Whalen v. J.P. Morgan Chase & Co.

08-4092-cv
Whalen v. J.P. Morgan Chase & Co.

UNITED STATES COURT OF APPEALS
F OR THE S ECOND C IRCUIT

August Term, 2009

(Argued: August 3, 2009 Decided: November 20, 2009)

Docket No. 08-4092-cv

M ICHAEL J. D AVIS, and all others similarly situated, E LENA L OMBARDO, C AROL
S MITH, D ANIEL J. M CG RAW,

Plaintiffs,
A NDREW W HALEN,

Plaintiff-Appellant,
— v.—

J.P. M ORGAN C HASE & C O.,

Defendant-Appellee.

B e f o r e:

POOLER, LIVINGSTON , and LYNCH , Circuit Judges.*

__________________

Plaintiff, employed by J.P. Morgan Chase (“Chase”) as an underwriter, challenges Chase’s

*
At the time of oral argument, Judge Lynch was a United States District Judge for
the Southern District of New York, sitting by designation.

1
categorization of underwriters as administrative employees exempt from the Fair Labor Standard

Act’s overtime pay requirements. See 29 U.S.C. § 207(a). Plaintiff now appeals an award of

summary judgment entered in the Western District of New York (David G. Larimer, Judge)

in favor of Chase.

R EVERSED.

J. N ELSON T HOMAS, Dolin, Thomas & Solomon LLP, Rochester, New
York, for Plaintiff-Appellant.

S AMUEL S HAULSON, Morgan, Lewis & Bockius LLP, New York, New
York (Carrie A. Gonnell, Irvine, California, on the brief), for
Defendant-Appellee.

G ERARD E. L YNCH, Circuit Judge:

This appeal requires us to decide whether underwriters tasked with approving

loans, in accordance with detailed guidelines provided by their employer, are

administrative employees exempt from the overtime requirements of the Fair Labor

Standards Act. Andrew Whalen was employed by J.P. Morgan Chase (“Chase”) for four

years as an underwriter. As an underwriter, Whalen evaluated whether to issue loans to

individual loan applicants by referring to a detailed set of guidelines, known as the Credit

Guide, provided to him by Chase. The Credit Guide specified how underwriters should

2
determine loan applicant characteristics such as qualifying income and credit history, and

instructed underwriters to compare such data with criteria, also set out in the Credit

Guide, prescribing what qualified a loan applicant for a particular loan product. Chase

also provided supplemental guidelines and product guidelines with information specific to

individual loan products. An underwriter was expected to evaluate each loan application

under the Credit Guide and approve the loan if it met the Guide’s standards. If a loan did

not meet the Guide’s standards, certain underwriters had some ability to make exceptions

or variances to implement appropriate compensating factors. Whalen and Chase provide

different accounts of how often underwriters made such exceptions.

Under the Fair Labor Standards Act (FLSA), employers must pay employees

overtime compensation for time worked in excess of forty hours per week. See 29 U.S.C.

§ 207(a). Whalen claims that he frequently worked over forty hours per week. A number

of categories of employees are exempted from the overtime pay requirement. The

exemptions are drawn along a number of lines demarcating the type of profession, job

function, and other characteristics. One categorical exemption is for employees who

work in a “bona fide executive, administrative, or professional capacity.” 29 U.S.C. §

213(a)(1).1

At the time of Whalen’s employment by Chase, Chase treated underwriters as

1
Chase does not contend that Whalen engaged in “executive” or “professional”
work, or fell within any other exception to the maximum hours provision of the FLSA.

3
exempt from the FLSA’s overtime requirements. Whalen sought a declaratory judgment

that Chase violated the FLSA by treating him as exempt and failing to pay him overtime

compensation. Both Whalen and Chase filed motions for summary judgment. The district

court denied Whalen’s motions and granted Chase’s motion, dismissing Whalen’s

complaint. This appeal followed.

