United States Court of Appeals For the First Circuit

No. 22-1070

MARTIN J. WALSH, Secretary of Labor, UNITED STATES DEPARTMENT OF LABOR,

Plaintiff, Appellant,

v.

UNITIL SERVICE CORPORATION,

Defendant, Appellee.

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

[Hon. Landya B. McCafferty, U.S. District Judge]

Before

Gelpí, Selya, and Thompson, Circuit Judges.

Dean A. Romhilt, Senior Attorney, United States Department of Labor, with whom Seema Nanda, Solicitor of Labor, Jennifer S. Brand, Associate Solicitor, and Rachel Goldberg, Counsel for Appellate Litigation, were on brief, for appellant. William D. Pandolph, with whom Sulloway & Hollis, P.L.L.C. was on brief, for appellee.

March 22, 2023 GELPÍ, Circuit Judge. Compliance with the Fair Labor

Standards Act's ("FLSA") overtime pay requirements is critical to

ensuring worker protections. Before us, Appellant, the Department

of Labor ("DOL"), seeks overtime compensation under the FLSA for

hours worked in excess of forty hours per week for two categories

of employees -- Dispatchers and Controllers -- employed by

Appellee, Unitil Service Corporation ("Unitil Service"). Unitil

Service argues that these workers are exempt "administrative"

employees under federal law and as such are not entitled to

overtime payments. 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. For the

following reasons, we vacate the grant of summary judgment and

remand to the district court for further proceedings consistent

with this opinion.

I. Background

Unitil Service is a New Hampshire corporation and

wholly-owned subsidiary of Unitil Corporation ("Unitil

Corporation"), a public utility holding company that owns local

and regional utility companies providing gas and/or electricity to

approximately 200,000 residential, commercial, and industrial

- 2 - customers in New England. Unitil Corporation and its subsidiaries

do not own power plants, generate electricity, or produce any

natural gas themselves. Unitil Service provides "administrative

and professional services on a centralized basis" to Unitil Service

subsidiaries ("Distribution Operating Companies" or "DOCs"),

"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 the DOCs' end-user customers.

This includes operating centralized electric and gas control rooms

staffed by the Electric Distribution Dispatchers ("Dispatchers")

and Gas Controllers ("Controllers") at issue here.

a. Duties of Dispatchers

Dispatchers are employed by Unitil Service in a

centralized work area known as Central Electric Dispatch.

According to Unitil Service's general position description, their

duties include:

Provid[ing] 24/7 monitoring and control of the electric transmission and distribution systems for all [DOCs]; provid[ing] outage management response and reporting for all electric [DOCs]; and perform[ing] tasks associated with compliance with regulatory requirements including but not limited to NERC (National Energy Regulatory Commission), MDPU (Massachusetts Department of Public Utilities), NHPUC (New Hampshire Public Utilities Commission) that would include

- 3 - reporting, emergency response, notifications and questions regarding the electric systems. Monitor[ing] electric [software alarm] systems and tak[ing] necessary actions to respond to current system conditions.

In total, approximately 60% of a Dispatcher's time is

spent "perform[ing] monitoring and control of electric systems and

emergency response"; 15% in "communications and notifications";

and 25% in "regulatory reporting compliance" and "documentation."

b. Duties of Controllers

Controllers are employed by Unitil Service in a similar

capacity but for gas DOCs. Their position description reads:

This position has primary oversight responsib[ility] for the operation and control of the Company's gas transmission distribution system; and the managing of pipeline and peak shaving supplies. The incumbent must ensure that the system is operated within the constraints of Federal, State and Company codes and standards as well tariff constraints for the receipt and control of the system supply. This position also provides training and daily guidance to subordinate Gas Controllers and Field Services Coordinator[s].

As a result, approximately 60% of a Controller's time is spent

monitoring and controlling gas pipeline systems, supporting

"processes related to market requirements" for DOCs, and providing

"general control, confirmation, scheduling, balancing and live gas

operations"; 30% interpreting, organizing, and executing complex

assignments, assisting with training and coordination of work for

subordinate Controllers, estimating personnel needs, scheduling

- 4 - and assigning work, and managing complex projects; and 10% serving

as "[b]ack up to [the] Field Services Coordinator as needed."

