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9th Cir.: Group Home Housing “Severely Emotionally Disturbed” Children Not An “Institution Primarily Engaged in the Care of the Sick, the Aged, Mentally Ill”
Probert v. Family Centered Services of Alaska, Inc.
This case was before the Ninth Circuit on the defendant’s appeal of an order granting plaintiffs- house parents at their various group homes of emotionally disturbed children- summary judgment, holding that each of defendant’s homes were subject to FLSA coverage as an “institution primarily engaged in the care of the sick, the aged, mentally ill or defective who reside on the premises of such institution.” 29 U.S.C. § 203(r)(2)(A). The Ninth Circuit reversed, holding that defendant’s homes were not primarily engaged in such care, although it was undisputed that they provided housing for same. In so doing, the Ninth Circuit ignored long-held jurisprudence requiring that courts liberally construe the FLSA’s coverage to serve the statute’s remedial goals.
Describing the relevant background facts, the Ninth Circuit explained:
“Plaintiffs Loretta and Robert Probert and Plaintiffs–Intervenors Debra and Eric Cloninger, Donna and John Grimes, Gene and Sandra Grissom, and Kenneth and Leona McDaniels are married couples who worked as “house parents” in FCSA’s Homes. Each Home housed up to five children. All the children were “severely emotionally disturbed” as defined by the Alaska law that qualifies the Homes for Medicaid funding, 7 Alaska Admin. Code § 43.471, and each of the children had at least one diagnosed mental disorder under Axis–I of the current Diagnostic and Statistical Manual of Mental Disorders. The children attended local public schools and participated in other activities away from the Homes. The children participated in group therapy conducted by clinicians in the Homes, but received most of their medical and psychological treatment outside the Homes. Plaintiffs were not licensed medical or social service professionals.
Plaintiffs sued FCSA for overtime pay under the FLSA. After denying Plaintiffs’ first motion for partial summary judgment, the district court granted a similar motion for partial summary judgment in their favor, concluding that FCSA through its Homes, was operating “an institution primarily engaged in the care of the … mentally ill or defective who reside on the premises of such institution,’ “ 29 U.S.C. § 203(r)(2)(A), and was therefore an enterprise subject to the FLSA’s overtime provisions, id. § 207(a)(1). The district court observed that the FLSA does not define “institution.” As an analogy, the district court looked to a federal Medicaid regulation, not directly applicable to this situation, that defined “institution” as “an establishment that furnishes (in single or multiple facilities) food, shelter, and some treatment or services to four or more persons unrelated to the proprietor,” 42 C.F.R. § 435.1010, and concluded that the “Homes (either individually or as a group) could be considered an ‘institution.’ “ The court also relied on FCSA’s own website, which described the Homes as “provid[ing] quality residential care to male and female youth ages 6–18 that are experiencing mental health and behavioral issues and are at imminent risk of psychiatric placement outside of their community.”
Holding that the defendant did not fall within the definition of 203(r)(2)(A), the court reasoned:
“Plaintiffs argue that each of the FCSA Homes in which they worked is covered by the statute as “an institution primarily engaged in the care of … the mentally ill … who reside on the premises of such institution.” The FLSA is a remedial statute that is “to be liberally construed to apply to the furthest reaches consistent with Congressional direction.” Dent v. Cox Communications Las Vegas, Inc., 502 F.3d 1141, 1146 (9th Cir.2007) (internal quotation marks omitted); see also 29 C.F.R. § 779.101 (“An employer who claims an exemption under the Act has the burden of showing that it applies.”). Nonetheless, we conclude that the language of the statute does not cover the FCSA Homes, for two primary reasons.
The first reason is that the Homes were not “primarily engaged” in providing “care,” as that term is used in the statute. The statute refers to “care” in relation to groups with special needs, namely “the sick, the aged, the mentally ill or defective.” 29 U.S .C. § 203(r)(2)(A). As such, we understand “care” in this context to include something more like treatment. What the Homes primarily provided, as their name suggests, was a home or a residence. As noted above, the children attended school, engaged in activities, and received most of their medical and psychological treatment from medical and mental health professionals outside the Homes. Obviously, for children a home should be more than simply a place to live, and the children presumably benefitted from Plaintiffs’ “care” as house parents. But Plaintiffs were not medical or social service professionals and were not primarily focused on providing the type of “care” that those professionals provide.
The language of the statute clearly suggests a covered institution must provide more than the general care of a residence. In addition to requiring that the institution’s patrons “reside on the premises of [the] institution,” the institution must provide “care” of the type that is provided to “the sick, the aged, the mentally ill or defective.” If residing on the premises were enough by itself to define the given premises as covered by the statute, then the requirement that the institution be “primarily engaged” in the “care” of the individuals residing there would be superfluous. We are to avoid interpreting a statute in that manner. See TRW Inc. v. Andrews, 534 U.S. 19, 31 (2001) (“It is a cardinal principle of statutory construction that a statute ought, upon the whole, to be so construed that, if it can be prevented, no clause, sentence, or word shall be superfluous, void, or insignificant.” (internal quotation marks omitted)).
Second, the Homes do not appear to us to be “institutions” as that term is used in this statute. Around the time the 1966 amendment was drafted, the Oxford English Dictionary offered the following definition of “institution”:
An establishment, organization, or association, instituted for the promotion of some object, esp. one of public or general utility, religious, charitable, educational, etc., e.g. a church, school, college, hospital, asylum, reformatory, mission, or the like; as a literary and philosophical institution, a deaf and dumb institution, the Royal National Life-boat Institution, the Royal Masonic Benevolent Institution …, the Railway Benevolent Institution, etc. 5 Oxford English Dictionary 354 (1933, reprinted 1961). The FCSA Homes do not fit well within that definition.
Nor do the Homes fit well with the neighboring parts of the relevant statute. They are not very much like
a hospital, …, a school for mentally or physically handicapped or gifted children, a preschool, elementary or secondary school, or an institution of higher education (regardless of whether or not such hospital, institution, or school is operated for profit or not for profit). 29 U.S.C. § 203(r)(2)(A).”
Similar to reasoning in Christopher v. SmithKline Beecham Corp., broadly construing the outsides sales exemption and refusing to adopt the guidance of the DOL outside of regulations promulgated by the Administrator of the DOL, the court further reasoned:
“Plaintiffs argue that we should interpret § 203(r)(2)(A) to include FCSA’s Homes because guidance from the Department of Labor indicates that a reference to “nursing homes” in that provision should be interpreted broadly. See Dep’t of Labor, Wage and Hour Division, Field Operations Handbook (FOH), ch. 12, § 12g02 (“[Institutions primarily engaged in the care of the aged] are not limited to nursing homes, … but include those institutions generally known as nursing homes, rest homes, convalescent homes, homes for the elderly and infirm, and the like.”). Plaintiffs argue that by the same reasoning, “institution primarily engaged in the care of the … mentally ill” should be interpreted broadly to include FCSA’s Homes. We disagree.
The FCSA Homes are very different from nursing homes and the related facilities listed in the handbook. The children who live at the FCSA Homes spend much of their time, perhaps a majority of their waking hours, elsewhere. They leave the Homes to attend school, participate in activities, and receive medical and psychological treatment. Residents of nursing homes are not necessarily confined completely to those facilities, but the expectation is that the vast majority of their time is spent there. Those facilities are also staffed with professionals, not simply house parents, and residents may be expected to receive substantially greater “care” in those facilities.”
Combined with its recent decision in Christopher v. SmithKline Beecham Corp., this decision is particularly disturbing. It appears the Ninth Circuit is quickly moving away from long held tenets of FLSA jurisprudence, the twin constructs that FLSA coverage is to be liberally construed, while exemptions/exceptions to coverage are to be narrowly construed against employers. In any case, it clear that here, that the Ninth Circuit construed FLSA coverage as narrowly as possible in holding that defendant was not a covered enterprise.
Click Probert v. Family Centered Services of Alaska, Inc. to read the entire Opinion.
