
USCA1 Opinion

	




                            UNITED STATES COURT OF APPEALS                                FOR THE FIRST CIRCUIT                                 ____________________          No. 97-1053                                ROBERT B. REICH, ETC.,                                Plaintiff - Appellant,                                          v.                          JOHN ALDEN LIFE INSURANCE COMPANY,                                Defendant - Appellee.                                 ____________________                     APPEAL FROM THE UNITED STATES DISTRICT COURT                          FOR THE DISTRICT OF MASSACHUSETTS                   [Hon. Nathaniel M. Gorton, U.S. District Judge]                                              ___________________                                 ____________________                                        Before                                Selya, Circuit Judge,                                       _____________                           Campbell, Senior Circuit Judge,                                     ____________________                            and Lagueux,* District Judge.                                          ______________                                _____________________               Anne  Payne Fugett, Attorney,  with whom J.  Davitt McAteer,               __________________                       __________________          Acting Solicitor of Labor, Steven J. Mandel, Associate Solicitor,                                     ________________          and  William J.  Stone, Counsel  for  Appellate Litigation,  U.S.               _________________          Department of Labor, were on brief for appellant.               William J. Kilberg, with whom Eugene Scalia and Gibson, Dunn               __________________            _____________     ____________          & Crutcher LLP were on brief for appellee.          ______________                                 ____________________                                  September 18, 1997                                 ____________________                                        ____________________          *  Of the District of Rhode Island, sitting by designation.                    LAGUEUX, District Judge.  In  this appeal, the Court is                    LAGUEUX, District Judge.                             ______________          asked to decide whether certain  employees of the John Alden Life          Insurance Company ("John Alden") are exempt from the overtime pay          provisions of the Fair Labor  Standards Act, 29 U.S.C.    201-219          ("FLSA" or the "Act").   The particular question before the Court          concerns  whether  the  employees at  issue,  known  as marketing          representatives  or  marketing   specialists  (collectively,  the          "marketing  representatives"),  fall within  the  "administrative          employee" exemption, 29  U.S.C.   213(a)(1), which  provides that          "any  employee employed in a bona fide executive, administrative,          or professional capacity" is excluded from the Act's overtime pay          and recordkeeping provisions.                    The United States Secretary of Labor ("the  Secretary")          filed this  action against John Alden on  May 4, 1995, seeking to          enjoin  the  company  from  violating  the  FLSA's  overtime  and          recordkeeping   requirements  with   respect  to   the  marketing          representatives.  The parties submitted  the case to the district          court on stipulated facts and cross-motions for summary judgment,          under Rule  56 of  the Federal Rules  of Civil  Procedure.   In a          Memorandum and  Order dated October  8, 1996, Judge  Gorton found          that the marketing  representatives qualified as  "administrative          employees" under 29 U.S.C.   213(a)(1), and  therefore denied the          Secretary's motion  and granted summary judgment in favor of John          Alden.  See Reich v. John Alden Life Ins. Co., 940 F. Supp.  418,                  ___ _____    ________________________          421-24 (D. Mass. 1996).  For the reasons that follow, we affirm.                                         -2-          I.  FACTUAL BACKGROUND          I.  FACTUAL BACKGROUND                    As noted above, the parties submitted this case  to the          district  court on stipulated facts,  and Judge Gorton provides a          detailed account of  the parties' stipulation in  his memorandum.          See id.  at 419-20.   Thus, for the  purposes of this  appeal the          ___ ___          Court needs only to highlight  those facts that are most relevant          to the issue presented for review.                    John  Alden is a Florida-based company that operates in          several states,  including Massachusetts,  where it  maintains an          office in Westborough.   The company designs,  creates, and sells          various  types of insurance products; its customers are typically          businesses,  who purchase  group  coverage  on  behalf  of  their          employees.                    As is the common  practice in the industry, John  Alden          does  not  sell   its  products  through  direct   contacts  with          customers, but  instead relies on licensed  independent insurance          agents ("agents") to  provide its customer base.   In general, an          agent will recommend  a variety of insurance  products, including          John  Alden  products   and  those  of  its   competitors,  to  a          prospective end-purchaser.  When a customer decides to purchase a          John Alden product, the agent acts as an intermediary between the          company  and the  end-purchaser  to  achieve  completion  of  the          transaction.                                         -3-                    The primary  duty of  the marketing representatives  --          the employees at issue here1  -- is to cultivate this independent          agent sales force,  and, thereby, ultimately to increase sales of          John Alden products.  To this end,  the marketing representatives          maintain constant contact with agents.  Marketing representatives          do not  "share" agents  with one another;  instead, each  keeps a          list or "deck" of  agents with whom he or she is in contact.  The          typical   deck  consists   of  500-600   agents,   and  marketing          representatives  continually  cull  their decks  to  maintain  an          active agent base.                    As  an agent's  primary  contact  with  John  Alden,  a          marketing  representative is responsible  for keeping his  or her          agents up  to date on all  aspects of John Alden's  product line.          For instance,  the marketing  representatives  keep their  agents          apprised  of any new  products or product  combinations available          from John Alden,  and make their agents  aware of any changes  in          the  pricing   of  the   company's  products.     The   marketing          representatives also discuss how John Alden's products might meet          the  particular  needs  of  an  agent's  current  or  prospective          customers, and advise  agents as to which John  Alden products to          market against competing products.  Often, they help their agents          develop proposals for bidding on new business by recommending the          appropriate  combination  of   John  Alden  products  to   fit  a          prospective customer's needs.   To further educate  their agents,                                        ____________________          1   All of  the marketing representatives  at issue in  this case          work in John Alden's Westborough, Massachusetts office.                                         -4-          marketing representatives sometimes pass along articles about the          company and/or its competitors, or give small-group presentations          about John Alden's products.                    In dealing  with agents, the  marketing representatives          do not  use prepared  scripts.   Further,  although they  receive          guidance about  suggested points  of emphasis  during an  initial          training period  and at  weekly sales  meetings, these  employees          must  decide for  themselves  which products  to  emphasize to  a          particular agent, and which of their agents to contact on a given          day.  Thus, to make these decisions the marketing representatives          must rely  on their own  knowledge of their  agent decks  and the          specific  needs of their  agents' customers.   Consequently, they          spend most of their time (approximately seven hours a day) on the          phone with agents.   