Amicus Curiae Brief — Auer v. Robbins

Iu the Supreme Court of the United States

OCTOBER TERM, 1996

FRANCIS BERNARD AUER, ET AL., PETITIONERS

v.

David A. ROBBINS, ET AL.

ON WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

BRIEF FOR THE UNITED STATES

AS AMICUS CURIAE SUPPORTING AFFIRMANCE

WALTER DELLINGER

Acting Solicitor General

J. DAVITT MCATEER EDWIN S. KNEEDLER

Acting Solicitor of Labor Deputy Solicitor General

ALLEN H. FELDMAN IRVING L. GORNSTEIN

Associate Solicitor Assistant to the

NATHANIEL I. SPILLER Solicitor General

Deputy Associate Solicitor Department of Justice

Washington, D.C. 20530-0001

Senior Appellate Attorney

Department of Labor

Washington, D.C. 20210

QUESTIONS PRESENTED

Regulations promulgated by the Secretary of Labor

provide that employees are considered to be paid on a

“salary basis,” and therefore may be “executive,” “admin-

istrative,” or “professional” employees exempt from the

overtime requirements of the Fair Labor Standards Act of

1938, 29 U.S.C. 201 et seq., if they are paid a predeter-

mined amount, on a weekly or less frequent basis, that “is

not subject to reduction because of variations in the

quality or quantity of the work performed.” 29 C.F.R.

541.118(a). In addition, 29 C.F.R. 541.118(a)(6) pro-

vides a “window of correction” under which an employer

that has made a deduction from an employee’s pay that

would remove the employee from exempt status may

retroactively restore the employee’s exempt status by reim-

bursing the employee and promising to comply with the

salary basis rule in the future. The questions presented

are:

1. Whether the pay of a class of employees is “sub-

ject to” reduction within the meaning of 29 C.F.R.

541.118(a) when an employer has a written manual that

permits disciplinary suspensions of less than one week to

be imposed on members of the class, but no such suspen-

sion has ever been imposed except in one unique

circumstance.

2. Whether an employer may take advantage of the

window of correction to remedy a one-time disciplinary

deduction.

TABLE OF CONTENTS

I. The salary basis test, including its disciplinary

deduction rule, is a reasonable exercise of the

Secretary of Labor’s authority to define the Sec-

tion 18(a) (1) exemption ........

Il. Petitioners were not “subject to” impermissible

disciplinary deductions within the meaning of

I a nipeunsninnnes

III. The window of correction is open to respondents

to correct the single improper disciplinary deduc-

a AE ES

TABLE OF AUTHORITIES

Cases:

Abshire v. County of Kern, 908 F.2d 483 (9th Cir.

1990) , cert. denied, 498 U.S. 1068 (1991) ..........

Batterton Vv. Francis, 482 U.S. 416 (1977)...............

Brock v. Claridge Hotel & Casino, 846 F.2d 180

(3d Cir.), cert. denied, 488 U.S. 925 (1988)...

Garcia v. San Antonio Metropolitan Transit Au-

thority, 469 U.S. ES I

Jackson V. Kentucky, 892 F. Supp. 923 (E.D. Ky.

1995), appeals pending, Nos. 95-6283 & 95-6284

a ecsimusmenece

Kinney Vv. District of Columbia, 994 F.2d 6 (D.C.

GEE a ll a

Martin v. Malcolm Pirnie, Inc., 949 F.2d 611 (2d

Martin v. OSHRC, 499 U.S. 144 (1991) 0...

(II)

16

21

8 4

16

17

20

17

Cir. 1991), cert. denied, 506 U.S. 905 (1992)... 12, 28

IV

Cases—Continued : Page

Maryland v. Wirtz, 392 U.S. 183 (1968) ................. 4

McGuire V. City of Portland, 91 F.3d 1293 (9th Cir.

ee 20

Meringolo v. City of New York, 908 F. Supp. 160

ON KA AQ SS a a es 21

Merrill Lynch, Pierce, Fenner & Smith, Ine. V.

Curran, 456 U.S. 868 (1962) ................................ 19

Mourning Vv. Family Publications Serv., Inc., 411

FR fa er a oe 18

Mueller Vv. Reich, 54 F.3d 438 ‘(7th Cir. 1995), peti-

tion for cert. pending, No. 95-586 0... 20

National League of Cities v. Usery, 426 U.S. 833

0 ee 8

Paulitz v. City of Naperville, 781 F. Seve. 1368

I EEE are 21

Sullivan v. Zebley, 493 U.S. 521 (1990) ....... aia 16

Walling v. Yeakley, 140 F.2d 830 (10th Cir.

ET SS SE a ee ne 17

Statutes and regulations :

Education Amendments of 1972, Pub. L. No.

92-318, § 906, 86 Stat. S76 ........................-...........-. ~

Fair Labor Standards Act of 1938, 29 U.S.C. 201

Ee 1

bo 8 el 8

§ 3(e) (2) (C), 29 U.S.C. 208 (e) (2) (C) 18

SOR ES EE x

§ 7(a) (1), 29 U.S.C. 207 (a) (1) —.................... 1

hi) 18

§ 18(a) (1), 29 U.S.C. 213(a) (1) ..................... passim

DQ BR TE TT 11

Fair Labor Standards Amendments of 1966, Pub.

L. No. 89-601, § 102, 80 Stat. 831-832 0... 7-8

Fair Labor Standards Amendments of 1974, Pub.

(CC (xy 8

Fair Labor Standards Amendments of 1985, Pub.

L. No. 99-150, 99 Stat. 787:

§§ 2-4, 99 Stat. 787-790... 8

§§ 2-5, 99 Stat. 787-790... nneneneeees 19

§§ 2-7, 99 Stat. 787-791 nn eeeneeenen ene 8, 19

BS CRD, Fa cecrncesecesensenesnecssssseesemerssssssese 8

v

Statutes and regulations—Continued : Page

29 C.F.R.

SEEN weauabeanlinaietamanteiatanetrsianimatpeationsaiideanntees 4, 5, 8, 11, 16

RRR he ole E ela 16

Section 541.1 (1938 Supp.) —.............. 2

EE eee 2,9

Section 541.1(e) (1940 Supp.) ........... 3

Section 541.1(f) (1949 Supp.) —......... 5

Section 541.2 (1938 Supp.) —............... 2

ES IR ES TSR ET Ca 2,9

Section 541.2(a) (1940 Supp.) .......... 4

Section 541.2(e) (1949 Supp.) ......... 5

! SE SS 2,9

Section 541.3(b) (1940 Supp.) .......... 4

Section 541.3(e) (1949 Supp.) _....... 5

Ye eee 9, 20, 25

8 ~< Se 5, 16

Section 541.118 (1949 Supp.) ............ 5

REL 16

Section 541.118(a) _.... .2, 5, 6, 10, 11, 14, 18,

21, 22, 25, 26

Section 541.118 (a) (2) — 7,23

Section 541.118(a) (3) — 0... 7, 23

Section 541.118 (a) (4)... 7

Section 541.118 (a) (5). 6, 23

Section 541.118 (a) (6)... 7, 12, 15, 23,

28, 29

Pt. 553:

