Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-95-05162/USCOURTS-ca10-95-05162-0/pdf.json

Nature of Suit Code: 710
Nature of Suit: Fair Labor Standards Act
Cause of Action: 

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Patrick J. Fisher, Jr. 

Clerk 

UNITED STATES COURT OF APPEALS 

Tenth Circuit 

Byron White United States Courthouse 

1823 Stout Street 

Denver, Colorado 80294 

(303) 844-3157 

October 8, 1996 

TO: All recipients of the captioned opinion 

RE: 95-5162, Spradling v. City of Tulsa 

September 13, 1996 

Elisabeth A. Shumaker 

Chief Deputy Clerk 

Please be advised of the following correction to the captioned decision: 

A word was omitted on page 21, first line following the section 4 subheading. It 

should read: 

The City argues that, even if "it" has failed to satisfy the salary test .... 

Please make the appropriate correction. 

Very truly yours, 

Patrick Fisher, Clerk 

Susan Tidwell 

Deputy Clerk 

Appellate Case: 95-5162 Document: 01019279336 Date Filed: 09/13/1996 Page: 1 
.. 

.. 

PUBLISH 

UNITED STATES COURT OF APPEALS 

TENTH CIRCUIT 

FILED 

United States Court of Appeak Taatb Circuit 

SEP 1 3 1996 

PATRICK FISHER 

Clerk 

B.N. SPRADLING, B.C. DOW, J.D. 

FELLINGER, L.M. LAMB, ROBERT 

McCLARY, PHILIP MORGANS, 

EDGAR LEON WILSON, F.L. COOK, 

D.R. GRANT, E.L. SIMPSON, THOMAS 

E. HOLLAND, ROBERT E. NANTZ, 

BILLY JOE GEIER, KEN LORTON, 

BILLY J. RICHARDSON, 

No. 95-5162 

Plaintiffs - Appellees, 

v. 

CITY OF TULSA, OKLAHOMA, a 

municipal corporation, 

Defendant - Appellant. 

Submitted on the briefs: 

Appeal from United States District Court 

for the Northern District of Oklahoma 

(D.C. No. 92-C-414-E) 

David L. Pauling, City Attorney, and Ellen R. Hinchee, Assistant City Attorney, of Tulsa, 

Oklahoma, and Edward W. Bergmann and Noah A. Finkel of Seyfarth, Shaw, 

Fairweather & Geraldson, of Chicago, Illinois, for the appellant. 

Donald M. Bingham, ofRiggs, Abney, Neal, Turpen, Orbison & Lewis, of Tulsa, 

Oklahoma, for the appellees. 

Appellate Case: 95-5162 Document: 01019279336 Date Filed: 09/13/1996 Page: 2 
.. 

Before TACHA, BRISCOE, and MURPHY, Circuit Judges. 

BRISCOE, Circuit Judge. 

Defendant City of Tulsa, Oklahoma, (City) appeals the district court's decision 

granting relief in favor of plaintiffs, a group of fifteen Tulsa firefighters, on their claim 

for additional overtime pay under the Fair Labor Standards Act (FLSA), 29 U.S.C. §§ 

201-219. We affirm. 

I. 

Each plaintiffholds the rank ofDistrict Fire Chief(except plaintiffs E.L. Simpson 

and Billy J. Richardson, who are now retired). Plaintiffs filed this action on or about May 

12, 1992, seeking compensation for alleged unpaid overtime wages. According to 

plaintiffs, they typically work a repeating cycle of one 24-hour tour of duty, followed by 

48-hours off-duty, but receive no overtime pay. Plaintiffs further allege they are required 

to attend training sessions and staff meetings but receive no overtime compensation for 

time spent in these sessions and meetings. 

In defending the action, the City characterized plaintiffs as exempt salaried 

employees under the FLSA. Although plaintiffs stipulated they met most of the criteria 

for "administrative" and "executive" exemptions under the FLSA, they denied that they 

met the "salary" test set forth in 29 C.F.R. § 541.118. After engaging in discovery, the 

parties waived a jury trial and jointly requested that the district court determine the issue 

of FLSA exemption as a matter of law. 

On January 27, 1995, the district court issued a written order granting summary 

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judgment in favor of plaintiffs. In its order, the court applied the "salary" test and found 

that: ( 1) plaintiffs were paid an hourly rate, with provisions made for the accumulation of 

overtime; (2) plaintiffs' pay was subject to reduction for absences of less than a day; (3) 

plaintiffs could be disciplined by reductions in pay for reasons other than infractions of 

safety rules of major significance; and ( 4) plaintiffs were subject to reductions in pay for 

absences due to temporary military leave after City-paid military time had been 

exhausted, and for absences due to attendance in court as witnesses. Based upon these 

findings, the court concluded the City had failed to demonstrate that plaintiffs were 

salaried employees. The court rejected the City's assertion that the FLSA's "salary" test 

was inapplicable to public employers and concluded plaintiffs were entitled to receive 

overtime compensation. After a non-jury trial on the issues of willfulness and liquidated 

damages, the court awarded plaintiffs damages in the amount of $333,881.46 plus 

interest. The court rejected plaintiffs' claim for liquidated damages on the ground that the 

City's violation of the FLSA was made in good faith. Final judgment was entered on July 

17, 1995, and the City filed its notice of appeal on August 10, 1995. 

