California Labor and Employment Defense Blog

Financial Service Workers May Be Glorified "Production Workers" Who Are Entitled to Overtime -- Davis v. J.P. Morgan Chase & Co.

Loan officers, analysts, and brokers of various financial products are generally considered to be well compensated and prestigious positions.   As a result, these positions are often reflexively classified as exempt from overtime.  The Second Circuit's recent decision in Davis v. J.P. Morgan Chase & Co. should cause employers to question this assumption.

The Davis decision holds that a given position cannot be considered exempt unless it falls on the correct side of the so-called "production/administrative dichotomy."  According to this "dichotomy" test, the administrative exemption cannot apply if a worker's services are not being performed for the purpose of internally running the company, but are instead being sold to customers to generate revenue. 

The court noted that classifying a position as "production" depends solely on the relationship between the work performed by the employee and the nature of the Company's business.  According to the Court, the key distinction is between, on the one hand, those employees "directly producing the good or service that is the primary output of a business" and, on the other hand, those "employees performing general administrative work applicable to the running of any business." 

Significantly, the Court also specifically found the following factors were irrelevant to this distinction: (i) whether the company is selling "an  intangible service rather than a material good;" (ii) "the level of responsibility, importance, or skill needed to perform a particular job;" (iii)  "the monetary value" of the transactions handled by the employee; and (iv) whether the employee's is highly paid.  

Applying this "dichotomy" may lead to counter-intuitive results where the employer is in the business of selling financial products and services to the public.  For example, an employee who creates these financial products or provides these services to the firm's clients may be found to be a non-exempt "production" worker just as surely as if he were welding car parts on a GM assembly line. 

The Davis Court thus determined that a group of loan underwriters for Chase who investigated customer finances and approved loans could not be classified as exempt administrative employees.  To the contrary, in the context of Chase's loan business, they had to be classified as mere "production" workers. 

Although decided under the FLSA, Davis is also relevant to California overtime law, which expressly incorporates most federal definitions of  exempt duties.


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