While most of these calls are made to agents          with whom they  are already familiar --  to advise agents  of new          product developments,  discuss current customer needs,  or follow          up on  outstanding sales proposals  -- they also make  some "cold          calls" to agents in  the deck with whom they are unfamiliar, both          to  acquaint the agents  with John Alden and  to learn about each          agent's customer base.                    When a customer  ultimately decides to purchase  a John          Alden  product,  a  marketing representative  acts  as  a conduit          between the agent and prospective purchaser, on the one hand, and          John Alden's underwriting  department, on the other.   Generally,          the marketing representative  sends an application to  the agent,          who meets with the customer  to complete the necessary paperwork;                                         -5-          the agent then returns the completed application to the marketing          representative,  who  in  turn forwards  it  to  the underwriting          department.   While  the application  is  pending, the  marketing          representative will  sometimes gather the  additional information          needed  in the  approval  process, such  as  medical records,  or          arrange  medical tests for  the purchasers' employees  where such          information  is lacking.   Beyond  this,  however, the  marketing          representatives play no further role in the purchase transaction.          Thus,  they do not set or negotiate prices or terms of insurance,          nor do they have any authority to approve or deny an application,          as this is done solely by the underwriting department.                    Typically,   marketing   representatives   are  college          graduates  with two  to six  years of  marketing experience.   An          initial  period of  training at  John Alden is  supplemented with          both  formal and informal  instruction from supervisors  and more          senior marketing  representatives throughout their tenure  at the          company.  They also attend  weekly sales meetings with a District          Manager,  where  they  learn  about  new  products  and  exchange          information   about  sales  techniques  they  have  found  to  be          effective.      At   these   sales   meetings,   the    marketing          representatives also pass  along any information they  might have          received  from agents --  for instance, information  concerning a          competitor's new  products or prices, or about which new products          are  selling well  -- that  might be  helpful to  the company  in          designing new products.                                         -6-                    The marketing  representatives work  five days a  week,          typically working ten-hour days with a one-hour lunch break.2  As          noted earlier, they  spend most of  their time on the  phone with          agents,  with the remaining  time spent completing  and reviewing          paperwork related to these agent  contacts.  On average, a first-          year marketing  representative will  generate approximately  $1.5          million   in  sales  annually  for  the  company,  while  a  more          experienced representative will be credited with approximately $3          million in sales each year.   The average annual compensation for          a   marketing  representative   is  $50,000,   and  more   senior          representatives can  earn as much  as $75,000.  In  addition to a          base salary of $34,000 to $37,000, these employees earn quarterly          incentive and  bonus pay based  on the number, value,  and profit          performance of the  policies issued by the agents  in their agent          decks.  To further encourage  sales, the company sets a quarterly          sales goal for each marketing representative; anyone who fails to          meet this benchmark receives further training and counseling, and          ultimately risks termination if this failure persists for two  or          more consecutive quarters.          II.  PROCEDURAL BACKGROUND          II.  PROCEDURAL BACKGROUND                    On May  4, 1995,  the Secretary  commenced this  action          against John Alden pursuant to section 17 of the  FLSA, 29 U.S.C.            217, seeking  to enjoin the company from violating the overtime          and recordkeeping  provisions of  the Act, 29  U.S.C.     207 and                                        ____________________          2   Although John Alden  does not maintain  records of the  hours          worked  by  its  marketing  representatives,  the   parties  have          stipulated that they average more than 40 hours per week.                                         -7-          211, respectively, and from withholding unpaid overtime wages due          to the  marketing representatives.3   In its  answer, John  Alden          asserted   as  an  affirmative  defense,  inter  alia,  that  the                                                    ___________          marketing  representatives   were  exempt  from   the  applicable          regulations  of  the  FLSA  as  "administrative employees"  under          section 13 of the Act, 29 U.S.C.   213(a)(1).                    The  parties submitted the  case to the  district court          for  decision on  cross-motions for  summary  judgment, based  on          their stipulation of facts as described above.  It was undisputed          that the marketing representatives routinely worked more than 40-          hour workweeks without overtime pay  and that the company did not          keep  records of  the hours  worked  by each  during a  workweek.          Therefore, the only issue before  the district court was  whether          the marketing representatives could be considered "administrative          employees"  under the  FLSA.   In  a Memorandum  and Order  dated          October  8,  1996,   the  court  concluded  that   the  marketing          representatives  satisfied  the  Department  of  Labor's  ("DOL")          regulatory  requirements  for the  administrative  exemption, and          therefore entered judgment in favor of John Alden.   See Reich v.                                                               ___ _____          John Alden Life Ins. Co., 940 F. Supp. 418 (D. Mass. 1996).          ________________________                    In  finding these  employees to  be  exempt, the  court          applied  the  regulatory  "short  test"  for  the  administrative          exemption, as set forth in  29 C.F.R.   541.2(e)(2).   First, the          court addressed whether a marketing representative's primary duty                                        ____________________          3   Specifically, the Secretary  seeks to recover unpaid overtime          wages owed to 29 marketing representatives, 16 of whom were still          employed at John Alden at the time of the suit.                                         -8-          consists  of "[t]he  performance  of  office  or  nonmanual  work          directly  related  to  management policies  or  general  business          operations," as required  by   541.2(a)(1).   In concluding  that          this  "primary duty" requirement  had been  met, the  court first          found that  marketing representatives perform  the administrative          tasks  of "promoting sales" and "representing the company" within          the  meaning  of  the DOL's  interpretative  regulations,  see 29                                                                     ___          C.F.R.    541.205(b).   The court  thus rejected  the Secretary's          contention that, because  they are concerned with  securing sales          for   the  company,   marketing   representatives  perform   non-          administrative  "production"  work, the  distinction  drawn  in            541.205(a).   See John Alden, 940 F. Supp. at 421-22.  Completing                        ___ __________          its analysis of the "primary duty" requirement, the court went on          to  find  that  the  work   performed  by  the  employees  is  of          "substantial importance  to the  management or  operation of  the          business" within  the meaning  of    541.205(a)  and (c),  noting          that  "[t]he success  of the  company in  New England  depends in          large part on  the success of  the marketing representatives  who          promote sales of John Alden products."  Id. at 422-23.                                                  ___                    The court then  turned to the second part  of the short          test,  which provides that an exempt administrative employee must          engage in  work  that requires  the exercise  of "discretion  and          independent judgment."  