II. 

The City has the burden of proving plaintiffs were exempt employees under the 

FLSA. Aaron v. City ofWichita, 54 F.3d 652,657 (lOth Cir.), cert. denied 116 S. Ct. 419 

( 1995). We review the district court's factual findings for clear error and its ultimate 

conclusion concerning applicability of the City's claimed exemptions de novo. Id. 

III. 

A. The FLSA's exemptions and related salary test 

Under the FLSA, an employer must pay an employee overtime compensation at 

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one and one-half the employee's regular rate of pay for all hours worked by the employee 

in a given week in excess of forty hours. 29 U.S.C. § 207(a)(l). Notably, the FLSA 

exempts from its overtime compensation requirements "any employee employed in a 

bona fide executive, administrative, or professional capacity." 29 U.S.C. § 213(a)(1). 

Here, the City contends plaintiffs fall within the "executive" and/or the "administrative" 

exemption(s) and are therefore not entitled to the claimed overtime compensation. 

The "executive" and "administrative" exemptions are not specifically defined in 

the FLSA. Rather, the Department of Labor (DOL) is responsible for determining the 

operative definitions of these terms through interpretive regulations. 29 U.S.C. § 

213(a)(l). Generally, DOL regulations are entitled to judicial deference, see Udall v. 

Tallman, 380 U.S. 1, 16 (1965), and are the primary source of guidance for determining 

the scope and extent of exemptions to the FLSA. 

In order to satisfy the overtime exemption for "administrative" or "executive" 

employees, an employer must satisfy a two-part test promulgated by the DOL, the 

"duties" test and the "salary" test. Barner v. City ofNovato, 17 F.3d 1256, 1259-60 (9th 

Cir. 1994). Exemptions are to be narrowly construed, and the employer bears the burden 

of showing "the employee fits 'plainly and unmistakenly within the exemption's terms'--

under both the 'salary' test and the 'duties' test." Aaron, 54 F.3d at 657 (quoting Reich v. 

State ofWyoming, 993 F.2d 739, 741 (lOth Cir. 1993)). Here, the parties agree the City 

can satisfy the "duties" test. Only the "salary" test is at issue. 

To satisfy the "salary" test, "the employer must prove that the employees in 

question are paid on a salary basis rather than an hourly rate." Aaron, 54 F.3d at 657-58. 

Under 29 C.F.R. § 541.118(a), an employee is compensated on a salary basis if"under his 

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employment agreement he regularly receives each pay period ... a predetermined amount 

constituting all or part of his compensation, which amount is not subject to reduction 

because of variations in the quality or quantity of the work performed." Under 29 C.F.R. 

§ 541.118(b ), "the salary may consist of a predetermined amount constituting all or part 

of the employee's compensation," and "additional compensation besides the salary is not 

inconsistent with the salary basis of payment." 

B. Public sector employers and the FLSA's sal~ry test 

As initially enacted in 193 8, the FLSA did not apply to public employers or 

employees. See Lamon v. City of Shawnee, 972 F.2d 1145, 1149-50 (lOth Cir. 1992) 

(discussing history ofFLSA and its application to public sector employees), cert. denied, 

507 U.S. 972 (1993); ~also 57 Fed. Reg. 37,666-68 (1992) (same). In 1974, Congress 

amended the FLSA in an attempt to bring public employees within the scope of the Act. 

Fair Labor Standard Amendments of 1974, Pub L. No. 93-259, 88 Stat. 58, 60, § 6(a)(1), 

(a)(6). In 1976, however, the Supreme Court struck down the amendment and held that 

extending FLSA coverage to state and city governmental employees was inconsistent 

with state sovereignty. National Lea~e of Cities v. Usery, 426 U.S. 833 (1976). In 

1985, the Supreme Court reversed itself and upheld the constitutionality of including 

public sector employees within the scope of the FLSA. Garcia v. San Antonio 

Metropolitan Transit Authority, 469 U.S. 528 ( 1985). Although Congress subsequently 

amended the FLSA in order to accommodate "the particular needs and circumstances of 

the States and their political subdivisions," S. Rep. No. 159, 99th Cong., 7 (1985), 

reprinted in 1985 U.S.C.C.A.N. 651,655, Congress did not specifically address whether 

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the salary test, which was promulgated by the DOL years earlier, should apply to the 

public sector. See Fair Labor Standards Amendments of 1985, Pub. L. No. 99-150, 99 

Stat. 787. 

In 1987, the DOL announced that, pending revision of its implementing 

regulations, it would not enforce the portions of the salary test concerning deductions for 

absences ofless than a day for personal reasons, illness, or accident. See Fed. Reg. 

37,668 (1992). Notably, this nonenforcement policy applied only with respect to those 

public sector employers who could demonstrate they were governed by a public 

accountability law, i.e., a provision in applicable State or local law that prohibited 

payments to an employee for absences of less than one day due to personal reasons, 

illness, or accident. See id. Moreover, notwithstanding this nonenforcement policy, the 

DOL did not bar employees' claims against public employers, including those governed 

by public accountability laws. See id.. 

