1

06- 0978- cv H ave y v. H om ebound M or t ga ge , I nc. UN ITED STA

TES CO URT OF AP P EALS F OR TH E S ECO N D CI RCU IT Aug us t T erm 2 006 (A rgue d: Apr

il 1 1, 2 007 Dec id ed: Oct ob er 22, 200 8) Do cket No . 06 -0 978 -c v LI ND A H AV EY , Pl

aint iff -A ppella nt , v. H OMEB OUN D M OR T GA GE , I NC ., GARY W. T UO RI LA , J UDI T H T UO RI LA , K AT HY M

AC S WEE N A ND S HANE S EMP R EB ON , Defenda nts-App ellees. B ef or e: WI NT ER , L EVAL , and C AB R ANES , Circuit Jud ges. Plaintiff appeals from a grant of s ummary judgment by the U nited States Distr ict Court for the Di s tr ict of Vermo nt (J er om e J . N ied ermei er , Magistrate Judge ) in favor of the defendants on her claims fo r vio lat io ns of th e ov er ti me p r ov

is io ns of th e F air La bo r St and ar ds Act , 29 U.S .C. § 201 et seq. (“FLSA”). We hold tha t (1) pr ospective adj ustments to an employe e’s salary based on the qua lity of work which do not reduce the “predetermined a mount” of s ala ry do not violate the “sala ry-basis test” of the FLSA s o long as the salary scheme was not designed to circumvent the requirements of the FLSA; and (2) pros pective adjustments t o an employ ee’s salary ba sed on projected quantity of work per fo rmeddo no t n eces s ar ily vio lat e that

te s t. Af fi rmed
. J OHN L. F RANCO , J R ., B ur lingt on , VT , fo r P

lai nti ff- Appella nt . GARY L. F R A N K L IN , Pr

im mer Piper Eggl es to n &Cr ame r

PC, (Ch r is ti na A. J ens en, Li s man , Web s te r , K ir kp atr ick &U p o n c o n se n t o f th e p a r tie s, a m a g istr a te ju d g e “ m a y c o n d u c t a n y o r a ll p r o c e e d in g s in a ju r y o r n o n ju r y c iv il 1 m a tter an d o rd e r th e e n try o f ju d g m e n t i n the c a se . ” 2 8 U
. S
. C
. § 6 3 6 (c)(1 ).

H o m e b o u n d c e a se d o p e r a tio n s in Ju ly 2 0 0 4 , sh o r tly a ft e r H a v e y file d th is a c tio n . S e eH avey v. H om e bound 2 M or tgage, Inc. , N o. 2: 03- cv- 313, 2005 W L 1719 061, at* 1 (D
. V t . J ul y 21 , 2005 ) . 2 Le ecke rling, on the brief

) B ur lingt on , VT , for DefendantsAppellees
. P I ER R E N. L EVAL and J OS É A. C AB R ANES , Circuit Jud ges: Pl ain ti ff -app ell ant Li nd a Hav ey ( “Ha

vey”), who was fo rmer

ly em pl oye d as a mo r tgage underwriter by defendant-appellee Home bound Mort gage (“Homebound”), brought this action clai ming that Homebound and i ts of ficers failed to pay he r overtime compensation as required by the Fair La bo r St and ar ds Act

(“ FL SA” or

“the A ct ”) , 29 U.S .C. § 201 et seq. Def end ant s r es po nd ed that Havey was employe d in “a bona fide . . . admini str ative . . . capa city” a nd was therefore exempt from th e ov er time p r ov

is io ns of th e F LS A. 29 U.S.C . § 213(a )(1). T he United Sta tes Dis trict Court for the Di s tr ict of Vermo nt (J er om e J . N ied ermei er , Magistrate Judge ) agr eedwith d ef

end ant s andgr ant ed thei r 1 motion for

summary judgment. The sole iss ue raised on appe al is whether, a s a matter of law, the syst em of compensation applic able to Havey me t the test t o qualify he r as one employed in a “bona fi de ad mi ni s tr ati

ve capaci ty .” We af

fi r m the gr ant

of s um mar y ju dgm ent , co ncluding that pl ain ti ff was employe d in a “bona fide administrate capa city” a nd acc ordingly exc luded from the overtime
com pen s ati onr equ

