, who would earn the meaning of these regulations if the Section 541.700 Primary Duty
guaranteed minimum in two shifts. The employee is paid an agreed sum for a Proposed section 541.700 defined the
commenter believes that the entire single job regardless of the time required term ‘‘primary duty’’ as ‘‘the principal,
balance of the workweek could be for its completion.’’ Generally, a ‘‘fee’’ is main, major or most important duty that
compensated as ‘‘extra compensation.’’ paid for a unique job. ‘‘Payments based the employee performs.’’ The proposed
Thus, the commenter expresses concern on the number of hours or days worked rule stated that a determination of an
that a nurse could be paid for all and not on the accomplishment of a employee’s primary duty ‘‘must be based
additional shifts on a straight time basis, given single task are not considered on all the facts in a particular case,’’ and
with no overtime, and if the hospital payments on a fee basis.’’ set forth four nonexclusive factors to
had a lack of work, the nurse might not The final rule does not make any consider: ‘‘the relative importance of the
receive more than the two shifts changes to the proposed rule. Very few exempt duties as compared with other
required to earn the minimum comments were submitted on this types of duties; the amount of time
guarantee. This commenter views such provision. The Fisher & Phillips law spent performing exempt work; the
a system as effectively converting a firm notes that the Sixth Circuit in employee’s relative freedom from direct
supervision; and the relationship applying the factors listed in subsection Cir. 1999) (‘‘most important’’ duty);
between the employee’s salary and the (a). The first example is modified from Dalheim v. KDFW–TV, 918 F.2d 1220,
wages paid to other employees for the the proposed rule by deleting the 1227 (5th Cir. 1990) (‘‘[T]he essence of
same kind of nonexempt work.’’ The proposed language ‘‘handling customer the test is to determine the employee’s
proposed rule also provided that exempt complaints’’ and substituting the phrase chief or principal duty * * * [T]he
employees are not required to spend ‘‘managing the budget.’’ As explained employee’s primary duty will usually be
over 50 percent of their time performing elsewhere in this preamble, handling what she does that is of principal value
exempt work. However, because the customer complaints may be exempt or to the employer’’); Donovan v. Burger
amount of time spent performing nonexempt work depending on the facts King Corp., 675 F.2d 516, 521 (2nd Cir.
exempt work ‘‘can be a useful guide,’’ of a particular case. Thus, ‘‘managing the 1982) (primary duty defined as the
employees who spend over 50 percent budget’’ is used as a better example of employee’s ‘‘principal responsibilities’’
of their time performing exempt work clearly exempt work. The second, new that are ‘‘most important or critical to
‘‘will be considered to have a primary example states: ‘‘However, if such the success’’ of the employer); Donovan
duty of performing exempt work.’’ The assistant managers are closely v. Burger King Corp., 672 F.2d 221, 226
section contained an example supervised and earn little more than the (1st Cir. 1982) (primary duty defined as
illustrating the circumstances in which nonexempt employees, the assistant the ‘‘principal’’ or ‘‘chief’’ duty, rather
employees spending less than 50 managers generally would not satisfy than ‘‘over one-half’’) (internal quotation
percent of their time performing exempt the primary duty requirement.’’ Finally, marks omitted). Because the Department
work can meet the primary duty test, the sentence in the proposed rule relied on these cases, the existing
and stated that the fact an employer has regarding operating policies or regulations, and dictionary definitions
‘‘well-defined operating policies or procedures has been deleted here to formulate the general definition of
procedures should not by itself defeat because it seems relevant only to the ‘‘primary,’’ the commenters’ concerns
an employee’s exempt status.’’ administrative exemption and is are without merit.
addressed in that subpart of the final The major comments expressing
Section 541.700 of the final rule
regulations. opposition to proposed section 541.700
retains essentially the same principles
Most of the commenters support the view the primary duty definition to be
as the proposed rule, but has been
clarifying changes to the definition of a major departure from a purported
reorganized and supplemented with
‘‘primary duty’’ in section 541.700. For existing ‘‘bright-line’’ test in the current
additional language and a second example, the HR Policy Association, the regulations requiring exempt employees
example to clarify the ‘‘primary duty’’ U.S. Chamber of Commerce, the to spend more than 50 percent of their
concept. Section 541.700(a) now sets National Restaurant Association, and time performing exempt work. The
forth the general principles regarding the National Association of American Federation of Government
the ‘‘primary duty’’ requirement. The Manufacturers welcome clarification of Employees (AFGE), for example, states
basic definition of ‘‘primary duty,’’ as the primary duty concept, particularly that proposed section 541.700 was
the ‘‘principal, main, major or most with respect to the amount of time spent ‘‘essentially, the destruction of the most
important duty that the employee performing exempt work, and found crucial test in the entire FLSA
performs,’’ is unchanged. However, the section 541.700 simpler to apply and exemption area.’’ The AFGE, like other
final rule reinserts language from more reflective of the current commenters objecting to this section,
existing section 541.304 that the words workplace. The National Association of believes that the current primary duty
‘‘primary duty’’ places the ‘‘major Federal Wage Hour Consultants states test ‘‘provides an absolutely essential
emphasis on the character of the that: ‘‘ ‘Primary Duty’ is currently one of ‘bright line’ for exemption analysis:
employee’s job as a whole.’’ The final the most misunderstood sections of the 50% of an employee’s actual job
section 541.700(b) discusses in more regulations. Too often enforcement performance must be engaged in exempt
detail the factor of the amount of time personnel, the business community and activities.’’ Abandonment of this
an employee spends performing exempt its representatives confuse ‘primary’ ‘‘bright-line test,’’ such commenters
