Energy service company’s dispatchers and controllers not subject to administrative OT exemption

Unitil Service provides “administrative and professional services on a centralized basis” to Unitil Service subsidiaries “including regulatory, financial, accounting, human resources, engineering, operations, technology, energy management and management services.” More specifically, Unitil Service operates, monitors, and controls the electrical grid and gas pipelines that distribute electricity and gas to end-user customers. This includes operating centralized electric and gas control rooms staffed by the Electric Distribution Dispatchers (“Dispatchers”) and Gas Controllers (“Controllers”). The Department of Labor filed suit under the FLSA against Unitil Service, alleging that it violated the overtime statute paying its Dispatchers and Controllers a salary with no overtime compensation.  The district court found that the employees’ “primary duty” was “directly related” to the general business operations of Unitil Service’s customers and concluded that the employees were “administrative,” exempt from the FLSA, and thus not entitled to overtime pay. Summary judgment was granted in favor of Unitil Service. The DOL filed a timely appeal. 

On appeal, the First Circuit held that the Dispatchers and Controllers were not subject to the administrative exemption and were entitled to overtime pay.  The  DOL’s regulations define those working in an “administrative” capacity to include those employees:

(1) Compensated on a salary or fee basis pursuant to § 541.600 at a rate of not less than $684 per week…exclusive of board, lodging or other facilities;

(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. Thus, to fall under the exemption, each of the three prongs must be satisfied and the employer bears the burden of establishing each prong.

The appellate court found that the analysis is a relational one, meaning that the Court must determine whether whether the employee’s primary duty is “directly related” to the “management or general business operations of the employer.” Id. § 541.200(a)(2). It is thus necessary to clearly identify the primary duty of the employee(s) in question, and to determine whether that duty is directly related to “running or servicing of the business.” Id. § 541.201(a). Put slightly differently, the “relational” analysis considers whether an employee’s primary duties are “ancillary” to the business’s “principal production activity” or “principal function.” Thus, if the Dispatchers’ and Controllers’ primary duties relate to Unitil Service’s business purpose, in that they produce the product or provide the service that the company is in business to provide, the second prong is not satisfied. 

The appellate court found that the primary duties of the Dispatchers and Controllers are to provide these various services — to operate and monitor their respective electrical grids and gas pipelines — and thus are the very services that Unitil Service is in business to provide. Because the Dispatchers’ and Controllers’ primary duties relate to Unitil Service’s business purpose, their work for Unitil Service — at least when considered in direct relation to Unitil Service’s business purpose — does not satisfy the second prong. As such, the Court found that the district court improperly granted summary judgment in favor of Unitil on the administrative exemption, and remanded the case.   

This case highlights the fact that there is substantial gray areas with respect to the administrative exemption.  If you have been paid a salary and classified as exempt and denied overtime pay, contact an experienced wage and hour attorney today.  Josh Borsellino has represented hundreds of workers across Texas and in several other states on claims for unpaid overtime. For a free, confidential, no-obligation consultation of your overtime matter, call Josh at 817.908.9861 or email him here.    

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