Amicus Curiae Brief — Malcolm Pirnie, Inc. v. Martin

No. 91-1748 Drm

_— |

IN THE

Supreme Court of the United Sates

OCTOBER TERM, 1992 os

MALCOLM PIRNIE, INC.,

Petitioner,

Vv.

LYNN MARTIN, SECRETARY OF LABOR,

UNITED STATES DEPARTMENT OF LABOR,

Respondent.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Second Circuit

BRIEF OF THE

AMERICAN CONSULTING ENGINEERS COUNCIL,

AMERICAN INSTITUTE OF ARCHITECTS AND

NATIONAL SOCIETY OF PROFESSIONAL ENGINEERS

AS AMICUS CURIAE SUPPORTING PETITIONER

ARTHUR BERGMAN *

AMERICAN CONSULTING

ENGINEERS COUNCIL

1015 15th Street, N.W., Suite 802

Washington, D.C. 20005

(202) 347-7474

Of Counsel:

MARK A. CASSO

(American Consulting Engineers Council)

J. LAING BOWLES

(American Consulting Engineers Council)

JOHN A. DINARDO

(American Institute of Architects)

ELIZABETH A. DAVIS

(American Institute of Architects)

ARTHUR E, SCHWARTZ

(National Society of Professional Engineers)

* Counsel of Record

at its S368 et SV

WILSON - Epes PRINTING Co., INC. - 789-0096 - WASHINGTON, D.C, 20001

TABLE OF CONTENTS

Page

TABLE OF AUTHORITIES .......... li

INTEREST OF THE AMICUS CURIAE ............. 1

SUMMARY OF ARGUMENT ......... 3

|) nee ee eee Le Seine 4

I. THE SALARY BASIS TEST HAS BEEN IN-

CONSISTENTLY INTERPRETED BY THE

COURTS LEAVING EMPLOYERS WITHOUT

CLEAR DIRECTION AS TO HOW THEIR

SALARY SYSTEMS SHOULD BE STRUC-

TURED ........... iaaeeieaaiss deatiatadcaenicuaana eae 4

A. Deductions in Pay for Absences of Less

UN alo els Pee te en 4

B. Overtime Compensation for Exempt Em-

dakota, ache eee a ae 5

C. Deductions from Leave Banks ............... 7

D. Recording of Time and Requiring Employees

to Work Set Hours... 8

E. Use of the Window of Correction 9

Il. TITERE IS AN URGENT NEED FOR JUDI-

CIAL CLARIFICATION OF THESE CRITI-

CAL ISSUES IN A MANNER WHICH WILL

NOT RESULT IN A DEVASTATING FINAN-

CIAL PENALTY TO EMPLOYERS AND A

WINDFALI. TO OTHERWISE EXEMPT PRO-

FESSIONAL AND MANAGERIAL EMPLOY-

EES ....... Sa uaebdekaeada cancion Wake oe aeaiceeeaadnacs 11

TEI is ic Aeconecticharcttccdcutame tte oe tort: 15

ii

TABLE OF AUTHORITIES

Cases Page

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

1990), cert. denied, 111 S. Ct. 785 (1991) _......... 4,6,8

Alex v. California, 30 Wage & Hour Cas. (BNA)

1388 (35.0. Gab. I006s coe 12

Atlanta Professional Firefighters Union, Local 184

v. City of Atlanta, 920 F.2d 800 (11th Cir.

1: i & WR ester ani atch s yc eee ea 5

Banks v. City of North Little Rock, 708 F. Supp.

1088 (3.0. Auk: M668) -cinc eee 4,6

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

(3rd Cir.), cert. denied, 488 U.S. 925 (1988)... 6

District of Columbia Nurses Ass’n v. District of

Columbia, 29 Wage & Hour Cas. (BNA) 868

CEA. BOE oiasnavacetndiccincicnntecee aaa 5

D’Camera v. District of Columbia, 693 F. Supp.

RBCS CDG. WOOGE wcciceniedaneeaeaee 4

Dole v. Malcolm Pirnie, Inc., 758 F. Supp. 899

(S.D.N.Y.), rev’d on other grounds, 949 F.2d

GE Ce Ca RO ED vesctresctececein eee 10, 13

Harris v. District of Columbia, 709 F. Supp. 238

CEDIA, TOD savsccivc incinerate 5

Harrison v. District of Columbia, 30 Wage & Hour

Cas. (BNA) S67 (D.D.C. BOGE) noccciievnd cece... 5

Hartman v. Arlington County, Va., 720 F. Supp.

1227 (E.D. Va. 1989), aff’d, 908 F.2d 290 (4th

SAR, SOD: oncvicauctésnncscecnasctseienctenadnesaaeamaeieare 7

Hawks v. City of Newport News, Virginia, 707 F.

Seem. SER (SD. Ve. TGR) 6c 4

Hilbert v. District of Columbia, 784 F. Supp. 922

CES. | BRR ree ee 6

International Ass’n of Fire Fighters, Alexandria

Local 2141 v. City of Alexandria, Va., 720 F.

Supp. 1230 (E.D. Va. 1989), aff’d, 912 F.2d 463

Ct Gar. TIO oaksiack eee 7

Keller v. City of Columbus, Ind., 778 F. Supp. 1480

Ce. SOM BORE) nncc.ccccccneienent eee 11

Knecht v. City of Redwood City, 683 F. Supp. 1307

tS Ee | ; 4 MeCN A oe Fete ny 5,6

Martin v. Malcolm Pirni@*Inc., 949 F.2d 611 (2d

<A: | Ran ee me sdeasanilite inate cence one 3, 5, 10

ili

TABLE OF AUTHORITIES—Continued

Page

Martin v. Pierce Processing, Inc., No. C-1-89-15

Sty MURDERS MEU, ROUND ovcesnnnnccnneeononccenncenvanenecaes 10

Morsch v. City of Los Angeles, CV-0401 JGD

I SY GR UID can ecnccnassnoniancasscnsnssisnensverscnne 9

Pautlitz v. City of Naperville, 781 F. Supp. 1368

acid antnsnpiennunicwnanasannndsaness 7

Service Employees Int'l Union, Local 102 v. County

of San Diego, 784 F. Supp. 1503 (S.D. Cal.

rae cecil snd cunapinndanenhonnernnntes 8,12

Thomas v. County of Fairfax, Va., 758 F. Supp.

sca eceemnnennnstomiiinenins 6,8

Whitmore v. Port Authority of New York & New

Jersey, 907 F.2d 20 (2d Cir. 1990) .................... 5

Wirtz v. Patelos Door Corp., 280 F. Supp. 212

cs cansssounasaveennvesennzeentenesnsa 12

York v. City of Wichita Falls, Tex., 944 F.2d 236

NG TIE orcas cancnacecasscnsasene Ln OND ee 7

Statutes and Regulations

IE TE cnn cvwscnannsceccscsweacnncnarens 2

i a sscumhtecenounwanenuiv’ passim

29 C.F.R. §§ 541.1 (f) , 541.2 (e) (1), 541.3(e) ....... 4

Miscellaneous

Department of Labor Field Operations Handbook,

Nee tachaaninnicann 6

Fair Labor Standards Handbook, Appendix III at

aes bch asinasesaa 8

56 Fed. Reg. § 45,824 (9/6/91) ................................ 11,12

IN THE

Supreme Court of the United States

OCTOBER TERM, 1992

No. 91-1748

MALCOLM PIRNIE, INC.,

Petitioner,

V.

