Tag Archives: Calculating Overtime Compensation

D.Conn.: Time and a Half is the Proper Measure of Damages in a “Salary Misclassification” Case

Hasan v. GPM Investments, LLC

Yet another court has weighed in on the FWW (“half-time”) versus time and a half issue in so-called “salary misclassification” cases, and this time it’s a victory for employees. This case was before the court on the plaintiffs’ motion in limine regarding the methodology for calculating damages, in the event the plaintiffs prevailed on their misclassification claims at trial. Addressing all of the arguments typically proffered by plaintiff-employees and defendant-employers, the court held that the fluctuating work week methodology was inapplicable because the defendant failed to meet several of the prerequisites for its use. Thus, the court held that any damages had to be calculated using the FLSA’s default time and a half methodology.

After a lengthy discussion of the Missel case, a history of the FWW and recent salary misclassification decisions, the court discussed why the FWW could not apply to a salary misclassification case. Framing the issue, the court explained:

Plaintiffs contend that the fluctuating work week method of compensation is never appropriate in a case where an employer has misclassified an employee as exempt from the FLSA’s protections. They argue that misclassification cases only present one issue—how to reconstruct what the rate of pay would have been absent a violation. Defendants counter that in a misclassification case “a fixed salary is always meant to compensate for all hours worked,” and under Missel, a fluctuating work week calculation “provides the precise remedy.” Def. Opp. at 12. In other words, a misclassification case does not require that the court recreate a rate, but, instead, that it convert a unusual payment method into an hourly rate. Plaintiffs have the better argument and one need look no further than the DOL’s guidance to understand why.

Initially, the court noted that where an employer has classified an employee as exempt, logically there is never a mutual understanding that overtime will be paid at varying rates, because the parties agreement is that there will be no overtime at all.

When an employer misclassifies an employee, the resultant employment contract will never fulfill any of the requirements of section 778.114. First, parties who believe that an employee merits no overtime payment cannot simultaneously believe that any overtime will be paid at varying rates. Put another way, in a misclassification case, the parties never agreed to an essential term of a fluctuating work week arrangement—that overtime would be paid at different rates depending on the number of hours worked per week. See Perkins v. Southern New England Telephone Co., 2011 WL 4460248 at *3 (D.Conn. Sept. 27, 2011), Russell, 672 F.Supp.2d at 1013–14,Rainey v. Am. Forest & Paper Assoc., 26 F.2d 82, 100–02 (D.D.C.1998). To assume otherwise converts every salaried position into a position compensated at a fluctuating rate.

Next, the court noted the lack of contemporaneous overtime payment at the time the work in question was performed, pursuant to the parties agreement that there would be no overtime:

Second, misclassified employees will never have received any kind of bonus or premium for overtime. Indeed, parties will have explicitly agreed, as they did in this case, that employees will not earn extra money for long hours. See Def. Opp. Ex. A Job Description (listing the position as explicitly “exempt” from overtime compensation). At best, an employer could argue that the flat salary had an overtime bump embedded within it, that it was high enough so that employees remained well compensated for the hardship of working more than 40 hours per week. But this argument fails for two reasons: First, such an agreement would be illegal. An employee would have to waive her statutory right to extra compensation for overtime. Barrentine v. Arkansas–Best Freight Sys., 450 U.S. 728, 740 (1981) (noting that “FLSA rights cannot be abridged by contract” because this would “nullify the purposes of the statute”). Second, Missel explicitly rejected such an argument. The court reasoned that the contract at issue did not comply with the FLSA because “it [did not include a] provision for additional pay in the event the hours worked required minimum compensation greater than the fixed wage.” Missel, 316 U.S. at 581.

Further, here the court noted that while the plaintiffs’ hours fluctuated, the never worked fewer than 40 hours. Thus, the court concluded this was not a situation where short weeks were balanced against longer weeks and the plaintiffs were nonetheless receiving the type of steady income envisioned by the FWW as the supposed benefit for employees:

In this case, GPM also fails to meet a third criterion enunciated in the DOL’s guidance—that an employee’s hours actually fluctuate. After it lays out the requirements for a contract for a fluctuating rate, the rule warns that “typically, such salaries are paid to employees who do not customarily work a regular schedule of hours” and are “in amounts agreed on by the parties as adequate straight-time compensation for long work weeks as well as short ones .” 29 C.F.R. § 778.114(c). For a fluctuating work week arrangement to make sense to both parties, employees should offset their relative loss from a grueling work week far above forty hours with the benefit of full pay for weeks that clock-in at less than forty hours. Otherwise, employees have not bargained for anything but decreasing marginal pay as they work longer and longer hours at work. This is what the Court divined in Missel; a rate clerk would sometimes work long hours when shipments flooded in, and sometimes not at all when business dried up. Here, plaintiffs never had a short week; GPM’s job description stated that store managers were expected to work a minimum of 52 hours per week. See Def. Opp. Ex. A, Job Description. To the extent their hours fluctuated, it was because they sometimes worked almost 100 hours per week. See Plaintiff’s Motion in Limine, Ex. A, Timesheets. This variance, between weeks with a moderate amount of overtime hours, and weeks where a majority of hours worked exceeded the 40 hour threshold, is not the same as the up and down fluctuation contemplated by the DOL and by the Court in Missel.

In light of the defendant’s failure to meet any of the prerequisites for the use of the FWW, the court concluded that any damages due would be calculated using the FLSA’s default time and a half methodology.  Thus, it granted the plaintiffs’ motion in limine.

Click Hasan v. GPM Investments, LLC to read the entire Ruling and Order on Motion in Limine to Preclude Use of the Fluctuating Work Week.