On September 6, 1991, the DOL passed an interim final regulation providing "that 

an otherwise exempt public sector employee who is paid according to a pay system that 

requires the use of paid leave and, absent the use of paid leave, reduces the employee's 

pay for absences ofless than one work-day, will not be disqualified from exemption due 

to such pay system." 56 Fed. Reg. 45,824 (1991). This interim final regulation 

effectively allowed state and local employers to continue to use pay systems based upon 

public accountability laws without losing "executive," "administrative," or "professional" 

exemptions for otherwise qualified employees. See id. 

On August 19, 1992, the DOL published its final regulation on this issue, codified 

at 29 C.F.R. § 541.5d, which provides in pertinent part: 

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(a) An employee of a public agency who otherwise meets the 

requirements of § 541.118 [the salary test] shall not be disqualified from 

exemption under § § 541.1, 541.2, or 541.3 [the executive, administrative, 

and professional exemption regulations] on the basis that such 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, under which the employee accrues personal leave and 

sick leave and which requires the public agency employee's pay to be 

reduced or such employee to be placed on leave without pay for absences 

for personal reasons or because of illness or injury ofless than one workday when accrued leave is not used by an employee because--

( 1) permission for its use has not been sought or has been sought 

and denied; 

(2) accrued leave has been exhausted; or 

(3) the employee chooses to use leave without pay. 

See 57 Fed. Reg. 37,677 (1992). 

C. The City's issues on appeal 

1. Did the district court err in concluding the salary test was applicable 

to public employers such as the City? 

Following the lead of other public employers recently embroiled in FLSA 

litigation, the City argued the salary test, as applied to public sector employers, is 

arbitrary and capricious and therefore invalid. The district court rejected the City's 

argument. On appeal, it is unclear whether the City is challenging only the salary test as 

it existed prior to the DOL's modifications in 1991-92, or is also challenging the current 

(post-September 6, 1991) salary test. We will assume the City is challenging both. 

The principles for reviewing the City's challenge are well established. In 

reviewing an agency's interpretation of a statute which it is charged with administering, a 

court must first determine "whether Congress has directly spoken to the precise question 

at issue." Chevron U.S.A. v. Natural Resources Defense Council, 467 U.S. 837, 842 

( 1984 ). If Congress has directly spoken to the precise question and its intent is clear, "the 

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court, as well as the agency, must give effect to the unambiguously expressed intent of 

Congress." Id. at 842-43. If, however, Congress has not addressed the precise question at 

issue, the court must determine "whether the agency's answer is based on a permissible 

construction of the statute." Id. In cases such as the one at bar, where "Congress 

explicitly delegates responsibility for completing a statutory scheme by defining key 

terms ... without supplying criteria for the exercise of the delegated responsibility, the 

scope of judicial review is extremely limited," and "about all the court can do is 

determine whether the agency's action is rationally related to the objectives of the statute 

containing the delegation." Mueller v. Reich, 54 F.3d 438, 442 (7th Cir. 1995) 

(construing validity of§§ 541.118 and 541.5d). 

Only the Seventh and Ninth circuits have considered similar challenges to the 

validity of the salary test. See Service Employees Intern. Union. Local 102 v. County of 

San Diego, 60 F.3d 1346 (9th Cir. 1994) (SEIU), ~denied, 116 S.Ct. 774 (1996); 

Mueller, 54 F.3d at 440-43. Both courts agreed that Congress did not specifically address 

whether the salary test should apply to the public sector. SEIU, 60 F.3d at 1351; Mueller, 

54 F.3d at 442. However, examining different aspects of the salary test, the two courts 

reached different results in deciding whether the test was a permissible construction of the 

FLSA. 

In Mueller, the Seventh Circuit held the current salary test, i.e., the salary test as 

modified by the DOL in 1991-92, is valid as applied to the public sector because it is 

rationally related to the objectives of the FLSA. In so doing, the Seventh Circuit 

specifically rejected the notion that the current salary test "should have gone further, that 

is, should have extended the exemption for public employees to the provision on 

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discipline." 54 F.3d at 441-42. On this latter point, the Seventh Circuit noted the DOL 

had considered but rejected exempting public employers from the salary test's discipline 

provision. Further, the Seventh Circuit held that "[n ]either the principle of public 

accountability, nor any other principle of public administration ... makes it imperative 

that public employers have th[e] power [to discipline by docking pay] with respect to 

their executive, administrative, and professional employees." Id. at 442. 

In SEIU, the Ninth Circuit concluded the salary test, as it existed prior to 

September 6, 1991 (the date on which the DOL issued its final interim regulation), is 

invalid as applied to public sector employers. In reaching this conclusion, the Ninth 

Circuit noted that, notwithstanding Congress' intent for the executive and administrative 

exemptions to apply to the public sector, most public employees could not satisfy the 

salary test as it existed prior to September 6, 1991, because "virtually all" public 

employers were constrained by pay systems based on public accountability. 60 F .3d at 

1352-53. Accordingly, the Ninth Circuit concluded the pre-September 6, 1991, salary test 

conflicted with congressional intent. Further, the Ninth Circuit concluded that 

"salvaging" the portions of the salary test that were not affected by public accountability 

pay systems would be "tantamount to rulemaking, a power with which [the federal courts] 

are not invested." I d. at 13 54. In reaching this latter conclusion, the Ninth Circuit noted 

the DOL's pre-September 6, 1991, nonenforcement policy "covered the entire salary test, 

not just part of it; and essentially no valid salary test applicable to the public sector 

existed until the DOL finally conducted rulemaking in 1991 and 1992." Id. 

