Amicus Curiae Brief — Auer v. Robbins

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220 / FILE

Ste ies OCT 11 1996

FICE Of THE CLERK

SUPREME COURT OF THE UNITES SEARS

October Term, 1996

FRANCES BERNARD AUER, et al.,

Petiti

- against -

DAVID A. ROBBINS, et al., etc.,

Respondents.

ON WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

BRIEF OF AMICUS CURIAE CITY OF NEW YORK

ON BEHALF OF RESPONDENTS

PAUL A. CROTTY

Corporation Counsel of the

City of New York,

Attorney for Amicus Curiae,

100 Church Street,

New York, New York 10007.

(212) 788-1035

LEONARD J. KOERNER,*

TIMOTHY J. O’SHAUGHNESSY,

of Counsel.

* Attorney of Record.

TABLE OF CONTENTS

THE SALARY BASIS TEST SHOULD RECEIVE

ON JUDICIAL REVIEW ONLY SUCH

DEFERENCE AS ITS PERSUASIVENESS

re ee ree ey

NEITHER PETITIONERS NOR EVEN THE

DEPARTMENT OF LABOR ARGUES FOR A

STRICT READING OF THE SALARY BASIS

WES Gye wwe sce keene Ga ebits

THIS COURT SHOULD HOLD THAT WHERE A

DEDUCTION NOT PERMITTED BY THE

SALARY BASIS TEST OCCURS, THE

EXEMPTION IS LOST ONLY FOR THAT

EMPLOYEE AND ONLY FOR THE WORKWEEK

IN WHICH THE DEDUCTION IS MADE. .......

THIS COURT MUST BE AWARE THAT ITS

HOLDING ON THE MEANING OF THE PHRASE

“SUBJECT TO” MAY WELL BE APPLIED BY

THE LOWER COURTS TO DEDUCTIONS FOR

COURT APPEARANCES AND TEMPORARY

MILITARY LEAVE AS WELL AS DEDUCTIONS

AS DISCIPLINARY SANCTIONS. ...........

TABLE OF AUTHORITIES

Cases

Abshire v. County of Kern,

908 F2d 483 (9th Cir, 1990),

cert. denied, 498 US 1068 (1991) ............. 4

Chevron U.S.A., Inc. v. Natural Resources

Defense Council, 467 US 837 (1984) ........... 7

Vv -

S13 Fad 286 (Sth Cir, 1975) ............... 10

Marti Malcolm Pirnie Inc.

949 F2d 611 (2d Cir, 1991),

cer. denied. 506 US 905 (1992) ............. 1]

Skidmore v. Swift & Co., 323 US 134 (1944) ...... 3

Yourman v. Dinkins, 826 F Supp 736

(SDNY, 1993), aff'd, 84 F3d 655 (2d Cir),

petition for cert. filed sub nom.

Giuliani v. Dinkins, No. 96-152 ............ 112

Statutes

Ee 12

eG ET 12

ES ee 12

et od 136

i le as all ane so 10

oi nha b's g's o be ei wow 12

NY Military Law section 242[5}) ............. 12

Regulations

29 CFR Sections 500 through 899 ............. 3

i ck i Gh cede e606 ee es 8 x eu'b wa 3

ES SE ee ee ee 3

I + o's hie ghee 9 'aieh @ 0 wialeres 3

ee ee 356

Ce cxcccessececceses 4

29 CFR section 541.118(a)(4) ............... 1]

29 CFR section 541.118(a)(6) ............... 48

Other

ER oe a Se eee ee 10

as a Si ad a olay 90.0 whe. Ook o O's 6 a 8

- ill -

INTEREST OF AMICUS CURIAE

The City of New York and related entities (“City”)

have over 8,000 managerial employees, and thousands more

Supervisory employees, whom the City always has considered

within the exemption for the Fair Labor Standards Act

(“FLSA”) for persons “employed in a bona fide executive,

administrative or professional capacity.” 29 USC section

213(a)(1). Over 5,000 of these employees have sued the City

for back overtime and liquidated damages on the theory that

under the salary basis test they actually are hourly

employees. One of those cases went to a judgment that was

adverse to the City on tle principal legal issues and the Court

of Appeals for the Second Circuit affirmed. Yourman v.

Dinkins, 826 F Supp 736 (SDNY, 1993), aff'd, 84 F2d 655

(2d Cir, 1996). The Ciy’s patiion for o wk of cartioeadl i

pending. Giuliani v. Yourman, No. 96-152.