work. With only minor changes from the with a ‘mechanical’ percentage test, i.e., assert, will result in increased confusion
proposed rule, subsection (b) states that 50-plus percent.’’ and litigation. The National
the ‘‘amount of time spent performing Some commenters object to the Employment Lawyers Association
exempt work can be a useful guide in definition of ‘‘primary duty’’ in section similarly states: ‘‘If the definition of
determining whether exempt work is 541.700 as the ‘‘principal, main, major ‘primary duty’ is to have meaning as a
the primary duty of an employee. Thus, or most important duty that the limit on the exemptions, it must contain
employees who spend more than 50 employee performs.’’ Commenters such a time component that has more effect
percent of their time performing exempt as the National Employment Lawyers than being one of five enumerated
work will generally satisfy the primary Association, for example, argue that factors to consider.’’
duty requirement.’’ In addition, terms such as ‘‘most important’’ are After careful consideration, the
subsection (b) now includes language vague, expand the primary duty analysis Department must reject these objections.
reinserted from existing section 541.103 ‘‘far beyond its current bounds,’’ and These comments fail to take account of
with some editorial changes that: ‘‘Time would lead to increased litigation. the existing regulations and federal case
alone, however, is not the sole test, and This language is the first time the law. Comments objecting to section
nothing in this section requires that Department has attempted to include a 541.700 are simply wrong in asserting
exempt employees spend more than 50 short, general statement defining the that the current law defines ‘‘primary
percent of their time performing exempt term ‘‘primary’’ in the regulations, but it duty’’ by a bright-line 50 percent test.
work. Employees who do not spend is not a change in current law. The existing section 541.103 has for
more than 50 percent of their time Numerous federal courts, relying decades provided that ‘‘it may be taken
performing exempt duties may primarily on dictionary definitions, as a good rule of thumb that primary
nonetheless meet the primary duty have defined the term ‘‘primary’’ to duty means the major part, or over 50
requirement if the other factors support mean ‘‘most important,’’ ‘‘principal’’ or percent, of the employee’s time’’ but
such a conclusion.’’ The final section ‘‘chief.’’ See, e.g., Mellas v. City of that ‘‘[t]ime alone, however, is not the
541.700(c) contains two examples Puyallup, 1999 WL 841240, at *2 (9th sole test.’’ Thus, section 22c02 of the
Wage and Hour Field Operations test, while employees spending less that the term is properly considered in
Handbook states that ‘‘the 50% test is than 50 percent do not necessarily fail the singular.
not a hard-and-fast rule but rather a the test. The current law is actually
flexible rule of thumb. In many cases, an But what the commenters call an somewhere in the middle of these two
exempt employee may spend less than ‘‘Alice in Wonderland’’ double standard viewpoints. Although ‘‘primary duty’’ is
50% of his time in managerial duties actually appears in the current Part 541 generally singular, an employee’s
but still have management as his regulations. For decades, current section primary duty can encompass multiple
primary duty.’’ Federal courts also 541.103 has created a presumption of tasks. Thus, for example, an employee
recognize that the current regulations exempt status for employees crossing would have ‘‘management’’ as his
establish a 50 percent ‘‘rule of thumb’’— the 50-percent threshold while primary duty if he performed tasks such
not a ‘‘bright-line’’ test. Federal courts recognizing no presumption of as preparing budgets, negotiating
have found many employees exempt nonexempt status for those who do not contracts, planning the work, and
who spent less than 50 percent of their cross the threshold. The existing section reporting on performance. As stated in
time performing exempt work. See, e.g., 541.103 states: the 1949 Weiss Report at 61, the search
Jones v. Virginia Oil Co., 2003 WL for an employee’s primary duty is a
Thus, an employee who spends over 50 search for the ‘‘character of the
21699882, at *4 (4th Cir. 2003) percent of his time in management would
(management found to be the ‘‘primary have management as his primary duty. Time
employee’s job as a whole.’’ Thus, both
duty’’ of employee who spent 75 to 80 alone, however, is not the sole test, and in the current and final regulations ‘‘call
percent of her time on basic line-worker situations where the employee does not for a holistic approach to determining
tasks); Murray v. Stuckey’s, Inc., 939 spend over 50 percent of his time in an employee’s primary duty,’’ not ‘‘day-
F.2d 614, 618–20 (8th Cir. 1991) managerial duties, he might nevertheless by-day scrutiny of the tasks of
(manager met the ‘‘primary duty’’ test have management as his primary duty if the managerial or administrative
despite spending 65 to 90 percent of his other pertinent factors support such a employees.’’ Counts v. South Carolina
time in non-management duties), cert. conclusion. Electric & Gas Co., 317 F.3d 453, 456
denied, 502 U.S. 1073 (1992); Glefke v. See also Auer v. Robbins, 65 F.3d 702, (4th Cir. 2003) (‘‘Nothing in the FLSA
K.F.C. Take Home Food Co., 1993 WL 712 (8th Cir. 1995) (‘‘if an employee compels any particular time frame for
521993, at *4–5 (E.D. Mich. 1993) spends less than 50% of his time on determining an employee’s primary
(employee found exempt despite managerial duties, he is not presumed to duty’’). To clarify this ‘‘holistic
assertion that she spent less than 20 have a primary duty of approach,’’ the Department has
percent of time on managerial duties nonmanagement’’), aff’d on another reinserted in subsection (a) the language
because ‘‘the percentage of time is not issue, 519 U.S. 452 (1997). The final rule from current 541.304 that the
determinative of the primary duty retains this current language with only determination of an employee’s primary
question, rather, it is the collective minor editorial changes. duty must be based on all the facts in
weight of the four factors’’); Stein v. J.C. a particular case ‘‘with the major
The final rule lists the same four non
Penney Co., 557 F. Supp. 398, 404–05 emphasis on the character of the
exclusive factors as the proposal for
(W.D. Tenn. 1983) (employee spending employee’s job as a whole.’’
determining the primary duty of an The Department considered but has