We review the district court’s ruling on a motion for summary judgment de novo,

construing the evidence in favor of the non-moving party. See Krauss v. Oxford Health

Plans, Inc., 517 F.3d 614, 621-22 (2d Cir. 2008); Petrosino v. Bell Atl., 385 F.3d 210, 219

(2d Cir. 2004). We may affirm the district court’s grant of summary judgment on any

ground upon which the district court could have relied. See Santos v. Murdock, 243 F.3d

681, 683 (2d Cir. 2001). Exemptions from the FLSA’s requirements “are to be narrowly

construed against the employers seeking to assert them and their application limited to

those establishments plainly and unmistakably within their terms and spirit.” Arnold v.

Ben Kanowsky, Inc., 361 U.S. 388, 392 (1960).

The statute specifying that employees who work in “bona fide executive,

administrative, or professional capacit[ies]” are exempt from the FLSA overtime pay

requirements does not define “administrative.” 29 U.S.C. § 213(a)(1). Federal

regulations specify, however, that a worker is employed in a bona fide administrative

capacity if she performs work “directly related to management policies or general

4
business operations” and “customarily and regularly exercises discretion and independent

judgment.” 29 C.F.R. § 541.2(a).2 Regulations further explain that work directly related

to management policies or general business operations consists of “those types of

activities relating to the administrative operations of a business as distinguished from

‘production’ or, in a retail or service establishment, ‘sales’ work.” 29 C.F.R. §

541.205(a).3 Employment may thus be classified as belonging in the administrative

category, which falls squarely within the administrative exception, or as production/sales

work, which does not.

Precedent in this circuit is light but provides the framework of our analysis to

identify Whalen’s job as either administrative or production. In Reich v. State of New

York, 3 F.3d 581 (2d Cir. 1993), overruled by implication on other grounds by Seminole

Tribe v. Florida, 517 U.S. 44 (1996), we held that members of the state police assigned to

the Bureau of Criminal Investigation (BCI), known as BCI Investigators, were not exempt

as administrative employees. See id. at 585, 588. BCI Investigators are responsible for

supervising investigations performed by state troopers and conducting their own

2
The Department of Labor issued new regulations defining the administrative
exemption in 2004. Unless otherwise specified, reference to the regulations is to the pre-
2004 regulations.
3
Although there are other requirements to fall within the exemption, such as
customarily and regularly exercising discretion, because we conclude that Whalen’s work
was not “administrative,” we need not decide whether Whalen’s employment as an
underwriter met those requirements.

5
investigations of felonies and major misdemeanors. Applying the administrative versus

production analysis, we then reasoned that because “the primary function of the

Investigators . . . is to conduct – or ‘produce’ – its criminal investigations,” the BCI

Investigators fell “squarely on the ‘production’ side of the line” and were not exempt

from the FLSA’s overtime requirements. Id. at 587-88.

The administrative/production dichotomy was similarly employed in a Vermont

case we affirmed last year, but the circumstances of our affirmance limit its precedential

value. The facts of that case were similar to those presented here: the plaintiffs were

employed as underwriters for a company in the business of underwriting mortgage loans

that were then sold to the secondary lending market. See Havey v. Homebound

Mortgage, Inc., No. 2:03-CV-313, 2005 WL 1719061, at *1 (D. Vt. July 21, 2005), aff’d,

547 F.3d 158 (2d Cir. 2008). The district court concluded with very little analysis that the

underwriters were not employed in production because they performed “nonmanual work

related to Homebound’s business.” Id., at *5 Significantly, the court appeared to assume

that “production” must relate to tangible goods, citing a Connecticut case in which the

court refused to grant summary judgment finding that material planning specialists, senior

financial analysts, project financial analysts, and logistics specialists employed by a

company that built submarines were exempt from FLSA’s overtime requirements. See id.

at *5 n.6, citing Cooke v. Gen. Dynamics Corp., 993 F. Supp. 56 (D. Conn.1997). The

6
Havey court noted that “[i]n that case . . . the corporation was in the business of

producing submarines. Homebound was in the business of underwriting mortgage loans.