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N.D.Cal.: “Annual Leave” Buy-Back, Consisting of Both Vacation and Sick Leave, Need Not Be Included in Regular Rate (or OT) Calculations

Balisteri v. Menlo Park Fire Protection Dist.

This case was before the court on the parties’ cross-motions for summary judgment. Plaintiffs asserted 2 distinct claims: one for time spent donning and doffing their firefighter uniforms for temporary assignment, and one based on their assertion that defendant erred in failing to include payments made for buy-back of “Annual Leave” in their regular rates (and corresponding overtime rates). As discussed here, the court granted the defendant’s motion and held that the “Annual Leave” buy-back need not be included in the calculation of plaintiffs’ regular rate, while denying plaintiffs’ motion. In so doing the court distinguished the case from others reaching the opposite conclusion regarding a similar issue.

The court framed the issue as follows:

Plaintiffs’ second claim alleges that Defendant violated the FLSA by failing to include Annual Leave buy-backs for unused “sick leave” in their regular rate of pay which, in turn, negatively affected their overtime pay. The FLSA requires employers to pay their employees overtime based on one and a half times the employee’s “regular rate” for hours worked in excess of 40 hours a week. 29 U.S.C. § 207(a)(2)(c). The “regular rate” of pay “at which an employee is employed shall be deemed to include all remuneration for employment paid to, or on behalf of, the employee,” subject to certain enumerated exceptions. Id. § 207(e). One exception is for payments made for periods when no work is performed. Id. § 207(e)(2). The exception states that the regular rate should not include:

Payments for occasional periods when no work is performed due to vacation, holiday, illnesses, failure of the employer to provide sufficient work, or other similar cause …; and other similar payments to an employee which are not made as compensation for his hours of employment.

Id. (emphasis added). The regulations implementing this exclusion reiterate that when an employee is not at work due to vacation or illness but nonetheless is paid, said payment need not be used in calculating the employee’s regulate or overtime rate of pay. 29 C.F.R. § 778.218(a). The exclusion also applies when an employee foregoes a vacation but still receives vacation pay in addition to his or her customary pay for all hours worked. Id. § 779.218(a); see Chavez v. City of Albuquerque, 630 F.3d 1300, 1307–309 (10th Cir.2011) (citing, inter alia, 29 C.F.R § 779.218(a) and holding that “vacation buy back-payments are not part of the regular rate.”).

Discussing the relevant law, the court explained:

The Ninth Circuit has not yet addressed the issue of whether buy-back compensation for unused sick leave must be included in an employee’s regular rate for purposes of the FLSA, and other circuits are split on the issue. In Featsent v. City of Youngstown, 70 F.3d 900 (6th Cir.1995), the Sixth Circuit held that a cash-out for unused sick leave is not pay for hours worked, and need not be included in the employee’s regular rate. Id. at 905. The court reasoned that “awards for nonuse of sick leave are similar to payments made when no work is performed due to illness, which may be excluded from the regular rate” under 29 U.S.C. § 207(e)(2). Id. In contrast, the Eighth Circuit in Acton v. Columbia, 436 F.3d 969 (8th Cir.2006) reached the opposite conclusion. In its analysis, the Acton court relied on 29 U.S.C. § 207(e), which requires money paid for general or specific work-related duties to be included in the regular rate of pay. Id. at 976–77. Noting that “the primary effect of the buy-back program is to encourage firefighters to come to work regularly over a significant period of their employment tenure,” the court concluded that work attendance was a specific work-related duty and that the buy-back payments must be included as remuneration for employment. Id. at 977.

Following Action, as well as a Department of Labor interpretive bulletin, the Tenth Circuit in Chavez held that sick leave buy-backs—but not vacation buy-backs—must be included in the regular rate. 630 F.3d at 1309;
see U.S. Dept. of Labor, Wage and Hour Opinion Letter FLSA–2009–10, dated Jan. 16, 2009,
2009 WL 649021. The Chavez court explained this distinction as follows:

To be sure, both vacation and sick leave buy-back reward attendance, in some sense, because they reward an employee for not taking days off. The key difference lies in the way each type of day off operates. A sick day is usually unscheduled or unexpected, and is a burden because the employer must find last-minute coverage for the sick employee. In contrast, vacation days are usually scheduled in advance, so their use does not burden the employer in the way that unscheduled absences do. An employee has a duty not to abuse sick days, whereas there is no corresponding duty not to use vacation days. Buying back sick days rewards an employee for consistent and as-scheduled attendance, which are the aspects of good attendance that provide additional value to an employer. Thus, sick leave buy-backs are compensation for additional service or value received by the employer, and are analogous to attendance bonuses. In contrast, payments for non-use of vacation days are analogous to holiday work premiums or bonuses for working particular undesirable days.

Id. at 1309–1310.

Rejecting plaintiffs’ assertion that the payments at issue must be included in the regular rate calculations and distinguishing out-of-circuit case law, the court reasoned:

Plaintiffs urge the Court to follow Acton and Chavez and to find that the District’s buy-backs under its Annual Leave program should have been included in Plaintiff’s regular rate. The Court disagrees. Both of those cases involved dedicated buy-back programs specifically for sick time. This case is different. The District no longer separates sick leave from vacation time. Rather, the District now maintains an Annual Leave program which makes no distinction between vacation or sick time when time is withdrawn from the Annual Leave Bank. As discussed, under the terms of the governing MOU, Annual Leave accrues pursuant to separate formulas for “sick leave” and “vacation.” MOU § 10.1 & Ex. B. However, once sick leave and vacation time have accrued, they are deposited into an Annual Leave Bank. Once in the Annual Leave Bank, the employee’s accrued time is simply treated as Annual Leave, which can be used for both unscheduled and scheduled absences. In other words, an employee may use his or her Annual Leave without regard to the reason the employee is taking time off. Thus, unlike the sick leave buy-back program in Chavez, the District’s buy-back of annual leave does not “reward[ ] an employee for consistent and as-scheduled attendance” and is not “analogous to attendance bonuses.” 630 F.3d at 1309–310.

