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Overtime claims of in-house staffing agency workers revived for sales but not account management roles

By Lorene D. Park, J.D.

For the first time addressing the FLSA’s administrative exemption in the staffing company employee context, a divided Sixth Circuit concluded that three in-house employees for a staffing company fell within the exemption while they occupied account manager positions involving the exercise of discretion and independent judgment (e.g., while matchmaking temporary workers with client companies). Though the district court’s decision was affirmed in part, the appeals court reversed concerning the time plaintiffs spent working as staffing consultants, finding triable questions on whether they fell within the exemption. Staffing consultants exercised less discretion than account managers. For example, instead of independently writing job descriptions based on client needs, the consultant would use in-house resources and follow rigid procedures. Judges Moore and Sutton each concurred in part (Perry v. Randstad General Partners (US) LLC, November 20, 2017, White, H.).

Quotas and contests. Randstad is a staffing company that recruits and assigns temp workers to other companies. The plaintiffs were in-house Randstad employees. They held various positions but their duties generally included marketing and selling Randstad’s services; recruiting and evaluating temps and placing them with clients; overseeing those placements; and various administrative and clerical tasks. Performance was tracked with a points-based system called the Work Planning Index (WPI). Each work activity earned a set number of points (e.g., two points for interviewing a recruit) and employees had to accrue 100 points each week, with a certain number involving sales and recruiting. Randstad also held mandatory “contests” that required all employees to perform a certain task a specified number of times in a week—like making 40 cold calls to potential clients—regardless of job title and even if the task wasn’t part of their normal duties. The plaintiffs claimed their quotas were impossible to meet working only 40 hours per week, and managers knew they regularly worked overtime.

FLSA overtime suit. Filing suit for unpaid overtime and liquidated damages under the FLSA, the plaintiffs claimed they were misclassified as exempt and were not paid for the overtime they worked. (A fourth plaintiff, whose claims are not at issue here, settled her claims). Granting summary judgment against the misclassification claims, the court found that the plaintiffs exercised discretion and independent judgment, so were covered by the FLSA’s administrative exemption. The court also found that Randstad was insulated from liability because it relied in good faith on a DOL opinion letter. The court also denied the plaintiffs’ motion for class certification.

Did primary duties involve discretion, independent judgment? Reversing in part, the Sixth Circuit reviewed the elements required for the FLSA’s administrative exemption, which is narrowly construed against the employer. Here, the parties did not dispute that the plaintiffs were paid no less than $455 per week or that their primary duty was office or non-manual work directly related to the business. However, they did contest the third requirement that each plaintiff’s “primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.” The appeals court noted that this requires that the employee has authority to make a choice free from immediate direction or supervision, though recommendations or decisions may still be reviewed at a higher level and still be independent. Also, there must be more than simply the “use of skill in applying well-established techniques, procedure or specific standards described in manuals or other sources.”

Staffing company context. The Sixth Circuit had not yet addressed the question of whether staffing company employees like the plaintiffs fall within the administrative exemption and it appeared no other circuit court had either. However, the appeals court reviewed the applicable regulation and district court cases on the issue. Under 29 C.F.R. § 541.203(e), “Human resources managers who formulate, interpret or implement employment policies . . . generally meet the duties requirements for the administrative exemption. However, personnel clerks who ‘screen’ applicants to obtain data regarding their minimum qualifications and fitness for employment generally do not.” Also, when applying the regulatory provisions, the DOL’s Wage and Hour Division (WHD) and district courts have considered the specific facts and more often than not have found that staffing company employees exercise discretion and independent judgment.

For example, a district court in Arizona reviewed claims by a “Staffing Coordinator” whose duties included managing client relationships and “counseling and discipline of staff who did not comply with the client’s policies or procedures.” She also implemented important policies to ensure she placed medical professionals who could produce “good medical services.” Based on that, the court found she exercised discretion and independent judgment. The WHD reached the same conclusion in a decision involving staffing managers whose primary duties were to manage the provision of temp workers to clients, which involved evaluating the skills needed, negotiating terms of placement, recruiting and selecting workers, negotiating wages, supervising workers, and disciplining as necessary. The WHD contrasted HR managers from personnel clerks, and found the managers qualified for the administrative exemption based on their primary duties.