29 C.F.R.   541.2(e)(2).  The court found          that this  requirement had  been met  on the  facts before  it as          well, noting  that marketing representatives  exercise discretion          and use  their own judgment  in deciding which agents  to contact                                         -9-          and which products to  emphasize on a given day.  See id. at 423-                                                            ___ ___          24.  Thus,  having found that both  prongs of the short  test had          been   satisfied,  the   court  concluded   that  the   marketing          representatives  qualified as  administrative employees  and were          thus exempt from the FLSA's overtime requirements.                    Following the entry of judgment in favor of John Alden,          the Secretary filed a timely notice of appeal to this Court.  The          case is now in order for decision.          III.  STANDARDS OF REVIEW          III.  STANDARDS OF REVIEW                    Rule 56(c) of the Federal Rules of Civil Procedure sets          forth the standard for ruling on a motion for summary judgment:                    The   judgment  sought   shall  be   rendered                    forthwith  if  the   pleadings,  depositions,                    answers to interrogatories, and admissions on                    file, together with  the affidavits, if  any,                    show that there is no genuine issue as to any                    material fact and  that the  moving party  is                    entitled to a judgment as a matter of law.          The trial court  must view all facts  and draw all inferences  in          the light most favorable to the nonmoving party.  See Continental                                                            ___ ___________          Cas.  Co. v. Canadian Universal Ins. Co.,  924 F.2d 370, 373 (1st          _________    ___________________________          Cir.  1991).  When  deciding cross-motions for  summary judgment,          the  court   must  consider  each   motion  separately,   drawing          inferences against each movant in turn.  See Blackie v. Maine, 75                                                   ___ _______    _____          F.3d 716, 721  (1st Cir. 1996).  Summary  judgment is appropriate          when  there is  no  dispute  as to  any  material fact  and  only          questions of law remain.  Id.                                    ___                    Because  the  summary  judgment standard  requires  the          trial court to  make a legal determination rather  than to engage                                         -10-          in factfinding, appellate review is  generally governed by the de                                                                         __          novo standard.  See National  Amusements, Inc. v. Town of Dedham,          ____            ___ __________________________    ______________          43 F.3d 731, 735 (1st Cir.), cert. denied, 515 U.S.  1103 (1995).                                       ____________          However, the particular procedural vehicle by which this case was          decided by  the district court  requires some deviation  from the          norm.    As noted  earlier, the  parties cross-moved  for summary          judgment  on stipulated facts, with their legal arguments focused          on  the significance  to be  accorded to  the agreed-upon  facts.          Thus, in effect, the parties  submitted this case to the district          court as a case stated.   Cf. Equal Opportunity Employment Comm'n                                    ___ ___________________________________          v.  Steamship Clerks  Union, Local  1066, 48  F.3d 594,  603 (1st              ____________________________________          Cir.), cert. denied,  116 S. Ct.  65 (1995).   As this Court  has                 ____________          stated in a similar case:                    [W]here,  in  a  nonjury  case,  "the   basic                    dispute  between  the  parties  concerns  the                    factual  inferences . . . that one might draw                    from  the  more  basic  facts  to  which  the                    parties have drawn  the court's attention," .                    .  . the  district court  is  freed from  the                    usual    constraints    that    attend    the                    adjudication  of  summary  judgment  motions.                    Federaci n  de  Empleados  Tribunal  Gen.  de                    _____________________________________________                    Justicia v.   Torres,  747 F.2d  35, 36  (1st                    ________     _______                    Cir.  1984) (Breyer, J.).  The court may then                    engage in  a certain  amount of  differential                    factfinding,   including   the   sifting   of                    inferences.   By the same token, the court of                    appeals   may   assume  that   "the   parties                    considered the matter to have been  submitted                    below as  a case  ready for  decision on  the                    merits."  Id.  Consequently, the standard for                              ___                    appellate  oversight  shifts   from  de  novo                                                         ________                    review to clear-error review.          Id. at 603.          ___                    Here,  as in Steamship Clerks, in reaching its decision                                 ________________          the lower court was required first to engage in some differential                                         -11-          factfinding -- i.e.,  the drawing of factual  inferences from the          stipulated facts -- and then  to make a legal determination based          upon these  facts.  Thus,  this appeal involves both  factual and          legal determinations.  This Court will apply the more deferential          clear-error standard when reviewing the factual  inferences drawn          by  the  court  below,  id.,  while the  lower  court's  ultimate                                  ___          application  of the  law  to  the facts,  both  those stated  and          inferred, remains subject to de novo review.  Id.                                       _______          ___                    In parsing out the questions of fact from the  ultimate          legal  conclusion, we  are guided  by  our decision  in Reich  v.                                                                  _____          Newspapers of  New England, Inc.,  44 F.3d 1060 (1st  Cir. 1995),          ________________________________          where  the Court considered  whether certain  newspaper employees          fell within the professional exemption to the FLSA's overtime pay          provisions, 29 U.S.C.   213(a)(1).  Adopting the approach used by          the Fifth Circuit in Dalheim v. KDFW-TV, 918 F.2d 1220, 1226 (5th                               _______    _______          Cir.  1990), this Court recognized that "there are three distinct          types of findings involved in  determining whether an employee is          exempt."  Newspapers of New England, 44 F.3d at 1073.  First, the                    _________________________          court must  make  findings concerning  the so-called  "historical          facts" of the case, such as determining an  employee's day-to-day          duties.  Id.  Second, the court must draw factual inferences from                   __          these historical facts,  for instance, to conclude  whether these          day-to-day duties require "invention,  imagination, or talent" as          required  by  applicable regulations.   Id.   Finally,  the trial                                                  __          court must reach  the ultimate conclusion of whether  an employee          is exempt, based on both historical facts and factual inferences.                                         -12-          Id.   Having separated  out the  lower court's  determinations in          __          this manner, we  concluded that the first two  types of findings,          as  essentially  factual  determinations,  were  subject  to  the          clearly erroneous standard of review.   Id.  As for the  district                                                  __          court's ultimate finding, we noted that "[a]lthough this is based          on  both  historical  facts  and  factual  inferences,  it  is  a          conclusion of law, over which we exercise plenary review."  Id.                                                                      __                    The Court  will apply this  framework in its  review of          the decision at issue here.  