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August 19, 2005
Dear Name*,
This is in response to your letter requesting an opinion concerning the applicability of the administrative exemption under Section 13(a)(1) of the Fair Labor Standards Act (FLSA) to background investigators (Investigators) employed by your client (Company).
Please note that revisions to the regulations implementing Section 13(a)(1) of the FLSA, 29 CFR Part 541,
were published as a final rule in the Federal Register on April 23, 2004 (69 FR
22122), and became effective on August 23, 2004 (copy enclosed). Because the
criteria in the duties test for the administrative exemption in the 2004
revised final regulations are substantially the same as under the prior rule,
the outcome of this opinion would be essentially identical under either version
of the regulations. See, Robinson-Smith v. Government
Employees Ins. Co., 323 F. Supp.2d 12 (D.D.C. 2004); McLaughlin v. Nationwide
Mutual Insurance Co., 2004 WL 1857112 (D. Or. 2004). Regulatory references
in this response cite to the revised final regulations effective August 23, 2004, unless otherwise noted.
You state that the Company has contracted with the Defense Security Service (“DSS”), an agency of the
United States Department of Defense, to provide DSS with background
investigations of potential government employees being considered for U.S.
Government Secret and Top Secret security clearances. These investigations are
of critical importance to the Department of Defense’s operations. On its internet
site, DSS describes itself as providing “a crucial role in safeguarding our
Nation’s security” by, among other responsibilities, conducting personnel
security investigations. Its Personnel Security Investigations Program is
described as one of its three primary missions in support of the Department of
Defense.
The Investigators’ duties involve providing information critical for DSS to determine an individual’s
eligibility for access to classified information and/or assignment to, or
retention in, positions with sensitive duties. In making this assessment,
Investigators are to interview the subject of the investigation and witnesses
who may have relevant information. Public and criminal records are checked.
When interviewing subjects and/or witnesses, the Company’s investigators carry
DSS credentials and identify themselves as contract investigators conducting
personnel security investigations on behalf of DSS. If an Investigator
discovers that the subject of the investigation may be involved in any activity
that is criminal in nature, may pose a threat to other persons or to the safety
of a government installation, is of counterintelligence interest or is
otherwise involved in activity that threatens national security, the
Investigator must communicate this information to DSS within 24 hours.
At any given time, an Investigator may have up to ten outstanding investigations assigned to him/her
that require completion by a deadline set forth in the Contract. It is the
Investigator’s responsibility to schedule and prioritize his or her pursuit of
investigative leads. The Investigator is not limited by the assignment and has
discretion to investigate other leads. To accomplish this, the Investigator
must assess the leads assigned for the case, following additional or
alternative leads where appropriate. The Company only advises that the
Investigator strike a balance between contacting a sufficient number of sources
in order to get a complete picture of a subject’s life and committing
investigative over-kill. Striking that balance is left to the Investigator.
The Contract states that investigations often involve details of the
individual’s life and must be conducted with tact and discretion. To that end,
the Investigators must possess a high level of professional judgment in
pursuing investigative leads.
Investigators are also required to obtain record information regarding citizenship, education,
employment, unemployment, criminal convictions, medical history, financial
history, foreign travel and foreign connections. The manner by which the
Investigator elicits the information is left to the discretion and experience
of the Investigator. In particular, the Company has emphasized in written
guidance to its Investigators that each Investigator has his or her own style,
and they should proceed with whatever works best, as long as the methodology
used is in compliance with ethical standards.
If any discrepancies or inconsistencies develop during the course of the investigation, the
Investigators must resolve the information in accordance with broad DSS
guidelines. These guidelines offer only the minimum efforts that an
Investigator must pursue. Additional investigation is permitted at the Investigator’s
discretion to resolve any issues that still exist. As an example, the subject
of an investigation may provide the Investigator with information about his
activities that appear questionable or inconsistent with documents that the
Investigator has already reviewed. If so, the Investigator is empowered to
interview other individuals or check records to develop further information.