No production was taking place.” Id. (citations omitted).

As Reich illustrates, this literal reading of “production” to require tangible goods

has no basis in law or regulation. We affirmed the district court in Havey, but the only

issue presented on appeal was whether plaintiffs were paid on a salary basis under the

payment structure adopted by Homebound. Accordingly, our opinion offered no analysis

as to whether the underwriters performed work directly related to the management

policies or general business operations of their employers under the FLSA. We therefore

do not read our Havey opinion as adopting the flawed analysis of the Vermont court as to

administrative and production job functions.

The line between administrative and production jobs is not a clear one, particularly

given that the item being produced – such as “criminal investigations” – is often an

intangible service rather than a material good. Notably, the border between

administrative and production work does not track the level of responsibility, importance,

or skill needed to perform a particular job.4 The monetary value of the loans approved by

4
Such considerations may be relevant to other, independent, requirements for
exemption from the FLSA overtime provisions. The responsibility exercised by an
employee, for example, would affect whether that employee “customarily and regularly
exercise[d] discretion and independent judgment.” 29 C.F.R. § 541.2. Such a
determination, however, is entirely separate from whether an employee’s function may be
classified as administrative or production-related.

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Whalen as an underwriter, for example, is irrelevant to this classification: a bank teller

might deal with hundreds of thousands of dollars each month whereas a staffer in human

resources never touches a dime of the bank’s money, yet the bank teller is in production

and the human resources staffer performs an administrative position. Similarly, it is

irrelevant that Whalen’s salary was relatively low or that he worked in a cubicle. What

determines whether an underwriter performed production or administrative functions is

the nature of her duties, not the physical conditions of her employment.

The Department of Labor has attempted to clarify the classification of jobs within

the financial industry through regulations and opinion letters. In 2004, the Department of

Labor promulgated new regulations discussing, among other things, employees in the

financial services industry. Although these regulations were instituted after Whalen’s

employment with Chase ended, the Department of Labor noted that the new regulations

were “[c]onsistent with existing case law.” 69 Fed. Reg. 22,122, 22,145 (Apr. 23, 2004).

The regulation states:

Employees in the financial services industry generally meet
the duties requirements for the administrative exemption if
their duties include work such as collecting and analyzing
information regarding the customer’s income, assets,
investments or debts; determining which financial products
best meet the customer’s needs and financial circumstances;
advising the customer regarding the advantages and
disadvantages of different financial products; and marketing,
servicing or promoting the employer’s financial products.
However, an employee whose primary duty is selling financial

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 products does not qualify for the administrative exemption.

29 C.F.R. § 541.203(b).

The Department of Labor explained that the new regulation was sparked by

growing litigation in the area and contrasted two threads of case law. On the one hand,

some courts found that “employees who represent the employer with the public, negotiate

on behalf of the company, and engage in sales promotion” were exempt from overtime

requirements. 69 Fed. Reg.. 22,122, 22,145 (Apr. 23, 2004), citing Hogan v. Allstate Ins.

Co., No. 02-15918, 2004 WL 362378 (11th Cir. 2004); Reich v. John Alden Life Ins. Co.,

126 F.3d 1 (1st Cir. 1997); Wilshin v. Allstate Ins. Co., 212 F. Supp. 2d 1360 (M.D. Ga.

2002). On the other hand, the Department cited a Minnesota district court, which found

that “employees who had a ‘primary duty to sell [the company’s] lending products on a

day-to-day basis’ directly to consumers” were not exempt. 69 Fed. Reg.. 22,122, 22,145

(Apr. 23, 2004), quoting Casas v. Conseco Fin. Corp., No. Civ. 00-1512(JRT/SRN), 2002

WL 507059, at *9 (D. Minn. 2002). The regulation thus helped to clarify the distinction

between employees performing substantial and independent financial work and

employees who merely sold financial products.