9th Cir.: Notwithstanding DOL’s Position Otherwise, Pharmaceutical Reps (PSRs) Are “Outside Sales” Exempt
Christopher v. SmithKline Beecham Corp.
This case was before the Ninth Circuit on the plaintiffs’ appeal from an order granting defendant’s motion for summary judgment, finding plaintiffs’, pharmaceutical reps (“PSRs”), to be exempt from the Fair Labor Standards Act (“FLSA”) under the “outside sales” exemption. Although the DOL, filed an Amicus Brief, explaining that the type of work performed by the PSRs did not come within the “outside sales” exemption, because the PSR’s did not perform any sales, the Ninth Circuit disagreed.
Reasoning that the PSR employees came within the outside sales exemption, notwithstanding the fact that they did not complete sales, the court essentially held that their work was close enough to sales, that it should be deemed sales:
“Absent an agency-determined result, it is the province of the court to construe the relevant statutes and regulations. N. Cal. River Watch, 620 F.3d at 1088-89. As noted supra, Plaintiffs argue that by not transferring any product to physicians, they are not selling pharmaceuticals, but only “promoting” them. Plaintiffs say this distinction is warranted in light of the rule that the FLSA be “narrowly construed against … employers.” Webster, 247 F.3d at 914. For its part, Glaxo urges us to view “sale” in Section 3(k) in a commonsensical fashion, while contending that the meaning of “sale” is permissive. Glaxo urges us to adopt the rationale that the phrase “other disposition” in Section 3(k)’s definition of “sale” is a broad catch-all category. This view was cited with approval by the district court here, and is supported by the Secretary’s usage, dating back to 1940, of the language that an employee must “in some sense make a sale.” 69 Fed.Reg. at 22,162 (quoting “Executive, Administrative, Professional Outside Salesman” Redefined, Wage and Hour Division, U.S. Dept. of Labor, Report & Recommendations of the Presiding Officer (Harold Stein) at Hearings Preliminary to Redefinition, at 46 (Oct. 10, 1940)) (emphasis added).
Plaintiffs’ contention that they do not “sell” to doctors ignores the structure and realities of the heavily regulated pharmaceutical industry. It is undisputed that federal law prohibits pharmaceutical manufacturers from directly selling prescription medications to patients. Plaintiffs suggest that despite being hired for their sales experience, being trained in sales methods, encouraging physicians to prescribe their products, and receiving commission-based compensation tied to sales, their job cannot “in some sense” be called selling. This view ignores the reality of the nature of the work of detailers, as it has been carried out for decades. Plaintiffs’ argument also fails to account for the fact that the relevant “purchasers” in the pharmaceutical industry, and the appropriate foci of our inquiry, are not the end-users of the drug but, rather, the prescribing physicians whom they importune frequently. See, e.g., Baum v. AstraZeneca LP, 605 F.Supp.2d 669, 678-79 (W.D.Pa.2009) (discussing why the “professional paradigm” places the physician as the relevant decision maker in the health services industry), aff’d on other grounds, 372 Fed. App’x 246 (3d Cir.2010). Unlike conventional retail sales, the patient is not at liberty to choose personally which prescription pharmaceutical he desires. As such, he cannot be fairly characterized as the “buyer.” Instead, it is patient’s physician, who is vested with both a moral and legal duty to prescribe medication appropriately, who selects the medication and is the appropriate focus of our “sell/buy” inquiry. In this industry, the “sale” is the exchange of non-binding commitments between the PSR and physician at the end of a successful call. Through such commitments, the manufacturer will provide an effective product and the doctor will appropriately prescribe; for all practical purposes, this is a sale. Because pharmaceutical manufacturers appreciate who the “real” buyer is, they have structured their 90,000-person sales force and their marketing tactics to accommodate this unique environment.
When a PSR visits a doctor, he or she attempts to obtain the absolute maximum commitment from his or her “buyer”-a non-binding commitment from the physician to prescribe the PSR’s assigned product when medically appropriate. In most industries, there are no firm legal barriers that prohibit the actual physical exchange of the goods offered for sale. Because such barriers do exist in this industry, the fact that commitments are non-binding is irrelevant; the record reveals that binding or non-binding, a physician’s commitment to a PSR is nevertheless a meaningful exchange because pharmaceutical manufacturers value these commitments enough to reward a PSR with increased commissions when a physician increases his or her use of a drug in the PSR’s bag. See, e.g., Baum, 605 F.Supp.2d at 681 (“This Court believes that other courts, and perhaps regulatory agencies, underestimate the significance of this oral commitment from physicians. In part, this error emerges from a misunderstanding of the ways in which human beings are socially and informally motivated. Sometimes lawyers and judges forget that a person’s word means something; remarkably, many people do not actually need a 400-page contract to bind themselves to their word.”).
Moreover, the industry has agreed upon and abides by the PhRMA Code to regulate the marketing of medicine to healthcare professionals-just as any consumer-products maker might develop rules to limit the express warranties its sales force might offer to a customer. Such industry practice and prevailing customs should inform our disposition. Cf. Reiseck v. Universal Commc’ns of Miami, Inc., 591 F.3d 101, 106 (2d Cir.2010) (in resolving whether advertising sales director was an administrative or sales worker in the publishing industry “a careful consideration of [employer’s] business model provides some clarity”).
Under Plaintiffs’ view, PSRs are not salespeople, despite the fact that more than 90,000 pharmaceutical representatives make daily calls on physicians for the purpose of driving greater sales. See IMS Health, 616 F.3d at 14. We cannot square this view with Section 3(k)’s open-ended use of the word “sale,” which includes “other disposition[s].” While we recognize that the FLSA is to be narrowly construed in light of its remedial nature, that general principle does not mean that every word must be given a rigid, formalistic interpretation. For example, for over seventy years, the Secretary has emphasized a sensible application of the exemptions; in the Preamble to the 2004 Rule, the Secretary employs the openended concept that a salesman is someone who “in some sense” sells. 69 Fed.Reg. at 22,162-63 (emphasis added). In other words, while the Secretary asks us to narrowly interpret this exemption, she herself acknowledges that technical considerations alone and changes in the way sales are made should not be grounds for denying the exemption. See 69 Fed.Reg. at 22,162.
To further explain our common sense understanding of why PSRs make sales, we find the paradigm “outside salesman” case Jewel Tea Co. v. Williams-instructive. 118 F.2d 202 (10th Cir.1941). The importance of Jewel Tea is illustrated by the fact that both parties and the amicus offer it as favorable precedent for their conflicting positions.
Jewel Tea involved a FLSA overtime-wage suit brought by three employees of a tea, coffee, and sundry goods manufacturer and distributor. 118 F.2d at 203. The plaintiffs held the position of “route salesmen” to “sell and distribute” products to customers in their homes. Id. The area in which the company sold its goods was divided and “[e]ach salesman [was] assigned an exclusive territory which he cover[ed].” Id. The employees made no immediate deliveries but instead took orders for future delivery, although they might advance an item to a customer. Id. The company provided sales training and sent a supervisor with a new hire on early sales calls before permitting the employee to “go out on a route by himself.” Id. at 204. Further, employees were taught a “five-point sale” method to employ when speaking with customers. Id. A certain degree of knowledge about the products and potential customers was also required-“[t]he salesman must know recipes for the preparation of the Company’s products … [and] must learn the general requirements of each family, in order to avoid over-stocking his customer and in order to anticipate the family’s needs.” Id. After working in the field during the day, employees completed some clerical tasks at night. Id. at 205. Finally, employees were paid a base salary plus a commission if their collections were in excess of a sum certain. Id.