LYNN MARTIN, SECRETARY OF LABOR,

UNITED STATES DEPARTMENT OF LABOR,

Respondent.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Second Circuit

BRIEF OF THE

AMERICAN CONSULTING ENGINEERS COUNCIL,

AMERICAN INSTITUTE OF ARCHITECTS AND

NATIONAL SOCIETY OF PROFESSIONAL ENGINEERS

AS AMICUS CURIAE SUPPORTING PETITIONER

INTEREST OF THE AMICUS CURIAE

The American Consulting Engineers Council

(“ACEC”), the American Institute of Architects

(“ATA”) and the National Society of Professional En-

gineers (“NSPE”) respectfully submit this brief amicus

curiae in support of the pending petition for a writ of

certiorari in this case. The purpose of this amicus filing

is to bring to the Court’s attention precisely how the

decision below virtually eliminates the “window of cor-

rection” of the salary basis test, 29 C.F.R. § 541.118

(1991) and distorts the meaning of payment on a “salary

basis” so that most employees can no longer be considered

”

aa

exempt and are therefore entitled to overtime compensa-

tion. The Second Circuit’s interpretation of the sal-

ary basis test, a regulatory creation of the Department

of Labor (“DOL”), is wholly inconsistent with the pur-

pose of the Fair Labor Standards Act (“FLSA”), 29

U.S.C. § 201 ef seq. It will also have a devastating fi-

nancial impact on American businesses, including our

members.

The American Consulting Engineers Council is a fed-

eration of 51 state and regional member organizations.

These organizations have as their members approximately

4,500 firms representing over 175,000 employees in all

facets of consulting engineering, from mechanical, elec-

trical and structural, to environmental and civil engi-

neering. ACEC’s mission is to promote and protect the

business interests of the consulting engineering profes-

sion. Malcolm Pirnie, Inc. (“Maleolm Pirnie”) is a

member of ACEC.

The American Institute of Architects is the largest and

most influential professional association for architects,

interns, and those directly involved in the practice of

architecture. AIA has 296 state and local chapters and

represents more than 56,000 members. Malcolm Pirnie

is a corporate member of AJA.

The National Society of Professional Engineers is a

multidisciplinary professional association with 54 state/

territorial societies and 535 local chapters serving 75,000

individual members employed in industry, government,

education, construction and private practice. NSPE’s

goal is to promote the interests of professional engineers

in a manner consistent with the public safety, health and

welfare. Many employees of Malcolm Pirnie are NSPE

members.

Malcolm Pirnie’s employment practices, including the

ones at issue here, are fairly customary in the engineer-

ing and architecture professions. For example, like Mal-

colm Pirnie, many ACEC and AIA member firms pay

engineers, architects and other exempt employees over-

3

time at a straight-time rate. This is a practice that has

evolved over the years as a method to attract, fairly

compensate and retain superior employees. In addition,

like Malcolm Pirnie, most ACEC, AIA and NSPE mem-

bers make deductions from leave banks for personal, sick

or other reasons by the hour and have employees account

for every hour worked on time sheets, to facilitate proper

billing of clients and to comply with Federal, State and

local government contract and auditor requirements.

Each of these practices was called into question by the

Second Circuit in Martin v. Malcolm Pirnie, Inc., 949

F.2d 611 (2d Cir. 1991), as being contrary to the salary

basis method of payment. ACEC, AIA and NSPE be

lieve that these practices, which are long established

practices in the profession are entirely consistent with

the salary basis method of payment and the FLSA.

SUMMARY OF ARGUMENT

The Second Circuit in Martin v. Malcolm Pirnie, Inc.,

949 F.2d 611, found that Malcolm Pirnie had a policy

of deducting (“docking”) pay of its exempt employees

and therefore could not invoke the window of correction

of the salary basis test, at 29 C.F.R. § 541.118. If this

decision is permitted to stand, the exempt status of many

employees, including professional engineers and _ archi-

tects, will be in doubt. The result is that many employees

who are otherwise exempt may be entitled to overtime

payments. Such an interpretation is contrary not only

to the salary basis test but also to the intent and purpose

of the FLSA.

a ee

4

ARGUMENT

.I. THE SALARY BASIS TEST HAS BEEN INCON-

SISTENTLY INTERPRETED BY THE COURTS

LEAVING EMPLOYERS WITHOUT CLEAR DIREC-

TION AS TO HOW THEIR SALARY SYSTEMS

SHOULD BE STRUCTURED

_ The salary basis test has been an area filled with con-

fusion over the past few years, with courts interpreting

the requirements in many different ways. The conse-

quences are potentially disastrous for all employers sub-

ject to the FLSA. This is because in order to be con-

sidered a bona fide exempt executive, professional, or ad-

ministrative employee, an employee must be paid on a sal-

ary basis. 29 C.F.R. §§ 541.1(f), 541.2(e) (1), 541.8 (e)

(1991).

A. Deductions in Pay for Absences of Less than a Day

The salary basis test requires that in order to be con-

sidered salaried, an employee must:

{rJegularly receive ... each pay period on a weekly,

or less frequent basis, a predetermined amount con-

stituting all or part of his compensation, which

amount is not subject to reduction because of varia-

tions in the quality or quantity of the work performed.

29 C.F.R. § 541.118(a). Some courts have held that even

where no actual deductions have been made, if an em-

ployee is “subject to” a deduction, this is enough to de-

stroy the exemption. Abshire v. County of Kern, 908 F.2d

483, 487 (9th Cir. 1990), cert. denied, 111 S. Ct. 785

(1991) (pay was “subject to” deduction) ; D’Camera v.

District of Columbia, 693 F. Supp. 1208, 1212 (D.D.C.

1989) (test is whether pay is “subject to” a deduction,

not the frequency with which pay is actually reduced) ;

Banks v. City of North Little Rock, 708 F. Supp. 1028,

1025 (E.D. Ark. 1988) (no showing of actual deductions

needed); Hawks v. City of Newport News, Va., 707

F. Supp. 212, 215 (E.D. Va. 1988) (fact that policy of

reducing pay is not applied to plaintiffs does not alter

iia)

_

v

the policy) ; Knecht v. City of Redwood City, 683 F. Supp.

1307, 1311 (N.D. Cal. 1987) (test is whether pay is

“subject to” a deduction); Whitmore v. Port Auth. of

N.Y. & NJ., 907 F.2d 20, 21 (2d Cir. 1990) (if an

employee can be docked for fractions of a workday missed,

then the employee is an hourly not salaried worker) ;

Harrison v. District of Columbia, 30 Wage & Hour Cas.

(BNA) 557 (D.D.C. 1991) (employee whose pay is sub-

ject to deduction for absences of less than a day is not

salaried).

The Second Circuit, following Abshire, agreed that “an

employee who can be docked pay for missing a fraction

of a workday must be considered an hourly rather than

a salaried employee.” Martin v. Malcolm Pirnie, Inc., 949

F.2d at 615. On the other hand, other courts have deter-

mined that a salary is not “subject to deduction” where

there are no actual deductions. Atlanta Professional

Firefighters Union, Local 134 v. City of Atlanta, 920 F.2d

800, 805 (11th Cir. 1991); Harris v. District of Colum-

bia, 709 F. Supp. 238, 241 (D.D.C. 1989) (salary basis

test not violated where no actual deductions had been

made) ; District of Columbia Nurses Ass’n v. District of

Columbia, 29 Wage & Hour Cas. (BNA) 868 (D.D.C.

1988) (deductions for absences of less than a day are

made only in the occasional situation where a plaintiff

has exhausted leave and takes leave without pay, plain-

tiffs are therefore compensated on a salary basis).

