Su v. F.W. Webb Company ( 2024 )

United States Court of Appeals
For the First Circuit
No. 23–1793
JULIE A. SU, Acting Secretary of Labor,
United States Department of Labor,
Plaintiff, Appellee,
v.
F.W. WEBB COMPANY,
Defendant, Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Angel Kelley, U.S. District Judge]
Before
Barron, Chief Judge,
Selya and Kayatta, Circuit Judges.
Rachel Cowen, with whom James M. Nicholas, Henry Leaman, and
McDermott Will & Emery LLP were on brief, for appellant.
Joseph E. Abboud, Attorney, U.S. Department of Labor, Office
of the Solicitor, with whom Seema Nanda, Solicitor of Labor,
Jennifer S. Brand, Associate Solicitor, and Rachel Goldberg,
Counsel for Appellate Litigation, were on brief, for appellee.
August 1, 2024
KAYATTA, Circuit Judge. The Acting Secretary of Labor
brought this action against F.W. Webb Company ("Webb"), an
industrial product wholesaler, alleging that Webb misclassified
its Inside Sales Representatives ("ISRs") as exempt administrative
employees in violation of the Fair Labor Standards Act's overtime
and recordkeeping requirements. The district court granted
judgment to the Secretary on both claims, finding that the ISRs
did not qualify for the exemption because their "primary duty" is
not "directly related to the management or general business
operations" of Webb or its customers. See 29 C.F.R.
§ 541.200(a)(2). For the following reasons, we are unpersuaded by
Webb's appeal from that judgment.
I.
A.
Webb is a wholesale distributor of engineering and
construction products including plumbing, heating, cooling, and
PVF (pipes, valves, and fittings) equipment and fixtures. Webb's
principal business is to make "wholesale sales of those products
to contractors in various industries, government organizations,
institutions such as universities and hospitals, industrial
buyers, and other customers who work in construction, building
maintenance, and infrastructure." Su v. F.W. Webb Co., 677 F.
Supp. 3d 7, 11–12 (D. Mass. 2023). Webb generates its revenue
from three categories of employees "who directly sell the products
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to customers": ISRs, outside salespersons, and counter
salespersons. Id. at 12.
Webb's principal office is in Bedford, Massachusetts,
but it also operates more than a hundred storefront locations
across nine states in New England and the mid-Atlantic. Id.During the relevant period of the Secretary's investigation, Webb
employed over 600 ISRs across those nine states. Id. Webb employs
far more ISRs than it does outside or counter salespersons, which
number around 300–350 and 100 respectively. During the period in
question, Webb classified all of its ISRs as administrative
employees exempt from the Fair Labor Standards Act's ("FLSA")
overtime requirements, and at least some ISRs worked over forty
hours during some workweeks without receiving FLSA overtime
premiums. Id.It is uncontested that Webb generates revenue from its
ISRs though the sales transactions they complete with customers.
Id. It is also uncontested that the ISRs directly interact with
customers throughout the sales process, from a customer's initial
contact to the delivery of purchased products. Id. In the
interim, ISRs work with the customer to "figure out what the right
product or products [are]." ISRs specialize in various product
areas, but Webb considers all its ISRs to have the same position
and basic duties. Id. ISRs report to the general manager
supervising the store at which they work, but at some stores they
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may also report to an "inside sales manager." Id. ISRs themselves
do not have management duties over other employees.
A representative March 2019 job description posted by
Webb stated that ISRs "will work cooperatively with . . . other
members of the sales team to grow existing customers, to create
new customers and meet or exceed monthly sales quotas at the
appropriate gross margin while increasing customer satisfaction."