We agree with both the Seventh and Ninth Circuits that Congress did not address 

the question of whether the salary test should apply to the public sector. Accordingly, we 

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proceed to determine whether the salary test, in its pre- and post-September 6, 1991, 

form, is a permissible construction of the FLSA as applied to the public sector. 

Beginning first with the current test, we find nothing that would call into question the 

Seventh Circuit's holding in Mueller. To the contrary, we agree the current salary test, as 

applied to the public sector, is rationally related to the objectives of the FLSA and is 

valid. We reject the City's challenge to the current salary test. 

As for the pre-September 6, 1991, salary test, we are unable to adopt the Ninth 

Circuit's reasoning in SEIU. First, we disagree with the suggestion that all public sector 

employers are governed by public accountability pay systems and were subject to the 

DOL's 1987 nonenforcement policy. Although the majority of public sector employers 

are perhaps governed by such pay systems, the facts of this case clearly demonstrate that 

all are not. The DOL was obviously aware of this when it adopted its 1987 

nonenforcement policy. As the express terms of that policy make clear, only those public 

sector employers who could demonstrate their pay systems ( 1) were based upon public 

accountability laws and/or principles, and (2) were adopted prior to April 15, 1986, could 

take advantage of the nonenforcement policy. ~57 Fed. Reg. 37,668. We further 

disagree with the Ninth Circuit's conclusion that the DOL's 1987 nonenforcement policy 

applied to the entire salary test. Reviewing the relevant portions of the Federal Register 

outlining the nonenforcement policy, we believe the policy applied only to the portions of 

the salary test that concerned absences of less than one day due to personal reasons, 

illness, or accident. See 57 Fed. Reg. 37,668; 56 Fed. Reg. 45,824. This conclusion is 

bolstered by other official DOL statements which indicate that, in the DOL's eyes, the 

remainder of the salary test remained applicable to all public employers. See,~. 57 

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Fed. Reg. 37670 (noting interim final rule was published on September 6, 1991, "to allow 

State and local governments to continue their public-accountability pay systems without 

incurring liability for overtime pay under FLSA to employees who would otherwise be 

exempt from the overtime pay requirements."); 56 Fed. Reg. 45,825 (stating "certain 

aspects" of salary test were "unduly restrictive when applied in the public sector."). 

Departing from the Ninth Circuit's position in SEIU, we conclude the preSeptember 6, 1991, salary test is valid as applied to public sector employers, such as the 

City, who are not governed by public accountability pay systems. Reviewing the DOL's 

1987 nonenforcement policy, it is apparent there was no change whatsoever in the salary 

test with respect to those public sector employers (however limited the number may have 

been) who were not governed by public accountability pay systems. With respect to 

those employers (including the City in this case), we find nothing in the pre-September 6, 

1991, salary test that is at odds with Congress' intent to make available the exemptions 

for executive, administrative, and professional employees. Like private sector employers, 

such public sector employers were perfectly capable of structuring their pay systems to 

comply with all aspects of the DOL's salary test. We reject the City's challenge to the 

pre-September 6, 1991, salary test. 1 

2. Did the district court err in concluding public accountability 

exception of 29 C.F.R. § 541. 5d was not applicable in this case? 

The district court found the City had not offered any evidence that its pay system 

1 Because the City in this case was not governed by a public accountability pay 

system, we reach no conclusion concerning the validity of the pre-September 6, 1991, 

salary test as applied to public sector employers governed by public accountability pay 

systems. 

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was established by statute, ordinance, or regulation, or by a policy or practice established 

pursuant to principles of public accountability. The court concluded the public 

accountability exception of§ 541.5d was not applicable, and § 541.5d was not applicable 

because the City had failed to demonstrate it otherwise met the requirements of the salary 

test. In particular, the court pointed to the fact that plaintiffs' pay was subject to 

reduction for absences of less than a day, as well as for court appearances and temporary 

military leave. 

The City argues on appeal that § 541.5d does not require municipalities to prove 

their pay systems are based upon public accountability principles. We disagree. The 

DOL, the agency charged with implementing the FLSA, has consistently required public 

employers to demonstrate their pay systems are based upon public accountability laws or 

principles before they can benefit from the DOL's relaxed salary test standards. See Fed. 

Reg. 3 7,668 ( 1992). In particular, from early 1987 until September 6, 1991, public 

employers could only benefit from the DOL's nonenforcement policy ifthey were able to 

demonstrate they were governed by a public accountability pay system. Likewise, under 

the DOL's current regulations, § 541.5d requires a public employer to demonstrate it is 

governed by a public accountability pay system before it can benefit from that section's 

"relaxed" salary test standards. See 29 C.F.R. § 541.5d. Aside from these indications of 

DOL's intent, FLSA case law is clear that the employer bears the burden of 

demonstrating its right to an exemption, Aaron, 54 F .3d at 657, and we conclude this 

burden includes demonstrating that a particular pay system is based upon public 

accountability laws or principles. To hold otherwise would either place the burden on 

plaintiffs to demonstrate that a pay system is not based upon public accountability laws or 

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principles, or alternatively grant all public sector employees the right to rely upon § 

541.5d. Neither applicable regulations nor relevant case law justifies these results. 