Of course, there are no "first tier"          findings to review,  as the historical facts were  agreed upon in          the parties' stipulation.   Accordingly,  the factual  inferences          drawn by  the district  court from the  stipulated facts  will be          reviewed for clear error, while the lower  court's ultimate legal          determination engenders plenary review.                    Finally, while  recognizing that  the determination  of          whether an  employee is  exempt is clearly  tied to  the district          court's  inferential factfinding,4 we remain acutely aware of our          duty  to engage in a  thorough review of the  record.  See id. at                                                                 ___ ___          1073.  Moreover, we must review the decision below to ensure that          the court's factfinding was guided by the proper legal standards,          as "to the extent that findings of fact can be shown to have been          predicated  upon, or  induced by,  errors  of law,  they will  be                                        ____________________          4  As  the Fifth Circuit has  noted, "[i]n the great  majority of          cases, the district court's  findings of fact and  the inferences          it draws,  if carefully  set forth and  supported by  the record,          will all but compel the legal conclusion that a given employee is          or is  not exempt.   Absent some  fundamental legal  error, those          conclusions  will usually stand undisturbed on appeal."  Dalheim,                                                                   _______          918 F.2d at 1226-27.                                         -13-          accorded  diminished respect  on appeal."   Dedham  Water Co.  v.                                                      _________________          Cumberland Farms Dairy, Inc., 972 F.2d 453, 457 (1st Cir. 1992).          ____________________________          IV.  DISCUSSION          IV.  DISCUSSION                    The FLSA establishes, as a general rule, that employees          must be compensated  at a  rate not  less than  one and  one-half          times  their regular rate  for all overtime  hours.  29  U.S.C.            207(a)(1).   The Act  further defines overtime  as employment  in          excess  of 40  hours in a  single workweek.   Id.   However, this                                                        __          overtime provision does not apply  to "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).   Of          course,  the remedial nature  of the  statute requires  that FLSA          exemptions 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).                    ______    __________________          Further,  it  is the  employer in  an  FLSA case  that  bears the          ultimate  burden of establishing  that its employees  fall within          the exemption.  See Newspapers of New England, 44 F.3d at 1070.                          ___ _________________________                    The specific  parameters of  the FLSA's  administrative          exemption  are not  set forth  in  the statute,  but are  instead          articulated  in the DOL's  regulations and interpretations.   The          regulations,  promulgated pursuant  to an  express delegation  of          legislative  authority, are to be given controlling weight unless          found to  be arbitrary, capricious,  or contrary to  the statute.                                         -14-          See Chevron U.S.A. Inc. v. Natural Resources Defense Council, 467          ___ ___________________    _________________________________          U.S. 837,  843-44 (1984).   On the  other hand,  the interpretive          regulations  are not  conclusive, as  they merely  set  forth the          Secretary's  official position on  how the regulations  should be          applied in specific contexts.   See Newspapers of New England, 44                                          ___ _________________________          F.3d at 1070.  Even so, these interpretations have the "power  to          persuade, if  lacking power  to control," as  they "constitute  a          body  of experience  and informed  judgment to  which courts  and          litigants may properly resort for guidance."  Skidmore v. Swift &                                                        ________    _______          Co., 323 U.S. 134, 140 (1944).          ___                    The requirements  of the  administrative exemption  are          set  forth  in  the  regulations at  29  C.F.R.     541.2.   That          regulation outlines both a short  and a long test for determining          whether an employee  qualifies for the  administrative exemption;          the short test is used for employees whose salaries are more than          $250 per week.  29 C.F.R.   541.2(e)(2).  Since the  parties have          stipulated that the marketing representatives earn more than $250          per week, there  is no  dispute that the  short test governs  the          instant case.                    Under the short test, John Alden must demonstrate:  (1)          that the primary duty of the marketing representative consists of          "[t]he performance of  office or nonmanual work  directly related          to  management policies  or general  business  operations of  his          employer  or his employer's customers," 29 C.F.R.   541.2(a)(1),5                                        ____________________          5   To be more  precise, the  first prong of  the short  test set          forth at    541.2(e)(2) requires that the  "primary duty consists          of the  performance of  work described in  paragraph (a)  of this                                         -15-          and  (2) that  such  primary duty  "includes  work requiring  the          exercise of  discretion and  independent judgment,"  29 C.F.R.             541.2(e)(2).   The district court  found, and we agree,  that the          marketing representatives meet both parts of this test.          A.  Work Directly Related to Management or Operations          A.  Work Directly Related to Management or Operations                    As stated  above, under  this first prong  of the  test          John Alden must show that its marketing representatives have as a          primary  duty "office  or  nonmanual  work  directly  related  to          management policies or general business operations" of John Alden          or its  customers.  29  C.F.R.    541.2(a)(1).   In the  parties'          stipulation, the "primary duty" of the  marketing representatives          is described as follows:                    to contact and deal with licensed independent                    insurance  agents  ("agents"),   and  related                    activities,  to  increase purchases  of  John                    Alden  insurance  products  by end-purchasers                    who are in contact with the agents.          As there is  no dispute that this statement  describes "office or          nonmanual work,"  the only question that remains  is whether this          primary duty  is "directly  related" to  John Alden's  management          policies or general business operations.                    The   interpretative    regulations   concerning    the          administrative  exemption are set  forth at  29 C.F.R.    541.201          through   541.215.   Of particular relevance is section  541.205,          which specifically addresses the  "directly related to management                                        ____________________          section."   For  the sake  of  simplicity, the  Court has  quoted          directly from paragraph (a) in setting out the short test.                                         -16-          policies   or  general   business   operations"  language   under          consideration.  Subsection 541.205(a) provides as follows:                    The  phrase "directly  related to  management                    policies  or general  business operations  of                    his  employer  or his  employer's  customers"                    describes 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.  In  addition to describing the                    types  of activities,  the phrase  limits the                    exemption  to  persons  who  perform work  of                    substantial importance  to the  management or                    operation of the business of his  employer or                    his employer's customers.          Thus,    541.205(a) of the interpretations further subdivides the          first  prong of  the  short test  into  two  subparts:   (1)  the          employee   must  be  engaged   in  "administrative"  rather  than          "production" activity; and (2) this administrative activity  must          be of "substantial importance" to management or operations.                    