B. Overtime Compensation for Exempt Employees

Another area with considerable confusion is whether an

employer, consistent with the salary basis test, can pay

an employee overtime compensation. The salary basis

regulation permits additional compensation in addition

to the salary. 29 C.F.R. §541.118(b). The regulation

specifically states:

It should be noted that the salary may consist of a

predetermined amount constituting all or part of the

employee’s compensation. In other words, additional

)

compensation besides the salary is not inconsistent

with the salary basis of payment.

Id. Nevertheless, recent case law has called into question

the common practice of paying some form of overtime

compensation to exempt employees and whether it is con-

sistent with the salary basis regulation. The Third Cir-

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

(3rd Cir.), cert. denied, 488 U.S. 925 (1988), was the

first court to question such practices. In that case, the

court stated that additional compensation is “inconsist-

ent” with the nature of executive status. Jd. at 185. The

Ninth Circuit in Abshire stated that its conclusion that

battalion chiefs were not paid on a salary basis was

supported by the fact that battalion chiefs received over-

time pay or compensatory time for time worked outside

their normal schedules. According to the court:

Such additional compensation for extra hours worked

is also not generally consistent with salaried status.

Abshire v. County of Kern, 908 F.2d at 486. See also

Hilbert v. District of Columbia, 784 F. Supp. 922 (D.D.C.

1992); Thomus v. County of Fairfax, Va., 758 F. Supp.

353, 364-65 (2.D. Va. 1991) (additional pay is inher-

ently inconsistent with the common-sense understanding

of salaried executive status); Banks v. City of North

Little Rock, 708 F. Supp. at 1024 (payment of a fixed

amount plus additional hourly wages for extra hours

worked is not consistent with salaried status); Knecht

v. City of Redwood City, 683 F. Supp. at 1312 (overtime

compensation for minutes worked beyond a specified time

is indicative of a non-salary basis of payment).

On the other hand, Section 22b01 of DOL’s Field Oper-

ations Handbook’? (May 12, 1970) states:

Extra Compensation paid for OT.

Extra compensation may be paid for OT to an ex-

empt employee on any basis. The OT payment need

1 The Field Operations Handbook is the operational manual which

provides guidance for Wage and Hour investigators in conducting

wage and hour, including FLSA, investigations.

7

not be at time and one-half, but may be at straight

time, or flat sum, or on any other basis.

See also Wage and Hour Opinion Letters dated March 16,

1984, January 13, 1988, and March 3, 1970.° Other courts

nave also explicitly found that employees exempt under

the Act may be paid overtime (on whatever basis) for

hours worked beyond their regular schedule. Pautlitz v.

City of Naperville, 781 F. Supp. 1868 (N.D. Ill. 1992)

(supervisory overtime should be applauded rather than

penalized) ; lnternational Ass’n of Fire Fighters, Alex-

andria Local 2141 v. City of Alexandria, Va., 720 F.

Supp. 1230, 1232 (E.D. Va. 1989), aff'd, 912 F.2d 463

(4th Cir. 1990) (practice of additional pay for each hour

worked beyond regular schedule will not defeat exemp-

tion because it is expressly permitted by the labor regu-

lations); Hartman v. Arlington County, Va., 720 F.

Supp. 1227, 1229 (E.D. Va. 1989), aff'd, 903 F.2d 290

(4th Cir. 1990) (practice of overtime pay is expressly

permitted by § 541.118(b)); York v. City of Wichita

Falls, Tex., 944 F.2d 236, 242 (5th Cir. 1991) (overtime

payments do not defeat salaried status).

Many ACEC and AIA member firms like Malcolm

Pirnie pay additional compensation to professional engi-

neers and architects for “overtime” worked in excess of

40 hours (or less) in a workweek. Frequently this time

is compensated on a straight-time basis. This practice is

fairly common in these professions.

C. Deductions from Leave Banks

Another issue in the salary basis test that has become

uncertain is whether partial-day absences may be de-

ducted from exempt employes’ leave banks. Most, if not

all, employers, including most ACEC and AIA member

firms (and NSPE members), have leave banks (i.e. sick,

vacation, personal) that may be drawn on in increments

2 Reprinted as Appendix A.

Ge

8

of less than a day. This is a standard practice in Amer-

ican industry. Still, a footnote to the Abshire case stated:

A strong argument can be made that even if deduc-

tions were required only from fringe benefits such as

leave time, and not from base pay, the affected em-

ployees would still not qualify as “salaried.”

Abshire v. County of Kern, 908 F.2d at 487 n.3. In

Service Employees Int’l Unton, Local 102 v. County of

San Diego, 784 F. Supp. 1503 (S.D. Cal. 1992), the court

found that “docking of an employee’s leave time for ab-

sences from work is as contrary to the notion of salaried

status as the docking of base pay.” Jd. at 1510. See also

Thomas v. County of Fairfax, Va., 758 F. Supp. at 366

(docking of one hour’s leave affronts the concept of a

salaried executive).

By contrast, in a July 17, 1987 Opinion Letter, DOL

advised as follows:

Generally, deductions for absences of_less than a day

are not permitted under the regulations for any rea-

son. However, an employer can require an employee

to substitute paid leave for such absences without

losing the exemption for that week.

Ginsburg et al., Fair Labor Standards Handbook, Ap-

pendix III at 160 (1989).

D. Recording of Time and Requiring Employees to

Work Set Hours

One of the most disturbing portions of the Martin v.

Malcolm Pirnie, Inc. decision is the court’s conclusion

that requiring exempt employees to work a fixed schedule

and for a minimum number of hours is inconsistent with

the salary basis test. Recently, another court also con-

cluded that such requirements along with requiring ex-

empt employees to record the time they work on some form

of a time sheet or time card is inconsistent with “salaried

status.” Service Employees Int’l, 784 F. Supp. 1508, cit-

ing Abshire, 908 F.2d at 486 (a salaried employee is

9

compensated not for the amount of time spent on the job

but rather for the general value of the services per-

formed). See also Morsch v. City of Los Angeles, CV-

0401 JGD (C.D. Cal. May 4, 1992).°

Such judicial interpretations are wholly inconsistent

with how professional pvactices are conducted. Time

sheets are frequently used by our members, in large part

so that we can properly bill clients. Although exempt

employees do and should enjoy flexibility in their work

schedules, it goes without saying that some regularity is

required so that clients, customers, etc. are able to make

contact with employees when needed. The purpose of

work schedules and set hours is generally to ensure that

the firm has adequate coverage during core business

hours and that staff will be available to work on projects

in a collegial capacity. Furthermore, to suggest that by

making exempt employees accountable for their time is

somehow contrary to what it means to be an exempt

executive, administrative or professional employee is ludi-

crous. In most ACEC and AIA firms all principals (in-

cluding NSPE members), even top executives, account

for their time on time sheets.*

E. Use of the Window of Correction

Finally, in addition to this confusion among the circuit

Courts regarding just what constitutes a violation of the

salary basis test, there is also considerable confusion

over when an employer can avail itself of the window of

correction and thereby avoid the catastrophic consequences

of having made a mistake in its pay practices. Fre-

quently, the mistake is due to the confusion created by the

cases and opinions discussed above.

3 Reprinted as Appendix B.

4 In fact, those firms who perform Federal, State and local gov-

ernment contracts must account for each hour worked in order to be

reimbursed and for audit purposes.