Becton SEB.BB (EC)... n.n.cnncceccccncccccceceeeeee ~

RE AE Sie ER. Ra a 18

Miscellaneous :

FS Ly ee 2

Nh eee 3,4

14 Fed. Reg. (1949) :

CS ee eee a eee 5

Sica icetne cee tictticntitieccincintlitmeatintaniinaeameetannes 6

19 Fed. Reg. (1954)

a 6

EA ES ae 16

Se ae eee 6

Miscellaneous—Continued Page

Ne 6

p. 4406 _........ siectsnmamacmneanmnatineatmunaiiatenttiiiins 6

56 Fed. Reg. (1991) :

wm, GE BGG GIG ancecscncsec sense cescccscescassccesesazscnscrencs 9,19

7+, —E—EEE d

57 Fed. Reg. (1992) :

ee 9,17

re en ea eee 19-20

EE 10

p. 37,668 scisiinasiectisiaieiiitetitaitinstmmtaemneniesn 9

p. 37,672 _...... sncestinsitentninthiantintetntmnatasieveit 9, 10

oe SE OE OO ccececcctarsntetectntciniapmeremmenenen 20

0 IO ccccscsesenscenntentdinrnsmninitiabitibammmnrnpeamenenes 10, 20

EEE 9

S. Rep. No. 159, 99th Cong., Ist Sess. (1985) ............ 19

United States Dep’t of Labor, Wage and Hour

Division, “Executive, Administrative, Profes-

sional . . . Outside Salesman” Redefined, Report

and Recommendations of the Presiding Officer

at Hearings Preliminary to Redefinition (1940) ..2, 3, 17

United States Dep’t of Labor, Wage and Hour

Division, Release No. A-9 (Aug. 24, 1944) —........ 4,5

United States Dep’t of Labor, Wage and Hour and

Public Contracts Division, “Report and Recom-

mendations on Proposed Revisions of Regule-

tions, Part 541, Defining the Terms “Executive”

“Administrative” “Professional” “Local Retail-

ing Capacity” “Outside Salesman” (1949) ......5, 17, 18

United States Dep’t of Labor, Wage and Hour and

Public Contracts Divisions, “Report and Recom-

mendations on Proposed Revision of Regulations,

Part 541, under the Fair Labor Standards Act

Defining the Terms “Executive” “Administra-

tive” “Professional” “Local Retailing Capacity”

“Outside Salesman” (1958) —.....-..-.......---cceeeeeeeeeee 7

United States Dep’t of Labor, Wage and Hour

Division, Wage & Hour Manual (BNA):

EB! 4

Salary Basis (Dec. 24, 1991) —..........-....--..... 29

In the Supreme Court of the United States

OcTOBER TERM, 1996

No. 95-897

FRANCIS BERNARD AUER, ET AL., PETITIONERS

v.

Davip A. ROBBINS, ET AL.

ON WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

BRIEF FOR THE UNITED STATES

AS AMICUS CURIAE SUPPORTING AFFIRMANCE

INTEREST OF THE UNITED STATES

The Fair Labor Standards Act of 1938 (FLSA), 29

U.S.C. 201 et seq., contains an exemption from its over-

time requirements for “employee[s] employed in a bona

fide executive, administrative, or professional capacity.”

29 U.S.C. 213(a)(1). This case raises questions con-

cerning the interpretation of regulations issued by the

Secretary of Labor pursuant to his authority to “define[]

and delimit[]” (ibid.) the meaning of those terms. The

Secretary has a substantial interest in the correct interpre-

tation of his regulations. At the invitation of the Court,

the United States filed a brief as amicus curiae at the peti-

tion stage.

STATEMENT

1. Section 7(a)(1) of the FLSA, 29 U.S.C. 207(a)(1),

requires an employer to pay each of its employees “at a

rate not less than one and one-half times the regular rate

(1)

2

at which he is employed” for all hours worked in excess

of 40 hours in a week. Section 13(a)(1) of the Act, 29

U.S.C. 213(a)(1), provides an exemption from the re-

quirement of overtime pay for “any employee employed

in a bona fide executive, administrative, or professional

capacity * * * (as such terms are defined and delimited

from time to time by regulations of the Secretary [of

Labor]).”

Pursuant to the authority conferred on the Secretary to

define the scope of the exemption, the Secretary has prom-

ulgated regulations that provide that, in order to qualify

for executive, administrative, or professional status, an

employee must meet both a salary test and a duties test.

See 29 C.F.R. 541.1 (executive), 541.2 (administrative),

541.3 (professional). The salary test consists of two ele-

ments: (1) a requirement that the “exempt” employee

receive no less than a specified level of compensation; and

(2) a requirement that the compensation be paid “on a

salary basis.” This case concerns only the latter compo-

nent of the salary test: whether the pertinent employees

have been paid “on a salary basis” as defined by 29

C.F.R. 541.118(a).

a. The salary basis test has roots that reach back to

the enactment of the FLSA in 1938. In that year, the

Administrator of the Department of Labor’s Wage and

Hour Division issued regulations providing that, in order

to come within the Section 13(a)(1) exemption, executive

and administrative employees must perform duties of a

specified nature and be “compensated for [their] services

at not less than $30 * * * for a workweek.” 29 C.F.R.

541.1 (1938 Supp.); 3 Fed. Reg. 2518 (1938). A salary

requirement was not initially imposed for professional

employees. 29 C.F.R. 541.2 (1938 Supp.); 3 Fed. Reg.

2518 (1938).

In 1940, the Wage and Hour Division conducted hear-

ings on the regulations governing the Section 13(a)(1)

exemption, and the presiding hearing officer issued a re-

port recommending a salary basis test for all three classes

of exempt employees. United States Dep’t of Labor, Wage

3

and Hour Division, “Executive, Administrative, Profes-

sional . . . Outside Salesman” Redefined, Report and

Recommendations of the Presiding Officer at Hearings

Preliminary to Redefinition (1940) (1940 Report). In

that report, the presiding hearing officer noted that there

was “surprisingly wide agreement” among employers and

employees “that a salary qualification in the definition of

the term ‘executive’ is a valuable and easily applied index

to the ‘bona fide’ character of the employment.” /d. at 19.