Opinion letters issued by the Department of Labor similarly recognize a variance

in the types of work performed by employees within the financial industry, and explain

why some financial employees are administrative while some perform production

9
functions. In 2001, the Department stated that a loan officer who was responsible for

creating a loan package to meet the goals of a borrower by “select[ing] from a wide range

of loan packages in order to properly advise the client, . . . supervis[ing] the processing of

the transaction to closing,” and “acquir[ing] a full understanding of the customer’s credit

history and financial goals in order to advise them regarding the selection of a loan

package that will fit their needs and ability” performed administrative work, although the

opinion letter ultimately concluded that such loan officers were not exempt. Dep’t of

Labor, Wage & Hour Div., Op. Letter (Feb. 16, 2001), available at 2001 WL 1558764.

Crucially, the 2001 opinion letter clarified an opinion letter issued in 1999 after the

Department received more information about the loan officer’s duties. In 1999, the

Department understood loan officers to develop new business for their employer, consult

with borrowers to obtain the best possible loan package, work with a number of different

lenders to select loan programs, and perform assorted services shepherding the loan to

completion. See Dep’t of Labor, Wage & Hour Div., Op. Letter (May 17, 1999),

available at 1999 WL 1002401. With that understanding of the loan officers’ duties, the

Department concluded that the loan officers were “engaged in carrying out the employer’s

day-to-day activities rather than in determining the overall course and policies of the

business” and were therefore not employed as administrative employees. See id. While

the 2001 letter reconsidered the loan officers’ employment and reached a different

10
conclusion, the later letter noted that the reconsideration was “in light of the advisory

duties [loan officers] perform on behalf of their employer’s customers,” which the

employer clarified were the “primary duty” of a loan officer. See 2001 WL 1558764. The

two letters read together thus provide a helpful point of reference, highlighting the

importance of advisory duties as opposed to mere loan sales.

We thus turn to the job of underwriter at Chase to assess whether Whalen

performed day-to-day sales activities or more substantial advisory duties. As an

underwriter, Whalen’s primary duty was to sell loan products under the detailed

directions of the Credit Guide. There is no indication that underwriters were expected to

advise customers as to what loan products best met their needs and abilities.

Underwriters were given a loan application and followed procedures specified in the

Credit Guide in order to produce a yes or no decision. Their work is not related either to

setting “management policies” nor to “general business operations” such as human

relations or advertising, 29 C.F.R. § 541.2, but rather concerns the “production” of loans

– the fundamental service provided by the bank.

Chase itself provided several indications that they understood underwriters to be

engaged in production work. Chase employees referred to the work performed by

underwriters as “production work.” Within Chase, departments were at least informally

categorized as “operations” or “production,” with underwriters encompassed by the

11
production label. Underwriters were evaluated not by whether loans they approved were

paid back, but by measuring each underwriter’s productivity in terms of “average of total

actions per day” and by assessing whether the underwriters’ decisions met the Chase

credit guide standards.

Underwriters were occasionally paid incentives to increase production, based on

factors such as the number of decisions underwriters made. While being able to quantify a

worker’s productivity in literal numbers of items produced is not a requirement of being

engaged in production work, it illustrates the concerns that motivated the FLSA. The

overtime requirements of the FLSA were meant to apply financial pressure to “spread

employment to avoid the extra wage” and to assure workers “additional pay to

compensate them for the burden of a workweek beyond the hours fixed in the act.”

Overnight Motor Transp. Co., Inc. v. Missel, 316 U.S. 572, 577-78 (1942), superseded by

statute, Portal-to-Portal Pay Act of 1947, ch. 52, 61 Stat. 84 (granting courts authority to

deny or limit liquidated damages awarded for violations of the FLSA). While in the

abstract any work can be spread, there is a relatively direct correlation between hours

worked and materials produced in the case of a production worker that does not exist as to

administrative employees. Paying production incentives to underwriters shows that

Chase believed that the work of underwriters could be quantified in a way that the work

of administrative employees generally cannot.