70 to 80 percent of his time on non
employee: (1) The relative importance of not incorporated in the final rule other
managerial work held exempt because
the exempt duties as compared with various proposals to add, delete or
the ‘‘overall nature of the job’’ is
other types of duties; (2) the amount of modify section 541.700. For example,
determinative, not ‘‘the precise
time spent performing exempt work; (3) because the Department does not intend
percentage of time involved in a
the employee’s relative freedom from to eliminate the amount of time spent
particular type of work’’).
Adopting a strict 50-percent rule for direct supervision; and (4) the on exempt tasks as a factor for
the first time would not be appropriate, relationship between the employee’s determining primary duty, we reject the
as evidenced by the comments salary and the wages paid to other suggestion of the Morgan, Lewis &
discussed in the Structure and employees for the same kind of Bockius law firm and others to remove
Organization section above, because of nonexempt work. The time spent the language stating that time is a
the difficulties of tracking the amount of performing exempt work has always ‘‘useful guide.’’ The Smith Currie law
time spent on exempt tasks. An been, and will continue to be, just one firm proposes adding ‘‘in the discretion
inflexible 50-percent rule has the same factor for determining primary duty. of the employer’’ to the definition of
flaws as an inflexible 20-percent rule. Spending more than 50 percent of the primary duty. However, the primary
Such a rule would require employers to time performing exempt work has been, duty determination is based on all the
perform a moment-by-moment and will continue to be, indicative of facts and circumstances of each case,
examination of an exempt employee’s exempt status. Spending less than 50 not upon the ‘‘discretion’’ of the
specific daily and weekly tasks, thus percent of the time performing exempt employer. Similarly, the National
imposing significant new monitoring work has never been, and will not be, Association of Chain Drug Stores
requirements (and, indirectly, new dispositive of nonexempt status. (NACDS) proposes allowing employers
recordkeeping burdens). Several commenters request the opportunity, as they have under the
Other commenters objecting to section clarification as to whether the Americans with Disabilities Act, to
541.700, such as the International determination of an employee’s primary create a ‘‘rebuttable presumption’’
Federation of Professional & Technical duty is made by looking to a single duty regarding an employee’s primary duty
Engineers, assert that section 541.700 or many duties. The Morgan, Lewis & by identifying the principal duties of the
adopts an ‘‘Alice in Wonderland’’ Bockius law firm, for example, suggests employee in a job description. NACDS
approach. They assert that this section that the Department change ‘‘primary suggests adding ‘‘as determined or
creates an ‘‘outcome-oriented double duty’’ to ‘‘primary duties,’’ in order to expressed by the employer in any
standard’’ because it provides that reduce the perception that any single agreement, job status form, job offer, job
employees who spend more than 50 task, rather than the aggregate of job description or other document created
percent of their time performing exempt tasks, defines an employee’s primary by the employer in good faith and
work generally satisfy the primary duty duty. In contrast, the AFL–CIO asserts acknowledged by the employee verbally
or in writing.’’ The Department week. The Grocery Manufacturers of comments on this section, and thus has
recognizes that such documents or America (GMA), for example, states that made no other changes.
agreements may be of some evidentiary this language is ambiguous and does not
Section 541.703 Directly and Closely
value. However, the work actually take into account that certain activities,
Related
performed by an employee—not any such as lengthy preparation and
description or agreement—controls the presentation time that often goes into Proposed section 541.703 defined the
determination of the employee’s significant sales efforts, may not take phrase ‘‘directly and closely related’’ to
primary duty. See 1949 Weiss Report at place ‘‘recurrently’’ within a given week. mean ‘‘tasks that are related to exempt
86 (rejecting proposal to permit GMA proposes that the term duties and that contribute to or facilitate
employer and employee to reach ‘‘customarily and regularly’’ should performance of exempt work.’’
agreement as to whether exemptions mean ‘‘duties performed at least once in Subsection (a) further explains that
apply); 1940 Stein Report at 25 (‘‘a title each workweek.’’ Similarly, the McInroy ‘‘directly and closely related’’ work
alone is of little or no assistance in & Rigby law firm and the Miller ‘‘may include physical tasks and menial
determining the true importance of an Canfield law firm seek clarification of tasks that arise out of exempt duties,
employee to the employer. Titles can be the ‘‘workweek-by-workweek’’ and the routine work without which the
had cheaply and are of no determinative timeframe and its application in exempt employee’s more important
value’’). The Food Marketing Institute determining exempt activities. work cannot be performed properly.
comments that the definition should Work ‘directly and closely related’ to
The Department does not believe any
explicitly state that employees, such as the performance of exempt duties may
changes to section 541.701 are
managers in retail establishments, also include recordkeeping; monitoring
necessary. A similar definition of the
‘‘should not be subject to arbitrary and adjusting machinery; taking notes;
term ‘‘customarily and regularly’’ has
calculations of the time they spend using the computer to create documents
appeared for decades in section
performing manual labor. * * *’’ As set or presentations; opening the mail for
541.107(b) of the existing regulations, the purpose of reading it and making
forth in the cases cited above, and in the and case law does not indicate
examples in the final rule, the decisions; and using a photocopier or
significant difficulties with applying the fax machine. Work is not ‘directly and
Department has made clear that definition. The term ‘‘customarily and
managers may perform exempt work closely related’ if the work is remotely
regularly’’ requires a case-by-case related or completely unrelated to
less than 50 percent of the time and determination, based on all the facts and