10

According to the Second Cireuit in Martin v. Malcolm

Pirnie, Inc., the window of correction provision:

lalllows an employer that makes an impermissible,

but inadvertent, deduction to the compensation of

an otherwise salaried employee to correct the error

and thereby bring its compensation scheme into strict

compliance with $ 541.118(a!.

Martin v. Malcolm Pirnte, Inc., 949 F.2d at 616. The

Second Circuit found that, although Malcolm Pirnie had

reimbursed employees who had had a relatively small

amount of pay deducted and clarified its policy, Malcolm

Pirnie had not ‘met its burden of proving that the

‘window of correction’ was available to it.” Jd. at 616.

The Second Circuit appears to require that emplovees be

compensated in accordance with all the salary basis re-

quirements before an employer can avail itself of the

window of correction, a requirement that all but oblit-

erates the remedial purpose of the regulation. In effeet,

the Second Cireuit precludes the use of the window of

correction for most errors since the impermissible deduc-

tions must be not only “inadvertent” but “one-time or

unintentional” as well. /d.

Furthermore, the window of correction, according to

its clear language, allows correction of any deduction

that is “inadvertent, ov is made for reasons other than

lack of work.” 29 C.F.R. § 541.118(a) (6) (emphasis

added). The plain language of the regulation states “‘in-

advertent or’, yet some courts have interpreted this lan-

guage as requiring inadvertence and reasons other than

lack of work, a reading advanced by the Department of

Labor. Dole v. Malcolm Pirnie, Inc., 758 F. Supp. 899

(S.D.N.Y.), rev'd on other grounds, 949 F.2d 611 (2d

Cir. 1991). Other courts have directly rejected this inter-

pretation. Martin v. Pierce Processing, Inc., No. C-1-89-

15 (S.D. Ohio Mar. 25, 1992)° (employer correctly used

5 Reprinted in Petitioner’s Petition for Writ of Certiorari at

Appendix F.

ia cnsennienitdeinaianiaaiaieamemneaa eel

11

window of correction and intended to pay employees on

a salary basis where deductions were never made because

work was lacking, but only when employees were volun-

tarily absent for personal reasons unrelated to whether

work was available); Keller v. City of Columbus, Ind.,

778 I. Supp. 1480, 1487 (S.D. Ind. 1991) (if tiie window

of correction applies, then it is as if the employees’

salaries were never subject to reduction; if 2 policy al-

lowed a deduction “for reasons other than lack of work”

then the “window of correction” is open regardless of

whether the error was inadvertent).

Il. THERE IS AN URGENT NEED FOR JUDICIAL

CLARIFICATION OF THESE CRITICAL ISSUES

IN A MANNER WHICH WILL NOT RESULT IN A

DEVASTATING FINANCIAL PENALTY TO EM-

PLOYERS AND A WINDFALL TO OTHERWISE

EXEMPT PROFESSIONAL AND MANAGERIAL

EMPLOYEES

Such confusing and divergent opinions on all of these

issues (deductions from pay and leave banks, overtime

compensation, recording of time and set hours, use of

the window of correction) have had one net result: em-

ployers who desire to comply with the requirements of the

FLSA and seek to have their policies comport with the

salary basis test are at a loss. Employers are understand-

ably reluctant to abandon long established practices, such

as additional overtime compensation for exempt employ-

ees, in light of such contradictory opinions. This is espe-

cially true since many of these practices benefit employ-

ees, such as providing paid leave and additional compen-

sation for overtime. It is ironic that these benefits are

now at risk because of some opinions which distort the

meaning of the salary basis test and lose sight of the

purpose of the FLSA.

DOL has attempted to grant regulatory relief from the

salary basis test to public employers. See 56 Fed. Reg.

45,824 et seg. (9/6/91, Interim Final Rule, Proposed Rule

12

and Request for Comments).* Yet the same public em-

ployer problems identified by DOL in its notice are equally

applicable to the private sector as well.‘ DOL in its Fed-

eral Register notice recognized that the salary basis test

had spawned a confusing and contradictory body of inter-

pretive case law. DOL also detailed the confusion with

the window of correction. DOL recognized that:

These diverging judicial interpretations and accom-

panying confusion have developed resulting in the

exposure of governmental employers to potentially

enormous and generally unexpected back wage liabil-

ities to employees some of whom would clearly be

exempt if duties and amount of compensation alone

were examined.

56 Fed. Reg. at 45,829.

Just as public employers are subject to enormous ex-

posure given these various interpretations, so too are pri-

vate employers. While DOL has attempted to resolve these

issues for the public sector, no such effort has been made

on behalf of the private sector. The result is that many

highly compensated professional and managerial employ-

ees who have no expectation of overtime pay, may in fact

be entitled to such pay. Such a result is completely con-

trary to the purpose of the FLSA. The purpose of the

FLSA is to “eradicate from interstate commerce the evils

attendant on low wages and long hours of service in in-

dustries engaged in commerce or in the production of

goods for commerce.” Wirtz v. Patelos Door Corp., 280 F.

Supp. 212, 216 (E.D.N.C. 1968). The FLSA sought to

*¢DOL’s interim final regulations have been struck down by at

least two courts because they failed purportedly to provide a proper

notice and comment period pursuant to the Administrative Proce-

dures Act. Presumably the courts objected to the retroactive provi-

sions in the regulations. See Service Employees Int'l, 784 F. Supp.

1503; Alex v. California, 30 Wage & Hour Cas. (BNA) 1353 (E.D.

Cal. 1992).

7 The salary basis test, 29 C.F.R. § 541.118, is the same for public

and private employers.

13

protect those members of the labor force who could not

protect themselves from substandard wages ‘and excessive

hours, Those employed in executive, administrative and

professional positions were deemed to not ordinarily need

this protective legislation and thus were exempted from

the minimum wage and overtime protection of the FLSA.

ld. It is unlikely that Congress envisioned, in 1988, DOL

enforcing the overtime provisions of the FLSA to “pro-

tect” highly paid exempt employees such as those at issue

in the Malcolm Pirnie case.

The real irony in this case is that by all measures

Malcolm Pirnie was and is a model employer. It paid the

employees in question good salaries, provided leave bene-

fits (vacation, sick and personal leave) and paid addi-

tional compensation for overtime.’ But because its policies

for deductions in pay for absences of less than a day were

unclear it was investigated by DOL. It then attempted, |

as any good employer would, to remedy the problem by

using the window of correction. The Second Circuit de-

termined that it could not do so.

Given the confusing web of cases on the salary basis

test, employers are at a loss over how to proceed. Fur-

thermore, the potential liability in these cases for all em-

ployers, including our members, is enormous. Every time

an employer’s salary system is found to violate the salary

basis test, the employer must go back, two or three years,

and pay overtime at a rate of time-and-a-half for all

hours worked by its exempt employees over 40 in a work-

week. The devastating financial impact is not offset by

* The district court below observed that it believed:

[t|hat this matter came to the attention of the Department of

Labor because overtime was paid to the professionals employed

by MP to compensate them for many hours worked beyond a

normal forty hour workweek. it is somewhat ironic that none

of this litigation would have occurred if MP had not been

generous in its treatment of its exempt employees.

Dole v. Maicolm Pirnie, Inc., 758 F. Supp. at 908.

14

any societal purpose and is, in fact, completely contrary

to the fundamental purpose of the FLSA. These damage

awards do not benefit minimum wage or blue collar work-

ers but rather fatten the pockets of already well-

compensated executive, administrative and professional

employees who neither earned nor expected this judicially

imposed windfall.