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 We conclude that the job of underwriter as it was performed at Chase falls under

the category of production rather than of administrative work. Underwriters at Chase

performed work that was primarily functional rather than conceptual. They were not at

the heart of the company’s business operations. They had no involvement in determining

the future strategy or direction of the business, nor did they perform any other function

that in any way related to the business’s overall efficiency or mode of operation. It is

undisputed that the underwriters played no role in the establishment of Chase’s credit

policy. Rather, they were trained only to apply the credit policy as they found it, as it was

articulated to them through the detailed Credit Guide.

Furthermore, we have drawn an important distinction between employees directly

producing the good or service that is the primary output of a business and employees

performing general administrative work applicable to the running of any business. In

Reich, for example, BCI Investigators “produced” law enforcement investigations. By

contrast, administrative functions such as management of employees through a human

resources department or supervising a business’s internal financial activities through the

accounting department are functions that must be performed no matter what the business

produces. For this reason, the fact that Whalen assessed creditworthiness is not enough to

determine whether his job was administrative. The context of a job function matters: a

clothing store accountant deciding whether to issue a credit card to a consumer performs a

13
support function auxiliary to the department store’s primary function of selling clothes.

An underwriter for Chase, by contrast, is directly engaged in creating the “goods” – loans

and other financial services – produced and sold by Chase.

This conclusion is also supported by persuasive decisions of our sister circuits. In

Bratt v. County of Los Angeles, the Ninth Circuit held that the “essence” of an

administrative job is that an administrative employee participates in “the running of a

business, and not merely . . . the day-to-day carrying out of its affairs.” 912 F.2d 1066,

1070 (9th Cir. 1990) (internal quotations omitted). The Department of Labor later quoted

that same language approvingly. See Dep’t of Labor, Wage & Hour Div., Op. Letter

(Sept. 12, 1997), available at 1997 WL 971811. More recently, the Ninth Circuit

expanded, “The administration/production distinction thus distinguishes between work

related to the goods and services which constitute the business’ marketplace offerings and

work which contributes to ‘running the business itself.’” Bothell v. Phase Metrics, Inc.,

299 F.3d 1120, 1127 (9th Cir. 2002). The Third Circuit has also noted that production

encompasses more than the manufacture of tangible goods. See Martin v. Cooper Elec.

Supply Co., 940 F.2d 896, 903-04 (3d Cir. 1991). In that case, telephone salespersons

were given a pricing matrix specifying price quotes for specific goods as offered to

specific customers. The salespersons had some authority to deviate from the price quotes,

and occasionally also called manufacturers to restock items, negotiating the price of

14
acquiring the item with the manufacturer. The salespersons were paid a fixed salary, but

were also paid incentives tied to their sales performance. The Third Circuit held that the

salespersons were production employees because the goal of the salespersons was “to

produce wholesale sales.” Id. at 903 (emphasis in original). Along similar lines, the First

Circuit held that marketing representatives charged with cultivating and supervising an

independent sales force were exempt administrative employees, as their primary duties of

educating and organizing salespeople were “aimed at promoting . . . customer sales

generally,” not “routine selling efforts focused simply on particular sales transactions.”

Reich v. John Alden Life Ins. Co., 126 F.3d at 10 (emphasis in original).

A number of district court opinions have drawn a similar distinction. See, e.g.,

Neary v. Metro. Prop. & Cas. Ins. Co., 517 F. Supp. 2d 606, 614 (D. Conn. 2007) (finding

that a claims adjuster did not perform administrative work because he did not perform

“duties clearly related to servicing the business itself: it could not function properly

without employees to maintain it; a business must pay its taxes and keep up its insurance.