Account managers, assistant branch managers exempt. With that backdrop in mind, the appeals court reviewed each plaintiff’s duties in various positions and affirmed in part. The time plaintiffs spent as account managers and senior account managers involved the exercise of discretion and independent judgment and, in the court’s view, their “primary duty” was the performance of exempt work. They were given control over specific accounts, worked with clients to make sure they had what they needed, wrote job descriptions independently (relying on her degree in HR and on publically available resources), decided who to recommend to a client, and collaboratively determined the rate a worker would be paid. If there was a problem with a temp, the account manager would coach the worker, issue warnings, and had authority to terminate (which allegedly happened at least once a week). Duties as a senior account manager involved additional mentoring but otherwise the duties did not change.

At oral argument, plaintiffs’ counsel conceded that the senior account manager position was exempt, so summary judgment was also affirmed as to the time spent in this role.

Trial to decide if staffing consultants exempt. The appeals court found triable issues on the application of the administrative exemption with respect to the plaintiffs’ time as a staffing consultant and senior staffing consultant, which recruit for office positions such as receptionists and filing clerks. One plaintiff testified that her most important duty was “selling Randstad services.” She sent out marketing materials, attended networking events, made cold calls, and knocked on doors. She chose which events to attend but management assigned streets for door-knocking and had a prescribed schedule for reaching out to existing clients about vacancies. New client prospects had to fit certain criteria and she used Randstad’s template contract for new vacancies. Randstad also had rigid procedures for writing job descriptions, recruiting candidates, and conducting interviews, including predetermined questions. That said, the staffing consultant had discretion in deciding who did well enough in a phone screening to receive an in-person interview, and in evaluating subjective criteria. After a placement was made, the consultant kept the relationship going, making sure the candidate was okay, arranging back-up for absences. Senior staffing consulting duties weren’t much different, so the court analyzed them together.

To the appellate court, these facts raised triable issues on whether staffing consultants’ primary duty involved the performance of exempt work. They had the same sort of matchmaking responsibilities as account managers but with less independence and more supervision. For example, instead of independently writing job descriptions, the consultant would use in-house resources and follow rigid procedures. Further one plaintiff testified that in this role, her most important duty was selling Randstad services, not matching candidates to clients. It appeared to the court that most of the sales responsibilities involved little more than the “use of skill in applying well-established techniques, procedures or specific standards” prescribed by Randstad. Considering all the facts involved, it appeared the sales activities were non-exempt and a jury could find as much. Accordingly, summary judgment should not have been granted against the FLSA overtime claims concerning the plaintiffs’ time as staffing consultants.

Randstad conceded one plaintiff was not exempt during her time as a talent acquisition specialist so the appeals court did not analyze her duties during that period.

Good-faith reliance defense. Because Randstad was not entitled to summary judgment concerning the plaintiffs’ time as a talent acquisition specialist, staffing consultant, or senior staffing consultant, the appeals court addressed the statutory good-faith reliance defense. The Portal-to-Portal Act of 1947 protects employers from liability if they took certain actions based on a government agency’s interpretation of the law, even if the interpretation later turned out to be wrong. Here, the district court was wrong in concluding that Randstad acted “in conformity with” the WHD’s 2005 letter in “good faith.”

First, the appeals court explained that by focusing their arguments on the extent to which the plaintiffs’ duties matched those described in the 2005 WHD letter, the parties conflated the separate questions of conformity and good faith. Addressing the issues separately, the court found that Randstad’s reliance was not “in conformity with” the letter because certain “specified circumstances and facts” cited in the letter were absent. For example, the employees covered by the 2005 letter had “full authority” to discipline and fire but staffing consultants and talent acquisition specialists did not. Moreover, Randstad did not show it reliance was in “good faith” as a matter of law because it arguably had “knowledge of circumstances which ought to” have caused it to inquire further. For example, it knew its employees’ job duties could vary significantly depending on the client service, the market, or the branch manager.

Partial dissents. Judge Moore agreed that the plaintiffs’ sales duties fall outside of the administrative exemption but disagreed that their matchmaking duties fall within the exemption. Dissenting in part, she noted that none of the plaintiffs had the authority to formulate or interpret Randstad’s policies. Their discretion was constrained by the point system requiring them to complete certain tasks to earn 100 points per week and they lacked authority to decide which tasks would help achieve matchmaking goals. Also, they lacked authority to deviate from established policies without prior approval and, with one exception, did not provide advice to management. Judge Moore would have reversed the district court’s judgment entirely.

Judge Sutton also dissented in part but reached the opposite conclusion, agreeing with the court that the matchmaking duties fall within the administrative exemption but dissenting with respect to their sales duties, which Judge Sutton believed did not fall within the exemption. Judge Sutton pointed out that staffing consultants identified and prioritized prospective clients on their own and the fact that Randstad set timetables did not eliminate their discretion.