The Jewel Tea plaintiffs brought suit to collect unpaid overtime, asserting they did not fall within the “outside sales” exemption, primarily employing the argument that they were “delivery men.” Id. at 208. In its decision denying plaintiffs overtime pay, the Tenth Circuit penned the oft-quoted justification for the outside sales exemption:
The reasons for excluding an outside salesman are fairly apparent. Such salesman, to a great extent, works individually. There are no restrictions respecting the time he shall work and he can earn as much or as little, within the range of his ability, as his ambition dictates. In lieu of overtime, he ordinarily receives commissions as extra compensation. He works away from his employer’s place of business, is not subject to the personal supervision of his employer, and his employer has no way of knowing the number of hours he works per day. To apply hourly standards primarily devised for an employee on a fixed hourly wage is incompatible with the individual character of the work of an outside salesman. Id. at 207-08.
Reviewing the undisputed facts here, we consider the rationale for applying the outside sales exemption to PSRs to be as “apparent” as it was in Jewel Tea. Of course, this case does not involve door-to-door consumer-product sales. But, the FLSA is not an industry-specific statute. As the Second Circuit recognized in Reiseck, not all FLSA claims will involve the “archetypal businesses envisaged by the FLSA,” 591 F.3d at 106. Even though there are differences, it is notable that the salesmen in Jewel Tea and Plaintiffs here each (1) worked in assigned territories, (2) did not make immediate deliveries, (3) were required to analyze client backgrounds, (4) received product training, (5) employed a pre-planned routine for client interaction, (6) were accompanied by supervisors for training, (7) were later subject to minimal supervisor oversight, (8) completed clerical activities at the end of the day, and (9) had a dual salary and commission-based compensation plan tied to their performance. Even though PSRs lack some hallmarks of the classic salesman, the great bulk of their activities are the same, as is the overarching purpose of obtaining a commitment to purchase (prescribe) something.
The primary duty of a PSR is not promoting Glaxo’s products in general or schooling physicians in drug development. These are but preliminary steps toward the end goal of causing a particular doctor to commit to prescribing more of the particular drugs in the PSR’s drug bag. Without this commitment and the concomitant increase in prescriptions, or drug volume, or market share-i.e. without more sales-the PSR would not receive his or her commission salary and could soon find himself or herself unemployed. While not all steps in the PSR’s daily activities constitute “selling,” that fact does not render the totality of those activities non-exempt promotion; “work performed incidental to and in conjunction with the employee’s own outside sales or solicitations … shall be regarded as exempt outside sales work … [and] … other work that furthers the employee’s sales efforts also shall be regarded as exempt work.” 29 C.F.R. § 541.500(b).
The Secretary’s distinction between selling and promoting is only meaningful if the employee does not engage in any activities that constitute “selling” under the Act. This much is seen from the plain language of the regulations, which gives the example of promotional work as “a company representative who visits chain stores, arranges the merchandise on shelves, replenishes stock by replacing old with new merchandise, sets up displays and consults with the store manager when inventory runs low, but does not obtain a commitment for additional purchases.” 29 C.F.R. § 541.503(c) (emphasis added). PSRs do far more than collect general data or provide consultations; indeed they ask for, and sometimes obtain, a commitment by the doctor to prescribe Glaxo drugs, and whether the doctor keeps that commitment is verified and traced using aggregated pharmacy data Glaxo collects. See IMS Health, 550 F.3d at 44-47 (“A valuable tool in this endeavor, available through the omnipresence of computerized technology, is knowledge of each individual physician’s prescribing history.”).
In Reisick, the Second Circuit highlighted an important distinction between selling and promoting, noting that the latter is directed to the public at large, as opposed to a particular client:
Consider a clothing store. The individual who assists customers in finding their size of clothing or who completes the transaction at the cash register is a salesperson under the FLSA, while the individual who designs advertisements for the store or decides when to reduce prices to attract customers is an administrative employee for the purposes of the FLSA. Reiseck, 591 F.3d at 107. At Glaxo, Plaintiffs had no interest in “generally” promoting sales by the company or improving sales across the board. Rather, Plaintiffs directed their sales efforts only towards certain products, only to a discrete group of physicians, and only within a defined geographic area. Targeting physicians is not based on mass appeals or general advertisements, but is the result of a personalized review of each physician’s prescribing habits and history. The process, like any sales process, is tailored to the customer’s preferences.
We also find that the Secretary’s acquiescence in the sales practices of the drug industry for over seventy years further buttresses our decision. The outside sales exemption has existed since 1938. Detail men have practiced their craft over that same period. Generally, they have been considered salespeople. Until the Secretary’s appearance in Novartis, the DOL did not challenge the conventional wisdom that detailing is the functional equivalent of selling pharmaceutical products. Indeed, the DOL has recognized as much in its Dictionary of Occupation Titles, which provides the following definition for pharmaceutical detailers:
Promotes use of and sells ethical drugs and other pharmaceutical products to physicians, [dentists], hospitals, and retail and wholesale drug establishments, utilizing knowledge of medical practices, drugs, and medicines: Calls on customers, informs customer of new drugs, and explains characteristics and clinical studies conducted with drug. Discusses dosage, use, and effect of new drugs and medicinal preparations. Gives samples of new drugs to customer. Promotes and sells other drugs and medicines manufactured by company. May sell and take orders for pharmaceutical supply items from persons contacted.
D.O.L. Dictionary of Occupational Titles § 262.157-010 (4th ed.1991) (emphases added). Likewise, although it emerged in a different context, we find Judge Posner’s observation in Yi v. Sterling Collison Centers, Inc., 480 F.3d 505, 510-11 (7th Cir.2007), informative-while it is “possible for an entire industry to be in violation of the [FSLA] for a long time without the Labor Department noticing[, the] more plausible hypothesis is that the … industry has been left alone” because DOL believed its practices were lawful.
In view of many similarities between PSRs and salespeople in other fields, pharmaceutical industry norms, and the acquiescence of the Secretary over the last seventy-plus years, we cannot accord even minimal Skidmore deference to the position expressed in the amicus brief. Under Skidmore, “[t]he fair measure of deference to an agency administering its own statute has been understood to vary with circumstances, and courts have looked to the degree of the agency’s care, its consistency, formality, and relative expertness, and to the persuasiveness of the agency’s position.” United States v. Mead Corp., 533 U.S. 218, 228 (2001) (internal citations omitted); see also League of Wilderness Defenders v. Forsgren, 309 F.3d 1181, 1189 (9th Cir.2002) (quoting Skidmore, 323 U.S. at 140) (internal quotation marks omitted). Many, if not all, of these hallmarks of “respectful” deference are absent here. The about-face regulation, expressed only in ad hoc amicus filings, is not enough to overcome decades of DOL nonfeasance and the consistent message to employers that a salesman is someone who “in some sense” sells. Moreover, we are unable to accept an argument that fails to account for industry customs and emphasizes formalism over practicality, in particular the argument that “obtaining a commitment to buy” is the sine qua non of the exemption. Under the Secretary’s view, “sale” means unequivocally the final execution of a legally binding contract for the exchange of a discrete good. In addition to the point that such stringent wording is not found in Section 3(k), or plausibly implied from phrases like “other disposition,” the Secretary’s approach transforms what since the time of Jewel Tea has been recognized as a multi-factor review of an employee’s functions into a single, stagnant inquiry.
Telephones, television, shopping malls, the Internet and general societal progress have largely relegated the professional pitchman embodied in Jewel Tea to the history books. But selling continues, and, as in prior eras, a salesperson learns the nuances of a product and those of his or her potential clientele, tailors a scripted message based on intuition about the customer, asks for the customer to consider her need for the product, and then receives a commission when the customer’s positive impression ultimately results in a purchase.
For the past seventy-plus years, selling in the pharmaceutical industry has followed this process. PSRs are driven by their own ambition and rewarded with commissions when their efforts generate new sales. They receive their commissions in lieu of overtime and enjoy a largely autonomous work-life outside of an office. The pharmaceutical industry’s representatives-detail men and women-share many more similarities than differences with their colleagues in other sales fields, and we hold that they are exempt from the FLSA overtime-pay requirement.
For the foregoing reasons, we AFFIRM the district court’s summary judgment for Defendant-Appellee SmithKline Beecham Corporation.”
Click Christopher v. SmithKline Beecham Corp. to read the entire decision.