The judgment in Yourman, with interest and

attorneys’ fees, is now certainly over 14 million dollars for

back overtime and liquidated damages and a very rough

guess is that the City’s exposure in the five other lawsuits

may be as much as 20 to 25 million dollars.

The salary basis test, as applied in Yourman, leaves

the City between the Scylla and Charbdis of making virtually

all of its previously-exempt employees hourly employees and

of revising its policies to mirror the salary basis test.

Making all of its managers hourly employees would be

costly; the City estimated, in the record in Yourman, that if

it were to make all of its managers hourly employees and if

each manager were to work two hours of overtime each

week, the annual cost to the City would be 60 million

dollars. This is a lot of money, even to the Nation’s largest

city, especially in these times of flat tax revenue and

plummeting State and federal financial assistance, and

especially when it would be paid for work already performed

afte

and work performed by employees who always understood

that they were to work as many hours each week as

necessary to discharge their responsibilities and whose

Salaries were set with the understanding that they would not

be paid overtime.

The alternative of revising policies to satisfy the

salary basis test is no better. The City revised its policies

after the District Court ruled on liability in Yourman in

1993. The policies now provide that under no circumstances

may a manager be docked salary because of a court

appearance or temporary military leave, even if all relevant

leave balances have been exhausted. This obviously creates

the potential for abuse by unscrupulous employees and at

least arguably causes petitioners to violate the public

accountability principle (see Petition for a Writ of Certiorari

in Giuliani v. Yourman, No. 96-152 [“Yourman Pet.”], at

10).

The revised policies also provide that disciplinary

sanctions that would involve a loss of salary, such as a fine

or suspension, may not be imposed. Termination and

demotion, the only remaining meaningful penalties, are very

serious penalties and the City is loath to impose them unless

it believes that the infraction is equally serious and the

Courts will not overturn them under the progressive

discipline principle (see Yourman Pet. at 14). Because this

leaves the City with no potential monetary penalties for less

than very serious infractions, the City’s ability to deter less

than very serious infractions is greatly hampered.

In Yourman the City argues that the salary basis test,

when applied to the public sector, is irrational and contrary

to the intent of Congress and therefore should be struck down

in its entirety as arbitrary and capricious under the

Administrative Procedure Act. It is unclear to us at this time

whether this argument will be made in the present case. If

5 =

ee te

li: Wa ata

it is, we respectfully refer the Court to the Yourman Petition

(at 19-26) and Reply Brief in Support of Petition (“Yourman

Pet. Reply”) (at 1-4). If it is not, we respectfully submit that

that would be a reason why the petition in Yourman should

be granted.

THE SALARY BASIS TEST SHOULD

RECEIVE ON JUDICIAL REVIEW ONLY

SUCH DEFERENCE AS ITS

PERSUASIVENESS PERMITS.

As a general rule, federal regulations are overturned

by the Courts only if they are arbitrary and capricious.

Chevron U.S.A. Inc. v. Natural Resources Defense Council,

Inc., 467 U.S. 837, 843-44 (1984). However, agency

“interpretations,” as opposed to true “regulations,” are

entitled to deference only to the extent that they are

persuasive. Skidmore v. Swift & Co., 323 US 134, 139-40

(1944) Here, the salary basis test of 29 CFR section

541.118(a) is found within Subpart B of 29 CFR Part 541,

which is entitled “Interpretations.” (Sections 541.1, 541.2

and 541.5d of 29 CFR are found in Subpart A of 29 CFR

Part 541, which is entitled “General Regulations.”) See 29

CFR Sections 500 through 899, revised as of July 1, 1996,

at section 541.1. Congress did not instruct the Department

of Labor (“DOL”) to set the minimum wage, determine how

many hours could be worked per week before overtime pay

would be required, set the rate of overtime, or determine

who would be exempt from the FLSA, but merely to

“define[] and delimit[]” the managerial exemption. 29 USC

section 213(a)(1).

Thus, the salary basis test is an “interpretation,” not

a “regulation” entitled to Chevron deference, and in

reviewing it this Court should defer to the agency's expertise

and interpretation of the managerial exemption only to the

extent that the salary basis test is persuasive.

~ -

NEITHER PETITIONERS NOR EVEN

THE DEPARTMENT OF LABOR

ARGUES FOR A STRICT READING OF

THE SALARY BASIS TEST.

The salary basis test provides that an employee is not

within the managerial exemption if his or her salary is

“subject to” reduction for any of several specified reasons.