nevertheless have a primary duty of exempt duties.’’ Proposed section
circumstances, over a time period of 541.703(b) set forth 10 examples to
management, depending upon the sufficient duration to exclude
collective weight of the factors. Final illustrate the type of work that is and is
anomalies. See, e.g., Wage and Hour not normally considered as directly and
section 541.106 also provides that an
Opinion of August 20, 1992, 1992 WL closely related to exempt work.
employee’s managerial duties can be
845098 (analysis should be ‘‘over a The final section 541.703 retains the
performed concurrently with
significant time span, especially in proposed language without change.
nonexempt tasks. No further
smaller organizations * * * to eliminate The AFL–CIO comments that under
clarification of this point is necessary.
the possibility of significant cycles in the proposed section, ‘‘it is hard to
Finally, the Fisher & Phillips law firm
work requirements and to support that imagine any type of nonexempt work
seeks modification of the wage
there are sufficient exempt duties on a failing to qualify as ‘directly and closely
comparison factor to reflect that exempt
week-in-week-out basis to support the related.’ ’’
employees are frequently eligible for
exemption claimed’’); Wage and Hour The Department notes that the
other forms of compensation not widely
available to nonexempt employees. Field Operations Handbook, section explanation of the phrase ‘‘directly and
Because final section 541.700(a) already 22c00(d) (‘‘The determination as to closely related’’ in final section
provides that all the facts and whether an employee customarily and 541.703(a) is taken from the current
circumstances of each case are relevant, regularly supervises other employees sections 541.108 and 541.202, including
such facts may be taken into account in * * * depends on all the facts and the specific language concerning what is
determining primary duty without circumstances’’). Nothing in this section not ‘‘directly and closely related’’ to
further changes in this section. requires that, to meet the definition of which the AFL–CIO objected. See
‘‘customarily and regularly,’’ a task be current 29 CFR 541.202(d) (‘‘These
Section 541.701 Customarily and performed more than once a week or ‘directly and closely related’ duties are
Regularly that a task be performed each and every distinguishable from * * * those which
Proposed section 541.701 defined the workweek. are remotely related or completely
phrase ‘‘customarily and regularly’’ to unrelated to the more important tasks’’)
Section 541.702 Exempt and
mean ‘‘a frequency that must be greater (emphasis added). Similarly, the notion
Nonexempt Work
than occasional but which, of course, that ‘‘directly and closely related’’ work
may be less than constant. Tasks or Proposed section 541.702 stated, ‘‘The contributes to or facilitates the
work performed ‘customarily and term ‘exempt work’ means all work performance of exempt work is a long-
regularly’ includes work normally and described in §§ 541.100, 541.101, standing and common sense concept
recurrently performed every workweek; 541.102, 541.200, 541.206, 541.300, reflected in the current rule. See current
it does not include isolated or one-time 541.301, 541.302, 541.303, 541.304, 29 CFR 541.202(c). The Department did
tasks.’’ 541.400 and 541.500, and the activities not intend any substantive change to the
The final section 541.701 retains the directly and closely related to such meaning of the phrase ‘‘directly and
proposed language without change. work. All other work is considered closely related’’ and intends that the
The Department received a few ‘nonexempt.’ ’’ The final rule deletes the term be interpreted in accordance with
comments on section 541.701 that the inadvertent reference to a non-existent the long-standing meaning under the
‘‘every workweek’’ requirement in section 541.206 and the reference to the current rule. See Harrison v. Preston
section 541.701 does not reflect that now-deleted ‘‘sole charge’’ exemption in Trucking Co., 201 F. Supp. 654, 658–59
some exempt tasks may not be proposed section 541.102. The (D. Md. 1962) (‘‘[T]he test is not whether
performed every week or only once each Department received no significant the work is essential to the proper
performance of the more important section 13(a)(1) of the Act or the regulations that the manual could not be written in
work, but whether it is related’’). in this part. Such manuals and procedures sufficient detail to cover all facets of
The International Association of Fire provide guidance in addressing difficult or claims handling and that a large
Fighters comments, without offering any novel circumstances and thus use of such
reference material would not affect an
percentage of the work could not be
specific suggestions, that the employee’s exempt status. The section guided by the manual. The court held
Department should add examples to the 13(a)(1) exemptions are not available, the employee was exempt because the
section concerning what is not ‘‘directly however, for employees who simply apply manual gave her authority to decide
and closely related’’ to exempt work. well-established techniques or procedures whether to pursue a fraudulent claim
Other commenters make specific described in manuals or other sources within investigation and she had significant
suggestions for additional tasks and closely prescribed limits to determine the settlement authority. She did not merely
examples including, among others, correct response to an inquiry or set of
apply specific, well-established
circumstances.
computer employees performing guidance or constraining standards. See
software debugging and other tasks Some commenters object to the also Haywood v. North American Van
(Contract Services Association), language in proposed subsections Lines, Inc., 121 F.3d 1066, 1073 (7th Cir.
therapists or counselors participating in 541.204(b) and (c) regarding the use of 1997) (employee administratively
outdoor activities with patients as part manuals, although most commenters are exempt even though she followed
of a treatment program (FLSA Reform supportive of the proposed language. established procedures because the
Coalition) and financial consultants One commenter suggests that the guidelines gave employees latitude in
engaging in activities related to Department eliminate the phrase ‘‘very negotiating a settlement, including
acquiring customers (Securities Industry difficult or novel circumstances’’ so as advising employees to use ‘‘common