The district court found  that both parts of  this test          had  been satisfied,  and thus  concluded  that the  work of  the          marketing representatives was "directly  related" to John Alden's          business operations.  See John Alden, 940 F. Supp. at 421-23.  As                                ___ __________          the Fifth Circuit has noted,  "[w]hether an employee's work is or          should be deemed 'directly related' to business operations  is an          inference drawn from the historical facts."  Dalheim, 918 F.2d at                                                       _______          1230.  Thus,  we review this finding  for clear error.   Id.; see                                                                   ___  ___          also Newspapers of New England, 44 F.3d at 1073.          ____ _________________________          1.  The Administrative-Production Dichotomy          1.  The Administrative-Production Dichotomy                    Subsection 541.205(b) of the interpretations offers the          following definition of "administrative" work:                                         -17-                    The administrative operations of the business                    include the work performed by so-called white                    collar  employees  engaged in  "servicing"  a                    business  as,   for  example,   advising  the                    management,       planning,      negotiating,                    representing    the   company,    purchasing,                    promoting  sales, and  business research  and                    control.          However, applying the  administrative-production dichotomy is not          as  simple as  drawing  the line  between white-collar  and blue-          collar workers.  On the contrary, non-manufacturing employees can          be considered  "production"  employees in  those instances  where          their job  is to generate  (i.e., "produce") the very  product or          service that the employer's business  offers to the public.  See,                                                                       ___          e.g., Reich v. New York, 3 F.3d 581, 587-89 (2d Cir. 1993), cert.          ____  _____    ________                                     _____          denied, 510  U.S. 1163  (1994) (police  investigators conduct  or          ______          "produce" criminal investigations); Dalheim,  918 F.2d at 1230-31                                              _______          (television  station's   producers,  directors,   and  assignment          editors "produced" newscasts, and were thus non-exempt).                    Applying this distinction, the district court held that          the  marketing  representatives  were engaged  in  administrative          rather than  production activities, a finding in which this Court          joins.  As stated  in the stipulation of facts, John  Alden is in          the  business  of  designing,  creating,  and  selling  insurance          policies  to the  public.    It follows,  as  the district  court          properly  recognized, that the "products" generated by John Alden          are  these insurance  policies  themselves.    As  the  marketing          representatives  are  in  no  way  involved  in  the   design  or          generation  of insurance  policies, the  very  product "that  the                                         -18-          enterprise exists  to produce and  market," Dalheim, 918  F.2d at                                                      _______          1230, they cannot be considered production employees.                    In its arguments both to the lower court and on appeal,          the Secretary  has  urged that  the Third  Circuit's decision  in          Martin  v. Cooper  Electric Supply  Co.,  940 F.2d  896 (3d  Cir.          ________   ____________________________          1991), cert. denied, 503 U.S. 936  (1992), compels the conclusion                 ____________          that  the employees  at  issue  here  are  production  employees.          However, both  the district  court and  John Alden  have properly          distinguished Cooper Electric from the instant case.  The company                        _______________          at  issue  in Cooper  Electric  was  a  wholesaler that  did  not                        ________________          manufacture any  products of its  own, but instead  sold products          made by other firms.   Id. at 903.  Thus,  the parties stipulated                                 __          that the  wholesaler's primary  business purpose  was to  produce          sales of electrical products.  Id.  Since the employees  at issue                                         __          in Cooper Electric, the company's salespeople, worked to generate             _______________          the very product that  the company existed to market --  sales of          electrical products -- the Third Circuit concluded that they were          non-exempt production employees.  Id.  at 903-04.  Of course, the                                            __          facts  of Cooper Electric  are clearly distinguishable  from this                    _______________          case, as  John Alden does  indeed generate  a product,  insurance          policies, not merely sales of a product.                    In  an attempt to  answer this argument,  the Secretary          points out that the  stipulation of facts describes John  Alden's          business purpose as the  design, creation, and sale  of insurance                                                     ________          policies.  Thus, the Secretary  contends that, in addition to the          production of insurance policies, John Alden also produces sales,                                         -19-          and that any  employee engaged in the generation  of sales should          be  deemed  non-exempt  under  the  logic  of  Cooper  Electric.6                                                         ________________          However, Cooper  Electric itself  provides an  effective counter.                   ________________          In  discussing  the  "servicing"  component  of  the  Secretary's          interpretations,  see 29 C.F.R.    541.205(b), the  Third Circuit                            ___          explained  that  "servicing  a   business"  entailed  "employment          activity   ancillary  to   an  employer's   principal  production                     _________          activity."    Cooper  Electric,  940 F.2d  at  904  (emphasis  in                        ________________          original).  In the instant  case, the activities of the marketing          representatives are  clearly ancillary to John  Alden's principal          production activity -- the creation of insurance policies  -- and          therefore could be  considered administrative "servicing"  within          the meaning of section 541.205(b).                    As  the district court noted, the day-to-day activities          of   marketing  representatives  are   more  in  the   nature  of          "representing  the company" and  "promoting sales" of  John Alden          products,  two examples of exempt administrative work provided by             541.205(b) of  the interpretations.   As John  Alden's primary          contact with the insurance market (via agent contacts), marketing          representatives  represent  the  company  by  keeping  the market          informed of changes in John Alden's product offerings and pricing          structure.   Further,  by advising  agents  as to  which of  John                                        ____________________          6  In  the context of a retail or  service establishment, section          541.205(a)  expressly   provides  that   "sales"   work  is   not          administrative.  However, as the  Secretary recognizes, insurance          companies are  not retail  or service  establishments within  the          meaning of  the FLSA,  see 29  C.F.R.    779.316,  and thus  this                                 ___          provision is inapplicable to the present case.                                         -20-          Alden's products  to market  against competing  products, and  by          helping them put together proposals for bidding on  new business,          marketing representatives  are, again  to quote  Cooper Electric,                                                           _______________          engaged in "something  more than routine selling  efforts focused          simply on particular  sales transactions."  Id. at  905.  