126 F.3d 1 (1st Cir. 1997), 97-1053, Reich v. John Alden Life Ins. Co.

Docket Nº:97-1053.
Citation:126 F.3d 1
Party Name:(BNA) 129 Robert B. REICH, etc., Plaintiff--Appellant, v. JOHN ALDEN LIFE INSURANCE COMPANY, Defendant--Appellee.
Case Date:September 18, 1997
Court:United States Courts of Appeals, Court of Appeals for the First Circuit

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126 F.3d 1 (1st Cir. 1997)

(BNA) 129

Robert B. REICH, etc., Plaintiff--Appellant,



No. 97-1053.

United States Court of Appeals, First Circuit

September 18, 1997

Heard June 4, 1997.

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[Copyrighted Material Omitted]

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Anne Payne Fugett, Attorney, with whom J. Davitt McAteer, Acting Solicitor of Labor, Mount Hope, WV, Steven J. Mandel, Associate Solicitor, Hartsdale, NY, and William J. Stone, Counsel for Appellate Litigation, U.S. Department of Labor, Washington, DC, were on brief for appellant.

William J. Kilberg, with whom Eugene Scalia, Washington, DC, and Gibson, Dunn & Crutcher LLP were on brief for appellee.

Before SELYA, Circuit Judge, CAMPBELL, Senior Circuit Judge, and LAGUEUX, [*] District Judge.

LAGUEUX, District Judge.

In this appeal, the Court is 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.


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.

The primary duty of the marketing representatives--the employees at issue here 1--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"

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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, 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; 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.

The marketing representatives work five days a week, typically working ten-hour days with a one-hour lunch break. 2 As noted earlier,

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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.


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 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...

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