The court rejected plaintiffs argument regarding the significance of the fact that under the MOU, leave time accrues separately on either the vacation or sick leave schedule, and that when time is debited from the Annual Leave Bank, it is classified as either “annual level scheduled” or “annual leave unscheduled.” The court also questioned the significance of the fact that the hours accrued at the vacation rate are segregated into an Annual Leave Restricted Bank until they can be scheduled and used. Because no deductions could be made from the Annual Leave Restricted Bank nor does the District buy-back any leave in that bank. Id. Instead, only at the end of the calendar year in which the leave accrued are those hours are rolled in the Annual Leave Bank where they can be used for any purpose. Finally, the court dismissed plaintiffs argument that, as a practical matter, the “vast majority” of them use their Annual Leave for scheduled absences, meaning that any leftover hours cashed-out are, in effect, for sick leave, due to the lack of evidence in support of this proposition.

Click Balisteri v. Menlo Park Fire Protection Dist. to read the Order Granting Defendant’s Motion for Summary Judgment, and Denying Plaintiffs’ Motion for Summary Judgment.

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M.D.Fla.: In “Salary Misclassification” Case, Time And A Half Damages Due, Because FWW Calculation Would Result In Sub-Minimum Wages For Overtime Hours In Many Weeks

West v. Verizon Services Corp.

This case was before the court on the Defendants’ motions for summary judgment on a variety of issues.  Defendants’ motions were denied.  As discussed here, the case of interest, because the court weighed in on the hot-button issue of how to calculate damages for an employee who was “salaried misclassified” by his or her employer.  Here, the court held that the damages for the plaintiff, if any, were to be calculated using the FLSA’s default time and a half methodology, largely because a calculation under the fluctuating workweek methodology (FWW) would result in sub-minimum wages for overtime hours in many weeks.

Pertinent to the issue discussed here, Plaintiffs pay was $400.00 per week in salary and, in some instances they could earn a $200.00 bonus in addition, if certain conditions were met.  The testimony in the record also indicated that the Plaintiffs worked varying hours each week, sometimes working in excess of 60 hours per week.

Holding that Plaintiffs’ damages, if any, were due to be calculated at the FLSA’s default time and a half rate, the court reasoned:

“D. Rate of Overtime Compensation

As noted above, Defendants argue that West is not entitled to any overtime compensation. However, in the alternative to Defendants’ aforementioned arguments, Defendants submit that if West is entitled to overtime compensation, she is not entitled to overtime compensation at the rate of time and one-half for hours worked over 40. Rather, Defendants contend that, if West is entitled to overtime compensation, her damages should be calculated using the “half-time” method. West disagrees, and seeks time and one-half for all overtime hours worked.

The FLSA mandates overtime payment for non-exempt employees for hours worked over 40 in a workweek at a rate of one and one-half times the regular rate at which the employee is paid. 29 U.S.C. § 207(a)(1). As correctly noted by Defendants, “calculation of the ‘regular rate’ is thus the starting point for determining the amount of overtime an employee is owed.” (Doc. # 214 at 12).

In Overnight Motor Transportation Company v. Missel, 316 U.S. 572, 580, 62 S.Ct. 1216, 86 L.Ed. 1682 (1942), the Court held that the employee’s “regular rate” may be determined by dividing the number of hours actually worked by the weekly wage. Id. As a result, a non-exempt employee who receives a weekly salary for all hours worked (even hours over 40) has, by definition, already been paid his “regular rate” for all hours worked in the workweek. Using this method, a salaried employee is only owed half-time for any hours worked in excess of 40 per week.

There can be no doubt that under certain circumstances, overtime payment using the half-time approach is entirely appropriate. “Virtually every court that has considered the question has upheld the remedial use of half-time in failed exemption cases.” Torres v. Bacardi Global Brands Promotions, Inc., 482 F.Supp.2d 1379, 1381, n. 2 (S.D.Fla.2007) (internal citation omitted). However, West asserts that compensation for overtime using the half-time approach, rather than the time and one-half approach, is improper here because Defendants have not satisfied the requirements of the “Fluctuating Work Week” Regulation.

Under 29 C.F.R. § 778.114, the fluctuating workweek method of calculating compensation is used only if the following requirements are met: (1) the employee’s hours fluctuate from week to week; (2) the employee receives a fixed weekly salary which remains the same regardless of the number of hours worked during the week; (3) the fixed amount is sufficient to provide compensation at a regular rate not less than the legal minimum wage; (4) the employer and the employee have a clear and mutual understanding that the employer will pay the employee a fixed salary regardless of the number of hours worked; and (5) the employee receives a fifty percent overtime premium in addition to the fixed weekly salary for all hours worked in excess of 40 during the week. See also Davis v. Friendly Express, Inc., 61 Fed. App’x 671 (11th Cir.2003); O’Brien v. Town of Agawam, 350 F.3d 279, 288 (1st Cir.2003); Griffin v. Wake County, 142 F.3d 712, 716 (4th Cir.1998).