The basis of that agreement was that “[t]he term ‘execu-

tive’ implies a certain prestige, status, and importance”

that is captured by a salary test. /bid. Also, because

“executive” employees are denied the protection of the

Act, “[ijt must be assumed that they enjoy compensatory

privileges,” including a salary “substantially higher” than

the minimum wages guaranteed under the Act. Ibid. The

report noted that “[t]he shortest pay period which can

properly be understood to be appropriate for a person em-

ployed in an executive capacity is obviously a weekly

pay period,” and it recommended a salary test for execu-

tives that would be satisfied if “the employee is guaranteed

a net compensation of not less than $30 a week ‘free and

clear.” Id. at 23 (emphasis added). The report also

concluded that the inclusion of a salary test was vital in

defining “administrative” and “professional” employees as

well. Id. at 26 (“[A] salary criterion constitutes the best

and most easily applied test of the employer's good faith

in claiming that the person whose exemption is desired

is actually of such importance to the firm that he is prop-

erly describable as an employee employed in a bona fide

administrative capacity.”); id. at 36 (“[I)n order to avoid

disputes, to assist in the effective enforcement of the act

and to prevent abuse, it appears essential * * * to include

a salary test in the definition [of professional].”).

Based on the presiding officer’s recommendation, the

Wage and Hour Division Administrator promulgated reg-

ulations providing that an exempt executive must be “com-

pensated for his services on a salary basis at not less than

$30 per week.” 29 C.F.R. 541.1(e) (1940 Supp.); 5

4

Fed. Reg. 4077 (1940) (emphasis added). The regula-

tions required that exempt administrative and professional

employees (except physicians and attorneys) must be paid

“on a Salary or fee basis at a rate of not less than $200

per month.” 29 C.F.R. 541.2(a) (administrative),

541.3(b) (professional) (1940 Supp.); 5 Fed. Reg. 4077

(1940) (emphasis added).

b. In 1944, the Wage and Hour Division issued Re-

lease No. A-9, which addressed the meaning of “salary

basis.” The Release stated that an employee will be con-

sidered to be paid on a salary basis if

under his employment agreement he regularly re-

ceives each pay period, on a weekly, biweekly, semi-

monthly, monthly or annual basis, a predetermined

amount constituting all or part of his compensation,

which amount is not subject to reduction because of

variations in the number of hours worked or in the

quantity or quality of the work performed during the

pay period.

Release No. A-9 (Aug. 24, 1944), reprinted in Wage &

Hour Manual (BNA) 719 (cum. ed. 1944-1945). The

Release further explained that, because “bona fide execu-

tive, administrative, and professional employees are nor-

mally allowed some latitude with respect to the time

spent at work,” such employees should generally be free

to go home early or occasionally take a day off without

a deduction in pay. /bid. Due to particular war-time

conditions, however, “disciplinary deductions * * * made

for unreasonable absences” were permissible. /bid.

In 1947, the Wage and Hour Division again conducted

hearings on the Part 541 regulations. After the hearing,

the presiding officer recommended retention of the “sal-

ary basis” test, stating:

The evidence at the hearing showed clearly that bona

fide executive, administrative, and professional em-

ployees are almost universally paid on a salary or

fee basis. Compensation on a salary basis appears

to have been almost universally recognized as the

5

only method of payment consistent with the status

implied by the term “bona fide” executive. Similarly,

payment on a salary (or fee) basis is one of the rec-

ognized attributes of administrative and professional

employment.

United States Dep't of Labor, Wage and Hour and Pub-

lic Contracts Divisions, Report and Recommendations on

Proposed Revisions of Regulations, Part 541, Defining the

Terms “Executive” “Administrative” “Professional” “Lo-

cal Retailing Capacity” “Outside Salesman” 24 (1949)

(1949 Report) (footnote omitted ).

The 1949 Report (at 24-26) recommended abandoning

the policy in Release No. A-9 that permitted disciplinary

deductions for unreasonable absences. The imposition of

such disciplinary deductions, the presiding officer con-

cluded, had been a war-time phenomcnon prompted by

temporary conditions that no longer existed. /d. at 25.

In the “rare instances” where discipline of exempt

employees was still found necessary, it was “usually

accomplished in other ways than by deduction from

salary.” Ibid.

Based on the presiding officer’s recommendations, the

Administrator in 1949 issued revised Part 541 regula-

tions that retained the “salary basis” criterion. 29 C.F.R.

541.1(f), 541.2(e), 541.3(e) (1949 Supp.); 14 Fed.

Reg. 7705 (1949). Shortly thereafter, the Administrator

published the first version of 29 C.F.R. 541.118 (1949

Supp.) in a new Subpart B, entitled “Interpretations.”

Section 541.118(a) provided as follows:

An employee will be considered to be paid on a sal-

ary basis within the meaning of the regulations in

Subpart A of this part, if under his employment

agreement he regularly receives each pay period on

a weekly, or less frequent basis, a predetermined

amount constituting all or part of his compensation,

which amount is not subject to reduction because

of variations in the number of hours worked in the

workweek or in the quality or quantity of the work

performed. The employee must receive his full salary

6

for any week in which he performs any work without

regard to the number of days or hours worked.

14 Fed. Reg. 7735 (1949). Those regulations did not

expressly authorize any deductions from compensation.

c. In 1954, the Administrator issued a revised Section

541.118(a) that remains in force today. That regulation

was adopted after being proposed for comment, see 19

Fed. Reg. 1321 (1954), and was issued pursuant to the

Administrator’s authority under Section 13(a)(1) of the

Act, see id. at 4405-4406. As in the 1949 regulation, an

employee is deemed to be paid on a salary basis if, un-

der the employment agreement, the employee “regularly

receives * * * a predetermined amount” of compensation

that “is not subject to reduction because of variations

‘4m the quality or quantity of the work performed.” 29

C.F.R. 541.118(a). A “salary basis” employee “must

receive his full salary for any week in which he performs

any work without regard to the number of days or hours

worked,” but need not be paid for any week in which he

performs no work. /bid. The new version of Section

541.118(a), however, added exceptions to that rule. One

exception is that an employer may impose penalties for

infractions of safety rules of major significance without

affecting an employee's salaried status. 29 C.F.R. 541.118

(a)(5). The proposed version of the new regulation

would have permitted deductions for “other major dis-

ciplinary reasons” as well. 19 Fed. Reg. 1321, 1322

(1954) (proposed Section 541.118(a)(5)). “On the

basis of the comments” received, however, the Administra-

tor deleted from the final regulation the authorization of

deductions for other major disciplinary reasons. Jd. at

4406. Penalties for infractions of work rules that are not

major safety rules are therefore governed by the general

salary basis test set forth in paragraph (a). Thus, an

employee suspended without pay for less than one week

for a violation of a rule that is not a major safety rule

would be classified as nonsalaried. On the other hand,

an otherwise salaried employee who is suspended without

7

pay for one full week for the violation of such a rule

would remain a salaried employee.