9th Cir.: Reporters For Newspaper Properly Deemed Nonexempt; Creative Professional Exemption Not Applicable, Because The Reporters’ Work Does Not Require Sophisticated Analysis
Wang v. Chinese Daily News, Inc.
Following a verdict/decision in the plaintiffs favor, the defendant appealed to the Ninth Circuit based on a variety of issues, both substantive and procedural. As discussed here, the Ninth Circuit affirmed the lower Court’s holding that the plaintiffs, reporters for a local Chinese-language newspaper were nonexempt under the Fair Labor Standards Act (“FLSA”) and California Wage and Hour Law.
Reasoning that the plaintiff-reporters were not subject to the so-called “creative professional” exemption, the Court reasoned:
“CDN argues that the district court erred in holding on summary judgment that CDN’s reporters were non-exempt employees entitled to overtime. Specifically, CDN argues that its reporters were subject to the “creative professional exemption” and were therefore exempt employees not subject to FLSA and state-law overtime pay and break requirements. We review the district court’s grant of summary judgment de novo. Bamonte v. City of Mesa, 598 F.3d 1217, 1220 (9th Cir.2010).
Federal law exempts employers from paying overtime to “any employee employed in a bona fide … professional capacity.” 29 U.S.C. § 213(a)(1). To qualify as an exempt professional under federal law, an employee must be compensated “at a rate of not less than $455 per week,” and his or her “primary duty” must be the performance of exempt work. 29 C.F.R. §§ 541.300, 541.700. “[A]n employee’s primary duty must be the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor as opposed to routine mental, manual, mechanical or physical work.” 29 C.F.R. § 541.302(a). The exemption is construed narrowly against the employer who seeks to assert it. Cleveland v. City of Los Angeles, 420 F.3d 981, 988 (9th Cir.2005). California wage and hour law largely tracks federal law. See Industrial Welfare Commission Order 4-2001 § 1(A)(3)(b) (defining professional to include “an employee who is primarily engaged in the performance of … [w]ork that is original and creative in character in a recognized field of artistic endeavor … and the result of which depends primarily on the invention, imagination, or talent of the employee”); see also id. § 1(A)(3)(e) (directing that the exemption is “intended to be construed in accordance with … [inter alia, 29 C.F.R. § 541.302 ] as [it] existed as of the date of this wage order”).
As applied to journalists, the federal Department of Labor construed the “creative professional exemption” in a 2004 regulation:
Journalists may satisfy the duties requirements for the creative professional exemption if their primary duty is work requiring invention, imagination, originality or talent, as opposed to work which depends primarily on intelligence, diligence and accuracy. Employees of newspapers, magazines, television and other media are not exempt creative professionals if they only collect, organize and record information that is routine or already public, or if they do not contribute a unique interpretation or analysis to a news product. Thus, for example, newspaper reporters who merely rewrite press releases or who write standard recounts of public information by gathering facts on routine community events are not exempt creative professionals. Reporters also do not qualify as exempt creative professionals if their work product is subject to substantial control by the employer. However, journalists may qualify as exempt creative professionals if their primary duty is performing on the air in radio, television or other electronic media; conducting investigative interviews; analyzing or interpreting public events; writing editorials, opinion columns or other commentary; or acting as a narrator or commentator. 29 C.F.R. § 541.302(d) (2004). Unlike the “interpretation” it replaced, the 2004 regulation was promulgated pursuant to notice and comment rulemaking and therefore has the force of law. See 69 Fed.Reg. 22122, 22157-58 (Apr. 23, 2004). In promulgating the new regulation, the Department of Labor explained that “[t]he majority of journalists, who simply collect and organize information that is already public, or do not contribute a unique or creative interpretation or analysis to a news product, are not likely to be exempt.” Id. at 22158. Although we have not decided a case applying the creative professional exemption to journalists, other courts have explored the circumstances under which print journalists qualify for the exemption. In Reich v. Gateway Press, Inc., 13 F.3d 685 (3d Cir.1994), the Third Circuit concluded that none of the reporters at a chain of nineteen local weeklies was exempt. The newspapers largely contained “information about the day-to-day events of their respective local communities … overlooked by the Pittsburgh metropolitan daily press.” Id. at 688. The reporters primarily generated articles and features using what they knew about the local community, spent 50-60% of their time accumulating facts, and mostly filed recast press releases or information taken from public records. They wrote a feature article or editorial about once per month. Id. at 689. The court held that they were among the majority of reporters who were non-exempt. Id. at 699-700. It noted that the work was not “the type of fact gathering that demands the skill or expertise of an investigative journalist for the Philadelphia Inquirer or Washington Post, or a bureau chief for the New York Times.” Id. at 700.
In Reich v. Newspapers of New England, Inc., 44 F.3d 1060 (1st Cir.1995), the First Circuit similarly held that reporters and other employees employed by a small community newspaper were not exempt professionals. The day-to-day duties of the reporters involved “general assignment work” covering hearings, criminal and policy activity, and legislative proceedings and business events. Employees were not “asked to editorialize about or interpret the events they covered.” Id. at 1075. They, too, were therefore among the majority of reporters who were not exempt, even though their work occasionally demonstrated creativity, invention, imagination, or talent. Id.
By comparison, in Sherwood v. Washington Post, 871 F.Supp. 1471, 1482 (D.D.C.1994), the district court held that a Washington Post reporter whose “job required him to originate his own story ideas, maintain a wide network of sources, write engaging, imaginative prose, and produce stories containing thoughtful analysis of complex issues” was exempt. As a high-level investigative journalist who had held multiple positions of prominence at one of the nation’s top newspapers, the reporter was the sort of elite journalist whom the creative professional exemption was intended to cover.
The parties in this case submitted extensive evidence on summary judgment. Reporters stated in their depositions that they wrote between two and four articles per day, and that they very seldom did investigative reporting. The reporters proposed articles, but the editors gave considerate direction and frequently assigned the topics. One reporter explained that with having to write so much, “you didn’t have enough time to-really analyze anything.” Some time was spent rewriting press releases. There were no senior reporters or others with distinctive titles, and each of the reporters performed essentially the same tasks.
Editors’ declarations submitted by CDN, on the other hand, stated that articles “include background, analysis and perspective on events and news,” that CDN employs some of the most talented reporters in the Chinese newspaper industry, and that the reporters have extensive control over their time, pace of work, and ideas for articles to write. They stated that reporters must cultivate sources, sift through significant amounts of information, and analyze complicated issues. Several editors stated that they approved more than 90% of the topics suggested by reporters. Reporters’ salaries ranged from $2,060 to $3,700 per month.
Although the evidence submitted revealed disputes over how to characterize CDN’s journalists, we agree with the district court that, even when viewing the facts in the light most favorable to CDN, the reporters do not satisfy the criteria for the creative professional exemption. CDN’s Monterey Park (Los Angeles) operation, with twelve to fifteen reporters and a local circulation of 30,000, is not quite as small or unsophisticated as the community newspapers described in the Newspapers of New England and Gateway Press cases. But CDN is much closer to the community newspapers described in those cases than to the New York Times or Washington Post. As the district court explored in detail, the materials submitted on summary judgment make clear that CDN’s articles do not have the sophistication of the national-level papers at which one might expect to find the small minority of journalists who are exempt. Moreover, the intense pace at which CDN’s reporters work precludes them from engaging in sophisticated analysis. CDN’s reporters’ primary duties do not involve “conducting investigative interviews; analyzing or interpreting public events; [or] writing editorial[s], opinion columns or other commentary,” 29 C.F.R. § 541 .302(d), even if they engage in these activities some of the time. Indeed, many CDN articles may be characterized as “standard recounts of public information [created] by gathering facts on routine community events,” id., as opposed to the product of in-depth analysis. Characterizing CDN journalists as exempt would therefore be inconsistent with the Department of Labor’s intent that “the majority of journalists … are not likely to be exempt,” 69 Fed.Reg. at 22158, and with the requirement that FLSA exemptions be construed narrowly.