Such are not activities that involve what the day-to-day business specifically sells or

provides, rather these are tasks that every business must undertake in order to function.”);

Relyea v. Carman, Callahan & Ingham, LLP, No. 03 Civ. 5580(DRH)(MLO), 2006 WL

2577829, at *5 (E.D.N.Y. 2006) (“Like [escrow] closers . . . , Plaintiffs applied existing

policies and procedures on a case-by-case basis. Their duties do not involve the crafting

15
of those policies, but rather the application of those policies. As a result, Plaintiffs are

better described as ‘production,’ rather than ‘administrative’ workers, and they are not

exempt from FLSA.”); Casas, 2002 WL 507059, at *9 (finding that loan originators for a

finance company who were “responsible for soliciting, selling and processing loans as

well as identifying, modifying and structuring the loan to fit a customer’s financial needs”

were “primarily involved with ‘the day-to-day carrying out of the business’ rather than

‘the running of [the] business [itself]’ or determining its overall course or policies”

(quoting Bratt, 912 F.2d at 1070)); Reich v. Chi. Title Ins. Co., 853 F. Supp. 1325, 1330

(D. Kan. 1994) (finding escrow closers employed by a company engaged in the business

of insuring title for real property to be engaged in a production rather than administrative

capacity).

Other out-of-circuit cases similarly support the logic that context matters. An

employee whose job is to evaluate credit who works in the credit industry is more likely

to perform a production job. See Casas, 2002 WL 507059, at *9 (loan officers for bank

are production); Relyea, 2006 WL 2577829, at *5 (loan closers are production); Reich v.

Chi. Title Ins. Co., 853 F. Supp. at 1330. Employees who evaluate and extend credit on

behalf of a company that is not in the credit industry – extending credit in order to allow

customers to purchase a tangible good that the employer manufactured, for example – are

generally considered administrative employees. See Hills v. W. Paper Co., 825 F. Supp.

16
936 (D. Kan. 1993) (employee extended credit to customers of company manufacturing

paper); Reich v. Haemonetics, 907 F. Supp. 512 (D. Mass. 1995) (employee involved in

extending credit to customers of company that sold equipment to hospitals). But in the

context of such businesses, such employees provide adjunct, general services to the

overall running of the business, while at Chase, underwriters such as Whalen are the

workers who produce the services – loans – that are “sold” by the business to produce its

income.

Chase offers a few out of circuit cases suggesting that underwriters are exempt

administrative employees, but the cases are distinguishable on their facts. See, e.g.,

Edwards v. Audobon Ins. Group Co., No. 3:02-CV-1618-WS, 2004 WL 3119911, at *5

(S.D. Miss. Aug. 31, 2004) (finding an underwriter who “decide[d] what risks the

company would take and at what price” an exempt administrative employee); Callahan v.

Bancorpsouth Ins. Servs. of Miss., Inc., 244 F. Supp. 2d 678, 685-86 (S.D. Miss. 2002)

(finding manager responsible for overseeing all aspects of employer’s operations,

including marketing, billing and collections, and underwriting, was administrative

employee); Hippen v. First Nat’l Bank, Civ. A. No. 90-2024-L, 1992 WL 73554, at *7

(D. Kan. Mar. 19, 1992) (finding executive vice president of bank who described himself

as “number two” in hierarchy and was member of board of directors to be administrative

employee); Creese v. Wash. Mut. Bank, No. B193931, 2008 WL 650766, at *8 (Cal. Ct.

17
App. 2008) (noting specifically that lower court determination as to class certification did

not address the merits of whether underwriters seeking to challenge exempt classification

were administrative employees). In virtually all of these cases, the employee in question

exercised managerial tasks beyond assessing credit risk, or assessed risks in a firm whose

primary business was not the extension of credit, and the result is therefore not in tension

with the analysis offered here. In any event, to the extent that the reasoning, language, or

result in any of these cases is not consistent with our analysis, we respectfully disagree.

Accordingly, we hold that Whalen did not perform work directly related to

management policies or general business operations. Because an administrative

employee must both perform work directly related to management policies or general

business operations and customarily and regularly exercise discretion and independent

judgment, we thus hold that Whalen was not employed in a bona fide administrative

capacity. We need not address whether Whalen customarily and regularly exercised

discretion and independent judgment.

The judgment of the district court in favor of the appellee is REVERSED.

18