The salary basis regulation also permits deductions

from a salaried employee’s compensation to reflect ab-

sences of “a day or more” for personal reasons other

than sickness and accident (29 C.F.R. 541.118(a)(2))

and to reflect absences for “a day or more” due to sickness

or disability if “made in accordance with a bona fide

plan, policy or practice of providing compensation for

loss of salary occasioned by both sickness and disability”

(29 C.F.R. 541.118(a)(3)). Docking an exempt em-

ployee’s pay for partial-day absences, however, is not per-

The regulation further provides, in a subsection com-

monly referred to as the “window of correction,” that an

employer who has made a deduction that runs afoul of the

salary basis rule may take corrective action to restore

retroactively the employee’s exempt status. 29 C.F.R.

541.118(a)(6) (quoted in full at p. 23, infra)?

2. a. As originally enacted, the FLSA did not apply

to state employees. In 1966, and again in 1972, Con-

gress extended FLSA coverage to certain state e .

Fair Labor Standards Amendments of 1966, Pub. L. No.

* Deductions may not be taken for employee absences caused by

jury duty, attendance as a witness, or temporary military leave.

The employer may, however, offset against an employee's salary any

sions, Report and Recommendations on Proposed Revision of Regu-

lations, Part 541, under the Fair Labor Standards Act Defining

the Terms “Executive” “Administrative” “Professional” “Local

Retailing Capacity” “Outside Salesman” 2, 3 (1968).

89-601, § 102, 80 Stat. 831-832 (hospitals, institutions,

schools, and railways or carriers); Education Amend-

ments of 1972, Pub. L. No. 92-318, § 906, 86 Stat. 375

(public preschools). In Maryland v. Wirtz, 392 U.S. 183

(1968), this Court upheld the constitutionality of the

1966 extension.

In 1974, Congress extended FLSA coverage to nearly

all public sector employees. Fair Labor Standard Amend-

ments of 1974, Pub. L. No. 93-259, 88 Stat. 55; see

29 U.S.C. 203(d) and (x). This Court held, however,

that the FLSA’s minimum wage and overtime provisions

could not constitutionally be applied to state employees

engaged in traditional governmental activities. See Na-

tional League of Cities v. Usery, 426 U.S. 833, 852

(1976). Approximately ten years later, National League

of Cities was overruled by Garcia v. San Antonio Metro-

politan Transit Authority, 469 U.S. 528 (1985).

In response to Garcia, Congress amended the FLSA to

address particular concerns of state and local governments

and to allow them relief from liability during a temporary

adjustment period. Fair Labor Standards Amendments

of 1985, Pub. L. No. 99-150, §§ 2-7, 99 Stat. 787-791.

The 1985 amendments contained special provisions on

compensatory time in lieu of overtime, special details, and

volunteers. Id. §§ 2-4, 99 Stat. 787-790. They also con-

tained an exemption for employees of the legislative

branch of States and their political subdivisions. Jd. § 5,

99 Stat. 790. The 1985 amendments, however, did not

make any changes to either the Section 13(a)(1) exemp-

tion or to the Secretary's Part 541 regulations implement-

ing the exemption. The Department’s regulations imple-

menting the 1985 amendments thereupon expressly made

the Part 541 regulations applicable to state and local gov-

ernments. 29 C.F.R. 553.32(c).

b. In light of its experience, the Department of Labor

has taken a series of steps that address the application

of the salary basis test to public employers. In January

1987, the Department issued an enforcement policy, stat-

ing that the Wage and Hour Division would not generally

deny a Section 13(a)(1) exemption for an otherwise

9

exempt public employee whose pay was reduced for ab-

sences of less than a day, if such reductions were required

by state or local law. See 57 Fed. Reg. 37,666, 37,668

(1992) (quoting policy). In September 1991, the De-

partment issued an interim final rule providing that pub-

lic employees could qualify as exempt under Section 13

(a)(1) even if they are subject to pay deductions for

periods of less than a day due to personal reasons, ill-

ness or injury when no leave is available. 56 Fed. Reg.

45,824-45,826 (1991). The rule was prompted by the

Department’s recognition that public employers are often

required by principles of public accountability to reduce

pay for partial<day absences. /d. at 45,825. That interim

rule became effective immediately, without notice and

comment, in order to spare public employers from “po-

tentially enormous and generally unexpected back wage

liabilities” to employees who would otherwise be exempt.

Ibid.

In August 1992, after notice and comment, the Depart-

ment issued a final regulation, 29 C.F.R. 541.5d, which

provides that a public employee who otherwise meets the

salary basis test shall not be disqualified from exemption

under 29 C.F.R. 541.1, 541.2 or 541.3 on the ground

that the employee “is paid according to a pay system

established by statute, ordinance, or regulation, or by a

policy or practice established pursuant to principles of

public accountability * * * which requires the public

agency employee’s pay to be reduced or such employee

to be placed on leave without pay for absences for per-

sonal reasons or because of illness or injury of less than

one work-day” under specified circumstances. See 57

Fed. Reg. 37,677 (1992). The effect of the regulation

is to preserve the exemption in most circumstances in

which the salary of state and local executive, professional,

or administrative employees is required to be reduced for

partial-day absences. In issuing that new regulation, the

Secretary noted that, while executive, administrative, and

professional employees in the private sector are nearly

always paid on a salary basis, id. at 37,672, public em-

ployers are normally subject to “principles of public ac-

10

countability” that prohibit paying employees for time not

worked, id. at 37,667. The Secretary also recognized that,

if the partial-day absence rule were applied to the public

sector, it could prevent state and local governments from

availing themselves of the overtime pay exemption for

executive, administrative, and professional employees, a

result that would be inconsistent with Congress’s intent.

Id. at 37,672. The Secretary therefore exempted public

employees from the partial-day absence rule.

At the same time, however, the Department retained

in effect for state and local employees the general rule

governing disciplinary deductions in 29 C.F.R. 541.118

(a), under which an employee loses salary basis status if

the employee’s pay is reduced for disciplinary suspension

(other than for violation of a major safety rule) of less

than a week. 57 Fed. Reg. 37,674 (1992). The Depart-

ment concluded that the comments it had received had

3. Petitioners are a group of police sergeants and one

police lieutenant employed by the St. Louis Police De-

partment. Pet. App. 6a, 36a. During the pertinent time

frame, state law has provided that St. Louis police ser

geants receive a yearly salary and has i that offi-

cers at the rank of sergeant or higher are allowed no

overtime pay. /d. at 6a & n.1, 43a-46a.