ir eme nt s of

th e F LS A. BAC KGROUND Havey was formerly employed by Homebound, a mortgage brokerage a nd loan underwriting
com pany in corpo r ate d an d d oi ng b us in es s inVermo nt , whe r e s he w or kedas a mo r tgage u nd er wr it er 2 fr omApr il 2 002 un til s he w as te r mi nat ed i n N ov emb er 200 3. D ur

ing he r te nu r e, u nd er

wr it er s at Ho meb ou ndr ecei

veda bas e s alar

y of $48 ,00 0 an d we r e als o el

igi bl e f or addit io nal “t ier ed
com pen s ati on ,” whi ch allo wedth em t o r ecei ve m or e pay

by ag r eeing t o p r oce s s mo r e lo ans ina giv enA not her f or m er em pl oyee , J oA nne A nder s on, was i ni t i al l y a co- pl ai nt i ff i n t hi s ac t i on, but ha s ab andone d her 3 c la im s a n d is n o t p a r tic ip a tin g in th is a p p e a l. T he p ar t i es ag r ee Ver m ont Fai r Em pl oym ent Pra ct i ce Act i s i dent i cal t o t he FL SA i n a l l r es pect s r el eva nt t o t he i nstant d i spu t e— t ha t i s, i f H av ey i s exe m pt u nd er the F L S A , she w i l l be ex em pt u nd er the V erm on t st atu t e. W e e xp ress no v i ew w het her t he s t andar ds of t he Ver m ont s t at ut e a r e i n f acti dent i cal t o t hos e of t he f eder al s t at ut e. Becaus e t he par t i es ag r ee t hatour det er m i nati on b as ed on t he f eder al s t at ut e wi l l g over n t he c as e under V er m ont l aw, we, l i ke t he M ag i s t r at e J udge, wi l l notaddre s s t he s t at e l aw ques t i on . S ee H a vey , 2 0 0 5 W L 1 7 1 9 0 6 1 , a t *2 n .1
. 3 quarter, subject to reduction of this additionalamount depending on the quality of the w ork perform ed. Hav ey w as not paid overtime for working more than 40 hours per wee k. Have y brought this act io n cl aiming that

s he w as ent

it ledto ov er ti me c om pen s ati onun der th e F LS A andth e par all el sta te sta tut e, the Ve rmo nt F air E mp lo ym en t Pra ctic e A ct , 2 1 V .S .A . § 38 3, a nd tha t de fe nd a nts, 3 Ho meb ou ndandit s of

fi cer s , f ail ed t o p ay he r . FLSA and Implementing R egula tions The FLSA was enacte d to eliminate “ labor conditions detrimental to the maintena nce of the mi ni mu m s tan dar d o f l

ivi ng n eces s ary f

or heal th , ef fi cien cy, a ndgen er al we ll- bei ng o f w or ker s ,” 2 9 U.S.C . § 202(a

), and to “gua rantee[ ] compensation for all work or employment e ngage d in by emp lo yees cov er ed b y the A ct .” T en ne ssee Co al, Ir o n & R.R. Co . v

. M usco da Lo cal

No . 12 3 , 32 1 U. S. 5 90, 602 (1944). To that end, the Ac t imposes a number of wage and hour requirements, including the overtime provision at iss ue here. Pursuant to the FL SA, a n employe e must be compensated at arate of “no t l es s th an o ne an d o ne- hal f t im es th e r egular

r ate at whi ch h e is emp lo yed ” f or any h ou r s wor ked in exce ss of 40 hours per week . 29 U.S.C . § 207(a )(1). T he overtime compe nsation requirement, howeve r, does not apply to “any e mployee employe d in a bonafide exec utive, admini str ative, or pr of es s io nal capa cit y.” Id
. § 213(a)(1). Ra ther than define the exe mptions in the s tatute, Congress granted the Sec retary of Labor br oadautho r

it y t o “d ef in e[ ] anddel

imit [ ] ” thes e t erms “f

r omti me t o t

im e by r egulat io ns .” 2 9 U. S.C. 213 (a) (1 ). Se e al

so Aue r v . Ro bbins , 519 U.S. 4 52, 456 (1997) (describing the “broad a uthority” of the Secretary unde r the Act). Regulations iss ued pursuant to this authority define wha t it means to beT h e p a r tie s a g r e e th a t la te r a m e n d m e n ts to th e re g u la tio n s, e ffe c tiv e 2 0 0 4 , d o n o t a p p ly in th is c a se . A ll 4 c it a ti o n s h e re in a re to th e 2 0 0 2 re g u lation s re li e d u p o n b y the p a rties a n d the D ist ric t C o u rt.