After our review of the record, we agree with the district court that the City failed 

to satisfy its burden of demonstrating its pay system is based upon a public accountability 

law or principle. In SEill, the Ninth Circuit held that "[p ]ublic accountability is the 

notion that 'governmental employees should not be paid for time not worked due to the 

need to be accountable to the taxpayers for expenditure of public funds."' 60 F.3d at 1352 

n. 2 (quoting Hilbert v. District of Columbia, 23 F.3d 429,435 (D.C.Cir. 1994)). 

Although it is not clear what, if any, evidence the City presented on this point2, on appeal 

the City claims plaintiffs' salaries are paid from the City's general fund, which in turn is 

funded by tax revenues, which in turn are required by the Oklahoma Constitution to be 

levied and collected "for public purposes only." City's hr. at 23. This general 

constitutional provision, and its convoluted link to plaintiffs' salaries, is wholly 

insufficient to allow us to conclude the City's pay system is based upon a public 

accountability law as envisioned by the DOL. Moreover, the uncontroverted evidence in 

this case indicates that salary deductions are discretionary on the part ofthe City. 

Because public accountability pay systems require an employer to make deductions when 

an employee is absent from work, the nature of the City's deduction policies makes it 

obvious that the City is not governed by a public accountability pay system. 

There is an additional basis for affirming the district court's decision. Under its 

2 Plaintiffs allege the City did not present any evidence to the district court on this 

issue in connection with its motion for summary judgment, but attempted to introduce 

evidence in connection with its motion to alter judgment after summary judgment was 

granted in favor of the plaintiffs. 

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express terms, § 541.5d applies only if a public sector employee otherwise satisfies the 

requirements of the salary test; that is, ignoring deductions that a public sector employer 

may make for absences ofless than one day due to personal reasons, illness, or injury, the 

employer must otherwise satisfy the test, and therefore cannot make any other deductions 

from an employee's salary based upon quantity or quality of work. Here, as discussed in 

greater detail below, it is uncontroverted that the City has an express policy of making 

deductions from plaintiffs' pay for disciplinary infractions. In light of this discipline 

policy, the City cannot "otherwise meet" the salary test requirements, and therefore 

cannot rely upon § 541.5d. The district court did not err in denying the City the benefit of 

§ 541.5d. 

3. Did the district court err in concluding plaintiffs were not paid on a 

salary basis under 29 C.F.R. § 541.118(a), and therefore not exempt 

from the overtime provisions of the FLSA? 

On appeal, the City argues that, contrary to the conclusions of the district court, it 

satisfied the "salary" test of29 C.F.R. § 541.118(a). In support of its argument, the City 

challenges the court's factual findings on three of the four components of the salary test. 

Payment: hourly rate or salary--Plaintiffs each received a predetermined amount 

of pay based upon where each fell in the City's applicable classification and pay 

schedule. In addition to this predetermined amount of pay, some plaintiffs occasionally 

received overtime compensation at a straight-time hourly rate for hours worked when 

called back to an emergency outside of their regularly scheduled shifts. Six of the named 

plaintiffs were given compensatory time for working outside their regularly scheduled 

shifts. It is uncontroverted that the number of hours worked by a plaintiff in a given pay 

period was printed on his or her pay stub. The court considered these factors and 

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concluded plaintiffs were not salaried employees. The court rejected the City's assertion 

that overtime pay occasionally granted to plaintiffs fell within the scope of29 C.F.R. § 

541.118(b ), which provides that "additional compensation besides the salary is not 

inconsistent with the salary basis of payment." Instead, the court concluded "[t]he 

payment of an hourly rate to district chiefs, with provision made for the accumulation of 

overtime, weighs in favor of a finding that Plaintiffs were not salaried employees." Joint 

append. II at 429. 

We disagree with the district court. In Aaron, this court rejected the notion that 

receipt of compensation for overtime hours precludes a finding that an employee is paid 

on a salary basis. Instead, the court concluded overtime compensation could constitute 

"additional compensation besides the salary" under 29 C.F.R. § 541.118(b). 54 F.3d at 

658. In addition, the Aaron court held inclusion on a pay stub of the number of hours 

covered by a paycheck does not preclude a finding that an employee is paid on a salary 

basis: 

Since overtime is not inherently inconsistent with one's status as a salaried 

employee, the fact that the firefighters' paystubs indicated the number of 

hours covered is also not inconsistent with salaried status. Such an 

accounting of hours is necessary to compute overtime compensation. 

When the facts pertaining to plaintiffs' pay are reviewed in light of Aaron, we 

conclude plaintiffs received a predetermined salary and were not hourly employees. This 

factor weighs in favor of the City's claimed exemptions. 

Effect of absences from work of less than one day--Although the regulations allow 

an employer to make deductions when an employee is absent for a day or more for 

personal reasons, sickness, or disability, without affecting the employee's salaried status, 

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• 

see 29 C.P.R.§§ 541.118(a)(2) and (3), an employer is limited in the deductions it may 

make when an employee is absent for less than one day. "If the employer docks the 

employee's pay for an absence of a few hours on a particular day, the implication is that 

the employee really is expected to work the same number of hours every day, implying in 

tum that he really is an hourly rather than a salaried worker and that his salaried status is 

an evasion ofthe statute." Mueller, 54 F.3d at 442. 