It is evident that the arrangement between West and Defendants does not comport with the fluctuating workweek requirements above. Most importantly, if West worked 72 hours a week, her hourly rate using the fluctuating workweek method would be $5.56, which is less than the applicable minimum wage during the time of her employment ($6.79). As calculated by West, “any week in which West worked at least 59 hours, her hourly rate would fall below the guaranteed minimum wage.” (Doc. # 224).

In addition, West testified that her hours did not fluctuate in that she worked 72 hours per week, every week. There can be no understanding that an employee’s salary is intended to compensate for fluctuating hours-the hallmark of a fluctuating work week case-when the worker understands her hours to be set at 72 hours per week. Furthermore, West’s salary was not “fixed” because she received various bonus payments and commissions.

On the present record, the Court declines to determine that West’s overtime compensation, if any, should be limited to half-time, rather than time and one-half. In the instance that a jury determines that West is entitled to overtime compensation, West’s rate of overtime compensation will be time and one-half.”

Click West v. Verizon Services Corp. to read the entire order.

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4th Cir.: When Salaried Employees Were Misclassified, Damages Properly Calculated At “Half-Time” Rather Than Time And A Half

Desmond v. PNGI Charles Town Gaming, L.L.C.

As discussed here previously, this was the second time this case ended up at the 4th Circuit.  Previously, the 4th Circuit had vacated the trial court’s Order determining the plaintiff’s to be administratively exempt and remanded the case for further findings.  On this appeal the plaintiffs challenged the lower court’s ruling as to how their damages in this so-called “salary misclassified” case should be determined.  Additionally, the defendant cross-appealed the lower court’s determination, on summary judgment, that it’s violations were willful.  Joining other Circuits who have ruled on the calculation issue, the 4th Circuit held that the lower court properly applied a so-called “half-time” calculation in determining the plaintiffs damages.

In making its ruling, the 4th Circuit discussed, at length case law from other circuits:

“The former employees worked as racing officials with Charles Town Gaming. J.A. 50. Charles Town Gaming prepared the job descriptions for racing officials in 1999. Id. at 55-56. In doing so, Charles Town Gaming’s human resources director used a computer program to help determine whether to designate the position as exempt or non-exempt from overtime under the FLSA. Id. Charles Town Gaming paid the racing officials a per diem rate and treated them as exempt. See Aff. Karen Raffo, Nov. 20, 2007. Over the ensuing years, Charles Town Gaming changed the pay from per diem to a fixed weekly salary that the parties intended to cover all hours worked. See J.A. 56, 146-52; Aff. Karen Raffo, Nov. 20, 2007. Charles Town Gaming believed (erroneously) that the former employees were subject to the FLSA administrative exemption; therefore, Charles Town Gaming did not pay them overtime. J.A. 49. All three appellants often worked more than 40 hours in a week. Id. at 50. After the appellants unanimously declared the wrong horse to have won a race, Charles Town Gaming dismissed them from their employment. Id.

The former employees contend the district court erred in calculating their unpaid overtime compensation under 29 U.S.C. § 216(b). Charles Town Gaming contends the district court erred by concluding that their FLSA violation was willful. We review a grant of summary judgment de novo. See, e.g., United States v. Bergbauer, 602 F.3d 569, 574 (4th Cir.2010). When cross-motions for summary judgment are before a court, the court examines each motion separately, employing the familiar standard under Rule 56 of the Federal Rules of Civil Procedure. See, e.g., Ga. Pac. Consumer Prods., L.P. v. Von Drehle Corp., 618 F.3d 441, 445 (4th Cir.2010).

The former employees challenge how the district court calculated their unpaid overtime compensation under 29 U.S.C. § 216(b). The Supreme Court addressed how to calculate such unpaid overtime compensation under 29 U.S.C. § 216(b) in Overnight Motor. 316 U .S. at 580. The Court held that when calculating the “regular rate” of pay for an employee who agreed to receive a fixed weekly salary as payment for all hours worked, a court should divide the employees fixed weekly salary by the total hours worked in the particular workweek.   Id. at 579-80 (analyzing section 7 of the FLSA, now codified at 29 U.S.C. § 207(a)(1)). This calculation should be completed for each workweek at issue and results in a regular rate for a given workweek. Id. Of course, the Court recognized that the regular rate could vary depending on the total hours worked. The Court then determined that the employee should receive overtime compensation for all hours worked beyond 40 in a given workweek at a rate not less than one-half of the employee’s regular rate of pay. Id.

Although the parties agree that Overnight Motor applies in calculating the regular rate, they disagree about how to calculate the overtime premium. Specifically, the parties disagree over whether the former employees should receive 150% of the regular rate for all hours worked over 40 in a given workweek or 50% of the regular rate for all hours worked over 40 in a given workweek.

In analyzing how to calculate unpaid overtime compensation under 29 U.S.C. § 216(b) in this mistaken exemption classification case, we note that four sister circuits have addressed this issue. The First, Fifth, Seventh, and Tenth Circuits all have determined that a 50% overtime premium was appropriate in calculating unpaid overtime compensation under 29 U.S.C. § 216(b) in mistaken exemption classification cases, so long as the employer and employee had a mutual understanding that the fixed weekly salary was compensation for all hours worked each workweek and the salary provided compensation at a rate not less than the minimum wage for every hour worked. See Urnikis-Negro v. Am. Family Prop. Servs., 616 F.3d 665 (7th Cir.2010); Clements v. Serco, Inc., 530 F.3d 1224 (10th Cir.2008); Valerio v. Putnam Assocs., Inc., 173 F.3d 35 (1st Cir .1999); Blackmon v. Brookshire Grocery Co., 835 F.2d 1135 (5th Cir.1988).