Specific job responsibilities are listed as follows: processes
and maintains customers' orders; creates transfers between various
Webb locations to fulfill customer orders; attains specialty
material through the use of purchase orders; recommends, sources,
and prices bids for customers; makes pricing decisions on
orders/bids to maintain competitiveness in the marketplace;
follows up on long lead time purchase orders, keeping customers
informed of any changes; effectively handles customer-service
issues; schedules and manages customer deliveries; produces bids
for customer approval; manages credits to Webb standards; and
additional duties as assigned. Id.Unlike Webb's counter salespersons, who primarily
provide quotes and conduct simple over-the-counter sales
transactions in stores, ISRs spend only a minority of their time
providing readymade quotes to customers from a specified parts
list. Id. at 12–13. Counter salespersons primarily service
customers who physically visit a Webb storefront location to
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purchase a specified product, such as "small equipment pieces,
fittings, [and] valves." By contrast, while ISRs also complete
similar kinds of transactions to those performed by counter
salespersons, they principally interact with customers over phone
and email -- and often on more significant projects. Also unlike
counter salespersons, ISRs have discretion and authority to
deviate from Webb's pricing matrix when dealing with customers.
Id. at 13.
Webb expects its ISRs to "possess the knowledge and
expertise in their respective [product] areas in order to advise
their customers on the best solutions for their needs." Id.Principally, this involves working with the customer, who might
not know which specific part or item they require, to identify the
specific item that best meets their goals. Id. Often a customer
will provide an ISR with specifications for a project -- such as
in connection with the customer's preparation of a bid in response
to a request for proposal -- and ask the ISR to provide quotes for
all the products needed to meet those specifications, based on
Webb's inventory and items the ISR can source. Id. Accordingly,
several ISRs aver that they spend a majority of their time
"advising" or "consulting" customers on the best solutions for
their projects, a process which often culminates in the customer
making one or more purchases. As Webb's COO acknowledges, "[t]he
end game is completing the sale[.]" Webb does not charge customers
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consulting fees for ISRs' time spent guiding them toward specific
products for their project or bid.
Webb admits that it hopes its ISRs' interactions with
customers lead to a sale. But regardless of the outcome, Webb
views ISRs' services as "important to maintaining the pipeline of
transactions in the future" by promoting customer relationships.
As Webb explains, "[e]nsuring that the customers are satisfied and
will return to Webb for their [respective] needs is an integral
part of [an ISR's] duties." To that end, ISRs act as "Webb's eyes
and ears on the marketplace," providing general managers with
information about competitors for Webb's development of marketing
and pricing strategies. Id.ISRs' additional duties include providing technical
support to outside salespersons -- who are not as "technically
savvy" as ISRs -- such as information on the selection and
sufficiency of particular products. ISRs also perform various
duties after a particular sale is made, including tracking Webb
inventory once a customer makes an order, following up on an
order's shipping status, interacting with third-party
manufacturers if necessary, and addressing customer complaints.
Id.ISRs are compensated in accordance with grade levels as
determined by seniority and experience, as well as pay tiers within
those grade levels, which are determined by an ISR's annual
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performance appraisal. Id. at 13–14. To document ISRs'
performance appraisals, Webb uses a standard form completed by
each ISR's general manager. The form is divided into two sections:
section A, which looks at "key responsibilities," and section B,
which measures "behavioral responsibilities." The manager
completing the form assigns ratings for a set of criteria within
each of these sections based on software metrics that Webb uses to
track ISRs' activities during the work day. Id. at 13.
Section A measures "key responsibilities" by assessing
ratings for an ISR across four categories. The first, "sales and
GP budget," asks if the employee met sales and profit targets for
the year. See id. The second, "bid and bid follow-up," is based
on the number of bids written, win rate, and follow up rate.
Third, "open orders" measures the number of open order sales past
due, open orders past due, and open orders with follow up required.
Fourth and finally, "communication" is measured by the number of
phone calls answered, not answered, as well as the number of an
ISR's calendar entries.
As for Section B, the "behavioral responsibilities"
component measures "customer focus"; "drive for results";
"integrity, interpersonal savvy, and organizational agility";
"listening and negotiating"; "functional/technical skills";
"technical learning"; and "problem solving." For example, the
"customer focus" rating is based on whether the ISR, among other
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things, "[i]s dedicated to meeting the expectations and
requirements of internal and external customers," and "[a]cts with
customers in mind." Similarly, "drive for results" measures if an
ISR is "consistently one of the top performers" and is "[v]ery
bottom-line oriented."