If the Investigator determines that an individual is not credible, the
Investigator will so state in his/her Report of Investigation (ROI).
At the conclusion of the investigation process, the Investigator assembles all investigative leads into
a complete ROI. These reports are then used by DSS to determine whether to
grant or deny the subject of the background investigation access to classified
information.
Thus, to summarize, the
Investigators gather factual information according to DSS guidelines and
prepare a report about candidates for sensitive Department of Defense positions
that will allow others in DSS to determine whether to employ individuals in
positions requiring access to classified national security information. The
DSS makes all the decisions whether subjects will be granted a security
clearance, based in part on the Investigators’ reports. You mentioned that
mistakes in the DSS decision as to whether an individual should have access to
classified information or is a threat to national security can have disastrous
consequences, suggesting the critical importance of the accuracy of the
Investigators’ work to the DSS.
The DSS contract requires that the Company’s Investigators possess the following qualifications:
- successful completion of a four-year course of study leading to a bachelor’s
degree (presumably in any field); or
- three years of general experience and successful completion of a Personnel Security Investigations
(PSI) Investigator training course approved by DSS (four-week training program
consisting of classroom instruction and field training on background
investigations for the government); or
- two years of specialized experience within the last five years and successful completion of the PSI
Investigator training course approved by DSS; or
- one year of specialized federal background investigation experience within the last five
years. Investigators must also have at least a Department of Defense Secret clearance or an interim Top Secret clearance to perform work on the DSS
contract.
In supplementing your opinion request, you provided a ruling by the Office of Personnel Management
(OPM) that found that GS-12 Investigators employed by the Defense Security Service, Department of Defense, qualified for the administrative exemption under OPM rules. The limited analysis in that ruling appears to reach conclusions at variance with judicial rulings applied under the FLSA in the
non-federal sector. Because that matter involved a different regulation containing different criteria that do not apply to the present opinion request, we do not find it relevant to the analysis required in responding to your current inquiry.
Below is a discussion of the administrative exemption under the FLSA, which is then followed by an analysis
of whether the Investigators qualify for exemption.
Section 13(a)(1) of the FLSA provides a minimum wage and overtime pay exemption for “any employee employed
in a bona fide executive, administrative, or professional capacity,” as those
terms are defined in the regulations 29 C.F.R. Part 541. An employee may
qualify for exemption as a bona fide administrative employee if all of the
pertinent tests relating to duty, salary level and salary basis, as set forth
in section 541.200 of the revised final regulations, are met. A determination
of the exempt or nonexempt status of an employee must be made on an individual
basis that takes into account all of the pertinent facts relating to the actual
work performed by the employee in question. “A job title alone is insufficient
to establish the exempt status of an employee.” 29 C.F.R. § 541.2. An
employer claiming that an employee is exempt from the FLSA under Section
13(a)(1) bears the burden of proving that all of the requirements for exemption
are met in a particular case.
Under 29 C.F.R. § 541.200 of the revised final regulations, the term “employee employed in a bona fide
administrative capacity” is defined as “any employee:
- Compensated on a
salary or fee basis at a rate of not less than $455 per week …;
- 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
- Whose primary duty includes the exercise of discretion and
independent judgment with respect to matters of significance.” For discussion
purposes, we assume that the Investigators meet the salary or fee basis
requirement under subpart G of the revised final rule.
“The phrase ‘directly related to the management or general business operations’ refers to the type of
work performed by the employee. To meet this requirement, an employee must
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.” 29
C.F.R. §541.201(a).
“Work directly related to management or general business operations includes, 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.”
29 C.F.R. § 541.201(b).
“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).
“To qualify for the administrative exemption, an employee’s primary duty must include the exercise
of discretion and independent judgment with respect to matters of
significance. 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 ‘matters of significance’ refers to the level of
importance or consequence of the work performed.” 29C.F.R. § 541.202(a).