The St. Louis Board of Police Commissioners has issued

a Police Manual that specifies standards of conduct for

dis-

ciplinary suspensions of less than one week without pay.

See, e.g., id. at 148a (penalty for first offense of “[f)ail-

ing to properly patrol assigned beat” is “[rjeprimand to

5 days”).

the court of appeals held that all sergeants performed

thereby

isfying the duties component of the Section 13(a)(1) ex-

emption. /d. at 10a-35a.

quirement is not a safety rule of major significance, the

court concluded that the sergeant’s suspension without

14

Salary basis test against deductions for partial-day ab-

disciplinary deduction aspect of the rule. Public employ-

ers have a wide range of disciplinary options, such as

reprimands, restrictions on duties, and full-week suspen-

sions, that do not run afoul of the salary basis rule.

Il. Petitioners were not “subject to” disciplinary

ductions of less than one week’s pay within the meaning

of the first sentence of 29 C.F.R. 541.118(a). An em-

Because the test is a practical one, the most important

evidence bearing on whether a class of employees is “sub-

ject to” improper deductions would concern the extent to

which such deductions have actually occurred and the cir-

cumstances of those deductions. Where an employer ef-

fectively communicates to employees in a particular cate-

gory that deductions will be made for disciplinary suspen-

sions of less than one week, a showing of actual deductions

Under the correct interpretation of the regulations,

petitioners were not subject to improper disci iplinary de-

ductions. Although respondents’ written policy manual

facially authorizes improper deductions, respondents’ per-

terms of the “window of correction” regulation. 29 C.F.R.

541.118(a)(6). The window of correction is not open

16

the district court, respondents can do so by reimbursing

the one sergeant whose salary was reduced and promising

to comply with the Secretary’s salary basis regulations in

the future.

ARGUMENT

I. THE SALARY BASIS TEST, INCLUDING ITS DIS-

CIPLINARY DEDUCTION RULE, IS A REASON-

ABLE EXERCISE OF THE SECRETARY OF

LABOR’S AUTHORITY TO DEFINE THE SECTION

13(a)(1) EXEMPTION

Section 13(a)(1) of the FLSA exempts from the Act’s

overtime compensation requirements “any employee em-

ployed in a bona fide executive, administrative, or profes-

sional capacity * * * (as such terms are defined and de-

limited from time to time by regulations of the Secretary

of Labor, subject to-the provisions of [the Administrative

Procedure Act]).” 29 U.S.C. 213(a)(1) (emphasis

added). The Secretary’s regulations setting forth such

definitions and delimitations must be upheld so long as

they are not arbitrary, capricious, or manifestly unreason-

able. Sullivan v. Zebley, 493 U.S. 521, 528 (1990);

Batterton v. Francis, 432 U.S. 416, 425-426 (1977).*

Pursuant to Congress’s broad grant of authority to

“define[] and delimit[]” the scope of the exemption, the

Secretary's regulations have for more than 50 years pro-

vided that an employee must be paid on a salary basis in

order to come within the exemption. For more than 40

years, the regulations have contained the disciplinary de-

duction component of that rule, which provides that, to be

* Although the “salary basis” test (29 C.F.R. 541.118) appears in

the “interpretations” subpart (Subpart B) of Part 541, rather than

the “general regulations” subpart (Subpart A), that placement does

not affect the level of deference owed to the rule. Section 541.118

was promulgated pursuant to notice and comment rulemaking in

accordance with the statutory authorization in Section 13(a) (1).

See 19 Fed. Reg. 1821-1322 (1954). Moreover, an agency’s “power

authoritatively to interpret its own regulations is a component of

{its) delegated lawmaking powers.” Martin v. OSHRC, 499 U.S.

144, 161 (1991).

17

regarded as salaried, an employee must receive a prede-

termined salary that is no. “subject to” deductions of less

than one week’s pay for violations of work rules that are

not major safety rules. Those aspects of the Secretary’s

regulations constitute a reasonable exercise of the Secre-

tary’s authority to “define{] and delimit[{]” the scope of

the exemption from the FLSA’s overtime requirements.

A. As we have explained, based on evidence submitted

at hearings conducted by the Wage and Hour Division,

the Secretary determined that executive, administrative,

and professional employees are nearly universally paid on

a salary basis. See 57 Fed. Reg. 37,666 (1992) (describ-

ing history of salary basis regulations); 1949 Report 24.

That nearly universal practice reflects the widely held un-

derstanding that employees with the requisite status to be

bona fide executives, administrators, or professionals have

discretion to manage their time and are not answerable

for the number of hours worked or the number of tasks

performed. See Kinney v. District of Columbia, 994 F.2d

6, 11 (D.C. Cir. 1993); Brock v. Claridge Hotel &

Casino, 846 F.2d 180, 184 (3d Cir.), cert. denied, 488

U.S. 925 (1988). Such employees are not paid by the

hour or task, but for the general value of services per-

formed. Abshire v. County of Kern, 908 F.2d 483, 486

(9th Cir. 1990), cert. denied, 498 U.S. 1068 (1991).

In general, they receive a guaranteed amount of compen-

sation “free and clear.” See /940 Report 23. The Sec-

retary’s regulations therefore reasonably provide that, in

order to fall within the exemption, employees must be

paid on a “salary basis”—i.e., with limited exceptions,

pensation that is not reduced because of the quantity or

quality of work. See Walling v. Yeakley, 140 F.2d 830,

832-833 (10th Cir. 1944).

The rule against disciplinary deductions is an integral

component of the salary basis rule. Because one of the

marks of an exempt employee is the receipt of a prede-

termined amount of compensation, the Secretary reason-

ably decided that suspending an employee for violation

18

of a work rule, and docking the employee’s pay for the

suspension, is an indication that the employee lacks the

requisite status to qualify for exemption under Section

13(a)(1). The disciplinary deduction rule is also based

on the Secretary’s understanding, derived from Wage and

Hour Division hearings, that bona fide executive, admin-

istrative, and professional employees have sufficiently high

status and prestige that they are not generally disciplined

in the form of such deductions from compensation. 1949

Report 24-26.°

B. The Secretary has acted within his statutory au-

thority in applying the salary basis rule and the discipli-

nary deduction component of that rule to state and local

employers. When Congress extended the coverage of the

FLSA to almost all public employees, it sought to ac-

commodate the special concerns of state and local govern-

ments. Congress specifically exempted from overtime re-

quirements certain categories of state and local govern-

ment employees, such as elected officials, their personal

staff, and certain of their appointees and advisers. See

29 U.S.C. 203(e)(2)(C). Congress also created special

overtime rules for law enforcement personnel, who need

not be paid premium overtime compensation until they

have worked 171 hours over a period of 28 days. 29

U.S.C. 207(k); 29 C.F.R. 553.201.