B.
After completing an investigation, the Secretary filed
suit against Webb in July 2020. In addition to asserting an FLSA
retaliation claim not relevant here, the Secretary alleged that
Webb misclassified its ISRs as administrative employees exempt
from the FLSA's overtime and recordkeeping requirements, failed to
pay ISRs the requisite overtime premium under the FLSA for certain
weeks, and failed to maintain records of hours worked for
non-exempt employees. After discovery, the district court granted
the Secretary's motion for partial summary judgment on both its
overtime and recordkeeping claims. F.W. Webb Co., 677 F. Supp. 3d
at 28–29.
The district court found that Webb's core business
purpose was to sell its products, and that the ISRs' primary duty
was to make sales by servicing Webb's customers. Id. at 20.
Accordingly, since the ISRs effectively "produce the product or
provide the service that the company is in business to provide,"
id. at 19 (quoting Walsh v. Unitil Serv. Corp., 64 F.4th 1, 7 (1st
Cir. 2023)), the district court concluded that the ISRs' primary
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duty was not "directly related to the management or general
business operations of the employer" as required to qualify for
the administrative employee exemption, 29 C.F.R. § 541.200(a)(2).
The court found that the FLSA's overtime and recordkeeping
requirements applied to ISRs, and that Webb violated both
requirements by failing to pay ISRs overtime or keep proper
records. F.W. Webb Co., 677 F. Supp. 3d at 28–29. After all
remaining claims and defenses were resolved by agreement and final
judgment was entered in the Secretary's favor, Webb's timely appeal
followed.
II.
We review a district court's entry of summary judgment
de novo, viewing the record in the light most favorable to the
nonmovant -- here, Webb -- and drawing all reasonable inferences
in its favor. Martínez v. Novo Nordisk Inc., 992 F.3d 12, 16 (1st
Cir. 2021). Summary judgment is appropriate where "there is no
genuine dispute as to any material fact and the movant is entitled
to judgment as a matter of law." Fed. R. Civ. P. 56(a).
A.
The FLSA requires that covered employers pay certain
employees an overtime premium "at a rate not less than one and
one-half times the regular rate at which [they are] employed." 29
U.S.C. § 207(a)(1). Employers must also keep records tracking
covered employees' work hours. Id. § 211(c); 29 C.F.R. § 516.2(a).
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The FLSA exempts from these provisions "any employee
employed in a bona fide executive, administrative, or professional
capacity . . . as such terms are defined and delimited from time
to time by regulations of the Secretary." 29 U.S.C. § 213(a)(1).
The Secretary's regulations define those working in an
"administrative" capacity as those employees: (1) who are
compensated on a salary or fee basis pursuant to 29 C.F.R.
§ 541.600 at a rate of not less than $844 per week (subject to
certain exceptions); (2) whose 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) whose primary duty includes the exercise of
discretion and independent judgment with respect to matters of
significance. 29 C.F.R. § 541.200(a). To fall under the
exemption, "each of the three prongs must be satisfied and the
employer bears the burden of establishing each prong." Unitil
Serv. Corp., 64 F. 4th at 5 (citing Reich v. John Alden Life Ins.
Co., 126 F.3d 1, 7–8 (1st Cir. 1997)).
The parties do not dispute that Webb's ISRs meet the
applicable salary basis test (prong one) and the independent
judgment and discretion test (prong three) to qualify for the
administrative employee exemption. This appeal therefore turns on
the exemption's second prong, i.e., whether their "primary duty is
the performance of office or non-manual work directly related to
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the management or general business operations of the employer or
the employer's customers."1 29 C.F.R. § 541.200(a)(2).
The Secretary's regulations expand on the meaning and
scope of the exemption's "primary duty" requirement. First,
"primary duty" is defined as "the principal, main, major or most
important duty that the employee performs," which "must be based
on all the facts in a particular case, with the major emphasis on
the character of the employee's job as a whole." Id. § 541.700(a).