The evidence before the district court did not create a genuine issue of material fact as to the reporters’ status. We therefore affirm the district court’s determination on summary judgment that CDN’s reporters were non-exempt employees who were entitled to the protections of the FLSA and California law.”
Not discussed here, the Court also held that the certification of both a collective action of the FLSA claims and a class action of the California state law claims was within the court’s discretion, as was the lower court’s decision to invalidate many opt-out forms received in response to the initial class action notice, in response to what it believed was coercion from the defendant employer.
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9th Cir.: Time Police Officers Spent Donning/Doffing Uniforms and Equipment Not Compensable, Because Officers Had The Option Of Donning/Doffing At Home
Bamonte v. City of Mesa
Appellants, police officers employed by Appellee City of Mesa (City), challenged the district court’s entry of summary judgment in favor of the City. The officers contended that the City violated the Fair Labor Standards Act (FLSA) by failing to compensate police officers for the donning and doffing of their uniforms and accompanying gear. Because officers had the option of donning and doffing their uniforms and gear at home, the district court determined that these activities were not compensable pursuant to the FLSA and the Portal-to-Portal Act. The Ninth Circuit affirmed, and held that these activities were not compensable pursuant to the FLSA.
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9th Cir.: While Home Data Transmissions Taking 15 Minutes Are Not De Minimis, Because Workers Are Completely Relieved Of Duty Between Finishing Work And Performing The Transmissions, They Are Not Part Of The Continuous Workday
Rutti v. Lojack Corp., Inc.
The district court granted Lojack summary judgment, holding that Rutti’s commute was not compensable as a matter of law and that the preliminary and postliminary activities were not compensable because they either were not integral to Rutti’s principal activities or consumed a de minimis amount of time. On appeal, the Ninth Circuit affirmed the district court’s denial of compensation under federal law for Rutti’s commute and for his preliminary activities. However, they vacated the district court’s grant of summary judgment on Rutti’s claim for compensation of his commute under California law and on his postliminary activity of required daily portable data transmissions. It is compensability of the postliminary portable data transmissions that is discussed here.
Discussing the claim it revived, the Court stated, “Lojack requires that Rutti, after he completes his last job for the day and goes ‘off-the-clock,’ return home and send a PDT transmission to Lojack using a modem provided by Lojack. The transmissions have to be made every day as they provide Lojack with information concerning all the jobs its technicians perform during the day. The transmissions appear to be ‘part of the regular work of the employees in the ordinary course of business,’ and are ‘necessary to the business and [are] performed by the employees, primarily for the benefit of the employer, in the ordinary course of that business.’ Dunlop, 527 F.2d at 401. Accordingly, at least on summary judgment, the district court could not determine that this activity was not integral to the Rutti’s principal activities.
Lojack might still be entitled to summary judgment, if it could be determined that this postliminary activity was clearly de minimis. The evidence before the district court, however, does not compel such a conclusion. The fact that several technicians testified that they spent no more than five to ten minutes a night on PDT transmissions might appear to give rise to a presumption that an activity is de minimis, see Lindow, 738 F.2d at 1062, but such a conclusion is neither factually nor legally compelling.
It is not factually compelling because, although it may take only five to ten minutes to initiate and send the PDT transmission, the record shows that the employee is required to come back and check to see that the transmission was successful, and if not, send it again. There is also evidence in the record that there are frequent transmission failures. Accordingly, the record does not compel a finding that the daily transmission of the record of the day’s jobs takes less than ten minutes.
Furthermore, we have not adopted a ten or fifteen minute de minimis rule. Although we noted in Lindow, that “most courts have found daily periods of approximately 10 minutes de minimis even though otherwise compensable,” we went on to hold that “[t]here is no precise amount of time that may be denied compensation as de minimis ” and that “[n]o rigid rule can be applied with mathematical certainty.” 738 F.2d at 1062. The panel went on to set forth a three-prong standard, which would have been unnecessary if the panel had intended to adopt a ten or fifteen minute rule.
The application of this three-prong test to the facts in this case do not compel a conclusion that the PDT transmissions are de minimis. The first prong, “the practical administrative difficulty of recording the additional time,” id. at 1063, is closely balanced in this case. Certainly, it is difficult to determine exactly how much time each technician spends daily on the PDT transmissions. It is also not clear what activities should be covered. Is the time when the technician comes back to check to see if the transmission was successful included? When a technician is waiting until ten minutes after the hour, is he “engaged to wait” or “waiting to be engaged?” See Owens, 971 F.2d at 350. Although it may be difficult to determine the actual time a technician takes to complete the PDT transmissions, it may be possible to reasonably determine or estimate the average time. For example, there is evidence in the record that Lojack had agreed to pay one technician an extra 15 minutes a day to cover the time spent on PDT transmissions. In sum, the inherent difficulty of recording the actual time spent on a particular PDT transmission does not necessarily bar a determination that the PDT transmissions are not de minimis. See Reich v. Monfort, Inc., 144 F.3d 1329, 1334 (10th Cir.1998) (holding that the time it took meat packers to don and shed their employer-mandated clothing was not de minimis even though “the practical difficulty of supervising and recording the additional time weighs in favor of finding it noncompensable”).
The other two prongs, “the aggregate amount of compensable time,” and “the regularity of the additional work,” Lindow, 738 F.2d at 1063, favor Rutti. Rutti asserts that the transmissions take about 15 minutes a day. This is over an hour a week. For many employees, this is a significant amount of time and money. Also, the transmissions must be made at the end of every work day, and appear to be a requirement of a technician’s employment. This suggests that the transmission “are performed as part of the regular work of the employees in the ordinary course of business,” Dunlop, 527 F.2d at 401, and accordingly, unless the amount of time approaches what the Supreme Court termed “split-second absurdities,” the technician should be compensated. See Anderson, 328 U.S. at 692.
Our review of the record suggests that the PDT transmissions are an integral part of Rutti’s principal activities and that there are material issues of fact as to whether the PDT transmissions are de minimis. Accordingly, the grant of summary judgment in favor of Lojack on Rutti’s claim for the transmissions must be vacated. See Balint v. Carson City, Nev., 180 F.3d 1047, 1054 (9th Cir.1999) (holding that in reviewing a grant of summary judgment, we do “not weigh the evidence or determine the truth of the matter, but only determines whether there is a genuine issue for trial”). This does not mean that on remand, Lojack may not be able to make a persuasive factual showing for summary judgment under the standard clarified in this opinion. We, however, decline to make such a decision in the first instance.”
The Court then turned to Plaintiff-Appellant’s argument that the compensability of the work necessarily made postliminary commute time compensable under the “continuous workday” rule. Rejecting this argument, the Court explained:
“Finally, Rutti argues that under the continuous workday doctrine, because his work begins and ends at home, he is entitled to compensation for his travel time, citing Dooley v. Liberty Mutual Ins. Co., 307 F.Supp.2d 234 (D.Mass.2004). In Dooley, automobile damage appraisers sought compensation for the time they spent traveling from their offices in their homes to locations where they inspected damaged cars. Id. at 239. The district court first determined that the work the appraisers undertook at home constituted principal activities. Id. at 242. The court then determined that compensation was not prohibited by the Portal-to-Portal Act, and concluded that those appraisers who could show that they performed work at home before or after their daily appraisals were entitled to compensation. Id. at 249.
Even were we to adopt the continuous workday doctrine set forth in Dooley, Rutti would not be entitled to compensation for his travel time to and from the job sites. We have already determined that Rutti’s preliminary activities that are not related to his commute are either not principal activities or are de minimis. Accordingly, his situation is not analogous to the situation in Dooley. See 307 F.Supp.2d at 245 (“The first and last trip of the day for these appraisers is not a commute in the ordinary sense of the word-it is a trip between their office, where their administrative work is performed, and an off-site location.”).
