(a) There is no requirement that a contract, to qualify under
section 7(f), must be approved by the Secretary of
Labor or the Administrator. The question of whether a contract which
purports to qualify an employee for exemption under section 7(f) meets
the requirements is a matter for determination by the courts. This
determination will in all cases depend not merely on the wording of the
contract but upon the actual practice of the parties thereunder. It will
turn on the question of whether the duties of the employee in fact
necessitate irregular hours, whether the rate specified in the contract
is a ``regular rate''--that is, whether it was designed to be actually
operative in determining the employee's compensation--whether the
contract was entered into in good faith, whether the guaranty of pay is
in fact based on the regular and overtime rates specified in the
contract. While the Administrator does have the authority to issue an
advisory opinion as to whether or not a pay arrangement accords with the
requirements of section 7(f) he can do so only if he has knowledge of
these facts.
(b) As a guide to employers, it may be helpful to describe a fact
situation in which the making of a guaranteed salary contract would be
appropriate and to set forth the terms of a contract which would comply,
in the circumstances described, with the provisions of section 7(f).
Example: An employee is employed as an insurance claims adjuster;
because of the fact that he must visit claimants and witnesses at their
convenience, it is impossible for him or his employer to control the
hours which he must work to perform his duties. During the past 6 months
his weekly hours of work have varied from a low of 30 hours to a high of
58 hours. His average workweek for the period was 48 hours. In about 80
percent of the workweeks he worked less than 52 hours. It is expected
that his hours of work will continue to follow this pattern. The parties
agree upon a regular rate of $5 per hour. In order to provide for the
employee the security of a regular weekly income the parties further
agree to enter into a contract which provides a weekly guaranty of pay.
If the applicable maximum hours standard is 40 hours, guaranty of pay
for a workweek somewhere between 48 hours (his average week) and 52
would be reasonable. In the circumstances described the following
contract would be appropriate.
The X Company hereby agrees to employ John Doe as a claims adjuster
at a regular hourly rate of pay of $5 per hour for the first 40 hours in
any workweek and at the rate of $7.50 per hour for all hours in excess
of 40 in any workweek, with a guarantee that John Doe will receive, in
any week in which he performs any work for the company, the sum of $275
as total compensation, for all work performed up to and including 50
hours in such workweek.
(c) The situation described in paragraph (b) of this section is
merely an example and nothing herein is intended to imply that contracts
which differ from the example will not meet the requirements of section
7(f).
[33 FR 986, Jan. 26, 1968, as amended at 46 FR 7318, Jan. 23, 1981]