Generally speaking, both Dispatchers and Controllers

monitor their respective systems for automated alerts or other

developments and respond accordingly to keep electricity or gas

flowing safely.1 While they do not actively control the flow of

electricity or gas, they do determine whether alerts warrant

responses such as shutting off or re-routing the flow of gas or

electricity, dispatching service crews, or communicating with

local authorities and other divisions within the company. Each

role has a manual that covers standard responses to most

situations, and each role has supervisors who are available to

address major issues. Both Dispatchers and Controllers can respond

independently to some situations and deviate from certain

procedures, although the extent of their decision-making authority

and the frequency with which situations require this purported

exercise of discretion are points of dispute. Both groups reported

working, on occasion, substantially over forty hours per week.

II. Procedural History

Following a DOL investigation into the Dispatchers' and

Controllers' work, the DOL filed suit in the District Court for

We note that we group Dispatchers and Controllers here 1

because the nature of their work is similar save for one monitoring gas and the other electricity.

- 5 - the District of New Hampshire against Unitil Service alleging

violation of the FLSA's requirement that employees be paid overtime

unless they are exempt.

, 213. Each

party submitted a motion for summary judgment and the district

court -- applying the summary judgment standard -- concluded that

Dispatchers and Controllers are exempt from overtime requirements

because they are "administrative" employees under the FLSA. U.S.

Dep't of Lab. v. Unitil Serv. Corp.,

, 580

(D.N.H. 2021). This appeal followed.

III. Discussion

On appeal, the DOL argues that Dispatchers and

Controllers do not satisfy the FLSA's administrative exemption and

thus are entitled to overtime pay. More specifically, the DOL

argues that the district court did not properly evaluate the job

duties of both categories of workers under the second prong of the

administrative exemption of the FLSA's regulations, discussed

infra.2 Rather than relying on and analogizing to the relevant

regulation's list of functional areas that can be (but are not

necessarily) administrative, as the district court did, see

(relying on

(b)), the DOL posits that

2 The DOL also argues that the district court misapplied the third prong of the administrative exemption test -- the requirement that an employee's "primary duty include[] the exercise of discretion and independent judgment with respect to matters of significance."

(a)(3).

- 6 - the district court should have instead engaged in a "relational"

analysis to assess whether the Dispatchers' and Controllers'

primary duties are "directly related to the management or general

business operations" of either their employer (Unitil Service) or

their employer's customers (the DOCs),

(a)(2).

We agree, acknowledge that our circuit's precedent on this issue

is limited, commend the district court for attempting to parse out

our limited jurisprudence, clarify the application of the

"relational" analysis test, vacate the grant of summary judgment

for Unitil Service, and remand to the district court to apply the

test we now outline.

a. Standard of Review

This case comes before us at the summary judgment stage.

Thus, we review the issues de novo and draw all reasonable

inferences in favor of the nonmovant -- here, the DOL. Cash v.

Cycle Craft Co.,

(1st Cir. 2007). "Summary

judgment is appropriate only when the record 'show[s] that there

is no genuine issue as to any material fact and that the moving

party is entitled to judgment as a matter of law.'"

(quoting

Fed. R. Civ. P. 56(c)).

b. The FLSA

The FLSA requires that covered employers pay certain

employees an overtime premium "at a rate not less than one and

one-half times the regular rate at which [they are] employed."

- 7 -

(a). Employees "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," however, are exempt from these provisions, and thus

not entitled to overtime payment.

§ 213(a)(1) (emphasis

added). The Secretary'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.

. Thus, to fall under the exemption, each of

the three prongs must be satisfied and the employer bears the

burden of establishing each prong. See Reich v. John Alden Life

Ins. Co.,

(1st Cir. 1997). The DOL has promulgated

additional regulations that define certain of the terms in the

second and third prongs. See, e.g.,

;

541.700. The regulations also describe relevant factors to

consider in determining whether those same prongs are satisfied.

§§ 541.201-202. And the regulations further include a list of

hypothetical employees (with corresponding hypothetical job

- 8 - descriptions) meant to illustrate circumstances in which an

employee may or may not qualify for the administrative exemption.

Id. § 541.203.

Before us, the parties do not dispute that the first

prong -- the sufficient compensation requirement -- is met.

Instead, the dispute turns on whether the remaining two prongs

were satisfied. Because we vacate on the second prong, see id.

§ 541.200(a)(2), we do not address the third prong -- the

discretion-and-independent-judgment prong.

c. The Second Prong

For present purposes, whether both classes of employees

can be properly characterized as "administrative" employees -- and

thus exempt from overtime payment -- turns on whether their

"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." Id. (emphases

added).