The regulations note that "[t]he amount of time spent performing
exempt work can be a useful guide" to the analysis, and thus
"employees who spend more than 50 percent of their time performing
exempt work will generally satisfy the primary duty requirement."
Id. § 541.700(b). "Time alone, however, is not the sole test,"
1 The Secretary's regulations also provide that:
An employee may qualify for the administrative
exemption if the employee's primary duty is
the performance of work directly related to
the management or general business operations
of the employer's customers. Thus, for
example, employees acting as advisers or
consultants to their employer's clients or
customers (as tax experts or financial
consultants, for example) may be exempt.
29 C.F.R. § 541.201(c). Here, Webb has never argued that the ISRs'
primary duty directly relates to the management or general business
operations of Webb's customers as opposed to Webb itself. We
therefore find any such argument waived. See United States v.
Zannino, 895 F.2d 1, 9 n.7, 17 (1st Cir. 1990) (noting that
arguments not raised below are deemed waived on appeal, as are
issues only "adverted to in a perfunctory manner, unaccompanied by
some effort at developed argumentation").
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and "[e]mployees who do not spend more than 50 percent of their
time performing exempt duties may nonetheless meet the . . .
requirement if the other factors support such a conclusion." Id.Those factors include, inter alia, "the relative importance of the
exempt duties as compared with other types of duties" and "the
employee's relative freedom from direct supervision." Id.§ 541.700(a).
Additionally, the regulations make clear that employees
will meet the primary duty requirement only if they "perform work
directly related 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." Id. § 541.201(a). To that end, the
regulations also provide that:
Work directly related to management or general
business operations [can] includ[e], but is
not limited to, work in functional areas such
as tax; finance; accounting; budgeting;
auditing; insurance; quality control;
purchasing; procurement; advertising;
marketing; research; safety and health;
personnel management; human resources;
employee benefits; labor relations; public
relations[;] government relations; computer
network, internet and database
administration; legal and regulatory
compliance; and similar activities.
Id. § 541.201(b).
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B.
We now consider whether the ISRs' "primary duty" is
"directly related to the management or general business
operations" of Webb under the FLSA's administrative employee
exemption.2 29 C.F.R. § 541.200(a)(2). This court recently
clarified that, in conducting this analysis, "it is often useful
to identify and articulate the business purpose of the employer,"
meaning "the production or provision of 'the very product or
service that the' employer . . . 'offers to the public.'" Unitil
Serv. Corp., 64 F.4th at 6 (quoting John Alden Life Ins. Co., 126
F.3d at 9). Here, the district court identified Webb's business
purpose as "produc[ing] wholesale sales of its products to its
customers." F.W. Webb Co., 677 F. Supp. 3d at 20. Webb did not
dispute this characterization of its business purpose below and
does not challenge it on appeal. We thus accept it as an undisputed
fact for purposes of our analysis.
Having identified Webb's business purpose, we next
conduct a "relational" analysis, "compar[ing] the employee's
primary duty to the business purpose of the employer" to determine
whether that duty "directly relates to the business purpose of the
employer or, conversely, is directly related to the 'running or
servicing of the business.'" Unitil Serv. Corp., 64 F.4th at 6–7
2 Webb does not claim that ISRs' primary duty relates to the
management or general business operations of Webb's customers.
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(quoting 29 C.F.R. § 541.201(a)). Put another way, we consider
"whether an employee's primary duties are 'ancillary' to the
business's 'principal production activity' or 'principal
function.'" Id. at 7 (quoting John Alden Life Ins. Co., 126 F.3d
at 10).3
We agree with the district court that the undisputed
facts show that the ISRs' primary duty is "to help sell Webb's
products" by delivering discrete customer sales, and that this
duty is "'directly related' to Webb's business purpose of making
wholesale sales of its products." F.W. Webb Co., 677 F. Supp. 3d
at 20, 22. The ISRs are therefore ineligible for the exemption.
Id. at 20.