After this Court’s decision in Garcia, Congress amended

the FLSA to accommodate still further “the particular

5 The line-drawing contained within the disciplinary deduction

rule is itself reasonable. Cf. Mourning v. Family Publications Serv.,

Ine., 411 U.S. 356, 374 (1973) (lines drawn by agency in defining

a class subject to regulation may include “reasonable margin” to

ensure effective enforcement). The Secretary permits deductions

from the compensation of executive, administrative, and profes-

sional employees for violations of major safety rules as an accom-

modation to the strong public policy interests in compliance with

such rules. The Secretary does not consider unpaid disciplinary

suspensions of a full-week pay period to violate the salary basis

rule, because the Secretary has adopted a general policy, reflected

in 29 C.F.R. 541.118(a), not to question the salaried status of an

employee who receives no pay in a week in which the employee

performs no work.

19

needs and circumstances of the States and their political

subdivisions.” §S. Rep. No. 159, 99th Cong., Ist Sess.

7-8 (1985); see Fair Labor Standards Amendments of

1985, Pub. L. No. 99-150, §§ 2-7, 99 Stat. 787-791. In

particular, Congress deferred the effective date of certain

provisions of the FLSA; it added new provisions on com-

pensatory time in lieu of overtime, special details, and

volunteers; and it added an exemption for employees of

the legislative branch of States and their political sub-

divisions. Jd. §§ 2-5, 99 Stat. 787-790.

While Congress has carefully attended to the special

problems faced by state and local governments, it has not

modified either Section 13(a)(1) or the Secretary's sal-

ary basis test. Indeed, nothing in the text or legislative

history of the FLSA’s extension to state and local govern-

ment employees—or in the 1985 amendments—even re-

motely suggests that Congress intended to prohibit the

Secretary from implementing the Section 13(a)(1)} ex-

emption with the same salary ‘asis test and disciplinary

deduction rule that it had long applied to the private

sector. The absence of any such indication is significant,

because the applicable regulations were promulgated be-

fore Congress’s extension of the FLSA to state and local

employees. See Merrill Lynch, Pierce, Fenner & Smith,

Inc. Vv. Curran, 456 U.S. 353, 379 (1982) (Congress is

presumed to be aware of published regulations when it

extends a statute). The Secretary therefore retains his

full authority under Section 13(a)(1) to “define[{] and

delimit[] from time to time” the terms bona fide executive,

administrative, and professional employee, as they apply

to the public sector. |

C. In exercising that authority, the Secretary has been

sensitive to the possibility that differences between the

public and private sectors might call for differences in the

way in which the salary basis test should be applied to

those two sectors. In 1991 and 1992, in response to

concerns raised by state and local governments, the Sec-

retary exempted public employers from the partial-day

absence component of tne salary basis rule. 56 Fed. Reg.

45,824-45,826 (1991); 57 Fed. Reg. 37,666-37,677

20

(1992); 29 C.F.R. 541.5d. The Secretary determined that

principles of public accountability often prohibit public

employers from paying employees for time not worked,

and that applying the partial-day absence rule to such

employers would inappropriately prevent them from avail-

ing themselves of the Section 13(a)(1) exemption for

executive, administrative, and professional employees. 57

Fed. Reg. 37,672-37,673 (1992).

The evidence before the Secretary during the rulemak-

ing proceeding, however, did not establish a comparable

need for a change in the disciplinary deduction rule as ap-

plied to the public sector. 57 Fed. Reg. 37,674 (1992).

There was no evidence presented to the Secretary that

public accountability principles require public sector em-

ployers to impose particular forms of discipline, such as

unpaid suspensions of less than one week for minor in-

fractions, and that the salary basis regulation therefore

should be modified accordingly. Ibid. Indeed, the Sec-

retary noted that public employers have a wide range

of options for implementing discipline that would allow

them to preserve the exemption for particular classes of

employees. /bid. For example, nothing in the disciplinary

deduction rule precludes public employers from sanction-

ing violations of work rules through reprimands, tem-

porary reassignment of duties, full-week suspensions, or

termination. As those examples illustrate, state and local

employers remain free to enforce a system of graduated

sanctions for their employees’ job-related misconduct with-

out running afoul of the disciplinary deduction rule.

The Secretary did not rule out an eventual change in

the disciplinary deduction rule. 57 Fed. Reg. 37,674

(1992). He reasonably concluded, however, that the case

for a change had not been made in that proceeding. The

disciplinary deduction rule is therefore valid as applied to

the public sector. McGuire v. City of Portland, 91 F.3d

1293, 1295-1296 (9th Cir. 1996); Mueller v. Reich, 54

F.3d 438, 443 (7th Cir. 1995), petition for cert. pending,

No. 95-586 (filed Oct. 10, 1995); Jackson v. Kentucky,

892 F. Supp. 923, 933 (E.D. Ky. 1995), appeals pend-

ing, Nos. 95-6283 & 95-6284 (6th Cir., docketed Sept.

21

27, 1995); accord Meringolo v. City of New York, 908

F. Supp. 160, 168-169 (S.D.N.Y. 1995); Paulitz v. City

of Naperville, 781 F. Supp. 1368, 1372 n.8 (N

een pp n.8 (N.D. Il.

II. PETITIONERS WERE NOT “SUBJECT TO” IM-

PERMISSIBLE DISCIPLINARY DEDUCTIONS

WITHIN THE MEANING OF 29 C.F.R. 541.118(a)

Petitioners were paid a predetermined amount every

two weeks, and the district court found that there was

no police department procedure for deducting pay from

a sergeant or higher-ranking officer on an hour-by-hour

basis because that employee did not work a certain num-

ber of hours. Petitioners nonetheless contend that they

were non-salaried employees within the meaning of the

Secretary’s regulations, because they were “subject to” im-

proper disciplinary deductions and therefore “subject to

reduction because of variations in the quality or quantity

of the work performed” within the meaning of the first

sentence of 29 C.F.R. 541.118(a).

A. As we explained in our brief at the petition stage

(at 9-10), in the Secretary’s view, an employee who is

otherwise paid on a salaried basis does not lose that status

simply because he is theoretically “subject to” improper

disciplinary deductions. Rather, salaried status is lost

under the regulations only when employees are “subject

to” such disciplinary deductions as a practical matter. In

other words, either such deductions must actually be made

in practice, or there must be a significant likelihood that,

a ee ee the pertinent work rules, the

oyee wi isciplined in a manner i i

withthe Prat eal — er inconsistent

lat approach best furthers the s of the ex-

emption because it realistically peel gare an ho

ployer treats a class of employees as having the status

and guaranteed pay that the “salary basis” test measures,

and therefore as being “bona fide” executive, professional,

or administrative employees. While petitioners appear to

have advanced a different view before, they now agree

(Br. 38) that it is only when employees “as a practical

—

22

matter are subject to impermissible disciplinary suspen-

sions” that an employer’s compensation practices run

afoul of Section 541.118(a)’s disciplinary deduction rule.