Association). not to exclude from the exemptions a sense’’); Dymond v. United States Postal
The Department has retained the highly skilled employee who must rely Service, 670 F.2d 93 (8th Cir. 1982)
proposed rule without any additions. on or comply with manuals in other (finding postal inspectors exempt even
The question of whether work is routine circumstances. Other though some of their duties required
‘‘directly and closely related’’ to the commenters suggest that the regulations them to follow a field manual that
performance of exempt work is ‘‘one of should distinguish manuals used to contained detailed procedures and
fact depending upon the particular apply prescribed skills and knowledge standards). Compare Brock v. National
situation involved.’’ See 1949 Weiss in recurring and routine situations from Health Corp., 667 F. Supp. 557, 566
Report at 30. The final rule provides 10 manuals that simply set forth the (M.D. Tenn. 1987) (‘‘staff accountants’’
representative examples to assist in bounds within which discretion and utilizing two major reference manuals
illustrating the ‘‘directly and closely independent judgment are to be not exempt as administrative employees
related’’ concept. Each of the examples exercised with substantial leeway. where they simply ‘‘tabulated numbers
is taken directly from the current rule. These commenters state that the by merely following the prescribed steps
In the interest of streamlining the regulations should reinforce the idea set out in a manual’’). See also Ale v.
regulations, the proposed and final rule that sharply-constrained authority to Tennessee Valley Authority, 269 F.3d
consolidated the most salient examples. make day-to-day decisions within a 680, 686 (6th Cir. 2001) (training officer
Given the fact-intensive nature of the narrow range of options will not satisfy
not exempt administrative employee
inquiry, the Department believes that, the tests for exemption.
where employee simply applied
similar to the approach taken in the The Department has retained the
provision on manuals in final section knowledge in following prescribed
current rule, providing guiding procedures and determining whether
principles and these specific illustrative 541.704, with only minor wording
changes. The proposal appropriately specified standards were met under
examples best enables a determination Administrative Orders); Cooke v.
of what is and is not ‘‘directly and differentiated between manuals that
dictate how an employee must apply General Dynamics Corp., 993 F. Supp.
closely related.’’ The Department 56, 65 (D. Conn. 1997) (citing section
believes final section 541.703 is prescribed skills in recurring and
routine situations, and manuals that 541.207(c)(2)’s preclusion of
straightforward and amply offers administrative exemption to ‘‘an
provide guidance involving highly
guiding principles that readily can be inspector who must follow ‘well
complex information pertinent to
applied. established techniques and procedures
difficult or novel circumstances. The
Section 541.704 Use of Manuals provision adopted by the Department is which may have been cataloged and
consistent with existing case law. The described in manuals or other
Subpart H of the final regulations sources’ ’’).
moves regulatory language on the use of employee in McAllister v. Transamerica
manuals from proposed section 541.204, Occidental Life Insurance Co., 325 F.3d Final section 541.704 is intended to
regarding the administrative exemption, 997 (8th Cir. 2003), for example, was a avoid the absurd result, noted by several
to a new section 541.704 because the claims coordinator responsible for commenters, reached in Hashop v.
section is equally applicable to the other handling the most complex death and Rockwell Space Operations Co., 867 F.
section 13(a)(1) exemptions. Final disability insurance claims Supp. 1287 (S.D. Tex. 1994). The
section 541.704 makes a number of independently, including the complex plaintiffs in the Rockwell Space
minor editorial changes to the proposed and large dollar cases involving Operations case were instructors who
language, none of which are intended as contestable claims, fraud and trained ‘‘Space Shuttle ground control
substantive. Final section 541.704 disappearances. The employee oversaw personnel during simulated missions.’’
states: the investigation of claims, reviewed Id. at 1291. The plaintiffs were
investigation files and determined if responsible for assisting in development
The use of manuals, guidelines or other further investigation was necessary. The of the script for the simulated missions,
established procedures containing or relating
court found the employee to be an running the simulation, and debriefing
to highly technical, scientific, legal, financial
or other similarly complex matters that can exempt administrator even though she Mission Control on whether the trainees
be understood or interpreted only by those relied upon a claims manual. The court handled simulated anomalies correctly.
with advanced or specialized knowledge or quoted a statement made in the Id. at 1292. The plaintiffs had college
skills does not preclude exemption under introduction to the manual itself, stating degrees in electrical engineering,
mathematics or physics. Id. at 1296. administrative, professional, outside Proposed section 541.705 has been
Nonetheless, the court found the sales or computer employee cannot be renumbered as 541.706, but the final
plaintiffs were not exempt professionals considered exempt. See Wage and Hour rule retains the proposed language
because the appropriate responses to Opinion of March 7, 1994, 1994 WL without change.
simulated Space Shuttle malfunctions 1004555; Dole v. Papa Gino’s of Comments from the Printing
were contained in a manual. Id. at 1298. America, Inc., 712 F. Supp. 1038, 1042 Industries of America and the Kullman
In the Department’s view, the reliance (D. Mass. 1989) (associate managers Firm ask that the Department
by an engineer or physicist on a manual performing ‘‘crew member’’ work to specifically include labor strikes and
outlining appropriate responses to a ‘‘learn by doing’’ were nonexempt lockouts in this provision. Other
Space Shuttle emergency (or a problem trainees). comments, including those from the
in a nuclear reactor, as another example) Other comments request additional Miller Canfield law firm, suggest
should not transform a learned clarification of the definition of additional examples involving
professional scientist into a nonexempt ‘‘trainee,’’ ask whether trainees who emergencies that endanger the public