3 Unitil Service Corporation noted that its analytical
framework "has its roots in what has sometimes been referred to as
the 'administrative-production dichotomy,'" which, while not
dispositive, "can be useful in assessing whether the [primary duty
requirement] has been satisfied." 64 F.4th at 7. We find that
for a wholesaler like Webb, Unitil Service Corporation's analysis
is instructive. We therefore reject Webb's assertion that the
district court's implicit reliance on the
administrative-production dichotomy was error. Nor do we read the
district court opinion as having treated this dichotomy as
dispositive.
Additionally, because the district court's use of the
administrative-production dichotomy was proper, we reject Webb's
argument that the district court's reliance on Martin v. Cooper
Electric Supply Co., 940 F.2d 896 (3d Cir. 1991) somehow requires
reversal. Even assuming, arguendo, that Martin is not as
persuasive as the district court found, the district court never
considered itself bound by Martin. So, Webb's quibbles with some
stale aspects of Martin's reasoning -- such as its narrow
construction of FLSA exemptions -- miss the mark.
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Indeed, there is simply no support for the claim that
ISRs primarily function to "promote sales generally" or to provide
some amorphous advisory or technical support role as opposed to
delivering individual sales of Webb products themselves. Webb
admits that ISRs do not work in "marketing," that they directly
interact with customers throughout the sales process, and that
they generate revenue for Webb in the form of sales that they make.
The record does not show that ISRs have any policymaking authority
within Webb apart from providing information to those formulating
policy, or that they have managerial duties over other employees.
Even if ISRs sometimes provide technical support to outside
salespersons, there is no claim of that being their primary duty.
In sum, ISRs do not "perform work directly related to assisting
with the running or servicing" of Webb, as distinguished, for
example, "from working on a manufacturing production line or
selling a product in a retail or service establishment." 29 C.F.R.
§ 541.201(a). Webb is a wholesaler, and ISRs make those
wholesales. Their primary duties are not "administrative" in any
sense of the word.
In an attempt to ward off this conclusion, Webb argues
that the ISRs' primary duty involves exemption-qualifying
"high-level customer service" and that the district court
committed several errors in finding otherwise. In particular,
Webb argues that the district court improperly discounted evidence
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of ISRs' work as "advisors, consultants, and concierges" to deliver
"solutions" and ensure customer satisfaction, and that "these
customer service duties constitute the bulk of ISRs' work time."
To that end, Webb points to several affidavits from individual
ISRs stating that they spend a majority of their time providing
such "advisory" duties while only a small percentage of their time
"quoting specific parts."4
Much the same could be said of the many salespersons in
many industries who advise customers in selecting a product with
the aim of at some point making a sale. Consider salespersons in
a clothing store. They can be said to provide high-level customer
service advising clients on size and style choices to ensure
customer satisfaction by providing clothing solutions. Yet these
individuals are clearly not exempt under the FLSA. Reiseck v.
Universal Commc'ns of Miami, Inc., 591 F.3d 101, 107 (2d Cir.
2010), abrogated in part by Encino Motorcars, LLC v. Navarro, 584
U.S. 79, 87 (2018).
We also reject Webb's passing argument -- made during
oral argument but nowhere in its briefs -- that our decision in
4 On this point, Webb fails to specify what if any portion
of the ISRs' work time is spent performing post-sale concierge
work "beyond any actual sale." We thus analyze ISRs' purported
"high-level customer service responsibilities" in the aggregate.
And in any event, Webb elsewhere concedes that the ISRs perform no
customer-service duties "outside the context of making sales or
sales that ha[ve] been made."
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Cash v. Cycle Craft Co., 508 F.3d 680, 683 (1st Cir. 2007), coupled
with the Secretary's examples of exempt administrative employees
at 29 C.F.R. § 541.203, counsels otherwise. For one, as the
district court found, Cash is distinguishable because the exempt
Harley-Davidson employee in question was responsible for improving
customer satisfaction generally and was not involved in individual
sales. F.W. Webb Co., 677 F. Supp. 3d at 22 (discussing Cash, 508
F.3d at 681–82, 686); cf. John Alden Life Ins. Co., 126 F.3d at 10(noting the distinction between "promoting sales" generally and
sales efforts "focused simply on particular sales transactions").
