Can You Relate? The “Relational” Test for the FLSA Administrative Exemption

The U.S. Court of Appeals for the 1st Circuit recently held that a “relational” analysis test must be used to determine if an employee meets the administrative exemption to the Fair Labor Standards Act’s minimum wage and overtime requirements, and clarified its application.

The FLSA requires the payment of an overtime premium at 1½ times the employee’s regular rate for all hours worked over 40 in a workweek. There are several white collar exemptions to this requirement, including the administrative exemption. In order to meet this exemption, the employee must meet the following tests: (1) they must be paid on a salary basis at a rate of at least $684 per week; (2) their primary duty is the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and (3) their primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

Specifically as to the second factor of whether work is “directly related,” the DOL regulations make clear that the phrase refers to “assisting with the running or servicing of the business, as distinguished, for example, from working on a manufacturing production line or selling a product in a retail or service establishment.” The Department of Labor’s regulations further list functional areas of the business that are so “directly related,” including things such as tax, finance, quality control, marketing, human resources, and much more.

In DOL v. Until Service Corp., the First Circuit asserts that the analysis of the second factor is a “relational” one, under which it is “necessary to clearly identify the primary duty of the employee(s) in question, and to determine whether that duty is directly related to ‘running or servicing of the business.’” The First Circuit asserted that, in conducting the analysis, “it is often useful to identify and articulate the business purpose of the employer and (if necessary) the employer’s customers,” meaning the actual product or service being provided to the public. The analysis then considers whether the employee’s primary duties are directly related to the business purpose (non-exempt) as opposed to general business operations (exempt).

The federal district court below had found the dispatchers and controllers in question to meet the second prong of the administrative exemption by analogizing their duties to the functional areas listed in the regulation. The First Circuit, however, asserted that, while such analogy “may be useful in some cases,” they might not encompass the full “relational” analysis. Thus, the First Circuit sent the case back to the federal district court to apply this newly-articulated “relational” analysis to the dispatchers and controllers.

While not every federal appellate court has adopted the “relational” analysis for purposes of determining whether the administrative exemption applies, it is worth noting that the US DOL applies this approach. Thus, employers facing a DOL investigation in which the administrative exemption is at issue should be aware of this analysis and how it is applied.