U nder t he r eg ul at i ons t hatwere ef f ect i ve dur i ng t he r el eva nt per i od, t her e wer e tw o t es t s f or det er m i ni ng 5 w h e th e r a p o sitio n q u a lifie s f o r th e a d m in istr a tiv e e x e m p tio n : a sh o r t te st a n d a lo n g te st. C om p a re 29 C. F. R
. § 541. 2( e) ( 2) ( 2002) ( “Pr ovi ded, [ t] hatan em pl oyee who i s com pens at ed on a s al ar y . . . ba s i s ata r at e of notl es s t han $ 250 p er week [a n d sa ti sfie s c e rta in d u ti e s] .
. . sh a ll b e d e e m e d to m e e t all the re q u ire m e n ts of this se c ti o n . ” ) w it

h 2 9 C
. F
. R
. 5 4 1
. 2 (a)- (e )(2 ); s e eal

s o D o n av an v . Bur

g e r Kin g C o r p. , 6 7 5 F .2 d 5 1 6 , 5 1 8 (2 d C ir. 1 9 8 2 ) (e x p la in in g th e sh o r t a n d lo n g te sts ).

4 “em pl oye d i n a b on a f

id e . . . ad mi ni s tr ati

ve . . . c apac it

y” wi thr ef

er enc e t o t

wo t es ts fo r

emp lo yees lik e Hav ey. 2 9 C.F .R. § 541 .2 ( 200 2)
. T he f

ir s t, kn ownas th e “d ut

ies te s t, ” co ns id er s an em pl oye e’s 4 workplace respons ibilities. Under the short vers ion of this t est, “an e mployee who is compensated on 5

a s alar y . . . b as is at ar ate of

no t l es s th an $ 250 per

week ” an d “[

w]h os e pr im ary du ty

con s is ts of

. . . [t] he pe rfor ma nc e o f of

fic e . . . wo rk d ire ctly

re la te d to ma na ge me nt p olic ie s or g en er al b usi ne ss op er a ti on s of h is e mp lo ye r [a nd ] re quiri ng

the ex er ci se o f di scr etio n a nd in de pe nd en t j ud gm en t [i s] dee medto mee t all the r equ ir eme nt s ” of

this te s t. Id

. § 541.2(a )-(e)(2) . The second, known a s the “s alar y- bas is te s t, ” co ns id er s an em pl oye e t o b e a bo na f id e adminis tr ati

ve em pl oye e only i f h e is “co mp ens ate d o n a s alar

y or fe e bas is ,” as op po s ed t o co mp ens ati ononan h ou rly b as is
. Id
. § 541.2(e)(2). Ac co rdi ng

to t he re gu la ti on s: An e mp lo yee will b e co ns id er ed t o b e pai d “o n a s alar y bas is ” . . . if

un der hi s employment a greement he regul arly rece ives eac h pay pe riod on a wee kly, or les s fr equ ent

bas is , a predetermined

am ount con s ti tu ti ng all o r

par t o f his compensation, whic h amount is not s ubject to reduction bec ause o f v ari ati o ns in the qual it y o r quant it y o f t he wo rkper fo rmed. Id
. § 54 1.1 18(a) (emp has is add ed) ; see also Auer , 519 U.S. a t 457 (observing that the “salary-basis tes t” ha s ex ist ed la rge ly

inthe sa me form sin ce 19 54 ). W ith c er tain ex ce pti on s, “ the em pl oy ee mu st receive his full s ala ry for any weekin which he perform s any work without regard to the number of days or hours worked.” 29 C .F.R. § 5 41.118(a). In a sub-section entitled “minimum gua rantee plus
extr as ,” the r egulat

io ns all ow that

a “s alar y may co ns is t o f apr ede te rmi nedamo un t c on s ti tu ti ng all or part of the employe e’s compensation. In other words , additiona l compensation besides the salary is no t i nco ns is te nt