In Blackmon, the Fifth Circuit applied 29 C.F.R. § 778.114 to calculate unpaid overtime compensation in a mistaken exemption classification case. 835 F.2d at 1138. The employees in Blackmon were meat-market managers who were wrongly classified as exempt. Id. at 1137-38. The district court calculated their unpaid overtime compensation by dividing the weekly salary by 40 hours to determine their regular rate, multiplying that rate by 150%, and then multiplying that result by the number of overtime hours. Id. at 1138. The Fifth Circuit rejected this method, instead applying 29 C.F.R. § 778.114 to determine the regular rate, and only using a 50% multiplier. Id. The Fifth Circuit did not cite, much less discuss, Overnight Motor.

In Valerio, the First Circuit upheld an award of summary judgment in a mistaken exemption classification case. 173 F.3d at 39-40. Valerio was wrongly classified as an exempt employee. Id. at 37. Upon dismissing Valerio from employment, her employer gave her a lump-sum payment intended to cover any overtime owed to her. Id. at 38. In calculating the unpaid overtime compensation, the employer paid her a 50% overtime premium and relied on 29 C.F.R. § 778.114. The First Circuit affirmed the district court’s finding that the amount paid was more than was owed to Valerio under the FLSA. Id. In Valerio, the First Circuit cited, but did not discuss, Overnight Motor. Id. at 39-40.

In Clements, the Tenth Circuit affirmed a district court’s application of 29 C.F.R. § 778.114 to calculate unpaid overtime compensation in a mistaken exemption classification case. 530 F.3d at 1225. The employees in Clements provided recruiting services to the Army on behalf of their employer, Serco. Id. Serco had erroneously classified these employees as exempt under the “outside salesmen” exemption. Id. at 1227; cf. 29 U.S.C. § 213(a)(1). The employees claimed a 150% multiplier applied because the employer and employees had not agreed on whether overtime compensation was owed. Clements, 530 F.3d at 1230. In affirming the use of a 50% multiplier in calculating the unpaid overtime compensation, the Tenth Circuit cited 29 C.F.R. § 778.114, the First Circuit’s decision in Valerio, and our decision in Bailey v. County of Georgetown, 94 F.3d 152, 155-57 (4th Cir.1996).   Clements, 530 F.3d at 1230. The Tenth Circuit found the lack of a clear and mutual understanding on the overtime premium to be “irrelevant as to whether the Employees understood they were being paid on a salaried … basis.” Id. at 1231. In Clements, the Tenth Circuit did not cite, much less discuss, Overnight Motor.

In Urnikis-Negro, the Seventh Circuit affirmed a district court’s award of a 50% overtime premium to calculate unpaid overtime compensation in a mistaken exemption classification case. 616 F.3d at 684. However, the court rejected the district court’s retroactive application of 29 C.F.R. § 778.114, finding it a “dubious source of authority for calculating a misclassified employee’s damages.” Id. at 679. Instead, the court relied on Overnight Motor. Id. at 680-84. The court held that when an employer and employee agree that a fixed salary will constitute payment at the regular rate for all hours worked and the rate is not lower than the minimum wage, a court should rely on Overnight Motor to calculate unpaid overtime compensation under 29 U.S.C. § 216(b). Id. Moreover, in such a situation, the court calculates the unpaid overtime compensation using a 50% multiplier rather than a 150% multiplier. See id.

In addition to these decisions from our sister circuits, the Department of Labor also has approved using a 50% overtime premium to calculate unpaid overtime compensation in a mistaken exemption classification case. See Retroactive Payment of Overtime and the Fluctuating Workweek Method of Payment, Wage and Hour Opinion Letter, FLSA 2009-3 (Dep’t of Labor Jan. 14, 2009). The DOL issued the opinion letter in response to an employer who asked how to compensate employees mistakenly classified as exempt. Id. at 1. In the opinion letter, the DOL states that “because the fixed salary covered whatever hours the employees were called upon to work in a workweek; the employees will be paid an additional one-half their actual regular rate for each overtime hour …; and the employees received and accepted the salary knowing that it covered whatever hours they worked,” a retroactive payment of overtime using the 50% multiplier conforms with FLSA requirements. Id. at 2.

Here, the district court did not apply 29 C.F.R. § 778.114 to this mistaken exemption classification case. Rather, the district court relied on the logical implications of Overnight Motor to calculate unpaid overtime compensation under 29 U.S.C. § 216(b). Desmond, 661 F.Supp.2d at 584. The district court found that there was an agreement that the fixed weekly salary covered all hours worked. Id. The district court then reasoned that Overnight Motor’s regular-rate determination implies the previously paid weekly salary covers the base compensation for all hours worked. Id. Thus, the district court concluded that it need only award 50% of the regular rate to provide the employees their “unpaid overtime compensation” under 29 U.S.C. § 216(b). Id.

Appellants disagree and insist that such a reliance on Overnight Motor improperly expands federal common law. They also (confusingly) argue that Chevron deference to 29 C.F.R. § 778.114 requires courts to use a 150% multiplier and that if employers are allowed to retroactively apply section 778.114 in mistaken exemption classification cases, employers have no motive to pay for overtime as it accrues, effectively treating nonexempt employees as if they were exempt. In appellants’ view, such a holding will create an incentive for employers to pay a fixed weekly salary, never to pay overtime, and then simply pay a 50% premium on the regular rate if caught misclassifying non-exempt employees as exempt employees. Cf. 29 U.S.C. § 213(a)(1); 29 C.F.R. pt. 541 (white-collar exemption regulations).