“The phrase ‘discretion and
independent judgment’ must be applied in the light of all the facts involved in
the particular employment situation in which the question arises. Factors to
consider when determining whether an employee exercises discretion and
independent judgment with respect to matters of significance include, but are
not limited to: whether the employee has authority to formulate, affect,
interpret, or implement management policies or operating practices; whether the
employee carries out major assignments in conducting the operations of the
business; whether the employee performs work that affects business operations
to a substantial degree, even if the employee’s assignments are related to
operation of a particular segment of the business; whether the employee has
authority to commit the employer in matters that have significant financial
impact; whether the employee has authority to waive or deviate from established
policies and procedures without prior approval; whether the employee has
authority to negotiate and bind the company on significant matters; whether the
employee provides consultation or expert advice to management; whether the
employee is involved in planning long- or short-term business objectives;
whether the employee investigates and resolves matters of significance on
behalf of management; and whether the employee represents the company in
handling complaints, arbitrating disputes or resolving grievances.” 29 C.F.R.
§ 541.202(b).
“The exercise of discretion and independent judgment must be more than the use of skill in applying
well-established techniques, procedures or specific standards described in
manuals or other sources.” 29C.F.R. § 541.202(e). “An employee does not
exercise discretion and independent judgment with respect to matters of
significance merely because the employer will experience financial losses if
the employee fails to perform the job properly.” 29 C.F.R. § 541.202(f).
As you noted in your letter, the Wage and Hour Division issued an Opinion Letter on September 12, 1997
(WL 971811) that concluded that background investigators conducting investigations
of subjects for employment did not qualify for the administrative exemption.
That letter also cites several Opinion Letters, which found that police
officers who had “primary responsibility for all aspects of the investigation
of major crimes” are production workers of the agency and therefore cannot
qualify for the administrative exemption (February 1, 1988, WH-529). See also
Opinion Letters of December 6, 1988(state criminal investigators); June 9, 1988,
WHM:99:5208 (assistant sheriff, D.A. investigator); and July 8, 1988,
FLSA-1167 (state criminal investigators). Other Opinion Letters have also
determined that investigators, inspectors, probation officers, and similar
employees do not meet the requirements for the administrative exemption because
their primary duties were not related to management policies or general
business operations of their employers. (See Wage and Hour Opinion Letters of April 17, 1998, WL
852783 (investigators); January 23, 1998, WL 852752 (medical investigators); March 11, 1998, WL
852755 (inspectors); December 21, 1994, WL 1004897 (probation officers); July 26, 1988,
WHM:99:5212 (parole agents); and May 19,1988, WHM:99:5207 (deputy sheriffs, sergeants.)
In applying these general principles, the courts frequently have noted that applying the administrative
exemption’s duties test is not as simple as drawing the line between “white
collar” and “blue collar” workers. Rather, non-manufacturing employees can be
considered “production” employees if their job is to generate (i.e., “produce”)
the 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 v. KDFW-TV,
918 F.2d 1220, 1230-31 (5th Cir. 1990) (television station’s
producers, directors, and assignment editors “produced” newscasts and were
therefore non-exempt); Reich v. John Alden Life Ins. Co., 126
F.3d 1, 9 (1st Cir. 1997) (marketing representatives were not
involved in design or generation of insurance policies and therefore could not
be considered production employees). As the court noted in Dalheim, 918
F.2d at 1230: “The distinction § 541.205(a) [of the prior rule] draws is
between those employees whose primary duty is administering the business
affairs of the enterprise from those whose primary duty is producing the
commodity or commodities, whether goods or services, that the enterprise exists
to produce and market.” The preamble to the final rule similarly recognizes
that the production versus staff dichotomy continues to be a useful analytical
tool in evaluating whether an employee’s primary duty is work directly related
to management or general business operations. 69 FR 22141.
We believe that the activities performed by Investigators employed by your client are more related
to providing the ongoing, day-to-day investigative services, rather than
performing administrative functions directly related to managing your client’s
business. From the information provided in your letter, it appears that the
primary duty of the Investigator is diligent and accurate fact-finding,
according to DSS guidelines, the results of which are turned over to DSS who
then makes a decision as to whether to grant or deny security clearances. Such
activities, while important, do not directly relate to the management or
general business operations of the employer within the meaning of the
regulations.