Our determination that Rutti’s postliminary activity, the PDT transmission, is integrally related to Rutti’s principal activities might support the extension of his work day through his travel back to his residence, were it not for 29 C.F.R. § 785.16. This regulation provides that “[p]eriods during which an employee is completely relieved from duty and which are long enough to enable him to use the time effectively for his own purposes are not hours worked.” Lojack allows a technician to make the transmissions at any time between 7:00 p.m. and 7:00 a.m. Thus, from the moment a technician completes his last installation of the day, he “is completely relieved from duty.” His only restriction is that sometime during the night he must complete the PDT transmission. Because he has hours, not minutes, in which to complete this task, the intervening time is “long enough to enable him to use the time effectively for his own purpose.” See Mireles v. Frio Foods, Inc., 899 F.2d 1407, 1413 (5th Cir.1990) (holding that waiting time “greater than forty-five minutes are not compensable because Plaintiffs were not required to remain on Defendant’s premises during such periods and could use such periods effectively for their own purposes”). Rutti has not shown that the district court erred in determining that neither his preliminary nor postliminary activities extended his workday under the continuous workday doctrine.”
9th Cir.: Tip Pool That Required Tipped Employees To Share Tips With Non-Tipped Employees Did Not Violate FLSA, Because Restaurant Paid Tipped Employees Cash Wages In Excess Of Minimum Wage And Did Not Claim Tip Credit
Cumbie v. Woody Woo, Inc.
This case was before the Ninth Circuit to decide whether a restaurant violates the Fair Labor Standards Act, when, despite paying a cash wage greater than the minimum wage, it requires its wait staff to participate in a “tip pool” that redistributes some of their tips to the kitchen staff. The Court ruled that such a tip sharing arrangement does not violate the FLSA.
Describing the tip pool at issue, the Court said, “[Plaintiff] worked as a waitress at the Vita Café in Portland, Oregon, which is owned and operated by Woody Woo, Inc., Woody Woo II, Inc., and Aaron Woo (collectively, “Woo”). Woo paid its servers a cash wage at or exceeding Oregon’s minimum wage, which at the time was $2.10 more than the federal minimum wage. In addition to this cash wage, the servers received a portion of their daily tips. Woo required its servers to contribute their tips to a “tip pool” that was redistributed to all restaurant employees . The largest portion of the tip pool (between 55% and 70%) went to kitchen staff (e.g., dishwashers and cooks), who are not customarily tipped in the restaurant industry. The remainder (between 30% and 45%) was returned to the servers in proportion to their hours worked.”
The Court below dismissed Plaintiff’s Complaint on Defendant’s 12(b)(6) Motion, holding that Plaintiff failed to state a claim for minimum wages, because she acknowledges she was paid in excess of minimum wage, but challenged the legality of Defendant’s tip pool nonetheless. This appeal ensued.
“On appeal, [Plaintiff] argue[d] that because Woo’s tip pool included employees who are not ‘customarily and regularly tipped employees,’ 29 U.S.C. § 203(m), it was ‘invalid’ under the FLSA, and Woo was therefore required to pay her the minimum wage plus all of her tips. Woo argue[d] that Cumbie’s reading of the FLSA is correct only vis-à-vis employers who take a ‘tip credit’ toward their minimum-wage obligation. See id.” Defendant, argued that, “[b]ecause [it] did not claim a ‘tip credit,’ it contends that the tip-pooling arrangement was permissible so long as it paid her the minimum wage, which it did.”
Affirming the lower Court’s decision, finding the pay policy at issue to be legal, the Ninth Circuit discussed the applicable law:
“Williams establishes the default rule that an arrangement to turn over or to redistribute tips is presumptively valid. Our task, therefore, is to determine whether the FLSA imposes any “statutory interference” that would invalidate Woo’s tip-pooling arrangement. The question presented is one of first impression in this court.
Under the FLSA, employers must pay their employees a minimum wage. See29 U.S.C. § 206(a). The FLSA’s definition of “wage” recognizes that under certain circumstances, employers of “tipped employees” may include part of such employees’ tips as wage payments. See id.§ 203(m). The FLSA provides in relevant part:
In determining the wage an employer is required to pay a tipped employee, the amount paid such employee by the employee’s employer shall be an amount equal to- (1) the cash wage paid such employee which for purposes of such determination shall be not less than the cash wage required to be paid such an employee on August 20, 1996; and (2) an additional amount on account of the tips received by such employee which amount is equal to the difference between the wage specified in paragraph (1) and the wage in effect under section 206(a)(1) of this title.
The additional amount on account of tips may not exceed the value of the tips actually received by an employee. The preceding 2 sentences shall not apply with respect to any tipped employee unless such employee has been informed by the employer of the provisions of this subsection, and all tips received by such employee have been retained by the employee, except that this subsection shall not be construed to prohibit the pooling of tips among employees who customarily and regularly receive tips. Id.
We shall unpack this dense statutory language sentence by sentence. The first sentence states that an employer must pay a tipped employee an amount equal to (1) a cash wage of at least $2.13, plus (2) an additional amount in tips equal to the federal minimum wage minus such cash wage. That is, an employer must pay a tipped employee a cash wage of at least $2.13, but if the cash wage is less than the federal minimum wage, the employer can make up the difference with the employee’s tips (also known as a “tip credit”). The second sentence clarifies that the difference may not be greater than the actual tips received. Therefore, if the cash wage plus tips are not enough to meet the minimum wage, the employer must “top up” the cash wage. Collectively, these two sentences provide that an employer may take a partial tip credit toward its minimum-wage obligation. See29 U.S.C. §§ 203(m), 206(a)(1) (1996).
The third sentence states that the preceding two sentences do not apply (i.e., the employer may not take a tip credit) unless two conditions are met. First, the employer must inform the employee of the tip-credit provisions in section 203(m). Second, the employer must allow the employee to keep all of her tips, except when the employee participates in a tip pool with other customarily tipped employees.
Cumbie argues that under section 203(m), an employee must be allowed to retain all of her tips-except in the case of a “valid” tip pool involving only customarily tipped employees-regardless of whether her employer claims a tip credit. Essentially, she argues that section 203(m) has overruled Williams, rendering tip-redistribution agreements presumptively invalid. However, we cannot reconcile this interpretation with the plain text of the third sentence, which imposes conditions on taking a tip credit and does not state freestanding requirements pertaining to all tipped employees. A statute that provides that a person must do X in order toachieve Y does not mandate that a person must do X, period.
If Congress wanted to articulate a general principle that tips are the property of the employee absent a “valid” tip pool, it could have done so without reference to the tip credit. “It is our duty to give effect, if possible, to every clause and word of a statute.” United States v. Menasche, 348 U.S. 528, 538-39 (1955) (internal quotation marks omitted). Therefore, we decline to read the third sentence in such a way as to render its reference to the tip credit, as well as its conditional language and structure, superfluous.
Here, there is no question that Woo’s tip pool included non-customarily tipped employees, and that Cumbie did not retain all of her tips because of her participation in the pool. Accordingly, Woo was not entitled to take a tip credit, nor did it. See Richard v. Marriott Corp., 549 F.2d 303, 305 (4th Cir.1977) (“[I]f the employer does not follow the command of the statute, he gets no [tip] credit.”). Since Woo did not take a tip credit, we perceive no basis for concluding that Woo’s tippooling arrangement violated section 203(m).
Recognizing that section 203(m) is of no assistance to her, Cumbie disavowed reliance on it in her reply brief and at oral argument, claiming instead that “[t]he rule against forced transfer of tips actually originates in the minimum wage section of the FLSA, 29 U.S.C. § 206.” Section 206 provides that “[e]very employer shall pay to each of his employees … wages” at the prescribed minimum hourly rate. Id. § 206(a).
While section 206 does not mention tips, let alone tip pools, Cumbie maintains that a Department of Labor (“DOL”) regulation elucidates the meaning of the term “pay” in such a way as to prohibit Woo’s tip-pooling arrangement. She refers to the regulation which requires that the minimum wage be “paid finally and unconditionally or ‘free and clear,’ “ and forbids any “ ‘kick [ ]-back’ … to the employer or to another person for the employer’s benefit the whole or part of the wage delivered to the employee.” 29 C.F.R. § 531.35. The “free and clear” regulation provides as an example of a prohibited kick-back a requirement that an employee purchase tools for the job, where such purchase “cuts into the minimum or overtime wages required to be paid him under the Act.” Id.