As the district court held, appellants’ argument ignores the teaching of Overnight Motor. After all, in Overnight Motor, the Court recognized that employees and employers are free to agree to a reduced hourly wage in exchange for a fixed weekly salary, provided the fixed weekly salary covers all hours worked and meets minimum wage requirements. 316 U.S. at 580. In our view, the district court correctly concluded that Overnight Motor provides the appropriate method for calculating the unpaid overtime compensation under 29 U.S.C. § 216(b) in this case. Tellingly, in Overnight Motor, the Court provided the formula to compute the overtime due an employee who was paid a fixed weekly salary intended to cover all hours worked. Overnight Motor, 316 U.S. at 580 n. 16. Although Overnight Motor concerned the more basic question of whether overtime compensation applies to those earning more than the minimum wage requirements in the FLSA, 316 U.S. at 575, it contains nothing to indicate why such a computation would not apply in determining unpaid overtime compensation under 29 U.S.C. § 216(b) in a mistaken exemption classification case. Indeed, in Overnight Motor, the Court interpreted 29 U.S.C. § 207(a) and explained the meaning of “the regular rate at which he is employed,” and interpreted 29 U.S.C. § 216(b) and explained how to calculate “unpaid overtime compensation.” See Overnight Motor, 316 U.S. at 574 n. 2, 579-80.

Traditional principles of compensatory damages bolster this conclusion. Compensatory damages are “[d]amages sufficient in amount to indemnify the injured person for the loss suffered.” Black’s Law Dictionary 445 (9th ed.2009). Here, the former employees agreed to receive straight time pay for all hours worked in a given workweek and have already received such pay. Thus, the “loss suffered” is the 50% premium for their overtime hours. Accordingly, we affirm the district court’s judgment about how to calculate unpaid overtime compensation under 29 U.S.C. § 216(b).”

Currently, the plaintiffs in the 7th Circuit case, Urnikis-Negro v. Am. Family Prop. Servs., 616 F.3d 665 (7th Cir.2010), have filed a petition for cert in the Supreme Court, so the effect of the 4th Circuit’s holding may be should-lived.

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D.S.D.: Special Detail Exemption Recognized By 29 U.S.C. § 207(p)(1) Of The FLSA Applies To Exclude Certain Time Worked, Because Firefighters Were On Firefighting Detail Solely At Their Own Option, During Off Duty Hours, And The State And The City Are Separate And Independent Employers

Specht v. City of Sioux Falls

This case was before the Court on Defendant’s Motion for Summary Judgment.  The specific issue is the City’s affirmative defense that the firefighters were exempt from the Fair Labor Standards Act. 29 U.S.C. § 207(p)(1) establishes a special detail exemption so that hours worked on special detail are not combined with the regular hours for calculating overtime compensation.

The Court cited the following facts as relevant to the issue at bar:

“Plaintiffs are firefighters employed by the City of Sioux Falls in the Fire Rescue Department (SFFR). During July and August of 2006, all of the Plaintiffs were deployed to assist in fighting wildfires. In July of 2006, Ricky Larsen, who was the Chief of SFFR received a call from the South Dakota state fire dispatch requesting assistance in battling wildfires. There was a list of SFFR firefighters who were wildland firefighter certified. Each firefighter has the right to accept or deny when offered an opportunity at deployment. Reimbursements to the City by the State for the firefighters’ compensation were made pursuant to a contract between the City and the State. The normal schedule called for the firefighters to work 204 hours during a 27 day pay period. Typically a firefighter’s deployment for wildland firefighting is not more than 14 days. There was a concern that deployed firefighters would be paid less than if they had stayed in Sioux Falls and worked the normal 204 hours work schedule. SFFR agreed to pay the difference between 204 hours and the hours actually worked during a 27 day period in which a firefighter was deployed if a firefighter’s hours during the 27 day period totaled less than 204.”

Laying out the relevant law regarding the s0-called “Special Detail Exemption” the Court stated:

29 U.S.C. § 207(p)(1) provides:

If an individual who is employed by a State, political subdivision of a State, or an interstate governmental agency in fire protection or law enforcement activities (including activities of security personnel in correctional institutions) and who, solely at such individual’s option, agrees to be employed on a special detail by a separate or independent employer in fire protection, law enforcement, or related activities, the hours such individual was employed by such separate and independent employer shall be excluded by the public agency employing such individual in the calculation of the hours for which the employee is entitled to overtime compensation under this section if the public agency-

(A) requires that its employees engaged in fire protection, law enforcement, or security activities be hired by a separate and independent employer to perform the special detail,

(B) facilitates the employment of such employees by a separate and independent employer, or

(C) otherwise affects the condition of employment of such employees by a separate and independent employer.

Code of Federal Regulations.

29 C.F.R. § 553.227 provides:

(a) Section 7(p)(1) makes special provision for fire protection and law enforcement employees of public agencies who, at their own option, perform special duty work in fire protection, law enforcement or related activities for a separate and independent employer (public or private) during their off-duty hours. The hours of work for the separate and independent employer are not combined with the hours worked for the primary public agency employer for purposes of overtime compensation.

(b) Section 7(p)(1) applies to such outside employment provided (1) The special detail work is performed solely at the employee’s option, and (2) the two employers are in fact separate and independent.

(c) Whether two employers are, in fact, separate and independent can only be determined on a case-by-case basis.

(d) The primary employer may facilitate the employment or affect the conditions of employment of such employees. For example, a police department may maintain a roster of officers who wish to perform such work. The department may also select the officers for special details from a list of those wishing to participate, negotiate their pay, and retain a fee for administrative expenses. The department may require that the separate and independent employer pay the fee for such services directly to the department, and establish procedures for the officers to receive their pay for the special details through the agency’s payroll system. Finally, the department may require that the officers observe their normal standards of conduct during such details and take disciplinary action against those who fail to do so.