Moreover, even if this work were viewed as related to the customer’s (DSS) management or general business
operations, we believe that most of the work of the Investigators typically
involves the use of skills in applying known standards or established
techniques, procedures or specific standards, as distinguished from work
requiring the exercise of discretion and independent judgment as required for
exemption under 29 C.F.R. § 541.202. Even though, as you state, the
Investigators are “evaluating alternative courses of conduct and acting upon
that evaluation without immediate supervision,” in our view, the Investigators
are merely applying their knowledge in following prescribed procedures or
determining which procedure to follow, or determining whether standards are
met. This is true even though they may have some leeway in reaching a
conclusion or performing their work.
In this regard, planning one’s own workload, such as prioritizing the pursuit of particular leads,
assessing whether the leads provided are in the Investigator’s area of responsibility,
or have provided information that requires further investigation, determining
which potential witnesses to see and which documents to review, and making
similar decisions that promote effective and efficient use of that
individual’s own work time in performing assigned investigative activities, do not
constitute exercising discretion and independent judgment with respect to
matters of significance. It is not sufficient that an employee makes decisions
regarding “when and where to do different tasks, as well as the manner in which
to perform them.” Clark v. J.M. Benson Co., 789 F.2d 282, 287 (4th
Cir. 1986). Rather, the regulations emphasize both the nature and the level of
importance of an employee’s work in relation to managing the employer’s (or
customer’s) business operations, and not simply the ultimate consequence of the
work when mistakes are made. (See 29 C.F.R. § 541.202(f).) Thus, the
regulations provide that personnel clerks who screen applicants to obtain
information about “their minimum qualifications and fitness for employment
generally do not meet the duties requirements for the administrative
exemption.” 29 C.F.R. § 541.203(e). In contrast, a human resources manager
who formulates employment policies, sets the minimum standards and makes the
ultimate hiring decisions generally meets the duties requirements. Id.
From the information you have provided, we do not believe that the duties and responsibilities of the
Company’s Investigators meet the factors required for exemption indicated
above. The revised final FLSA regulations under 29 C.F.R. § 541.203(j) regard
public sector inspectors, investigators and similar employees, as employees
whose duties have been found not to meet the requirements for the
administrative exemption “because their work typically does not involve work
directly related to the management or general business operations of the
employer. Such employees also do not qualify for the administrative exemption
because their work involves the use of skills and technical abilities in
gathering factual information, applying known standards or prescribed
procedures, determining which procedure to follow, or determining whether
prescribed standards or criteria are met.”
Based upon a review of the information you have provided, it is our opinion that the Company’s Investigators do not qualify as bona fide administrative employees under Section 13(a)(1) of the FLSA. Hence, the Company’s Investigators are covered by the minimum wage and overtime provisions of the FLSA.
This opinion is based exclusively on the facts and circumstances described in your request and is
given on the basis of your representation, express or implied, that you have
provided a full and fair description of all the facts and circumstances that
would be pertinent to our consideration of the question presented. Existence
of any other factual or historical background not contained in your request
might require a different conclusion than the one expressed herein. You have
represented that this opinion is not sought by a party to pending private
litigation concerning the issue addressed herein. You have also represented
that this opinion is not sought in connection with an investigation or
litigation between a client or firm and the Wage and Hour Division or the
Department of Labor. This opinion letter is issued as an official ruling of
the Wage and Hour Division for purposes of the Portal-to-Portal Act, 29 U.S.C.
§ 259. See 29 C.F.R. §§ 790.17(d), 790.19; Hultgren v. County of Lancaster, Nebraska, 913 F.2d 498, 507 (8th Cir. 1990).
We trust that the above is responsive to your inquiry.
Sincerely,
Alfred B. Robinson, Jr.
Deputy Administrator
Enclosure
* Note: The actual name(s) was removed to preserve privacy in accordance with 5 U.S.C. 552 (b)(7).
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