with the s alar

y bas is of paym ent .” Id

. § 54 1.1 18(

b) . F or exam pl e, “ a br anch5

man ager ” wh o r ecei

ves a s alar y plus a per cen tag e of

th e br anchs ales or

pr of it s mee ts th e s alar

y t es t. Id
. Di s cr et io nar y bo nu s es do no t af

fe ct th e exe mp t s tat

us if th ey d o n ot

alt er an em pl oye e’s pr edet ermi nedcom pen s ati on . See 29 U.S.C . § 207(e)(3); 29 C .F.R. § 7 78.211. How ever, “[t]he test of payme nt on a salary ba sis will not be me t . . . if the salary is divided into two pa rts for the purpose of cir cumven ti ng the r equ

ir eme nt of paym ent ‘o n a s alar

y bas is ’.” Id

. § 54 1.1 18(

b)
. Ho meb ou nd ’s Com pen s ati onSys te m Unles s other

wis e s tat ed, th e f

ollo wing f act s ar e no t dis pu te d b y the p ar ti es . Un der Ho meb ou nd ’s com pen s ati ons ys te m i n ef fe ct at all t im es r elev ant

to this di s pu te , the “ bas e lev el”
s alar y of an u nd er wr it er lik e Hav ey co r r es po nd ed t o the n um ber of lo ans he o r

s he r evi ewedeach
mo nth i n the p r evi ou s qu ar te r . T her e wer e f ou r po s s ib le “ bas e lev els .” The l owe s t “ bas e lev el” salary wa s $48,000; an unde rwriter was guaranteed this amount regardless of the quantity of loa ns reviewe d per month or the quali ty of work. An underwriter’s “base level” could increa se for the following qua rter if

the underwriter reviewed 73 or mor e loans ea ch month for a quarter. T he highest “base leve l” wa s $64,000 for underwriters who had revie wed 105 or mor e loans ea ch month inth e pr evi ou s qu ar te r

andwer e exp ect

ing t o co nt

in ue at this r ate . An underwriter’s s ala ry was reviewe d on a quarterly ba sis by Homebound mana gement a nd adjusted to a new“base lev el” sala ry applica ble to the following qua rter as agreed by Homebound and the underwriter. After the quarterly review, the underwriter was required to s ign a statement agreei ng “to maintai n the . . . goa l leve l [in terms of numbers of

loans reviewe d] that coincide [d]” with the as s ign ed s alar

y. U nd er wr it er s wer e eligib le f

or addit io nal bo nu s es fo r

exce edi ng thei r pr od uct ivi ty tar get s inaddit

io n t o the s alar

y adj us tm ent s , whichwer e pai d ev ery f ou r to fi ve we eks
. I f the und er

wr it er di d n ot mee t the c urr ent

goal level fo r a per io d o f t wo m on th s inon e qu ar te r , his or her s ala ry would “be reduc ed to the applic able l evel [he or s he] is currently underwriting too [si c] .” De pe nd in g o n th e n um be r of d ef ec ts fo un d i n a n u nd er

writ er ’s w ork , the un de rwrit er ’s b a se lev el co ul d “b e r edu cedto [the] nex t l evel do wn u nt il [ th e] d ef ect s ar e un der

con tr ol .” The p ar ti es6

di s pu te whe th er

th es e adj us tm ent s occ urr ed o nly at th e be gin ni ng o f the quar te r whe n a b as e lev el was agree d upon or whether they also occ urred mid-quart er. It is undisputed that in no cir cum s tan ce wo ul d the s alar y of an u nd er wr it er fall b elo w the p r ede te rmi nedamo un t o f $ 48, 000
. Pr oce du r al H is to ry Havey brought this action in the District Court, claiming that defendants, Homebound and it s of fi cer s , f ail ed t o p ay he r

ov er ti me c om pen s ati onas r equ ir ed b y the F LS A andth e Vermo nt Fair Emp lo yme nt

Pr act ice A ct , 21 V.S .A. § 38 4(

b) . I n r es po ns e, d ef

end ant s con te nd ed that

Hav ey was employe d in “a bona fide administrative ca pacity ” and w as therefore exempt fromthe overtime pr ov is io ns of th e F LS A un der