technician. would become exempt upon completion safety.
The Department believes that the of their training should be exempt while In light of the clear guiding principles
discussion of company manuals in the in training, and ask whether ‘‘interns’’ set forth in proposed section 541.705,
final rule is consistent with the weight are trainees. the Department sees no reason to change
of existing case law. The Rockwell The Department does not believe the language of the final provision. The
Space Operations case appears to be an further clarification is necessary because Department agrees with Miller Canfield
anomaly which has not been followed section 541.705 is relatively that emergencies arising out of an
by other courts. In addition, final straightforward. The inquiry in all cases employer’s business and affecting the
section 541.704 properly distinguishes simply involves determining whether or public health or welfare can qualify as
between manuals that provide specific not the employee is ‘‘actually emergencies under this section,
directions on routine and recurring performing the duties of’’ an executive, applying the same standards as
circumstances and those that provide administrative, professional, outside emergencies that affect the safety of
general guidance on addressing open- sales or computer employee. The employees or customers. The main
ended or novel circumstances. Department recognizes that there may purpose of this provision is to provide
be formalized, bona fide executive or a measure of common sense and
Section 541.705 Trainees (Proposed management training programs that flexibility in the regulations to allow for
§ 541.704) involve employees ‘‘actually real emergencies ‘‘of the kind for which
Proposed section 541.704 stated that performing’’ exempt work, but other no provision can practicably be made by
the exemptions are not available to training programs can involve the employer in advance of their
‘‘employees training for employment in performance of significant nonexempt occurrence.’’ See 1949 Weiss Report at
an executive, administrative, work. For example, an employee in a 42. The Department also recognizes that,
professional, outside sales or computer management training program of a depending upon the circumstances, a
employee capacity who are not actually restaurant who spends the first month of labor strike may qualify as an
performing the duties of an executive, the program washing dishes and the emergency for some short time period,
administrative, professional, outside second month of the program cooking although all the facts must be
sales or computer employee.’’ does not have a primary duty of considered in order to determine the
Proposed section 541.704 has been management. Accordingly, it is not length of the ‘‘emergency’’ situation. See
renumbered to 541.705 in the final appropriate to adopt a blanket Dunlop v. Western Union Telegraph Co.,
regulation, but the proposed language is exemption for all ‘‘trainees.’’ 22 Wage & Hour Cas. (BNA) 859 (D.N.J.
adopted without change. 1976).
The U.S. Chamber of Commerce Section 541.706 Emergencies
The list of situations in which exempt
(Chamber) suggests that this section (Proposed § 541.705)
employees could perform nonexempt
should be modified to allow employees Proposed section 541.705(a) provided work without loss of the exemption is
in bona fide executive training programs that an ‘‘exempt employee will not lose not meant to be exhaustive. Other such
to qualify under the exemptions. The the exemption by performing work of a instances of exempt employees
Chamber argues that the ‘‘principal’’ normally nonexempt nature because of performing nonexempt work under
duty of those in such training programs the existence of an emergency. Thus, unanticipated circumstances without
is not the varied nonexempt tasks they when emergencies arise that threaten loss of the exemption could arise on a
may perform, but rather, it is receiving the safety of employees, a cessation of case-by-case basis. In addition, it
the skills and knowledge necessary to operations or serious damage to the continues to be the Department’s
assume managerial and/or executive employer’s property, any work position that nonexempt work cannot
roles. Furthermore, the Chamber states, performed in an effort to prevent such routinely be assigned to exempt
the ‘‘primary duty’’ of such trainees is results is considered exempt work.’’ employees solely for the convenience of
substantially different from nonexempt Proposed section 541.705(b) stated that an employer without calling into
employees. an ‘‘ ‘emergency’ does not include question the application of the
The Department has no statutory occurrences that are not beyond control exemption to that employee.
authority to provide exemptions for or for which the employer can
management trainees who do not reasonably provide in the normal course Section 541.707 Occasional Tasks
perform exempt duties and therefore of business. Emergencies generally (Proposed § 541.706)
must reject the Chamber’s request to occur only rarely, and are events that Proposed section 541.706 provided
expand proposed section 541.704. See the employer cannot reasonably that occasional, infrequently recurring
Wage and Hour Opinion of August 26, anticipate.’’ Proposed section 541.705(c) tasks, ‘‘that cannot practicably be
1976, 1976 WL 41748; 1949 Weiss set forth four illustrative examples to performed by nonexempt employees,
Report at 47–48. Employees, including assist in distinguishing exempt but are the means for an exempt
trainees, who do not ‘‘actually perform’’ emergency work from routine work that employee to properly carry out exempt
the duties of an exempt executive, would not be considered exempt. functions and responsibilities, are
considered exempt work.’’ To determine the example in the proposed section picture industry, one in which
whether such work is exempt work, suggests that an employee who works 40 otherwise exempt employees are hired
proposed section 541.706 set forth the percent of the time performing exempt for finite periods of time and often work
following factors: ‘‘whether the same administrative duties would be partial workweeks. Since the same
work is performed by any of the nonexempt absent the additional time ‘‘peculiar employment circumstances’’
executive’s subordinates; practicability spent on executive duties. The existing in the motion picture producing
of delegating the work to a nonexempt Department agrees with these concerns, industry also exist throughout much of