Rather,                                                      ___          their agent contacts  are "aimed at promoting  (i.e., increasing,          developing,  facilitating,  and/or  maintaining)  customer  sales          generally,"  id. (emphasis in original), activity which is deemed          _________    ___          administrative  sales  promotion work  under  section 541.205(b).          Therefore, there  was no  error in  the district  court's finding          that John Alden's marketing representatives are engaged primarily          in administrative rather than production work.                                         -21-          2.  Substantial Importance to Management or Operations          2.  Substantial Importance to Management or Operations                    In  addition to  drawing the  administrative-production          work  dichotomy,  29  C.F.R.    541.205(a)  limits  the "directly          related" language  to "persons  who perform  work of  substantial          importance to the management or  operation of the business of his          employer or his employer's customers."   Of course, employees who          formulate  management   policies  or  oversee   general  business          operations   easily   satisfy   this   "substantial   importance"          requirement.    See  29  C.F.R.     541.205(c).    However,   the                          ___          interpretations make  it clear  that the exemption  is not  to be          limited solely to so-called "management" personnel:                    As  used  to  describe  work  of  substantial                    importance to the management or operation  of                    the business, the phrase "directly related to                    management  policies   or  general   business                    operations"  is not  limited  to persons  who                    participate in the  formulation of management                    policies or  in the operation of the business                    as   a  whole.     Employees  whose  work  is                    "directly related" to  management policies or                    to general business  operations include those                    [whose]   work   affects  policy   or   whose                    responsibility it is  to execute or  carry it                    out.  The phrase also includes a wide variety                    of  persons   who  either  carry   out  major                    assignments in  conducting the  operations of                    the business, or whose  work affects business                    operations  to  a  substantial  degree,  even                    though their assignments are tasks related to                    the  operation of a particular segment of the                    business.          29 C.F.R.   541.205(c).   Examples of employees or positions that          generally meet  the "substantial importance"  requirement include          credit  managers, claim agents and adjusters, wage-rate analysts,          securities  brokers,   and  promotion   men.     See  29   C.F.R.                                                           ___            541.205(c)(5).    However,  the particular  title  given  to an                                         -22-          employee is  not determinative,  as an  employee's exempt  status          must  instead be  predicated on  whether  his or  her duties  and          responsibilities   meet   all   of   the  applicable   regulatory          requirements.  See 29 C.F.R.   541.201(b).                         ___                    In applying  these interpretations, the  district court          first  recognized that "the work of the marketing representatives          is critically important to John Alden's business," in that "[t]he          success  of the company  in New England depends  in large part on          the success of the marketing representatives who promote sales of          John  Alden products."    John  Alden, 940  F.  Supp. at  422-23.                                    ___________          Having thus found that the marketing representatives were engaged          in  work that  "affects  business  operations  to  a  substantial          degree"  --  one of  the  categories  of  work  deemed to  be  of          "substantial  importance" under  29 C.F.R.     541.205(c) --  the          district court  concluded that their  work met this prong  of the          test.  Id.                  __                    On appeal, the Secretary contends that, in applying the          interpretations, the district  court misconstrued the concept  of          "substantial importance" so as to  require plenary review of this          issue.   In  short, the  Secretary submits  that the  lower court          improperly equated economic  impact with substantial  importance,          so  that  if  an  employee's work  contributes  to  an employer's          financial  well-being, that fact  alone is sufficient  to satisfy          the substantial importance requirement.  If  the court did indeed          misconstrue  the  concept of  "substantial importance,"  then its                                         -23-          factual inferences  were drawn with  the wrong legal  standard in          mind, and it would have erred as a matter of law.                    We  recognize that more than  one circuit has held that          "[t]he  financial effect of  employee activity cannot  alone show          work of 'substantial  importance to the management  or operation'          of an  employer's business."   Cooper Electric, 940 F.2d  at 906;                                         _______________          see  also Dalheim, 918  F.2d at 1231.7   As stated  by the Fourth          _________ _______          Circuit in  Clark  v. J.M.  Benson Co.,  789 F.2d  282 (4th  Cir.                      _____     ________________          1986), in  assessing substantial  importance it  is necessary  to          look at "the  nature of the work, not  its ultimate consequence."                        ______          Id. at  287 (emphasis in  original).   Further, the  interpretive          __          regulations clearly dismiss the view that this requirement can be          met simply  by showing a  link between poor performance  and lost          profits:                    A  messenger  boy   who  is  entrusted   with                    carrying large  sums of  money or  securities                    cannot be said to be doing work of importance                    to   the   business   even   though   serious                    consequences may  flow from his neglect.   An                    employee operating  very expensive  equipment                    may cause serious loss to his employer by the                    improper performance of his duties. . . . But                    such employees, obviously, are not performing                    work of  such substantial  importance to  the                    management or operation of the business  that                    it can  be said  to be  "directly related  to                    management  policies   or  general   business                    operations"  as  that  phrase  is used  in                       541.2.                                        ____________________          7  In Dalheim, the  employer argued for substantial importance by                _______          stressing that "if a producer performs poorly, KDFW's bottom line          might suffer."   Dalheim, 918 F.2d at 1231.   The Court held that                           _______          "[a]s  a matter  of law,  that is  insufficient to  establish the          direct  relationship  required  by     541.2  by  virtue  of  the          'substantial importance' contemplated by   541.205(c)."  Id.                                                                   __                                         -24-          See 29 C.F.R.   541.205(c)(2).          ___                    Although the district court did not expressly set forth          the test in the above manner, our review of the  district court's          reasoning  convinces us  that these  principles  were taken  into          account in  assessing substantial  importance.   Contrary to  the          Secretary's   assertion,  the   court   did  not   simply  equate          "substantial  importance" with  financial impact.   Rather, after          noting the economic  significance of their sales  promotion work,          the  court then  proceeded to  consider  the nature  of the  work                                                       ______          undertaken  by the  marketing  representatives,  which the  court          recognized required them to:                    a)  understand  the  nature  of the  evolving                    insurance market, b) grasp the subtleties  of                    that market,  c) familiarize  themselves with                    their agents, their competitors and the needs                    of existing  and prospective  end-purchasers,                    and  d) respond  quickly  in identifying  and                    promoting a  John Alden product when an agent                    contemplates    a   particular    competitive                    product.          