The most serious and immediate problems can be recti-

fied by this Court clarifying when the window of correc-

tion can be used by an errant employer. If an employer

who makes a good faith mistake in its payroll practices

can correct it without catastrophic consequences, the worst

part of this problem will be solved. A ruling by this

Court that the Second Circuit erred in holding that the

window of correction was not available to Malcolm Pirine

will substantially ameliorate the problems created by the

lower court rulings on the various “salary” issues dis-

cussed herein.

Certiorari should be granted in this case. The issues

presented affect not just professional engineers and archi-

tects, but the ever growing number of service industries

in the U.S. The case has broad application to virtually

every employer in the United States. The issues raised

have become the subject of an increasing wave of liti-

gation with enormous consequences. The case law in

this area is hopelessly confused by conflicting circuit

court interpretations with billions of dollars of potential

back pay liability riding on the outcome. Furthermore,

given the narrow reading, by many courts, of the win-

dow of correction even an employer who wants to correct

errors in its payroll system may not be permitted to do

so. The need for resolution by this Court has become crit-

ical as the current unsettled state of the law poses a

severe threat to the continued viability of ACEC and

AIA member firms (and NSPE members) as well as

nearly all American employers. Accordingly, this Court

should grant certiorari to clarify and resolve the im-

portant issues presented.

15

CONCLUSION

ACEC, AIA and NSPE respectfully request that for

the foregoing reasons, Petitioner Malcolm Pirnie’s Peti-

tion for Certiorari be granted.

Respectfully submitted,

ARTHUR BERGMAN *

AMERICAN CONSULTING

ENGINEERS COUNCIL

1015 15th Street, N.W., Suite 802

Washington, D.C. 20005

(202) 347-7474

Of Counsel:

MARK A. CAsso

(American Consulting Engineers Council)

J. LAING BOWLES

(American Consulting Engineers Council)

JOHN A. DINARDO

(American Institute of Architects)

ELIZABETH A. DAVIS

(American Institute of Architects)

ARTHUR E, SCHWARTZ

(National Society of Professional Engineers)

*“ Counsel of Record

APPENDICES

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APPENDIX A

{Mar. 16, 84]

84.195C/OLIR 3722

Dear

This is in reply to your correspondence of February 22

enclosing a copy of a letter from Mr. Gordon L. Rosby

of the Engineers-Architects, Professional Corporation in

Grand Forks, North Dakota. Your constituent requests

information as to whether there are rules or regulations

which govern the handling of overtime hours worked by

salaried professional employees who are exempt under

section 13(a)(1) of the Fair Labor Standards Act

(FLSA). Mr. Rosby asks, for example, whether such

employees should be given compensatory time-off for over-

time hours worked.

Section 13(a) (1) of FLSA provides a complete minimum

wage and overtime pay exemption for any employee em-

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

fessional capacity, as those terms are defined and de-

limited in 29 CFR Part 541, a copy enclosed. An employee

may qualify for exemption as a bona fide professional

employee if all the tests relating to duties, responsibilities,

and salary, as discussed in section 541.3 of the regula-

tions, are met.

In a telephone conversation with a member of my staff,

Mr. Rosby was advised that employees who meet the re-

quirements for the exemption for bona fide professional

employees need not receive any additional form of compen-

sation beyond the guaranteed salary required by the regu-

lations for hours worked in excess of 40 in a workweek.

Mr. Rosby was also advised that although it is not re-

quired by FLSA, an employer may provide additional

benefits, such as compensatory time-off, bank credit hours,

or monetary compensation, to such exempt employees

when they work in excess of 40 hours in a workweek.

Since no additional form of compensation is required by

FLSA for such exempt employees, there are no rules or

2a

regulations which address the matter of your constitu-

ent’s concern. We wish to point out, however, that where

an employee does not qualify for this exemption, the

employee must be paid in accordance with the monetary

provisions of FLSA, including the payment of overtime

premium pay for hours worked in excess of 40 in a work-

week, unless exempt under some other section of the Act.

We ‘rust that the above satisfactorily responds to your

inquiry. Please let us know if you have further questions.

Sincere!y

WILLIAM M. OTTER

Administretor

JAMES L. VALIN

Assistant Administrator

Wage and Hour Division

83.367

3a

[Jan. 18, 1983]

Dear

This is in reply to your letter of December 24, 1982, con-

cerning the salary basis of payment requirement under

section 13(a)(1) of the Fair Labor Standards Act

(FLSA).

Your letter describes a proposed compensation plan your

client wishes to adopt for certain professionals. Your

letter asks us to presume that all other requirements for

the professional exemption in section 541.3 of Regulations,

29 CFR Part 541 are met.

Your client’s professionals would be guaranteed a salary

of $500 per week, and in addition, $10 to $15 per hour

extra pay for work performed over 40 hours in one

workweek, or after 80 hours in a two-week period, or

everi after 160 hours in a month. If the professional

works less than 40 hours in a workweek, such employee

will receive the full salary of $500. Your client intends

to take the permissible deductions from the professional’s

Salaries as provided in section 541.118(a) (2)-(5) of 29

CFR Part 541.

We agree with your conclusion that the extra compensa-

tion that your client proposes to pay in addition to the

salary is not inconsistent with the salary basis of pay-

ment and is in accordance with section 541.118(b). Fur-

ther, we believe that your client’s proposed compensation

plan generally appears to meet the requirements in sec-

tion 541.118.

However, we have some reservations concerning the pro-

vision in the “Compensation Agreement” allowing the

employer to adjust the salary and extra compensation as

determined by the employer. If, for example, such pro-

viso were used to make frequent adjustments in com-

pensation, it would raise a serious question as to whether

these professionals were being paid “on a salary basis”

within the meaning of the Regulations.

4a

[Mar. 8, 1970]

Dear

This is in further reply to your letter of February 12,

1970, concerning whether additional payments for work

in excess of 44 hours per week to otherwise bona fide

exempt employees is in accordance with the requirement

that such employees be paid “on a salary basis” under

section 13(a) (1) of the Fair Labor Standards Act.

The information you have provided assumes that the em-

ployees concerned meet all the duty requirements for

exemption as bona fide executive, administrative, or pro-

fessional employees, as set forth in the appropriate sec-

tion of Regulations, Part 541. Each employee is paid a

predetermined salary of at least $140 a week which is

not subject to reduction because of variations in the

quality or quantity of the work performed and without

regard to the number of hours or days worked. His

salary is not reduced for working less than 44 hours in

a workweek, except for certain allowable deductions set

forth in section 541.118(a) of the regulations. You ask

if payment on an hourly basis generally at straight-time

rates for time worked in excess of 44 hours in a work-

week would defeat the requirement that such an otherwise

exempt employee is paid “on a salary basis.”

Although employers are not required under the act to

compensate bona fide exempt employees for overtime

work, they may pay them for overtime if they wish. As

you correctly pointed out in your letter, section 541.118 (b)

of the regulations indicates that additional compensation

besides the required predetermined salary is not incon-

sistent with the salary basis of payment. Thus, the em-

ployer may pay for overtime work on an hourly basis,

and this may be at straight time, at time and one-half,

or some other multiple.

Your letter does not describe the type of work the exempt

employees perform during their overtime hours. It should

ee

5a

be pointed out in this connection that the exemption will

be defeated in any workweek in which the employee ex-

ceeds the percentage limitation on nonexempt work.

It should also be noted that where an employee’s employ-

ment situation differs from that described in your letter,

it will be necessary to consider his exemption status in

the light of the facts and circumstances in his individual

case.

Enclosed for your information are copies of Federal Reg-

ister reprints concerning the effective date of the recently

enacted increases in the minimum salary levels necessary

for exemption as an executive, administrative, or pro-

fessional employee.