(e) Section 7(p)(1) applies to special details even where a State law or local ordinance requires that such work be performed and that only law enforcement or fire protection employees of a public agency in the same jurisdiction perform the work. For example, a city ordinance may require the presence of city police officers at a convention center during concerts or sports events. If the officers perform such work at their own option, the hours of work need not be combined with the hours of work for their primary employer in computing overtime compensation.

(f) The principles in paragraphs (d) and (e) of this section with respect to special details of public agency fire protection and law enforcement employees under section 7(p)(1) are exceptions to the usual rules on joint employment set forth in part 791 of this title.

(g) Where an employee is directed by the public agency to perform work for a second employer, section 7(p)(1) does not apply. Thus, assignments of police officers outside of their normal work hours to perform crowd control at a parade, where the assignments are not solely at the option of the officers, would not qualify as special details subject to this exception. This would be true even if the parade organizers reimburse the public agency for providing such services.

(h) Section 7(p)(1) does not prevent a public agency from prohibiting or restricting outside employment by its employees.

Department of Labor Letter Rulings.

This § 207(p)(1) exemption has been addressed in two opinion letter rulings issued by the United States Department of Labor on November 19, 1992 and in a third opinion letter ruling issued December 31, 2007. Ginsburg et al., Fair Labor Standards Handbook, App. III, pp. 186-87 & 457-58 (1998). In the second1992 opinion letter the Department of Labor opined that county sheriff’s deputies who are employed by a village to perform law enforcement services for the village under a proposed contract between the county and the village fall under § 207(p)(1) so that the hours worked by the deputies for both employers are not combined for FLSA overtime compensation purposes. “Section 207(p)(1) applies to such outside employment provided (1) the special detail work is performed solely at the employee’s option, and (2) the two employers are in fact separate and independent.” The Department of Labor cited 29 C . F.R. § 553.227.

In contrast, the first November 19, 1992, opinion letter opined that § 207(p)(1) did not apply to a paramedic who worked for a county’s emergency medical services department and who also worked as a part time communications supervisor in the county’s sheriff department so that the hours worked in both county departments should be combined for overtime purposes. The departments were not separate and independent employers. The employee worked for a single employer, the county, in different departments. These two opinion letters illustrate the principle of § 207(p)(1) which is described as follows in the first letter ruling:

Section 7(p)(1) makes special provision for fire protection and law enforcement employees who, at their own option, perform activities for a separate and independent (emphasis in original) employer(public or private) during their off-duty hours. The hours of work for the separate and independent employer are not combined with the hours worked for the primary public agency employer for the purposes fo overtime compensation. See § 553.227 of the regulations.  Id.

In the 2007 opinion letter the Department of Labor opined that the city police department and a non-profit group which operates the city convention center are separate and independent employers so that § 207(p)(1) applies when police officers perform security duties at the convention center during their off hours. “[I]t is our opinion that the City Police Department would not be obligated to include the hours worked by police officers on special assignment to the Authority in calculating and paying overtime due them.”

The language of 29 U.S.C. § 207(p)(1), 29 C.F.R. § 553.227, and the Department of Labor is plain, i.e. if the firefighter has the option to accept or reject the assignment and if the second employer is a separate and independent employer, then the primary employer does not count the hours the firefighter spends on the special detail for the second employer in the calculation to determine the firefighter’s entitlement to overtime.

Case Precedent.

Case precedent is consistent with these legal principles. Jackson v. City of San Antonio, 2006 WL 2548545, *4-*7, (W.D.Tex.2006) (Section 7(p)(1) special duty exemption bars police officers’ overtime claims against the City for hours worked for separate and independent employers during off duty hours); Nolan v.. City of Chicago, 125 F.Supp.2d 324, 335-339, (N.C.Ill.2000) (Section 7(p)(1) sets forth a two part test: if the assignment is solely at the employees option and the employers are in fact separate and independent the special detail exemption applies and the hours worked for the separate employer are not combined for purposes of assessing overtime compensation); Cox v. Town of Puughkeepsie, 209 F.Supp.2d 319, 324-327 ((S.D. N.Y 2002) (Section 7(p)(1) does not apply to voluntary work performed by police officers because the town and the town police department are a single employer); Baltimore County FOP Lodge 4 v. Baltimore County, 565 F.Supp.2d 672, 676-679, (D. Maryland 2008) (Section 7(p)(1) special detail exemption cannot be decided as a matter of law on summary judgment motion because there are questions of fact to be resolved by a jury on both the voluntary and separate employer prongs); Murphy v. Town of Natick, 515 F.Supp.2d 153, 157-158, (D. Mass 2007) (Section 7(p)(1) special detail exemption does not apply because the Town is not a separate and independent entity from any of its constituent departments); Barajas v. Unified Government of Wyandotte County/Kansas City, Kansas, 87 F.Supp.2d 1201, 1205-1209, (D.Kansas 2000) (Section 7(p)(1) special detail exemption cannot be decided as a matter of law even though parties agree the assignments are solely at the employees option because there are questions of fact about the Unified Government and the Housing Authority as separate and independent employers).

The Court then analyzed the relevant factors, concluding that all elements of the exemption were met here.

“Solely at the Firefighter’s Own Option.