According to Cumbie, her forced participation in the “invalid” tip pool constituted an indirect kick-back to the kitchen staff for Woo’s benefit, in violation of the free-and-clear regulation. As she sees it, the money she turned over to the tip pool brought her cash wage below the federal minimum in the same way as the tools in the regulation’s example. The Secretary of Labor agrees, asserting that “if the tipped employees did not receive the full federal minimum wage plus all tips received, they cannot be deemed under federal law to have received the minimum wage ‘free and clear,’ and the money diverted into the invalid tip pool is an improper deduction from wages that violates section [20]6 of the Act.”
Cumbie acknowledges that the applicability of the “free and clear” regulation hinges on “whether or not the tips belong to the servers to whom they are given.” This question brings us back to section 203(m), which we have already determined does not alter the default rule in Williams that tips belong to the servers to whom they are given only “in the absence of an explicit contrary understanding” that is not otherwise prohibited. 315 U.S. at 397. Hence, whether a server owns her tips depends on whether there existed an agreement to redistribute her tips that was not barred by the FLSA.
Here, such an agreement existed by virtue of the tippooling arrangement. The FLSA does not restrict tip pooling when no tip credit is taken. Therefore, only the tips redistributed to Cumbie from the pool ever belonged to her, and her contributions to the pool did not, and could not, reduce her wages below the statutory minimum. We reject Cumbie and the Secretary’s interpretation of the regulation as plainly erroneous and unworthy of any deference, see Auer v. Robbins, 519 U.S. 452, 461 (1997), and conclude that Woo did not violate section 206 by way of the “free and clear” regulation.
Finally, Cumbie argues against the result we reach because “[a]s a practical matter, it nullifies legislation passed by Congress.” Her argument, as we understand it, is that Woo is functionally taking a tip credit by using a tip-pooling arrangement to subsidize the wages of its non-tipped employees. The money saved in wage payments is more money in Woo’s pocket, which is financially equivalent to confiscating Cumbie’s tips via a section 203(m) tip credit (with the added benefit that this “de facto” tip credit allows Woo to bypass section 203(m)‘s conditions).
Even if Cumbie were correct, “we do not find [this] possibility … so absurd or glaringly unjust as to warrant a departure from the plain language of the statute.” Ingalls Shipbuilding, Inc. v. Dir., Office of Workers’ Comp. Programs, 519 U.S. 248, 261 (1997). The purpose of the FLSA is to protect workers from “substandard wages and oppressive working hours.” Barrentine v. Ark.-Best Freight Sys., Inc., 450 U.S. 728, 739 (1981) (citing 29 U.S.C. § 202(a)). Our conclusion that the FLSA does not prohibit Woo’s tip-pooling arrangement does not thwart this purpose. Cumbie received a wage that was far greater than the federally prescribed minimum, plus a substantial portion of her tips. Naturally, she would prefer to receive all of her tips, but the FLSA does not create such an entitlement where no tip credit is taken. Absent an ambiguity or an irreconcilable conflict with another statutory provision, “we will not alter the text in order to satisfy the policy preferences” of Cumbie and amici. Barnhart v. Sigmon Coal Co., Inc., 534 U.S. 438, 462 (2002).
The Supreme Court has made it clear that an employment practice does not violate the FLSA unless the FLSA prohibits it. Christensen v. Harris County, 529 U.S. 576, 588 (2000). Having concluded that nothing in the text of the FLSA purports to restrict employee tip-pooling arrangements when no tip credit is taken, we perceive no statutory impediment to Woo’s practice. Accordingly, the judgment of the district court is affirmed.”
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9th Cir.: Managers Of Business Are “Employers” Within Meaning Of FLSA, Subject To FLSA Liability; Bankruptcy Of The Underlying Corporation Does Not Affect This Liability Where Individual (Not Corporate Pledged) Assets Sought
Boucher v. Shaw
Three former employees of the Castaways Hotel, Casino and Bowling Center (the Castaways) and their local union sued the Castaways’ individual managers for unpaid wages under state and federal law. The district court dismissed the plaintiffs’ claims. This appeal raised several issues, most significantly whether the Castaways’ individual managers can be held liable for unpaid wages under Nevada law and/or the Fair Labor Standards Act (FLSA). The state court held that individual managers cannot be held liable as “employers,” and therefore that claim was properly dismissed by the district court. The Ninth Circuit holds that such managers can be held liable, and therefore reversed and remanded the FLSA claim to the district court.
“The Castaways filed for Chapter 11 bankruptcy protection on June 26, 2003. The individual plaintiffs were discharged in January 2004, when the Castaways was operating as the debtor-in-possession. On February 10, 2004, after the plaintiffs were discharged, the Chapter 11 petition was converted to a Chapter 7 liquidation, and the Castaways ceased operations. The individual plaintiffs, Ardith Ballard, Thelma Boucher and Joseph Kennedy III, filed suit in Nevada state court seeking to recover unpaid wages for themselves and for a class of Castaways employees. Ballard alleges that she has not been paid for the last pay period that she worked at the Castaways. Boucher alleges that she was not paid for the final pay period until two weeks after her employment was terminated. All three individual plaintiffs allege that they have not been paid their accrued vacation and holiday pay. Culinary Workers Union, Local 226 (Local 226 or the union) seeks to recover wages that were withheld as dues from the paychecks of Thelma Boucher and other employees. The plaintiffs assert claims under Chapter 608 of the Nevada Revised Statutes and the FLSA, 29 U.S.C. § 206(a).
The defendants are three Castaways’ managers. Dan Shaw was the Chairman and Chief Executive Officer of the Castaways at the time the plaintiffs were discharged. Michael Villamor was responsible for handling labor and employment matters at the Castaways. And James Van Woerkom was the Castaways’ Chief Financial Officer. Shaw had a 70 percent ownership in the Castaways, and Villamor had a 30 percent ownership interest. The plaintiffs allege that each defendant had custody or control over the “plaintiffs, their employment, or their place of employment at the time that the wages were due.”
The plaintiffs filed this lawsuit in Nevada state court on October 14, 2004. On December 21, 2004, Defendant Shaw removed the case to the United States District Court for the District of Nevada and filed a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6). Villamor and Van Woerkom separately filed motions to dismiss, alleging the same grounds for dismissal as Shaw. The district court granted the defendants’ motions and dismissed all of the plaintiffs’ claims. Boucher v. Shaw, No. CV-S-04-1738-PMP (PAL) (D.Nev. Jan. 25, 2005); Boucher v. Shaw, No. CV-S-04-1738-PMP (PAL) (D.Nev. Feb. 18, 2005); Boucher v. Shaw, No. CV-S-04-1738-PMP (PAL) (D.Nev. Apr. 11, 2005). The district court concluded that the defendants were not “employers” under Nevada law, Local 226 lacks standing to bring a claim under Nevada law and the plaintiffs cannot maintain a cause of action under the Fair Labor Standards Act against the defendants. Boucher v. Shaw, No. CV-S-04-1738-PMP (PAL), slip op. at 1-2 (D.Nev. Jan. 25, 2005). The plaintiffs challenge each of these conclusions on appeal. We certified the state law question to the Nevada Supreme Court, and stayed the case pending its resolution. The Nevada Supreme Court has answered the state law question, and we incorporate that court’s reasoning into our decision.”
After discussing the holding of Nevada’s Supreme Court, upon referral of the issue from the Ninth Circuit, that Nevada State law does not consider individuals liable for wage law violations of the corporation as “employers,” the Court considered the same issue under the FLSA, and whether such individuals can be liable as employers, despite the bankrupt status of the underlying corporate employer.