Additionally, the thrust of this well-worn distinction between
particular sales and general sales promotion points to the
conclusion that ISRs are more akin to non-exempt employees whose
primary duty is "selling financial products" as opposed to those
whose primary duties involve "advising the customer regarding the
advantages and disadvantages of different financial products" and
"marketing, servicing or promoting the employer's financial
products." 29 C.F.R. § 541.203(b). At bottom, customer advice
rendered in the context of making a particular sale is simply not
"directly related to the management or general business
operations" of an employer whose core business purpose is making
sales. Id. § 541.200(a)(2).
Webb also analogizes the ISRs to a class of employees
this court found exempt in another case: Marcus v. American
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Contract Bridge League, 80 F.4th 33 (1st Cir. 2023). Following
its penchant for avoiding a "relational" analysis comparing the
ISRs' primary duty to Webb's business purpose under the rubric of
Unitil Service Corporation, see 64 F.4th at 6, Webb instead trains
its analysis on comparing the ISRs' duties to those of "field
supervisors and area managers" working for the bridge tournament
operator in Marcus. 80 F.4th at 48–49. Webb argues that because
the exempt field supervisors and area managers in Marcus spent
25 percent of their time performing "high-level customer
service-oriented responsibilities" that directly related to the
running of the bridge organization's business, id. at 49, the
ISRs -- whom Webb says spend 50–95 percent of their time performing
similar work -- are exempt a fortiori. But this argument
misconstrues what Marcus actually held.
In Marcus, the employees in question were expected
(1) to "develop, implement, and manage strategic and long-term
processes and programs, including tournament planning/review";
(2) to be the "[f]irst point of contact for issues related to
tournament operations and staff"; (3) to "[e]stablish and maintain
effective relationships with tournament sponsors"; and (4) to
exercise "significant supervisory authority over other employees."
Id. at 48–49. Therefore, the court found that the field
supervisors and area managers' primary duty was directly related
to the running and management of the bridge tournament operator.
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See id. at 49. Marcus never made any categorical finding that the
25 percent of the employees' time spent performing
customer-service work was sufficient to satisfy the exemption's
primary duty requirement. Rather, it properly reached its
conclusion "based on all the facts in [that] particular case, with
a major emphasis on the character of the employee[s'] job as a
whole." 29 C.F.R. § 541.700(a).
Moreover, Webb admits that -- unlike the employees in
Marcus who were charged with developing "long-term processes and
programs," 80 F.4th at 48 -- the ISRs do not perform any
customer-service duties "outside the context of making sales or
sales that had been made." And also unlike those employees, ISRs
do not exercise any significant supervisory authority over other
employees. Thus, even taking Webb's argument on its face, Marcus
does not move the needle toward finding the ISRs exempt.
Nor is there much to support the notion that ISRs are
merely internal technical support specialists in contrast to
Webb's customer-facing outside and counter salespersons. There is
no dispute that ISRs themselves generate revenue for Webb in the
form of producing particular sales, or that ISRs liaise with
customers directly, from the initial communication to after an
order is made. While sometimes an ISR may be "latched onto" an
outside salesperson to provide technical support for a customer,
the record admits to no general structure whereby the outside
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salespersons deal with customers while ISRs provide merely
internal support to the outside salespersons. Rather, Webb itself
asserts that ISRs are charged with dealing with Webb's more
important customers themselves. This conclusion also finds
further support in how Webb measures ISR performance for purposes
of compensation, which considers each ISR's sales and profits, the
number of bids written that lead to completed sales, the number of
phone calls made, and even how "bottom-line oriented" each ISR
proves to be.
All in all, it strains credulity to read the ISRs'
amorphous customer-service duties as anything but central to
Webb's business purpose of producing wholesale sales of its
products. If we accepted that ensuring "customer satisfaction"
and the "long-term integrity of the business" through making
individual sales was sufficiently ancillary to Webb's business
purpose to render ISRs exempt, then few salespersons would ever
receive FLSA overtime protection.
III.
For the foregoing reasons, the judgment of the district
court is affirmed.
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