Specht described the procedure for calling the list for volunteers (Doc. 24, Ex. 13, Specht depo. p. 63-64):

… [Y]ou have to go to the first person on the list that has the fewest number of hours…. I will use SF 29 as an example …; under “Remarks,” it says, “No answer.”…. [T]hey can leave an answer (sic) on the answering machine, and they must wait a minimum of-I believe it’s five minutes-before they can call the next person so that that person could look at their messages and call in and say: “Yes, I want to work.” “No, I don’t.” …. By contract and by policy, you can either accept the overtime or reject it, unless they declare an emergency. Or, once they’ve been all the way through the list, then they can call-if they get a hold of you the second time, then they can require you to take the overtime. (emphasis added).

Specht also testified that all the firefighters who responded in 2006 were accepting the offered “overtime.” Whether it is called volunteering or called overtime, the firefighters accepted. They had the option to say, “no, I won’t go,” or “yes” on the first time the list was called. Plaintiff argues that the wildfire fighting deployment was not voluntary because the firefighter could be assigned to go on deployment if there were not enough who accepted the first time the list was called. This argument is academic and not relevant. There were enough firefighters who accepted the first time the list was called. None of these plaintiffs was assigned to accept the deployment against his will. The list was not called a second time. The notes on the calling sheets reflect that several said “yes” to this wildfire fighting deployment and several said “no” (Doc. 36). There were ten “yes.” There were ten “no.” There were seven who said “after a certain date.”

The plaintiffs were on this wildland fire fighting project solely at their own option. The first prong of the section 7(p)(1) special detail test existed.

Separate and Independent Employer.

The other employer is the State. It cannot reasonably be argued or concluded that the City and the State are the same employer. The Department of Labor and the case law have identified the factors to test for separate and independent employers:

(1) whether the employers have separate payroll/personnel systems;

(2) whether the employers have separate retirement systems;

(3) whether the employers have separate budgets and funding authorities;

(4) whether the employers are separate legal entities with the power to sue and to be sued;

(5) whether the employers dealt with each other at arms length concerning the employment of any individuals in question;

(6) how they are treated under state law;

(7) whether one employer controls the appointment of the officers of the other entity.

Department of Labor Letter Ruling: December 31, 2007; Jackson, 2006 WL 2548545 at *5.

The responses to these questions are so obvious there is little or nothing in the record about them. Judicial notice is taken of the facts not in the record, but which are nonetheless relevant to the evaluation of these factors. Federal Rules of Evidence 201(b), (c) & (f). It is known that under state law the State has its own payroll, personnel, and retirement system. It is known that under city ordinance the City has its own payroll, personnel, and retirement system. The State and the City have separate budgets and different funding sources. (Both rely significantly on sales taxes-the State sales tax is 4% and the City sales tax is 2%. A purchaser in Sioux Falls pays a total of 6%, but the 6% is the total of two separate tax levies.) The State and the City are separate legal entities. Both have the power to sue and be sued, e.g. this lawsuit where the City is a defendant and the State is not a party. The State and the City dealt at arms length-see the written contract between them formed and filed under State statute, SDCL 1-24. The City and the State are treated as separate entities under state law. Neither the State nor the City control the appointment of officers of the other.

The City and the State are separate and independent employers. The second prong of the section 7(p)(1) special detail test existed.

During Off Duty Hours.

The usual scenario for the application of 7(p)(1) is when the fireman or policeman works for a second employer during off duty hours, e.g. at a concert or a sporting event. The Code of Federal Regulations and the Department of Labor letter rulings use the words “during their off duty hours.” The present plaintiffs are not in that situation because they are geographically so far from their home duty station that they cannot return home after a duty shift. Consequently, at the remote locations they work both the equivalent of their normal duty shift and the equivalent of their normal off duty hours. Since the present firefighters work both their normal on duty hours and their normal off duty hours at a remote location fighting wildfires, the use of the words “off duty hours” in the Code of Federal Regulations raises an issue about the applicability of the special detail exemption to the plaintiffs. The question is answered by 29 U.S.C. § 207(p)(1) itself. The statute does not limit the special detail exemption to off duty hours. The statute provides that a firefighter employed by a city “in fire protection … who, solely at the firefighter’s option agrees to be employed on a special detail by a separate or independent employer in fire protection … the hours such individual was employed by such separate and independent employer shall be excluded by the public agency employing such individual in the calculation of the hours for which the employee is entitled to overtime compensation ….“ (emphasis added) The statute which created the special detail exemption did not limit the special detail exemption to off duty hours. The statute plainly says the hours employed by the separate and independent employer shall be excluded when calculating overtime compensation

Under the FLSA the second employer must pay overtime if the employee works more than 40 hours during a workweek and some exemption does not apply. 29 U.S.C. § 207(a)(1). To illustrate, if the firefighter works three 16 hour days fighting a wildfire during a workweek, then the second employer pays overtime, i.e. 48 hours worked compared to 40 hours equals 8 hours overtime. The way it works is this: if FLSA overtime is worked on the special wildfire fighting detail, the State pays the FLSA overtime. If a firefighter’s special detail hours and other, normal hours in Sioux Falls added together during a 27 day work cycle total fewer than 204 hours, the City pays the difference so the firefighter is assured at least 204 hours for the pay cycle in which a wildfire fighting deployment occurs. The special detail hours are not combined with the normal shift hours to calculate overtime compensation per 29 U.S .C. § 207(p)(1).”

Holding that all the relevant elements of the exemption were present here, the Court granted Defendant’s Motion for Summary Judgment finding that the special detail exemption recognized by 29 U.S.C. § 207(p)(1) of the Fair Labor Standards Act applied.

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Filed under Affirmative Defenses, Exemptions, Work Time