Certain of the terms used in

(a)(2)

are defined and explained in other sections of the DOL's

regulations. "Primary duty" is defined to mean "the principal,

main, major or most important duty that the employee performs,"

and generally means that the employee spends at least 50% of his

or her time performing the duty.

§ 541.700. And although the

regulations do not define the phrase "directly related to the

- 9 - management or general business operations," they do make clear

that the phrase "refers to the type of work performed by the

employee." Id. § 541.201(a). They also make clear that an

employee will qualify as "administrative" under the second prong

only if he or she "perform[s] 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." Id.

(emphasis added). And separately, the regulations state that

"[w]ork directly related to management or general business

operations" can include, "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." Id. § 541.201(b) (outlining a non-exhaustive

list of examples of "[w]ork directly related to management or

general business operations").

Our jurisprudence interpreting and applying the second

prong is limited. We clarify here, however, that the analysis is

indeed -- as described by the DOL -- a "relational" one. At

bottom, the analysis asks whether the employee's primary duty is

- 10 - "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).

Our precedents and those from other circuits illustrate

that, in conducting this analysis, it is often useful to identify

and articulate the business purpose of the employer and (if

necessary) the employer's customers. By "business purpose" we

mean the production or provision of "the very product or service

that the" employer or its customers "offers to the public." John

Alden,

; see Bigger v. Facebook, Inc.,

(7th Cir. 2020) (referring to same concept as "the

enterprise's core function" or "central revenue generator"); Dewan

v. M-I, L.L.C.,

(5th Cir. 2017) (referring to

"the commodity or commodities, whether goods or services, that the

enterprise exists to produce and market" (quoting Dalheim v. KDFW-

TV,

(5th Cir. 1990))); Bothell v. Phase

Metrics, Inc.,

(9th Cir. 2002) (referring to

"the goods and services which constitute the business' marketplace

offerings"). Having done so, one may then compare the employee's

primary duty to the business purpose of the employer and/or the

employer's customers to determine whether the employee's primary

duty directly relates to the business purpose or, conversely, is

- 11 - directly related to the "running or servicing of the business."

(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." See John Alden,

; Hines v. State Room,

Inc.,

(1st Cir. 2011) (considering whether the

employees' duty was ancillary to the business's "principal

function"); Cash,

(not mentioning "ancillary"

test but evaluating relationship between employee duties and

business purposes). John Alden provides a clear example of this

mode of analysis. There, we concluded that "the activities of the

marketing representatives [at issue] [we]re 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" an earlier

version of the regulation at issue. John Alden,

(likening marketing representatives' activities to "'representing

the company' and 'promoting sales'" -- examples of "exempt

administrative work").

This analytical framework has its roots in what has

sometimes been referred to as the "administrative-production

dichotomy." See

. That dichotomy can be useful in

assessing whether the second prong of the administrative exemption

- 12 - has been satisfied, but the dichotomy itself is not dispositive

and should be employed "only to the extent it clarifies the"

broader question of whether an employee's work is directly related

to the running or servicing of the business. Bothell,

; see Calderon v. GEICO Gen. Ins. Co.,

(4th

Cir. 2015) (explaining "that while production-type work is not

administrative, not all non-production-type work is

administrative" (emphases in original)); see also Schaefer v. Ind.

Mich. Power Co.,

(6th Cir. 2004); Defining

and Delimiting the Exemptions for Executive, Administrative,

Professional, Outside Sales and Computer Employees,

, 22141 (April 23, 2004) (codified at 29 C.F.R. pt. 541).

i. Dispatchers and Controllers

Having explained the "relational" analysis test, we now

turn to the case of Dispatchers and Controllers. As an initial

matter, we note that areas like the energy sector -- where power

is the product, but transmission and certain other services are

inextricably linked -- and separately incorporated services

corporations (common in industries like healthcare, insurance, and

utilities) can create confusion on how to apply this analysis.

Turning to the facts before us, we ask whether Unitil

Service has conclusively shown that the Dispatchers' and

Controllers' primary duties are "directly related to the

management or general business operations of" either Unitil

- 13 - Service (the employer) or the DOCs (the employer's customers).

See

(a)(2). 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.

We divide our inquiry into two parts. To begin, we first

assess whether the Dispatchers' and Controllers' primary duties

directly relate to the management or general business operations

of Unitil Service. The district court found that the primary

duties of the Dispatchers and Controllers are to provide the very

services that Unitil Service is in the business of providing. The

district court's finding in this regard is unassailable. Unitil

Service's is in the business of providing operational and

administrative services to its subsidiaries. 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 for the DOCs -- 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.