employee; whether the executive and also agrees that such a suggestion in the entertainment industry, the firm
performs the task frequently or the proposal is contrary to the definition states, section 541.709 should be
occasionally; and existence of an of ‘‘primary duty’’ in section 541.700. expanded to cover the ‘‘entertainment
industry practice for the executive to Under section 541.700, such an industry’’ generally. The commenter
perform the task.’’ employee would be an exempt suggests that the definition of the
Proposed section 541.706 has been administrator, even without the entertainment industry in the Employee
renumbered to 541.707. Since this executive duties, if his or her Retirement Income Security Act (ERISA)
section is equally applicable to all the administrative tasks constituted the could be adopted for purposes of section
exemptions, the final section 541.707 employee’s primary duty, regardless of 541.709.
deletes the inadvertent references to the amount of time spent on them. In adopting the exception for the
‘‘executives’’ throughout and instead Accordingly, the Department has motion picture producing industry in
refers to ‘‘exempt employees.’’ changed the second sentence of the 1953, the Department agreed with the
Various commenters state that the proposed section as follows, to clarify Association of Motion Picture Producers
regulations should take into account the intent and interplay of final section that given the ‘‘peculiar employment
that exempt employees may choose, 541.708 with the primary duty concept conditions’’ of the industry, the
consistent with the nature of the of section 541.700: ‘‘Thus, for example, producers are not able to economically
employer’s establishment and its an employee whose primary duty employ needed specialists on a constant
operational requirements at a particular involves a combination of exempt basis, but must frequently employ such
time, to perform nonexempt work administrative and exempt executive employees for partial workweeks.
necessary to accomplish the employee’s work may qualify for exemption.’’ The Accordingly, the industry developed
primary duty. The Department believes Department’s clarification responds to over the years ‘‘methods of
that this issue has been adequately similar comments by the HR Policy compensation which reflect this pattern
addressed in final section 541.106 Association, the Society for Human of operations.’’ See 18 FR 2881 (May 19,
(concurrent duties), and no changes are Resource Management, the Food 1953); 18 FR 3930 (July 7, 1953).
necessary here. Marketing Institute, the National Without further information and
Council of Agricultural Employers and consideration of particular employment
Section 541.708 Combination
the Public Sector FLSA Coalition. circumstances, the Department cannot
Exemptions (Proposed § 541.707)
extend the exception to the entire
Proposed section 541.707 provided Section 541.709 Motion Picture entertainment industry as suggested.
that employees ‘‘who perform a Producing Industry (Proposed The Department is not unaware,
combination of exempt duties as set § 541.708) however, that technological advances in
forth in these regulations for executive, Proposed section 541.708 provided an the past half century make it more likely
administrative, professional, outside exception to the salary basis that, on a case-by-case basis, the
sales and computer employees may requirements for otherwise exempt rationale underlying section 541.709
qualify for exemption. Thus, for executive, administrative, and might be applied more broadly
example, an employee who works 40 professional employees in the motion depending upon the specific facts. In
percent of the time performing exempt picture producing industry. Generally, that regard, the Department issued an
administrative duties and another 40 so long as such employees are earning opinion letter in 1963 extending the
percent of the time performing exempt a base rate of at least $650 a week based exception to employees of producers of
executive duties may qualify for on a six-day workweek, employers may television films and videotapes, noting,
exemption. In other words, work that is classify them as exempt even though ‘‘the production of T.V. films and
exempt under one section of this part they work partial workweeks and are videotapes encompasses the same
will not defeat the exemption under any paid a daily rate, rather than a weekly employment practices and conditions
other section.’’ salary. which characterize the production of
Proposed section 541.707 has been Proposed section 541.708 has been motion pictures.’’ Wage and Hour
renumbered as section 541.708. The renumbered as section 541.709. The Opinion of October 29, 1963; see also
final rule modifies the second sentence final section 541.709 retains the Wage and Hour Field Operations
of section 541.708 to read: ‘‘Thus, for proposed language, except for a single Handbook, section 22b09 (adopting this
example, an employee whose primary clarifying correction in grammar extension to television and videotapes).
duty involves a combination of exempt (changing ‘‘under subparts B, C and D of An additional commenter argues for
administrative and exempt executive this part’’ to ‘‘under subparts B, C or D the elimination of the ‘‘exemption’’ for
work may qualify for exemption.’’ of this part’’). The final rule also adjusts production assistants and post
The final rule retains the allowance the $650 figure to $695, consistent with production assistants. This commenter
for ‘‘tacking,’’ or combining exempt the increased minimum salary level for misunderstands that section 541.709
work which may fall under different exemption. relates only to an exception from the
subparts of Part 541, while responding The Department received only a few salary basis requirements for otherwise
to comments raising concerns about the comments on this section. However, the exempt employees in the industry.
interplay of ‘‘primary duty’’ with the Akin, Gump, Strauss, Hauer & Feld law
example set forth in proposed section firm argues, on behalf of a number of Section 541.710 Employees of Public
541.707. The FLSA Reform Coalition entertainment technology companies, Agencies (Proposed § 541.709)
and the American Insurance that the rationale for section 541.709 is Proposed section 541.709(a) provided
Association, for example, point out that the project-based nature of the motion that an ‘‘employee of a public agency
who otherwise meets the salary basis