“In the case at bar, Ballard has alleged that Defendant Villamor was responsible for handling labor and employment matters at the Castaways; Defendant Shaw was chairman and chief executive officer of the Castaways; and Defendant Van Woerkom was the Castaways’ chief financial officer and had responsibility for supervision and oversight of the Castaways’ cash management. The plaintiff also alleges that Shaw held a 70 percent ownership interest in the Castaways, Villemor held a 30 percent ownership interest and all three defendants had “control and custody of the plaintiff class, their employment, and their place of employment.” ( See Complaint ¶¶ 9-11.) Accepting these allegations of material fact as true, Ballard’s claim withstands a motion to dismiss. See Simon, 546 F.3d at 664.
The defendants do not challenge their status as employers under the FLSA. Rather, they argue that any duty they had to pay wages to Castaways’ employees ended with the conversion of the Castaways’ Chapter 11 bankruptcy proceeding into a Chapter 7 liquidation. The defendants cite no authority for this proposition, but state merely that “[a]ny action under the FLSA is properly directed to the Chapter 7 Trustee and not Shaw, Villamor or Van Woerkom.” (Appellees’ Br. at 14.) Ballard responds that the case was not converted to a Chapter 7 proceeding until February 10, 2004, at least eleven days after she was fired, so that even if the duty to pay wages ceased upon the conversion of the case, the managers were liable up until that point. In supplemental briefing ordered by the court, the defendants do not dispute that the bankruptcy was converted to a Chapter 7 on February 10. Yet they assert that the Castaways “had ceased its operations altogether at the time that Ballard’s wage claim accrued,” which appears to mean that although Ballard is owed wages for the final pay period prior to when the Castaways ceased operating on January 29, her paycheck was not due to be issued to her until afterwards. Ballard argues to the contrary, citing Nev.Rev.Stat. § 608.020, for the proposition that wages and compensation earned and unpaid at the time of discharge are to be paid immediately. We agree. Moreover, the defendants’ subsequent argument that Ballard’s FLSA claim should fail because her wage claim has already been satisfied in the bankruptcy proceeding raises a question of fact not properly resolved on a motion to dismiss.
As a more general matter, we cannot see how it makes a difference one way or the other whether the Castaways was in Chapter 11 or Chapter 7. The Castaways is not a defendant, and the defendants are not debtors. The defendants perhaps assume that the automatic stay or other injunctive power of the bankruptcy court has some effect on the plaintiff’s claim, but they have not shown how that would be.
Section 362 of the Bankruptcy Code embodies the automatic stay, which immediately applies when a debtor files a bankruptcy petition and is designed to preclude a variety of post-petition actions-both judicial and non-judicial-against the debtor or affecting property of the estate. See 11 U.S.C. § 362(a). The automatic stay is fundamental to bankruptcy law. It ensures that claims against the debtor will be brought in one place, the bankruptcy court. The stay protects the debtor by giving it room to breathe and, thereby, hopefully to reorganize. The stay also protects creditors as a group from any one creditor who might otherwise seek to obtain payment on its claims to the others’ detriment. See, e.g., Chugach Forest Prods., Inc. v. Northern Stevedoring & Handling Corp., 23 F.3d 241, 243 (9th Cir.1994) (quoting Hillis Motors, Inc. v. Hawaii Auto. Dealers’ Ass’n, 997 F.2d 581, 585 (9th Cir.1993)).
As a general rule, the automatic stay protects only the debtor, property of the debtor or property of the estate. See 11 U.S.C. §§ 362(a); 541(a) (defining property of the estate); Advanced Ribbons and Office Prods., Inc. v. U.S. Interstate Distrib., Inc., 125 B.R. 259, 263 (9th Cir.BAP1991) (citation omitted); see also Chugach, 23 F.3d at 246. The stay “does not protect non-debtor parties or their property. Thus, section 362(a) does not stay actions against guarantors, sureties, corporate affiliates, or other non-debtor parties liable on the debts of the debtor.” Chugach, 23 F.3d at 246 (citations omitted). We have refused to extend the automatic stay to enjoin claims against a contractor-debtor’s surety, even though a surety bond guarantees the contractor-debtor’s performance. See In re Lockard, 884 F.2d 1171, 1178-79 (9th Cir.1989). In Lockard, we reasoned that extending the stay was inappropriate because the surety, not the contractor-debtor, puts its property directly at risk of liability to creditors in the event of nonpayment by the contractor-debtor, and therefore a surety bond is not property of the bankruptcy estate. Id. at 1178. We found that this was the case even though allowing a claim against the surety would trigger the surety’s right to recourse against the debtor. Id. Similarly, the automatic stay does not protect the property of parties such as officers of the debtor, even if the property in question is stock in the debtor corporation, and even if that stock has been pledged as security for the debtor’s liability. Advanced Ribbons, 125 B.R. at 263.
We have never addressed the question whether a company’s bankruptcy affects the liability of its individual managers under the FLSA. But our case law regarding guarantors, sureties and other non-debtor parties who are liable for the debts of the debtor leaves no doubt about the answer: the Castaways bankruptcy has no effect on the claims against the individual managers at issue here.
This is, in fact, an easier case than our precedent cited supra . Here, the plaintiff’s claim does not seek to reach property of the managers that has been pledged to secure the Castaways’ debt, or that would otherwise impact property of the estate. The individual managers generally are not liable for debts of the debtor, and even if they were, the plaintiff’s statutory claim against the individual managers is unrelated to any of the Castaways’ debts. Nor does the plaintiff seek damages based on an insurance policy held by the debtor. Cf. A.H. Robins Co., Inc. v. Piccinin, 788 F.2d 994, 998-1004 (4th Cir.1986). The plaintiff’s claim is not being used as an alternative route to recoup property of the estate, and therefore cannot be said to be “related to” the bankruptcy proceeding, such that it would be swept into the bankruptcy court’s jurisdiction under 28 U.S.C. § 1334(b). See Celotex v. Edwards, 514 U.S. 300, 307-08, 115 S.Ct. 1493, 131 L.Ed.2d 403 (1995). Neither party has alleged that the estate would be diminished by any judgment in favor of the plaintiff, nor is there any indication in the record that the Castaways would be required to indemnify the individual managers for legal expenses or any judgment against them in this case. Cf. In re Minoco Group of Cos., 799 F.2d 517, 518 (9th Cir.1986) (affirming bankruptcy court’s finding that insurance policy cancellation was automatically stayed because of its impact on debtor’s obligation to indemnify officers and directors). However, if the liability of the non-debtor party were to affect the property of the bankruptcy estate, such as by a requirement that the debtor indemnify the non-debtor or by payment of the liability from a director’s and officer’s insurance policy, it may be necessary for the plaintiff in such a case to proceed against the non-debtor party through bankruptcy proceedings. See id.; A.H. Robins Co., 788 F.2d at 1007-08.
In this case, the parties have not raised any claims that this suit would affect the bankruptcy estate, so we need not reach this question.
To the contrary, the managers are independently liable under the FLSA, and the automatic stay has no effect on that liability. The defendants in their supplementary briefing repeatedly assert that they were unable to find any authority in support of this proposition. We have found at least two cases holding that individual managers can be held liable under the FLSA even after the corporation has filed for bankruptcy. See Donovan v. Agnew, 712 F.2d 1509, 1511, 1514 (1st Cir.1983) (finding managers of bankrupt corporation individually liable under FLSA and noting, “The overwhelming weight of authority is that a corporate officer with operational control of a corporation’s covered enterprise is an employer along with the corporation, jointly and severally liable under the FLSA for unpaid wages.”); Chung v. New Silver Palace, 246 F.Supp.2d 220, 226 (S.D.N.Y.2002) (“The automatic stay … affects only [the debtor]; it does not apply to plaintiff’s [FLSA] claims against the [debtor]’s non-debtor co-defendants.”).
The district court correctly held that the plaintiffs could not state a claim against the managers for unpaid wages under Nevada law, and therefore correctly dismissed that claim, making the issue of the union’s standing moot. However, the plaintiffs have adequately stated a claim under the FLSA.”
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