Consequently, the only way Unitil Service -- which bears the

- 14 - burden of establishing that an employee falls under the FLSA's

"administrative" exemption -- can satisfy the second prong is to

show that the Dispatchers' and Controllers' primary duties are

directly related to the management or general business operations

of the DOCs (the employer's customers).

To determine whether Unitil Service can satisfy the

second prong in this regard, we turn to whether the Dispatchers'

and Controllers' primary duties relate to the "running or

servicing" of the DOCs. The district court assessed this question,

but it did not do so through the lens of the "relational" analysis.

In other words, the court did not compare the primary duties of

the Dispatchers and Controllers to the DOCs' business purposes to

determine whether the employees' duties are directly related to

the DOCs' business purposes as opposed to general business

operations. Instead, the district court looked to the list of

functional areas in Section 541.201(b) that can be, but are not

necessarily, administrative depending on the duties of the

employees. Unitil Serv. Corp., 573 F. Supp. 3d at 578. The court

concluded that, because the Dispatchers' and Controllers' primary

duties were analogous to the functional areas of "regulatory

compliance," "quality control," and "health and safety," their

work satisfied the requirements of the second prong. Id.; see

also

(b) (listing examples of the functional

areas related to "management or general business operations").

- 15 - But simply analogizing the Dispatchers' and Controllers'

duties to the functional areas outlined in

(b)

was insufficient. As the DOL points out, although the position

description for Dispatchers includes "tasks associated with

compliance with regulatory requirements," the record, including

the "principal accountabilities" section of the job description,

does not indicate that either Dispatchers or Controllers do

anything beyond engaging in their daily operational duties "within

the limits of the applicable Federal, State and Company codes and

standards." The same is true for engaging in work subject to

certain compliance and safety standards. Further, neither

Dispatchers nor Controllers play a role in testing or evaluating

the DOCs' distribution or pipeline systems outside of the day-to-

day monitoring of these systems. Dispatchers and Controllers do

not design or plan the systems, nor do they analyze how they work

or how they can be improved. See Renfro v. Indiana Michigan Power

Co.,

(6th Cir. 2004) (finding that because the

"planners" at issue "creat[ed] plans for maintaining equipment and

systems in the nuclear plant," their work was "ancillary" to the

power company's "principal production activity of generating

electricity"). Accordingly, while analogizing to the functional

areas may be useful in some cases, here, these analogies fail to

capture all that is encompassed by the "relational" analysis.

- 16 - Moreover, Unitil Service's organizational makeup reveals

that the company has entirely separate departments for the very

functional areas outlined above. These include departments for

"Business Continuity & Compliance" (employing a number of health

and safety compliance specialists), "Financial Services"

(employing auditors and lawyers), and "Regulatory Services"

(employing regulatory analysts). That the Dispatchers' and

Controllers' duties may, in a limited or superficial way implicate

health, safety, and quality control tasks, does not mean that this

was their "primary duty."

Unitil Service would have us look to an unpublished case

on which the district court relied, Zelenika v. Commonwealth Edison

Co., No. 09 C 2946,

(N.D. Ill. July 23, 2012).

Zelenika involved "dispatchers" whose job was to "monitor [an

electric utility's] power distribution system, oversee service to

the system, and respond to customer complaints and power outages."

. The court determined that the employer satisfied the

second prong by analogizing to the functional areas in Section

541.201(b) rather than engaging in a "relational" analysis between

the primary duty of the role and the business of the utility. See

. However, as discussed supra, it is not enough to look

only at the list of job functions under Section 541.201(b). Courts

must also consider whether the employee's primary duty is

contributing to the "running or servicing of the business."

- 17 - IV. Conclusion

Accordingly, because the district court did not apply a

"relational" analysis comparing the business purpose of Unitil

Service and/or its customers to the primary duty of the Dispatchers

and Controllers, it was improvident to grant summary judgment to

Unitil Service. Unitil Service has not demonstrated that the

Dispatchers' and Controllers' primary duty consists of work

"directly related to the management or general business

operations" of its customers such that the employees fall under

the second prong of

. We leave it to the trier

of fact to apply the "relational" analysis required by the second

prong of the test. At this stage, genuine issues of material fact

remain unresolved. Accordingly, we vacate the decision of the

district court granting summary judgment to Unitil Service and

remand for further proceedings consistent with this opinion. No

costs are awarded.

- 18 -