At least three circuits have held that employees governed by policies penalizing 

them for absences of less than one day (at least when the penalty involves possible loss of 

pay) are not salaried employees, and therefore not exempt "executive" employees under 

29 C.P.R.§ 541.1. Kinney v. District of Columbia, 994 F.2d 6, 11 (D.C.Cir. 1993); 

Martin v. Malcolm Pimie, 949 F.2d 611,617 (2d Cir. 1991), cert. denied, 506 U.S. 905 

(1992); Abshire v. County of Kern, 908 F .2d 483, 486 (9th Cir. 1990), cert. denied, 498 

U.S. 1068 (1991). Other circuits have held such a policy does not preclude exemption 

unless an employee's pay, as opposed to compensatory leave, is actually docked. 

McDonnell v. City of Omaha, 999 F.2d 293,297 (8th Cir. 1993), cert. denied, 114 S.Ct. 

1188 (1994); York v. City ofWichita Falls, 944 F.2d 236, 242 (5th Cir. 1991); Atlanta 

Professional Firefi~hters Union. Local 134 v. City of Atlanta, 920 F.2d 800, 805 (11th 

Cir. 1991). 

In Carpenter v. City & County of Denver, 82 F.3d 353 (1Oth Cir. 1996), this court 

recently joined the first group of circuits, and held the phrase "subject to reduction," as 

used in 29 C.F .R. § 541.118(a), means "the possibility and not the actuality of a reduction 

in pay removes an employee from exempt status." Id. at 359. The court held, where an 

employee is governed by a policy that requires his or her leave time to be reduced for 

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absences, disciplinary infractions, etc., the quality or quantity of the employee's work 

may ultimately reduce the amount of the predetermined salary received by the employee 

ifthe employee's leave time is exhausted. In accordance with Carpenter, it is clear that, if 

an employer's policy concerning absences ofless than one day merely creates the 

possibility of a reduction in pay, the "salary" test is not met with respect to employees 

subject to that policy. 

Here, there is an unwritten City policy that plaintiffs are, and have been at all 

pertinent times, subject to having their pay reduced for absences of less than a day. 

Under this unwritten policy, an employee's sick leave, vacation leave, or accumulated 

compensatory time could be reduced for such absences. However, if an employee does 

not have sufficient accumulations of sick leave, vacation leave, or compensatory time, his 

or her pay is subject to being docked. The parties have stipulated that "[e]ach of the 

[p ]laintiffs from time to time has been absent from duty, with approval, for less than one 

day, and his accumulated vacation leave or compensatory time was reduced on an hourfor-hour basis." Joint append. II at 403. The parties have further stipulated that "[n]o 

[p ]laintiffhas suffered any reduction in his regular paycheck as a result of such 

absences." I d. 

On appeal, the City argues neither of the stipulations concerning this unwritten 

policy is "evidence of an express City policy that the District Chiefs' actual pay is subject 

to reduction." City's br. at 14. The City argues that "[b]oth stipulations were written for 

the purpose of litigation before the district court, not as policies governing the 

compensation of City employees, including the District Chiefs." Id. Ifthis argument 

were accepted, the weight accorded any party's stipulation would be seriously eroded. 

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More important, holding a policy is not "express" unless it is written would allow an 

employer to adopt a multitude of unwritten policies that fly in the face of the salary test, 

yet deny the existence of those policies during FLSA litigation. In the end, the City is 

bound by its stipulations, and we conclude there was an "express" policy that created the 

possibility of salary reductions for absences ofless than one day. We conclude the City's 

policy concerning absences of less than one day is inconsistent with the salary test. 

Jury duty, witness appearances, temporary military leave--An employer may not 

make deductions from an employee's predetermined salary for jury duty, witness 

appearances, or temporary military leave without affecting the employee's salaried status. 

29 C.P.R.§ 541.118(a)(4). An employer may, however, "offset any amounts received by 

an employee as jury or witness fees or military pay for a particular week against the 

salary due for that particular week without loss of the exemption." Id. 

Here, § 311 of the City's Personnel Policies and Procedure Manual provides that 

employees "shall be entitled to no more than twenty (20) working days paid leave per 

calendar year, travel time inclusive," for military training purposes. Plaintiffs' suppl. 

append. at 6. With respect to military leave for active duty purposes, the manual provides 

employees are "entitled to a leave of absence without loss ofpay during the first thirty 

(30) calendar days of such leave." Id. Thus, an employee must use alternative leave 

allowances (i.e., vacation or sick time), be docked pay, or take leave without pay if his or 

her military leave exceeds 30 days (if the military leave is for active duty) or 20 days (if 

the leave is for military training). As for absences due to jury service and/or appearances 

as a witness, the manual provides leave with pay will be granted "[t]o serve as a juror," or 

"[t]o testify in court on City-related matters." Plaintiffs' suppl. append. at 7. The manual 

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further provides "[!]eave without pay will be granted to employees for Court appearances 

which do not meet the above criteria for leave with pay or, at the employee's option, 

accrued vacation time or compensatory time may be used." I d. Although the City now 

attempts to rely upon provisions of the collective bargaining agreement between the City 

and plaintiffs' union concerning court and jury leave, there appears to be little variation in 

how court and jury leave are handled in the collective bargaining agreement versus the 

manual. The only noticeable difference is the collective bargaining agreement arguably 

allows an employee to receive leave with pay if h~ or she is serving as a witness in a nonCity-related case in which the employee is not a party. Aside from this difference, both 

the collective bargaining agreement and the manual indicate an employee's pay will be 

docked if he or she is absent to appear in a case in which he or she is a party. In such a 

situation, it appears the employee can choose to use his or her accrued annual leave in 

lieu of being docked in pay. 