B. Because the test is a practical one, the most im-

portant evidence bearing on whether a class of employees

is “subject to” improper deductions would concern the

extent to which such deductions have actually occurred

and the circumstances of those deductions. On the one

hand, for example, when there is evidence that improper

deductions have been taken with some frequency for vio-

lations of a work rule by employees having a particular

rank, it is fair to conclude that all employees in that

rank are “subject to” such deductions. On the other hand,

when such deductions have not occurred or have only oc-

curred in idiosyncratic or unusual circumstances, that

conclusion generally would not be warranted. See Brief

for the United States as Amicus Curiae 9-10. In addition,

if an employer effectively communicates that work-rule

violations will result in deductions of less than one week's

pay, the absence of actual deductions would not be dis-

positive. In those circumstances, the employees may be,

as a practical matter, “subject to” improper deductions.

In the usual case, however, actual experience will be the

best measure of whether a class of employees is “subject

to” improper deductions within the meaning of the first

sentence of Section 541.118(a).*

C. The remainder of the salary basis regulation sup-

ports that construction of the first sentence of Section

541.118(a). The second sentence of Section 541.118(a)

elaborates on the rule specified in the first sentence. It

provides that, “[s]ubject to [certain specified] exceptions

* * * the employee must receive his full salary for any

® Because this case involves only a single documented deduction,

it is not necessary to decide the extent to which actual deductions

must occur in order to conclude that a class of employees is “sub-

ject to” deductions. Nor is it necessary to decide the extent to

which an employer must inform his employees that work-rule viola-

tions will result in deductions of less than one week’s pay in order

to conclude that a particular class of employees is “subject to”

improper deductions.

23

week in which he performs any work without regard to

the number of days or hours worked” (emphasis added).

That portion of the regulation focuses directly on the

pay that an employee actually receives. The same is true

of the exceptions to the “full salary” requirement. For

example, Section 541.118(a)(2) provides that “[dJeduc-

tions may be made * * * when the employee absents him-

self from work for a day or more for personal reasons,

other than sickness or accident” (emphasis added). Sec-

tion 541.118(a)(3) provides that “[dJeductions may also

be made for absences of a day or more occasioned by

sickness or disability” (emphasis added). And Section

541.118(a)(5) provides that “{p]enalties imposed in good

faith for infractions of safety rules of major significance

will not affect the employee’s salaried status” (emphasis

added ).

The “window of correction” regulation, 29 C.F.R.

541.118(a)(6), confirms the importance of actual deduc-

tions in deciding whether employees are paid on a salary

basis. That regulation provides:

The effect of making a deduction which is not per-

mitted under these interpretations will depend upon

the facts in the particular case. Where deductions

are generally made when there is no work available,

it indicates that there was no intention to pay the

employee on a salary basis. In such a case the exemp-

tion would not be applicable to him during the entire

period when such deductions were being made. On

the other hand, where a deduction not permitted by

these interpretations is inadvertent, or is made for

reasons Other than lack of work, the exemption will

not be considered to have been lost if the employer

reimburses the employee for such deductions and

promises to comply in the future.

The “window of correction” regulation addresses the ef-

fect of actual deductions on salaried status, and it makes

~ Clear that such deductions result in a loss of the exemp-

tion when they demonstrate that the employer has no

intent to pay its employees on a salaried basis, and, there-

24

fore, to treat them as “bona fide” executive, professional,

or administrative personnel. That regulation is necessar-

ily premised on the understanding that actual deductions

(and any corrections thereof) ordinarily determine exempt

Status.

D. In the court below, and in their petition to this

Court, petitioners relied on two things to show that em-

ployees in the rank of sergeant were “subject to” discipli-

nary deductions: respondents’ police manual and the dis-

ciplining of a single sergeant. Neither is sufficient to show

that the entire class of sergeants was “subject to” discipli-

nary deductions.

1. Respondents’ policy manual facially authorizes the

imposition of improper disciplinary deductions, i.e., de-

ductions of less than one week’s pay for violations of work

rules that are not major safety rules. Pet. App. 142a,

147a-149a (listing the penalty for various violations as

reprimand to. five days). But as petitioners themselves

now appear to recognize, a written manual authorizing

improper deductions, without more, does not show that

the class of employees facially covered by the policy is

“subject to” such deductions. Petitioners give one exam-

ple of why that is so: a rule that is still on the books

may not be enforced at all. Pet. Br. 43. But there are

other reasons as well. For example, a personnel rule, al-

though broadly worded, may not have been intended for

application to a particular category of employees, and

analysis of actual deductions will make it clear that the

rule is not applied to them. Just as a written description

of an employees’ duties is not controlling in deciding

whether those employees have executive, administrative,

or professional duties, a written personnel manual is not

controlling in deciding whether employees are subject to

disciplinary deductions.

More significant, a personnel rule typically does not re-

quire a particular sanction for a violation of a rule; in-

stead, it usually gives discretion to those who administer

25

the policy to decide upon the appropriate sanction.’ As

previously discussed (p. 10, supra), work rules can be

enforced in a variety of ways that would not render a

class of employees non-salaried. For example, reprimands,

temporary reassignment of duties, full-week suspensions,

and termination are all consistent with the disciplinary

deduction rule. When those who administer a disciplinary

policy decide that a violation of a work rule should be

enforced against a particular class of employees in one of

those ways (or not at all), rather than through discipli-

nary deductions of less than one week's pay, the class of

employees would not be “subject to” improper disciplinary

deductions.

Those who administe: ‘he policy may enforce a work

rule without imposing disciplinary deductions of less than

one week’s pay, because they believe that different enforce-

ment mechanisms work better for different classes of em-

ployees. They may also decide that it is more important to

retain the exempt status of a particular class of employees

than it is to enforce the work rule through the sanction

of less than one week’s pay, rather than in some other

way. When a public employer has otherwise manifested

an intent to treat a class of employees as bona fide execu-

tive, professional, or administrative personnel, it ordinar-

ily would be reasonable to conclude that the employer will

enforce its disciplinary rules in a way that is consistent

with that intent.