29 CFR section 541.118(a). Strictly read, this provision

means that the salary basis test is not met, and the employee

is not within the managerial exemption, if there is any policy

of the employer covering the employee under which a

reduction in salary theoretically could occur for any one of

the reasons set forth in the salary basis test.

Forgive us if we are stating the obvious, but neither

petitioners nor even DOL argues that the salary basis test

should be applied as it is written. Nor could they credibly

do so.

First of all, the salary basis test undermines a strict

reading of itself in two ways. It provides that employees

need not be paid anything in workweeks in which they

perform no work and it contains the “window of correction.”

29 CFR section 541.118(a) & (a)(6). Both of these

provisions undermine the notion that “[eJither pay is fixed

and immutable, ... or it is contingent,” Abshire v. County of

Kern, 908 F2d 483, 487 (9th Cir, 1990), cert. denied, 498

US 1068 (1991), upon which the salary basis test is based.

In addition, in response to this Court’s invitation

while the petition for a writ of certiorari was pending herein,

the Solicitor General submitted a brief on behalf of DOL in

which he stated that DOL’s new view is that the salary basis

test is not met only if the employee in question is subject to

impermissible deductions as a practical matter. However,

this was only the most recent and most hasty of the many

se

a ee

retreats DOL has made from the plain language of the salary

basis test when applied to the public sector. Before the

adoption of 29 CFR section 541.5d, DOL first ruled that

where a partial-day deduction is made because of illness, the

exemption would be lost only for that employee and only for

the workweek in which the deduction was made (Yourman

Pet. at 11). Then DOL announced a non-enforcement rule

with respect to partial-day docking (id.). DOL finally

effectively repealed the prohibition on partial-day docking

(id. at 11-13).

In a December 1993 letter ruling, DOL stated, inter

alia, that disciplinary suspensions of a workweek for reasons

not constituting infractions of safety rules of major

significance would be permissible and that absences from

work for court appearances where the employee is under no

legal compulsion to be present in court are absences for

personal reasons and thus deductions may be made for such

absences (Yourman Pet. at A 50-53). Finally, beginning in

November of 1994 DOL began a semi-annual ritual of

publishing, in its regulatory agenda in the Federal Register,

both an acknowledgement that the salary basis test needs

comprehensive revision and an adjournment of that

comprehensive revision (Yourman Pet. at 30-32). Despite

stating in November 1994 that the regulations are “sorely

out-of-date,” in May 1996 DOL gave the date of “01/00/97”

for the date on which it would issue a notice of proposed

rulemaking (Yourman Pet. at 32).

It is thus plain that for years not even DOL has

believed in the salary basis test as written.

THIS COURT SHOULD HOLD THAT

WHERE A DEDUCTION NOT

PERMITTED BY THE SALARY BASIS

TEST OCCURS, THE EXEMPTION IS

LOST ONLY FOR THAT EMPLOYEE

AND ONLY FOR THE WORKWEEK IN

WHICH THE DEDUCTION IS MADE.

(1)

On January 15, 1986, DOL issued a letter ruling

stating that where an occasional impermissible deduction

occurs for a partial-day absence, the managerial exemption

would be lost for that employee but only for the workweek

in which the deduction took place (Yourman Pet. at A 40).

DOL cautioned, however, that if such deductions were to

become “regular and recurring,” DOL “would question”

whether the employee is in fact paid “on a salary basis”

(id.).

We believe that if this Court does not invalidate the

salary basis test as a whole, the foregoing formulation of

how that test should be applied is the formulation that should

be adopted by this Court. Although it originally was set

forth only on the partial-day docking issue, which issue later

was fully resolved by the promulgation of 29 CFR section

541.5d, that formulation works equally well (or equally

unsatisfactorily) for the other types of deductions prohibited

by the salary basis test.

There are, to be sure, shortcomings with this

formulation. It focuses on the employee rather than the

“capacity” in which the employee serves, which is the focus

of the exemption in the statute. 29 USC section 213(a)(1)

(“bona fide executive, administrative or professional

capacity”). In close cases this formulation will beg the

question of whether the deductions are “regular and

recurring.”