If you have any additional questions in this or any other

matter concerning the application of the Fair Labor Stand-

ards Act, you may find it more convenient to get in touch

with our Regional Office at 907 U. S. Parcel Post Build-

ing, 341 Ninth Avenue, New York, New York 10001.

That office will be pleased to offer every possible assist-

ance.

Sincerely,

JOSEPH F. MCAULIFFE

Director

Division of Minimum Wage

and Hour Standards

6a

APPENDIX B

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

Case No. CV 91-0401 JGD

WILLIAM B. Morscu,

Plaintiff,

V.

CITY OF Los ANGELES,

Defendant.

ORDER DENYING THE DEFENDANT’S MOTION

FOR SUMMARY JUDGMENT AND GRANTING

THE PLAINTIFFS’ CROSS-MOTION FOR

PARTIAL SUMMARY JUDGMENT

[Filed May 4, 1992]

On March 30, 1992, the defendant’s motion for sum-

mary judgment, and plaintiffs’ cross-motion for partial

summary judgment came on for hearing. The Court has

considered the papers filed, and the oral argument of

counsel. The defendant’s motion for summary judgment

is DENIED; the plaintiff’s cross-motion for partial sum-

mary judgment is GRANTED. This order is CERTI-

FIED for interlocutory appeal. The action is STAYED

pending the outcome of the appeal.

Facts

On January 23, 1991, the plaintiffs filed their Com-

plaint for Overtime Pay and Liquidated Damages Under

the Fair Labor Standards Act (“Complaint”). The plain-

tiffs are, or within the three years prior to the filing of

the Complaint, 88 fire protection employees of the City

of Los Angeles, and bring this action on behalf of them-

selves and others similarly situated. The complaint al-

leges that the City violated the Fair Labor Standards

oO

7a

Act (“FLSA”), 29 U.S.C. § 201-219, as described below.

There is no dispute between the parties on the essential

facts.

During the period commencing August 15, 1986, until

the present, the City employed plaintiffs and others simi-

larly situated. The plaintiffs are Battalion Chiefs and

Assistant Chiefs in the Los Angeles Fire Department

whose primary duties involve the prevention of, prepara-

tion for, response to, and control of emergencies. Decla-

ration of John C. Ware in Support of Plaintiffs’ Cross-

Motion for Partial Summary Judgment at 37.’ The plain-

tiffs are not involved in the formation of department

policy, and do not have the authority to hire or fire

employees or make hiring or promotion recommendations.

Id. The hours worked by the plaintiffs are controlled by

the City. Plaintiffs may not absent themselves from work

during the day without the permission of higher author-

ity. Absence without excuse is subject to discipline. When

plaintiffs are absent from work for a period of less than

one day, such absences are deducted from accumulated

leave or overtime in six minute increments. Plaintiffs

must record on departmental time sheets all time spent on

duty and all leaves of absence. Plaintiffs are compen-

sated for overtime on a hourly basis, not on a time-and-

one-half basis. Jd. at 38. Plaintiffs may be suspended

from duty without pay as a disciplinary measure.

The City is required to pay them time-and-one-half

overtime compensation pursuant to 29 U.S.C. § 207(a)

and (k) and regulations of the United States Depart-

ment of Labor. The City has failed to do 80.

1This declaration is unsigned. Presumably, this was merely an

oversight. Defendants have not objected.

8a

Discussion

I. The Standard for Summary Judgment

Rule 56(c) of the Federal Rules of Civil Procedure

provides that a court shall grant a motion for summary

judgment if “the pleadings, depositions, answers to in-

terrogatories, and admissions on file, together with the

affidavits, if any, show that there is no genuine issue as

to any material fact and that the moving party is entitled

to judgment as a matter of law.” Fed. R. Civ. P. Rule

56(c). Whether a fact is material is determined by look-

ing to the substantive law. Anderson v. Liberty Lobby,

Inc., 477 U.S. 242, 248 (1986). Facts are deemed ‘“mate-

rial” if a dispute over them “might affect the outcome

of the suit under the governing law... .” Id.

The moving party has the burden of demonstrating

the absence of a genuine issue of fact for trial. Jd. at

256. Rule 56(e) provides that “[w]hen a motion for

summary judgment is made and supported as provided

for in this rule, an adverse party may not rest upon the

mere allegations or denials of the adverse party’s plead-

ings, but the adverse party’s response, by affidavits or as

otherwise provided in this rule, must set forth specific

facts showing that there is a genuine issue for trial. If

the adverse party does not so respond, summary judg-

ment, if appropriate, shall be entered against the adverse

party.” Fed. R. Civ. P. Rule 56(e).

As the Supreme Court explained in Matsushita Elec-

trical Industry Co. v. Zenith Radio Corp., 477 U.S. 574

(1986) :

When the moving party has carried its burden under

Rule 56(c), its opponent must do more than simply

show that there is some metaphysical doubt as to

the material facts .... Where the record taken as a

whole could not lead a rational trier of fact to find

for the nonmoving party, there is no “genuine issue

for trial.”

9a

477 U.S. at 586-87. A “genuine issue” of material fact

exists only when the nonmoving party makes a sufficient

showing to establish an essential element to that party’s

case, and on which that party would bear the burden

of proof at trial. Celotex Corporation v. Catrett, 477

U.S. 317, 322-23 (1986). The evidence of the non-

movant is to be believed, and all justifiable inferences are

to be drawn in his favor. Anderson, 477 U.S. at 255

(citing Adickes v. S. H. Kress and Company, 398 U.S.

144 (1970) ).

Initially, it is the moving party’s burden to establish

that there is “no genuine issue of material fact and that

the moving party is entitled to judgment as a matter of

law.” Fed. R. Civ. P. 56(c); British Airways Board

v. Boeing Co., 585 F. 2d 946, 951 (9th Cir. 1978) ;

Schwarzer, Tashima & Wagstaffe, Federal Civil Proce-

dure Before Trial § 14:123 [hereinafter Schwarzer].

“The moving party must show there are no triable issues

of fact as to matters upon which it has the burden of

proof at trial.” Schwarzer at § 14:124. It is the oppos-

ing party’s burden to show a triable issue of fact as to

matters on which it will bear the burden of proof at

trial, id. at § 14:131; further, ‘a complete failure of proof

concerning an essential element of the nonmoving party’s

case renders all other facts immaterial.” Celotex Corp.

v. Catrett, 477 U.S. 317 (1986); Schwarzer at § 14:131.

II. Genuine Issues of Material Fact

The moving party has the burden of showing the lack

of any genuine issue of material fact. Some minor facts

are disputed. But just because the parties do not agree

on one version of the facts does not mean that a court

cannot dispose of the matter on summary judgment.

Rule 56(c) of the Federal Rules of Civil Procedure pro-

vides that a court shall grant a motion for summary

judgment if “the pleadings, depositions, answers to inter-

rogatories, and admissions on file, together with the affi-

davits, if any, show that there is no genuine issue as to

10a

any material fact and that the moving party is entitled

to judgment as a matter of law.” Fed. R. Civ. P. Rule

56(c). See also Anderson, 477 U.S. at 257 (“The mere

existence of some alleged factual dispute between the par-

ties will not defeat an otherwise properly supported mo-

tion for summary judgment; the requirement is that

there be a genuine issue of material fact.”) (emphasis

omitted).