The district court found that "[p ]laintiffs are subject to reduction in pay for 

absences due to temporary military leave, after City-paid military leave time has been 

exhausted." Joint append. II at 434. The court further found that "[a]bsence due to 

attendance in court as a witness also subjects Plaintiffs to a reduction in pay." ld. The 

court concluded these findings were "incompatible with Plaintiffs' salaried status." ld. 

We disagree with the district court's conclusions concerning the City's military 

leave policy. Notably, the DOL's ban on military leave deductions specifically refers to 

"temporary military leave," a phrase that is not defined in the regulations. Two federal 

district courts construing this phrase have suggested that military leaves of absence 

greater than 15-30 days are not temporary, and that employers may therefore make 

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deductions for longer absences. Close v. State ofNew York, No. 94-CV-0906, 1996 WL 

67979 (N.D.N.Y. Feb. 13, 1996); Quirk v. Baltimore County, 895 F. Supp. 773, 782 

(D.Md. 1995). As noted by the Close court, National Guard and Reserve service 

specifically require only 15 and 14 days, respectively, of active duty training each year. 

1996 WL 67979 at *6. As further suggested by the Quirk court, only a full-scale war 

would likely require anything beyond this brief period, and would clearly be beyond the 

scope of"temporary military leave." 895 F. Supp. at 782. We agree with these opinions 

and conclude the City provides plaintiffs more than enough time to fulfill National Guard 

and/or Reserve obligations, and any potential deductions for leaves beyond 20 or 30 days 

would fall outside of§ 541.118(a)(4)'s ban on "temporary military leave" deductions. 

We also disagree with the district court's conclusion that the City's leave policy 

concerning jury duty and witness appearances violates§ 541.118(a)(4). In Shockley v. 

City ofNewport News, 997 F.2d 18, 24 (4th Cir. 1993), the court held that an employer 

need not provide paid leave for an employee to engage in personal litigation. Here, the 

only time the City does not grant an employee paid leave is if he or she is appearing, as a 

party or a witness, in a non-City-related matter. Under Shockley, this policy appears to 

be substantially permissible, the only possible exception being if an employee's pay is 

reduced for appearance as a witness in a non-City-related matter in which he or she is not 

a party. We conclude the City's policy concerning absences for jury duty, witness 

appearances, and temporary military leave is consistent with the salary test. 

Docking of pay for disciplinary infractions--In order to maintain an employee's 

salaried status for FLSA purposes, an employer must limit disciplinary pay deductions to 

"[p ]enalties imposed in good faith for infractions of safety rules of major significance." 

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29 C.F.R. § 541.118(a)(5). Here, the City stipulated that, "[b]y written City policy, 

Plaintiffs' pay is, and at all pertinent times was, subject to reduction as a form of 

discipline, including suspension without pay, imposition of a fine, and demotion." Joint 

append. II at 403. Further, the court f<?und uncontroverted evidence "that district chiefs 

have been disciplined, on more than one occasion, by a reduction in pay for a reason other 

than an infraction of a safety rule of major significance." Id. at 434. Based upon this 

uncontroverted evidence, the district court concluded "the City's disciplinary policy is 

inimical to its assertion that Plaintiffs are salaried employees." Joint append. II at 434. 

Significantly, the City has not challenged the court's factual findings on this issue or the 

court's legal conclusions. Accordingly, it is evident the City's disciplinary policy is 

inconsistent with the salary test. 

Conclusion--The City has failed to satisfy two of the four components of the salary 

test. Most notably, the City's disciplinary policy violates the salary test because it allows 

plaintiffs' pay to be reduced for disciplinary infractions. The City's policy concerning 

leaves of absence of less than one day also violates the salary test. We conclude the City 

has not satisfied the salary test and cannot establish its claimed exemptions. We therefore 

affirm the district court's findings of liability against the City and in favor of plaintiffs. 

4. Did the City save its claimed exemptions under the "window of 

correction" provided by 29 C.F.R. § 541.118(a)(6)? 

The City argues that, even if has failed to satisfy the salary test, it is entitled to rely 

upon the "window of correction" provided by 29 C.F.R. § 541.118(a)(6), which states: 

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 ... during the entire period 

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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 initial problem with this argument is that it was not presented by the City to 

the district court. Issues raised for the first time on appeal will not be reviewed "except 

for the most manifest error." Sac and Fox Nation v. Hanson, 47 F.3d 1061, 1063 (lOth 

Cir.), cert. denied, 116 S.Ct. 57 (1995). Here, the City has not claimed and we do not 

conclude this issue rises to the level of "manifest error." 