Petitioners might argue that this formulation makes no

sense ng oe context because it rewards the

miscreant, 1.€., the person found guilty of discizlina

charges, in that only the miscreant who received nd

impermissible deduction is “rewarded” by being paid

overtime. The answer, however, is that the salary basis test,

and particularly the disciplinary component, make no sense

in the public sector and thus if you start with it, wherever

you come out is less than entirely satisfactory. (It is for this

reason that we argue in Yourman that the entire Salary basis

test should be thrown out.) This argument would be made

on behalf of people found guilty of disciplinary charges who

would be seeking a windfall as the result of the fact that they

committed infractions and their employers imposed a penalty

other than termination or a suspension of some whole number

of workweeks. How this is related to the goals of the FLSA

is impossible to fathom (see Yourman Pet. Reply at 9-10).

Furthermore, if the alternative is that when an

“impermissible” disciplinary sanction is imposed, the entire

class of which the miscreant is a member is then considered

hourly, the ridiculous result is that the entire class is

rewarded with back overtime because of a single act of

misfeasance (coupled with the impermissible penalty)

(see Yourman Pet. at 35-36).

Petitioners and the Solicitor General i

, Speaking on

behalf of DOL, argue that this Court should pull out of the

air the words “aS a practical matter” and insert them after the

words subject to reduction.” Courts do not do this; it is for

agencies to write regulations.

Moreover, this standard is meaningless. It does not

instruct a Court what to look at or what conclusion to reach.

a -

The standard suggested above, that the Court look at whether

the employee in question has been subjected to “regular and

recurring” deductions, is far more instructive. The “as a

practical matter” formulation adds next to nothing to the

attempt to make sense of the phrase “subject to” in the salary

basis test and its adoption by this Court would leave the

lower Courts with little more guidance than they now have

from DOL, which is to say, none (see Yourman Pet. at 31)

(quoting 59 FR at 57130) (DOL complaining that judicial

decisions “are creating law without considering a

comprehensive analytical approach to current compensation

concepts and workplace practices” [which is what we thought

DOL is supposed to be doing)).

(2)

This Court also could take a broad interpretation of

the word “inadvertent” in the “window of correction”

provision of the salary basis test, which reads as follows, 29

CFR section 541.118(a)(6):

The effect of making a deduction which is not

permitted 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

exemption 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.

No deduction ever could be truly “inadvertent,” as every

deduction requires the in.entional act of writing a paycheck

for an amount different from the amount the employee

usually receives. Thus, when DOL drafted the window of

correction, it could not have intended a strict interpretation

of the word “inadvertent.”

Instead, giving meaning to the word “inadvertent”

should focus on the emplover’s policy and whether the

person who actually ordered the deduction was, and knew

that he or she was, acting pursuant to and in compliance with

the employer’s policy toward those employees the employer

considers exempt.

Such an interpretation of the word “inadvertent”

would perhaps be the best result because it would protect

both small and large State and local governments from simple

errors that, in the view of the plaintiffs in these cases,

allegedly should result in large payments of back overtime.

Small governments may well have managers who do not

know the salary basis test and who do not have access to

lawyers who do. Large governments, such as the City with

well over 8,000 exempt employees, face the possibility of

erroneous deductions simply because of the large number of

individuals who are involved in the process of implementing

policies, issuing paychecks and imposing disciplinary

sanctions.

(3)

Whatever result this Court reaches, the reasoning

should encompass the “impermissible” deductions in the

Yourman case so that those deductions do not render the

plaintiffs in Yourman non-exempt. We say this in part

because of course we want to win that case but also because

it would be bad policy, and certainly could not have been the

intent of Congress in enacting the FLSA, for all 8,000 City

x ye

managers to become non-exempt because discovery in

Yourman revealed only the following arguably

“impermissible deductions” in a span of over four years:

1. Plaintiff Harold Yourman was docked $6.25

for overstaying his lunch hour but the $6.25 was reimbursed

in his next paycheck.

2. Plaintiff Vito LaBella was demoted for two

weeks, which caused him to lose $258 in salary, for putting

an obscene message, apparently about a female co-worker,

on the Emergency Medical Services computer system. We

note that DOL has said in the Federal Register that

demotions are permissible penalties. 57 FR 37674.

3. Plaintiff Theodore DiGilio was suspended for

nine days but then, pursuant to a settlement, was reimbursed

for the nine days that he did not work and agreed to forfeit

four vacation days.

4, Disciplinary sanctions imposed on managers

who are not parties to the lawsuit are irrelevant because a

Rule 23 class action is not available under the FLSA;

employees must “opt in” or they will not benefit from the

judgment. 29 USC section 216(a); LaChappelle v. Owens-

Illinois, Inc., 513 F2d 286, 288 (Sth Cir, 1975). In any

event, even considering managers who were not parties to

Yourman, cryptic documents in the record, about which there

was no testimony, seem to indicate that three managers at the

Fire Department, who are not plaintiffs in Yourman, each

were fined five or ten days’ pay on one occasion.