In this case, respondents could enforce each of their

rules that authorizes a disciplinary deduction of less than

one week's pay in a way that is consistent with the disci-

plinary deduction rule. For example, although the penalty

By contrast, the state and local laws and policies governing

partial-day absences that do not result in a loss of the exemption

are those that require deduction from pay based on principles of

public accountability. See 29 C.F.R. 541.5d. The special provision

in Section 541.5d therefore was required to prevent a loss of exempt

status. When deductions of less than one week’s pay are required

by governing law or policy, it is clear that employees are “subject

to” reduction in pay within the meaning of Section 541.118(a).

26

for violating several rules is a reprimand to five-days’ sus-

pension, thereby creating a theoretical possibility of an

improper deduction of less than one week’s pay, Pet. App.

148a-149a, respondents could impose a reprimand or a

five-day suspension without violating the disciplinary de-

duction rule. Petitioners therefore err in relying on re-

spondents’ disciplinary manual to show that they are “sub-

ject to” improper deductions within the meaning of Section

541.118(a).

2. Petitioners have offered only one concrete example

of a sergeant (Sergeant Guzy) who was actually disci-

plined with a loss of less than one week’s pay. Pet. Br.

41. As the court of appeals correctly concluded, that de-

duction occurred under “unique circumstances.” Pet.

App. 10a. In that incident, which occurred two years

after suit was filéd, the police department charged a ser-

geant with a violation of the city residency requirement

and recommended that he be dismissed. /bid. Under an

agreement with the city, the sergeant waived his right to

a hearing and accepted, in lieu of dismissal, a two-day

suspension without pay. /bid. Thus, respondents sought

to implement a penalty that is consistent with the salary

basis rule (termination) and implemented an unpaid sus-

pension of less than one week only as the result of a

settlement with the employee. We agree with the court

of appeals that the “unique circumstances” surrounding

that deduction do not divest other employees of their sal-

aried status; that deduction does not show that the entire

class of sergeants was subject to improper deductions as

a practical matter.

E. Petitioners now seek to rely on other evidence to

support their contention that they were subject to im-

proper deductions. See Pet. Br. 41-42. For example, they

claim that there is evidence that additional sergeants were

actually subjected to disciplinary deductions of less than

one week’s pay for violations of non-major safety rules.

Petitioners, however, never brought that evidence to the

attention of the court of appeals or to the attention of

27

this Court at the petition stage.’ Instead, petitioners chose

to present a question that assumed that there were no

applications of respondents’ personnel ruies. See Pet. i

(emphasis added) (“Do * * * salary basis regulations

* * * which require the loss of exempt status when an

employee is ‘subject to’ nonsafety disciplinary suspension

Seen ann © pay pated sonty culy i coon of ertuat

suspension or 's interpretation that a personnel

rule subjecting employees to discipline alone result{s} in

loss of exempt status control the application of the rule?”).

Petitioners’ contention that there were additional examples

of disciplinary deductions is therefore not properly before

the Court. The same is true of petitioners’ reliance (Pet.

Br. 41) on testimony purporting to show that particular

witnesses understood that sergeants would be impermissi-

bly docked pay for disciplinary violations. Having failed

to raise that contention in the court of appeals or before

this Court at the petition stage, that contention is not

properly presented here.

Ill. THE WINDOW OF CORRECTION IS OPEN TO

RESPONDENTS TO CORRECT THE SINGLE IM-

a aS DEDUCTION IN THIS

_ Respondents may rectify the single discipli deduc-

tion of less than one week's pay in this case by satisfying

* In their brief before the court of appeals, petitioners’ argument

that respondents’ pay practices ran afoul of the disciplinary deduc-

tion rule focused on the deduction from the pay of Sergeant Guzy.

Brief of Appellants/Cross-Appellees 44; Reply Br. of Appellants /

Cross-Appellees 21. They also asserted in that brief that “sergeants

there were any other actual deductions, while respondents repre-

sented as “fact[] that two hundred and eighty-eight (288) of the

two hundred and eighty-nine (289) [pletitioners had never been

subjected to any alleged improper deduction from their salaries

during the fourteen (14) year period prior to trial that they were

paid on a salary basis.” Br. in Opp. 13. Petitioners did not file

a reply brief to refute that factual assertion.

28

the terms of the “window of correction” regulation. Under

that requlation, the effect of making an improper deduc-

tion “depend{s] upon the facts in the particular case.” 29

C.F.R. 541.118(a)(6). When the deductions indicate

that there was “no intention to pay the employees on a

salary basis,” the exemption is not applicable. Ibid. But

“where a deduction not permitted by these interpretations

is inadvertent, or is made for reasons other than lack of

work, the exemption will not be considered to have been

lost if the employer reimburses the employee for such

deductions and promises to comply in the future,” /bid.

The court of appeals interpreted that provision to “allow| |

employers to treat otherwise eligible employees as salaried,

regardless of the employer’s one-time or unintentional

failure to adhere to § 541.118(a)’s requirements.” Pet.

App. 9a (quoting Martin v. Malcolm Pirnie, Inc., 949

F.2d 611, 616 (2d Cir. 1991), cert. denied, 506 U.S. 905

(1992) (emphasis added by court below)). At the same

time, the court concluded that the window of correction

“is not available if the employer has a settled policy of

making improper deductions.” /d. at 10a.

That interpretation is consistent with the Secretary's

construction of the “window of correction” provision.

The Department of Labor’s Wage and Hour Division is-

sued an opinion letter on December 24, 1991, stating:

The effect of making impermissible disciplinary

deductions from “salaried” employees is discussed in

§ 541.118[(a)](6). Where a one-time disciplinary

deduction is made, the exemption will not be consid-

ered to have been lost in all workweeks if the em-

ployer reimburses the employee for such deduction

and agrees to not take any such impermissible deduc-

tion in the future. Where disciplinary deductions not

permitted by the Regulations occur on a regular and

recurring basis (e.g., because of an employer's pol-

icy), we would question whether such employees,

including all of those in the “class” or “category” of

employees affected by such deductions, are actually

paid on a salary basis and the exemption may be

denied in all workweeks.

29

Salary Basis, Wage & Hour Manual (BNA) 99:5257 (em-

phases omitted ).

As petitioners note (Pet. Br. 43), respondents have

not yet fulfilled all the conditions for invoking the window

of correction. Accordingly, once the case returns to the

district court, respondents must reimburse the one ser-

Respectfully submitted

WALTER DELLINGER

Acting Solicitor General

J. DAVITT MCATFER EDWIN S. KNEEDLER

Acting Soliciior of Labor Deputy Solicitor General

ALLEN H. FELDMAN IRVING L. GORNSTEIN

Associate Solicitor Assistant to the

NATHANIEL I. SPILLER Solicitor General

Deputy Associate Solicitor

MARK 8S. FLYNN

Senior Appellate Attorney

Department of Labor ‘

OCTOBER 1996

® 6. 8. sovenwent revere orrice, 1907 417722 «8640197