In this case, the defendant has made a motion for

summary judgment, and the plaintiffs have made a mo-

tion for partial summary judgment. The parties agree

that generally, there are no genuine issues of material

fact pertaining to the issue of liability. The plaintiffs do

object to the City’s characterization of the plaintiffs as

salaried employees. This concern, however, relates not

to a factual dispute, but to legal interpretation. Thus,

summary judgment is appropriate.

III. The FLSA and the Salary Basis Exemption

Generally, the FLSA bars the employment of any em-

ployee for a work week longer than 40 hours unless such

employee receives compensation at a rate of one and one-

half times his regular rate for those hours which exceed

the 40 hour workweek. See 29 U.S.C. § 207(a) (1). How-

ever, any employee employed in a bona fide executive,

administrative or professional capacity is exempt from the

40 hour workweek limitation. See 29 U.S.C. § 213(a) (1).

In order to qualify for this exemption the employee

must be compensated on a “salary basis.” 29 C.F.R.

§ 541.2. Compensation on a salary basis means that the

employee receives a predetermined amount for each pay

period, which amount is not subject to reduction because

of variation in quantity or quality of the employee’s work

performance. 29 C.F.R. § 541.118. Subject to some ex-

ceptions not relevant here, the employee must receive his

full salary for any week without regard to the number

of days or hours worked. /d.

lla

Plaintiffs do not dispute that they are employed in a

bona fide, administrative or professional capacity. Thus,

they would be exempt from the FLSA if they are com-

pensated on a salary basis. The plaintiffs argue that

they are not paid on a salary basis, and as developed

below, this question is indeed the touchstone of the

dispute.

IV. Fire Protection Partial Exemption: The § 207(k)

Provision

29 U.S.C. § 207(k) created a partial exemption to the

overtime requirements of the FLSA to accommodate the

unique schedules of public safety employees such as fire-

fighters. In lieu of the 40 hour work week approach,

§ 207(k) provides:

No public agency shall be deemed to have violated

subsection (a) of this section with respect to the

employment of any employee in fire protection activi-

ties or any employee in law enforcement activities

..- if—

(1) in a work period of 28 consecutive days

the employee receives for tours of duty which

in the aggregate exceed the lesser of (A) 216

hours, or (B) the average number of hours (as

determined by the Secretary pursuant to section

6(¢c) (3) of the Fair Labor Standards Amend-

ments of 1974) in tours of duty of employees

engaged in such activities in work periods of

28 consecutive days in calendar year 1975; or

(2) in the case of such an employee to whom

a work period of at least 7 but less than 28 days

applies, in his work period the employee receives

for tours of duty which in the aggregate exceed

a number of hours which bears the same ratio

to the number of hours referred to in clause

(B) of paragraph (1) bears to 28 days,

12a

compensation at a rate not less than one and one-

half times the regular rate at which he is employed.

The City asserts that it “has applied the ‘7(k) partial

exemption’ to its sworn firefighters, and has adopted a

27-day work period for them.” Defendant’s Memorandum

of Points and Authorities at 5. The City asserts that

under this provision, time-and-one-half overtime is not

required until 204 hours have been completed in the 27-

day work period. Although 28/216 is a similar ratio to

27/204, a closer approximation is 27/208.

However, the amount of hours actually worked by the

plaintiff firefighters in a 27-day period is 216. See De-

fendant’s Memorandum of Points and Authorities at 20.

The firefighters routinely work 4 to 12 hours of overtime

per 27-day period, and are paid at their normal hourly

rate. Therefore the plaintiffs do qualify for overtime

pay under § 207(k).

V. Salary Basis and the Abshire Decision

A. Defining Salaried Status

The plaintiffs argue that they are not paid on a salary

basis for the following reasons: (1) plaintiffs were re-

quired to maintain detailed accounts of their time; (2)

they were compensated for overtime work on a _ hourly

basis; (3) they were required to use compensable leave

time; and (4) for less than one day’s absence, they were

docked accumulated leave or overtime in six minute in-

crements.

The Department of Labor has recognized that certain

privileges and benefits are uttendant to the status of a

salaried employee. In particular, payment on a salary

basis carries with it the privilege that an employee has

some latitude to vary his hours of work. The Department

of Labor regulations describe a salaried employee as he

who “receives each pay period on a weekly, or less fre-

quent basis, a predetermined amount constituting all or

13a

part of his compensation, which amount is not subject to

reduction because of variations in the quality or quantity

of the work performed.” 29 C.F.R. § 541.118(a). But this

docking test is only one aspect of the salary basis char-

acterization. The Department of Labor regulations also

provide that an employee is not paid on a salary basis if

the employee is subject to disciplinary suspensions with-

out pay for reasons other than infractions of safety rules

of major significance. 29 C.F.R. § 541.118(a) (5). See

also United States Department of Labor Opinion Letter

No. 1614, January 15, 1986, CCH Labor Law Reports,

para. 31,741 at 43,143.

Additionally, courts have held that employees are not

paid on a salary basis when the employees’ pay fluctuates

from pay period to pay period in relation to the number

of hours worked, Hodgson v. Baker, 544 F.2d 429, 434

(9th Cir. 1976), and when the employee accrues and uses

sick leave and vacation benefits by the hour. Knecht v.

City of Redwood City, 688 F.Supp. 1307, 1312 (N.D.Cal.

1987). An employer’s requirement that employees work

a fixed schedule and for a minimum number of hours is

also inconsistent with salaried status. Martin v. Malcolm

Pirnie, Inc., 949 F.2d 611 (2d Cir. 1991).

The hours worked by plaintiffs are controlled by the

City. Plaintiffs may not absent themselves from work

during the day without the permission of higher authority.

Absence without excuse is subject to discipline. When

plaintiffs are absent from work for a period of less than

one day, such absences are deducted from accumulated

leave or overtime in six minute increments. Plaintiffs

must record all time spent on duty and all leaves of ab-

sence on departmental time sheets. They are compensated

for overtime on a hourly basis, not on a time-and-one-half

basis. They may be suspended from duty without pay as

a disciplinary measure. These characteristics are plainly

inconsistent with salaried status,

l4a

B. Docking Pay and Abshire

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

1990), cert. denied, 111 S. Ct. 785 (1991), the Ninth

Circuit considered the issue of whether an employee whose

compensation was subject to deduction for an absence of

less than one day was considered as being paid on a

salary basis for purposes of the FLSA. The court held

that such an employee was not exempt from the FLSA.

The .emptions to the FLSA are to be narrowly construed

and employers who claim that an exemption applies to

their employees must show that the employees fit “ ‘plainly

and unmistakenly within [the exemption’s] terms.’ ”’

Abshire, 908 F.2d at 486 (quoting Arnold v. Ben Kanow-

sky, Inc., 361 U.S. 388 (1960)). Clearly, the burden is

on defendants to establish that the plaintiffs fall within

the salaried basis exemption. Id. at 485.

The Abshire court held that employees whose pay is

subject to deduction for absences of less than a day are

not paid on a salary basis according to the regulations

implementing the FLSA. The City admits that it is

possible for the salary of the plaintiffs to be reduced by

reason of an absence of jess than one day if all available

paid leave categories were exhausted. See Defendant’s

Motion at 24. Furthermore, the Abshire court noted that

additional compensation for additional hours worked is

generally not consistent with salaried status. 908 F.2d at

486. The City pays the plaintiffs straight overtime for

additional hours worked. }

Although the City has conceded that the employees’ pay

could theoretically have been subject to deduction for an

absence of less than one day, the City contends that there

is no evidence that such a deduction occurred.*, The County

of Kern in Abshire presented a similar argument that

2 Given that the statute of limitations for violations of the FLSA

is two years, or three years if the violation is willful, there is

potential liability dating back to as early January 23, 1989 or 1988.