John  Alden,  940 F.  Supp. at  423.   In light  of this,  we are          ___________          satisfied that the district court did not misconstrue the  nature          of the  "substantial importance"  inquiry, as  it considered  the          nature of the employee's work as well as the consequences of that          work.8   Accordingly, because  the district  court was  operating                                        ____________________          8  While recognizing  the Fourth Circuit's statement  that "[t]he          regulations emphasize  the nature of  the work, not  its ultimate                                     ______          consequence,"  J.M.  Benson,   789  F.2d  at  287   (emphasis  in                         ____________          original), we would find it  difficult to conclude that a certain          kind of work was "substantially important" to business operations          without also considering the consequences of that work.                                         -25-          within the proper legal framework, we will review its inferential          factfinding on this issue for clear error.                    Our review of  the record finds  ample support for  the          lower  court's conclusion.   First and foremost,  as John Alden's          primary  contact   with   the   independent   agents,   marketing          representatives are  the insurance market's  principle source for          information about John Alden and  its products.  Moreover, in the          course  of  their  daily   activities,  these  employees   gather          information  about their agents,  the agents' customers,  and the          insurance market as a whole  -- such as information about changes          in   consumer  needs,  or   regarding  the  success   of  certain          competitors' offerings.  The marketing representatives  must then          use all of this information  both to pique their agents' interest          in John  Alden, and to  suggest products or  product combinations          that an agent's  customers might find  attractive.  In  addition,          the marketing representatives can pass along the information they          have compiled to  their supervisors, who later relay  the same to          John Alden's management, who can then factor it into decisions on          new product designs and offerings.                    It is certainly  reasonable to draw the  inference that          this type  of work, both  by its  nature and in  its consequence,          would  affect John Alden's  business operations to  a substantial          degree.   Indeed, it  would appear  that work of  this nature  --          disseminating  information  to   the  marketplace,  understanding          customers and competitors, and gathering available information to          be  used in  putting  together proposals  and  packages that  are                                         -26-          appropriate  for  those  customers  --  is  directly  related  to          operations, and  at the heart  of John Alden's  business success.          As such,  we find no error in  the district court's conclusion on          this issue.                    Lastly, the Secretary attaches some significance to the          fact   that  John   Alden   employs   a   number   of   marketing          representatives in  this region,  stressing  that the  collective          economic  impact  of a  group  of  employees is  insufficient  to          satisfy  the  substantial  importance requirement.    See  Cooper                                                                ___  ______          Electric,  940  F.2d  at  906.    However,  the  Secretary's  own          ________          interpretative regulations provide a sufficient rejoinder:                    The fact  that there  are a  number of  other                    employees of  the same employer  carrying out                    assignments of  the same  relative importance                    or performing identical work  does not affect                    the determination  of whether they  meet this                    test  so  long  as  the  work  of  each  such                    employee is of substantial  importance to the                    management or operation of the business.          29 C.F.R.   541.205(c)(6).  In the instant case, we find that the          work  of each  marketing representative,  standing  alone, has  a          substantial effect on John Alden's business.9   As set out in the          parties'  stipulation,  the   sixteen  marketing  representatives          currently employed in the regional office are responsible for the          promotion of the company's products throughout all of New England          (minus Connecticut).  Moreover, each marketing  representative is          individually responsible for a deck  of 500-600 agents, with each                                        ____________________          9  It is unclear from the district court's discussion  whether it          considered  the  consequences of  the  marketing representatives'          work individually or  as a whole.   Thus, we consider  this issue          based upon our own review of the record.                                         -27-          deck generating, on  average, from $1.5 million to  $3 million in          sales annually.  In light of  all this, we have little difficulty          in finding that each  individual marketing representative carries          out  a "major assignment[]  in conducting  the operations  of the          business," and  "affects  business operations  to  a  substantial          degree" through his  or her own sales promotion  activities.  See                                                                        ___          29 C.F.R.   541.205(c).                    The district  court was  not clearly  wrong in  finding          that the marketing representatives  are engaged in administrative          work  of   substantial  importance   to  John   Alden's  business          operations.    Accordingly,  we agree  that  these  employees are          engaged  in administrative work  "directly related  to management          policies or general  business operations," as required  under the          first prong of the short test,  29 C.F.R.   541.2(a)(1).  We  now          turn to the court's  analysis of the "discretion  and independent          judgment" part of the test.          B.  Work Requiring Discretion and Independent Judgment          B.  Work Requiring Discretion and Independent Judgment                    To  satisfy the  second prong of  the short  test, John          Alden must  demonstrate  that its  marketing representatives  are          engaged  in work  that  requires the  exercise of  discretion and          independent judgment.   29 C.F.R.   541.2(e)(2).  The Secretary's          interpretations elaborate on this requirement as follows:                    In general,  the exercise  of discretion  and                    independent judgment involves  the comparison                    and  the  evaluation of  possible  courses of                    conduct and acting or making a decision after                    the   various    possibilities   have    been                    considered.    The  term .  .  .  , moreover,                    implies that the person has the  authority or                    power  to make  an  independent choice,  free                                         -28-                    from immediate  direction or  supervision and                    with respect to matters of significance.          29  C.F.R.   541.207(a).  The interpretations further advise that          "the discretion and  independent judgment exercised must  be real          and substantial, that is, they  must be exercised with respect to          matters of  consequence."  29  C.F.R.   541.207(d)(1).   However,          the  exempt employee need not have final decisionmaking authority          over  such matters; "[e]ven though  an employee's work is subject          to approval,  even to the extent that  a decision may be reversed          by higher level  management, it does not follow that the work did          not require the exercise of discretion and independent judgment."          Dymond v. United  States Postal Serv., 670 F.2d  93, 96 (8th Cir.          ______    ___________________________          1982); see also 29 C.F.R.   541.207(e).                 ________                    The  district court  found,  and  we  agree,  that  the          marketing  representatives  exercise discretion  and  independent          judgment in  carrying out  their duties.   It is  undisputed that          these  employees  have  discretion in  choosing  which  agents to          contact  on  any  given  day, and  concerning  which  products to          discuss   with  each   agent.     In   addition,  the   marketing          representatives  rely  on  their  own  knowledge  of  an  agent's          business  to help tailor proposals for the agent's end-customers.          Further, they must  be able to anticipate  the competing products          that  the agent's customers might be considering, and distinguish          John Alden's offerings from those of competitors.  Thus, there is          clear  support in the record for  the district court's conclusion          that John Alden's  marketing representatives exercise  discretion                                         -29-          and independent judgment in the  course of their day-to-day agent          contacts.                    While recognizing that the marketing representatives do          exercise  some  discretion  in their  dealings  with  agents, the          Secretary  argues  that  this discretion  is  not  exercised with          respect to "matters  of consequence"  within the  meaning of  the          interpretive  regulations.  However,  the matters on  which these          employees exercise their  discretion and judgment --  which agent          would be in the best position to  sell a given product, and which          products would  be most attractive  to a given customer  -- would          certainly appear to be "of consequence" to John Alden's business.          Indeed, this work would seem to be of equal or greater importance          than some of the work the Secretary's interpretations identify as          exempt, such as  the duties of an administrative  assistant to an          executive,10 or those of a customer's man in a brokerage house.11          See  29 C.F.R.    541.207(d)(2).   Thus,  we will  not upset  the          ___          district court's decision on this ground.12                                        ____________________          10  "The regulations . . . contemplate the kind of discretion and          independent judgment exercised by an administrative  assistant to          an  executive, who  without  specific  instruction or  prescribed          procedures, arranges interviews and meetings, and handles callers          and  meetings himself where the executive's personal attention is          not required."  29 C.F.R.   541.207(d)(2).          11   The test  includes "the kind  of discretion  and independent          judgment exercised  by a customer's  man in a brokerage  house in          deciding  what recommendations  to  make to  a  customer for  the          purchase of securities."  Id.                                    ___          12   As  the district  court  noted, the  work of  the  marketing          representatives  does not at  all resemble the  given examples of          nonexempt  work where  discretion  is  exercised  on  matters  of          relatively little consequence: i.e., a truck driver's decision on          which route to follow; a  shipping clerk's decision on the method                                         -30-                    The  Secretary  also  contends  that  the  lower  court          committed error by  mistaking the mere "use of  skill in applying          techniques,  procedures,  or   specific  standards,"  29   C.F.R.            541.207(b),  for   the  required  discretion   and  independent          judgment.      The   Secretary   submits   that   the   marketing          representatives,  in  informing  agents  and  persuading  them to          recommend  John Alden  products, are  simply  applying the  sales          techniques they  learned in  training sessions  and weekly  sales          meetings.    The Secretary  also  points out  that  the marketing          representatives receive  both formal and informal  guidance about          which  products and product features to  emphasize, and about the          general points  to make with  agents.  Thus, the  Secretary avers          that rather than exercising discretion and independent  judgment,          these employees are simply making decisions within a given set of          parameters,  the type  of work  that  would not  qualify for  the          exemption.  See 29 C.F.R.   541.207(c).13                      ___                    However, as the district court found, the record simply          does not  support the Secretary's assertion.   These employees do          not  use  prepared  scripts  or read  from  a  required  verbatim                                        ____________________          of packing and  mode of shipment; and a  bookkeeper's decision on          whether to post  to one ledger or  another first.  See  29 C.F.R.                                                             ___            541.207(d)(1).          13   The interpretive regulations offer the following examples of          work in  which skill in  applying standards or techniques  can be          mistaken for discretion:  inspectors who  develop facts to assess          whether  prescribed standards have been met; lumber "graders" who          inspect  each "stick"  and then  place  each into  a well-defined          grading category;  personnel clerks  who screen applications  and          reject  those that do  not meet prescribed  minimum requirements.          See 29 C.F.R.   541.207(c)(1)-(6).          ___                                         -31-          statement,  nor  do  they  operate   within  the  contours  of  a          prescribed  technique or  "sales  pitch".   On the  contrary, the          content of a given conversation with an agent is dictated  by the          needs  or customer  base  of  that agent,  or  by the  particular          information  sought by the  marketing representative  during that          phone  call.    Further,   to  the  extent  that   the  marketing          representatives  receive guidance about products to emphasize and          suggested points to  make with agents, they  nonetheless exercise          discretion  in  applying  this instruction  --  for  instance, in          determining which agent may have  an interest in that product, or          in fashioning  bid proposals that  meet the needs of  the agent's          customers.14  See Atlanta Prof'l Firefighters Union, Local 134 v.                        ___ ____________________________________________          City of  Atlanta, 920 F.2d  800, 805 (11th Cir.  1991) (employees          ________________          who retained  "discretion in  implementing  [the] directions"  of          another meet discretion and independent judgment test).  In light          of  all this, we  concur that the  marketing representatives "are          not merely 'skilled'  workers who operate within a  strict set of          rules.   Rather, they  exercise significant  discretion in  their          daily contacts with  various insurance agents."   John Alden, 940                                                            __________          F. Supp. at 423.                    The district court did not commit error in finding that          the  primary duty of the marketing representatives "includes work                                        ____________________          14  By way of comparison, the  Court notes that a "customer's man          in  a brokerage  house" likely  receives  similar training  about          product  features and points of emphasis.  Under the interpretive          regulations, 29 C.F.R.    541.207(d)(2), this employee  exercises          the requisite discretion when he  or she applies this guidance to          make a recommendation to a customer for a securities purchase.                                         -32-          requiring the  exercise of  discretion and independent  judgment"          within the  meaning of  29 C.F.R.    541.2(e)(2).   Therefore, we          conclude  that the second  prong of the  administrative exemption          has been met in this case.          V.  CONCLUSION          V.  CONCLUSION                    For all of  these reasons, we  agree with the  district          court's determination that John Alden's marketing representatives          are exempt administrative employees.   Accordingly, the  judgment          below is affirmed.                   affirmed                   ________                                         -33-