5. In addition, one employee of the Department

of Housing Preservation and Development, Marvin

Wilkinson, who also is not a plaintiff in Yourman, was fined

twice for failing to file a financial disclosure form.

«86 <

In short, all of the above arguably “impermissible

deductions” should fall within the window of correction.

Although only Mr. Yourman has been reimbursed to date,

the window of correction was very narrowly interpreted by

the Second Circuit Court of Appeals in Martin v. Malcolm

Pirie, Inc., 949 F2d 611 (2d Cir, 1991), cert. denied, 506

US 905 (1992), and under that ruling reimbursement by the

City would not be sufficient to restore an employee to

exempt status. We also must note that none of the other

individuals have asked to be reimbursed; the plaintiffs in

Yourman would prefer to leverage these “impermissible

deductions” into windfall payments of back overtime rather

than see these individuals reimbursed.

THIS COURT MUST BE AWARE THAT

ITS HOLDING ON THE MEANING OF

THE PHRASE “SUBJECT TO” MAY

WELL BE APPLIED BY THE LOWER

COURTS TO DEDUCTIONS FOR COURT

APPEARANCES AND TEMPORARY

MILITARY LEAVE AS WELL AS

DEDUCTIONS AS_ DISCIPLINARY

SANCTIONS.

Although the present case, to our knowledge, involves

only deductions as disciplinary sanctions, the phrase “subject

to” in the salary basis test applies to, and the “actual

deduction/theoretical possibility” question arises as to, the

other types of deductions rendered “impermissible” by that

test as well (see Yourman Pet. at 16, 34-35; Yourman Pet.

Reply at 2-3). Those are deductions for time missed for jury

duty, appearance as a witness, and temporary military leave.

29 CFR section 541.118(a)(4). Thus, the lower courts

probably will believe that whatever this Court says in this

case about the phrase “subject to” and the “actual

deduction/theoretical possibility” issue must be applied to

issues concerning deductions for these other purposes.

-]]-

We call this to the Court’s attention, naturally

enough, because issues concerning deductions for these other

purposes arise in Yourman. The City’s policy concerning

court appearances was that paid leave would be granted only

where the employee was under subpoena or court order and

neither the employee nor a relative had a personal interest in

the case, which is inconsistent with the salary basis test's

requirement that employees be granted paid leave for

“appearance as a witness” (although DOL held, in a letter

ruling issued after the liability ruling by the District Court in

Yourman, that an appearance as a witness where the

employee is not under legal compulsion to be present could

be considered a personal absence and thus paid leave would

not be required [Yourman Pet. at A 52]). The City’s policy

concerning temporary military leave was that employees

could receive up to 30 calendar or 22 working days of paid

military leave each year, figures taken from federal and state

statutes that should be sufficient to cover the absences usually

incurred by members of the Reserves and National Guard.

5 USC sections 2105(a) & (d) and 6323(a)(1) & (b); 10 USC

section 270; 32 USC section 502; NY Military Law section

242(5].

There was no proof in Yourman that any manager

ever had one penny deducted from salary as a result of an

appearance as a witness or “temporary military leave.”

Nevertheless, the District Court ruled that because the City’s

policy on appearances as a witness differed from the salary

basis test, and because the “limitation on paid military leave

presents the potential for employees on temporary military

leave to take leave without pay,” every plaintiff in Yourman

was non-exempt. 826 F Supp at 742 (Yourman Pet. at A 18-

19). The Court of Appeals affirmed on the opinion of the

District Court. 84 F2d at 656 (Yourman Pet. at A 7).

Again, we respectfully submit that this is a ridiculous

result, especially when the record contains no proof of a

Se

deduction for a court appearance or “temporary” military

leave, when the vast majority of the plaintiffs will never

testify as a witness, and the vast majority of the plaintiffs are

not even members of the Reserves or National Guard.

Again, then, whatever this Court writes in the present case,

the opinion should make clear that in the circumstances in

Yourman the City’s policies concerning appearances as a

witness and “temporary” military leave do not render every

plaintiff in Yourman non-exempt.

Respectfully submitted,

PAUL A. CROTTY

Corporation Counsel of the

City of New York,

Attorney for Petitioners.

LEONARD J. KOERNER,*

TIMOTHY J. O’SHAUGHNESSY,

of Counsel.

October 11, 1996

* Attorney of Record.

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