See 29 U.S.C. § 255(a).

ee

15a

there was no evidence of any employee having ever been

docked for partial days missed. The court noted that this

argument was irrelevant because the dispositive factor

was whether the employee’s pay was “subject to” deduc-

tion for absences of less than a day. 908 F.2d at 487.

Similarly, here, the City’s argument that there is no.

evidence of actual docking is irrelevant because the em-

ployees were subject to having their pay reduced for par-

tial absences. The plaintiffs’ motion for partial summary

judgment is concerned with liability, not damages. The

issue of whether plaintiffs’ pay was subject to deduction

goes to liability. The issue of whether there were actually

any deductions goes to damages. The City’s argument is

directed at damages, and in the process the City has con-

ceded liability under Abshire.

The City concedes that plaintiffs’ pay was subject to

deduction for a part-day absence. Thus, the City has not

carried its burden of proof and is liable under § 207.

Under Abshire, plaintiffs are entitled to summary judg-

ment on the liability issue. .

V. Department of Labor’s Proposed Regulations

A. Relationship to Abshire

The City argues that recently promulgated proposed

regulations from the Department of Labor overrule the

result in Abshire for public employees. On September 6,

1991, the Department of Labor published an Interim Final

Rule which provides that an otherwise exempt public

sector employee would not be disqualified from exemption

if the employee’s compensation was subject to reduction

for absences of less than one day. See 56 Fed. Reg. 45,826

(1991) (to be codified at 29 C.F.R. § 451.5d).

Furthermore, the Department of Labor issued another

Interim Final Rule which provides that the exemption will

not be lost if either (1) the public employer did not make

a deduction for a part-day absence prior to September 6,

l6a

1991 or (2) the employer reimburses the employee for any

deduction made prior to September 6, 1991. See 56 Fed.

Red, 45,830 (1991) (to be codified at 29 C.F.R. § 541.118

(a) (6) (ii) ).

Defendant has filed the Declaration of John Hardy, the

Chief Administrative Analyst in the Employee Relations

Division of the Office of the City Administrative Officer,

in which Hardy states that he knows of no plaintiff in the

Morsch class action whose pay was reduced for a part-day

absence. Furthermore, he states that the City is com-

mitted to reimburse any deductions in the event such de-

ductiopns are found to have occurred. See Declaration of

John Hardy at paras. 44 and 45.

Thus, the question is whether the proposed regulations

should override the Abshire decision. If the regulations

were effective, the answer would be straightforward: the

regulations would override Abshire. However, here we are

dealing with proposed regulations that have yet to be

formally enacted. Moreover, at least two district courts

have recently held that the regulations are invalid.

B. Validity of the Regulations

In Service Employees Int'l. v. County of San Diego,

92 Daily Journal D.A.R. 2824 (S.D. Cal. Feb. 13, 1992),

the court found that the regulation to be codified at

§ 451.5d was invalid because it was promulgated without

a notice and comment period. Jd. at 2830. Further, the

court refused to stay its decision pending formal enact-

ment of the proposed regulations, which is anticipated to

occur in June 1992. The court noted that the County

submitted no evidence to show that there were no deduc-

tions or that the County reimbursed plaintiffs for any

deductions. /d.

On March 20, 1992, in Alea v. California, Eastern Dis-

trict of California, CV S-89-0032 LKK, Judge Lawrence

Karlton issued an order discussing this issue and reached

17a

the same conclusion: the Department of Labor’s proposed

regulations are invalid because they were promulgated

without a notice and comment period. In fact, it appears

that the regulations are invalid for our present purposes.

Under the “informal rulemaking” provisions of the

Administrative Procedure Act, an agency must provide

the public with notice and the opportunity to comment on

the proposed rules. 5 U.S.C. § 553(b) & (ce). After con-

sideration of relevant comr.ents, the agency may then

adopt a final rule, along with a concise general statement

of its basis and purpose. Jd. § 553(¢e); San Diege Air

Sports Center, Inc. v. FAA, 887 F.2d 966 (9th Cir. 1989).

A substantive rule is invalid if the agency has failed to

comply with the notice and comment procedures or if

cood cause has not been articulated or does not exist.

Linoz v. Heckler, 800 F.2d 871, 878 (9th Cir. 1986).

In promulgating the Interim Rule, the Department of

Labor determined that because “prior notice and com-

ment are contrary to the public interest,” good cause

existed for dispensing with the notice and comment pe-

riod. 56 Fed. Reg. 45,825. Exceptions to 5 U.S.C. § 553

are “narrowly construed and only reluctantly counte-

nanced.” San Diego Air Sports, 887 F.2d at 969. The

good cause exception is “emergency procedure.” Busch-

mann v. Schweiker, 676 F.2d 352, 357 (9th Cir. 1982).

The Department of Labor’s effort to sidestep the notice

and comment period is particularly egregious since the

interests of thousands of employees were directly affected.

The Service Employees Int'l. v. County of San Diego

and Alex v. California cases have correctly analyzed the

validity of the Interim Rule. This Court considers the

regulation invalid.

C. Impact of the Regulations

Even if this Court were to consider the regulations,

the impact on the analysis is narrow. The Interim Rule

limits itself to situations where the plaintiff is ‘other-

18a

wise exempt.” The docking of pay is not the only char-

acteristic of a salary basis. As discussed above, other

characteristics can also indicate a salary basis. In this

case, the plaintiffs were paid overtime, and had little con-

tro] over their schedule. These and other characteristics

suggest that the plaintiffs were not salaried employees.

The City has not met its Abshire burden of proof of

establishing that the plaintiffs are salaried employees.

The plaintiffs are nonsalaried employees, and the City

must pay them time-and-one-half overtime compensation.

VI. Interlocutory Appeal

28 U.S.C. § 1292(b) (emphasis omitted) provides:

When a district judge, in making in a civil action

an order not otherwise appealable under this section,

shall be of the opinion that such order involves a

controlling question of law as to which there is sub-

stantial ground for difference of opinion and that an

immediate appeal from the order may materially ad-

vance the ultimate termination of the litigation, he

shall so state in writing in such order. The Court of

Appeals may thereupon, in its discretion, permit an

appeal to be taken from such order, if application is

made to it within ten days after entry of the order:

Provided however, That application for an appeal

hereunder shall not stay proceedings in the district

court unless the district judge or the Court of Ap-

peals or a judge thereof shall so order.

Defendant argues that the Abshire decision is contrary

to the intent of Congress in the sense that Congress surely

did not intend that almost every public employee be com-

pensated time-and-one-half for overtime. This position

is debatable, but supported to a degree by the Labor

Department’s attempt to interpret the FLSA. As noted

above, this issue has become a focus for other litigation

as well as the present case. This Court is of the opin-

a

19a

ion that the order granting the plaintiffs’ cross-motion

for partial summary judgment involves a controlling

question of law as to which there is substantial ground

for difference of opinion, and that an immediate appeal

from the order may materially advance the ultimate

termination of this litigation. Therefore, the order is

CERTIFIED for appeal.

Conclusion

For the reasons discussed above, the defendant’s mo-

tion for summary judgment is HEREBY DENIED. The

plaintiff's motion for partial summary judgment is

HEREBY GRANTED. The order is CERTIFIED for

interlocutory appeal. The action is STAYED pending

the appeal.

IT ISSO ORDERED.

Dated: May 4, 1992

/3/ John G. Davies

JOHN G. DAVIES

United States District Judge