requirements of § 541.602 shall not be
disqualified from exemption under
§§ 541.100, 541.200, 541.300 or 541.400
on the basis that such employee is paid
according to a pay system established by
statute, ordinance or regulation, or by a
policy or practice established pursuant
to principles of public accountability,
under which the employee accrues
personal leave and sick leave and which
requires the public agency employee’s
pay to be reduced or such employee to
be placed on leave without pay for
absences for personal reasons or because
of illness or injury of less than one
work-day when accrued leave is not
used by an employee because: (1)
Permission for its use has not been
sought or has been sought and denied;
(2) Accrued leave has been exhausted;
or (3) The employee chooses to use
leave without pay.’’ Proposed section
541.709(b) stated that ‘‘deductions from
the pay of an employee of a public
agency for absences due to a budget-
required furlough shall not disqualify
the employee from being paid on a
salary basis except in the workweek in
which the furlough occurs and for
which the employee’s pay is
accordingly reduced.’’
Proposed section 541.709 has been
renumbered as final section 541.710,
and retains the proposed language
without change.
The language in section 541.710 is
from the current section 541.5(d), and
the reasons for its promulgation were
explained in 57 FR 37677 (August 19,
1992) and continue to be valid. The
Department received comments from
public employers and employees during
the current rulemaking addressing many
of the provisions of the entire proposal,
including the salary basis of payment.
None of their comments, however,
addressed the constitutional or statutory
public accountability requirements in
the funding of state and local
governments that was the original
rationale for this particular provision.
The Department continues to believe
this is a necessary exception to the
salary basis requirement for public
employees, and it is included in the
final regulations.

Department of Labor: Preamble

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Friday,

April 23, 2004

Wage and Hour Division

29 CFR Part 541

DEPARTMENT OF LABOR www.dol.gov/esa/contacts/whd/ the Department’s view, this situation

TABLE 1.—WEEKLY SALARY LEVELS FOR EXEMPTION

1938 ................................................................................................. $30 $30 None None

TABLE 3.—FULL-TIME SALARIED EMPLOYEES

Weekly Annual All South Retail

$155 ......................................................................................................... $8,060 1.6 1.6 1.8

TABLE 4.—LIKELY EXEMPT EMPLOYEES

Weekly Annual All South Retail

$155 ......................................................................................................... $8,060 0.0 0.0 0.0

TABLE 4.—LIKELY EXEMPT EMPLOYEES—Continued

Weekly Annual All South Retail

1,000 ........................................................................................................ 52,000 51.3 57.2 63.5

TABLE 5.—FULL-TIME HOURLY WORKERS

Weekly Annual All South Retail

$155 ......................................................................................................... $8,060 1.2 1.3 2.0

TABLE 6.—COMPARISON OF SALARY LEVEL INCREASES

1949 ........................................................................... .......................... $55 .......................... .......................... ..........................

who otherwise meets the salary basis

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