Even if we were to consider the City's argument, we find no merit to it. The 

"window of correction" provided by § 541.118(a)(6) allows 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. Auerv. Robbins, 65 F.3d 702,711 (8th 

Cir. 1995), cert. granted 116 S. Ct. 2545 (1996). However, it is not available ifthe 

employer has a settled policy of making improper deductions from compensation. Auer, 

65 F.3d at 711. The City has at least one settled policy of making improper deductions 

from the plaintiffs' compensation (i.e., deductions from pay for disciplinary infractions), 

and is not entitled to the "window of correction." 

5. Did the City establish its right to a partial exemption under 29 

us.c. § 207(k)? 

After a non-jury trial on the issue of damages, the district court found the City 

"failed to sustain its burden ofproofunder 29 U.S.C. § 207(k) [of establishing a work 

period greater than 7 days]," and that plaintiffs' "back overtime wages should be 

calculated under 29 U.S.C. § 207(a)(l), and the applicable work period is a [40-hour] 

workweek." Joint append. II at 453. In its final issue on appeal, the City challenges the 

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court's findings, claiming it "has adopted a nine-day work period of [72] hours to 

accommodate its fire-fighting employees who work shifts of24 hours on duty followed 

by 48 hours off duty." City's br. at 31. 

Section 207(a)(1) contains the FLSA's basic provisions concerning payment of 

overtime wages and requires employers to pay overtime to employees who work more 

than 40 hours per week. 29 U.S.C. § 207(a)(1). Although a public sector employer with 

law enforcement or fire protection personnel can choose to conform to the maximum hour 

and overtime provisions of§ 207(a)(1), it may adopt an alternative scheme under§ 

207(k), which provides a partial exemption from the standard overtime provisions. 

Lamon, 972 F.2d at 1150. Section 207(k) raises the regular rate ceiling and 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 

activities ... if--

(1) in a work period of28 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 ofhours (as determined by 

the Secretary pursuant to section 6(c)(3) of the Fair Labor Standards 

Amendments of 197 4) in tours of duty of employees engaged in such 

activities in work periods of28 consecutive days ... ; 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 

consecutive days in his work period as 216 hours (or if lower, the 

number ofhours referred to in clause (B) of paragraph (1)) bears to 

28 days, 

compensation at a rate not less than one and one-halftimes the regular rate 

at which he is employed. 

29 U.S.C. § 207(k). Section 207(k)'s "work period concept was intended to ease the 

overtime burdens of certain public employers by allowing them to average their 

employees' duty hours over the designated work period, from seven to twenty-eight days 

in length." Avery v. City ofTalladega, 24 FJd 1337, 1344 (11th Cir.1994). 

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In regulations accompanying§ 207(k), the DOL has established that 212 hours are 

the maximum number of hours a fire protection employee may work in a work period of 

28 days before the employee must be paid an overtime wage. See 29 C.F.R. §§ 553.201 

and 553.230. For a nine-day work period (as claimed by the City here), the DOL has 

established that 68 hours are the maximum number of hours a fire protection employee 

may work before he or she is paid an overtime wage. ld. Finally, for the minimum 

seven-day work period, the DOL has established that 53 hours are the maximum number 

of hours a fire protection employee may work before he or she is paid an overtime wage. 

A public sector employer bears the burden of establishing that it qualifies for a § 

207(k) exemption. Barefield v. Villa~e ofWinnetka, 81 F.3d 704, 710 (7th Cir. 1996). 

To qualify for the exemption, the employer must establish the employees in question have 

a work period of at least seven, but not more than twenty-eight, consecutive days. See 

Avery, 24 F.3d at 1343. This is normally a question of fact, Barefield, 81 F.3d at 710, 

governed by a preponderance of evidence standard. Lamon, 972 F.2d at 1154. 

"The 'establishment' of a 7(k) work period may be manifested by an appropriate 

public declaration of intent to adopt a work period of between 7 and 28 days." McGrath 

v. City of Philadelphia, 864 F.Supp. 466,476 (E.D.Pa. 1994) (citing LamQn, 972 F.2d at 

1154). "Alternatively, a public employer may establish a 7(k) work period even without 

making a public declaration, as long as its employees actually work a regularly recurring 

cycle ofbetween 7 and 28 days." ld. (citing Birdwell v. City of Gadsden, 970 F.2d 802, 

806 (11th Cir. 1992)). 

Reviewing the record on appeal, we are unable to conclude the district court's 

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factual findings on this issue are clearly erroneous. The joint appendix, which was filed 

by the City, includes only 7 of approximately 112 pages from the damage hearing 

transcript. The only reference in these 7 pages to the work period issue is a colloquy 

between the district court and the City's counsel in which counsel argues the City "did not 

have to establish such a [work] period for what we considered in good faith [to be] 

exempt employees." Joint append. at 448. Also included in the record on appeal is 

plaintiffs' supplemental appendix which contains approximately 20 additional pages from 

the damage hearing transcript. Included therein is the testimony of the City's employee 

relations manager, who essentially admitted the City had not established a work period 

for the District Fire Chiefs. Although the City now argues it established a nine-day work 

period for plaintiffs via certain provisions of the collective bargaining agreement, there is 

simply no indication in the record on appeal that the City made this argument in its 

memoranda of law or at the time of the damage hearing. Because the evidence in the 

record on appeal pertaining to the work period issue supports the factual findings of the 

district court, we conclude the court did not err in rejecting the City's claimed exemption 

under § 207(k). 

IV. 

The judgment of the district court is AFFIRMED. 

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