29 U .S. C. § 2 13(a)( 1)
. I n gr ant ing s um mar

y ju dgm ent

to def end ant s , the M agis tr ate J udge agr eedth at H avey was an ad mi ni s tr ati

ve em pl oye e and

was th er ef

or e exe mp t f

r omth e ov er ti me p r ov

is io ns of th e F LS A. See Havey v. Homebound Mortgage, I

nc. , No. 2:03-cv-313, 20 05 WL 17190 61 (D. Vt. July 21, 2005 ). The M agis tr ate J udge ev alu ate d H avey ’s po s it io n u nd er bo thth e “s alar

y- bas is te s t” andth e “d ut

ies te s t. ” He conc luded that the system of compensation applica ble to Have y during the releva nt time period did not run afoul of the “salary-basis t est” because (1) allunderwriters were gua ranteed a sala ry rate of $48,000 rega rdless of their efficiency a nd (2) any involunta ry adjustments bas ed on the number of lo ans pr oce s s ed ap pl

iedonly p r os pec ti

vely. Id
. at *4-5. With respect to r eductions due to quality ( i.e. , loan de fects), the Magistr ate Judge found there wa s no evidence that any qua lity control reductions were ever made ; there was no system in place for tracking de ductions; and eve n if such a
s ys te m exis te d, th es e r edu ct io ns wer e als o p r os pec ti

ve i n n atu r e andcouldnev er br ing an
un der wr it er ’s s alar y be lo w $4 8,0 00 p er

year . Id
. at *5. The Magistrate Judge ruled that the
un der wr it er s als o s ati s fi ed the “ du ti es te s t” bec aus e thei r pr im ary du ti es wer e no nm anu al t as ks
r elat ed t o H om ebo un d’ s bu s in es s andinvo lve d the e xer cis e of di s cr et io n o r in dep end ent

ju dgm ent . Id
. at * 5- 7. This appea l followed. Before our Court, Havey a rgues that Homebound’s compensationH ave y i ni t i al l y s ough t com pens at i on f or work per f

or m ed bef

or e D ecem ber 1, 2002 but ha s l i m i t ed her ap pea l 6 to th e p e r io d o f e m p lo y m e n t a ft e r th a t d a te . 7 s ys te m f or un der wr it er s fails to qu ali fy

her as “em pl oye d i n a b on a f

id e . . . ad mi ni s tr ati

ve . . . capa city” for two reasons. 29 U.S.C. § 213(a)(1). Firs t, Havey contends that the compensation syst em permits deductions within a pay pe riod. She points to s tatements on the job description
s hee t i s s uedby H om ebo un d that if mo r e thanfi

ve i n 1 00 l oan s mad e by

th e un der wr it er con tai n defects, the underwriter’s base level “will be reduce d to [the] next level dow n until [the] defects are
un der con tr ol ” and indic ated that her mana ger informed her that s uch reductions would occ ur immediately. She further contends that Homebound’s compensation policy pe rmitted downward penalty adjustments within the pay period for underperforming underwriters not keeping pace with their expecte d loan volume . Second, Havey argues that the trial court misapplied the “minimum gua r ant ee p lu s extr as ” pr ov is io n o f 2 9 C.F .R. § 541 .11 8( b)
. She contends that Homebound’s twopart salary scheme is of the type not permitted by the regulation. DISCUSSI ON We revi ew adistr

ict court’s grant of s ummary judgment de novo. See , e.g. , Singh v. City of New York , 524 F.3d 361, 366 (2d Cir. 2008). In doing so, we vie w the facts in the light most favorable to th e no n- mo ving pa r ty , whichinthis cas e is Hav ey, a ndr es ol ve all f actual amb igu it ies inher fa vo r . Se e i d . T o av oi d s um mar

y ju dgm ent

ona f actual is s ue, ho weve r , “[

t] he m er e exi s te nce of

a s cin tilla of evidence in support

of the plaintiff’s pos ition will be insuff icient; there must be evide nce on whi ch the j ur

y co ul d r eas on ably f

in d f or th e pl ain ti ff

.” Anderson v. Liberty Lobby, Inc. , 47 7 U. S. 2 42, 252 (1 986). The sole iss ue raised on appe al is whether, a s a matter of law, the system of compensation app lic abl e t o H avey

fr omDec emb er

1, 2 002 un til h er

te rmi nat io n i n N ov emb er

200 3 qu ali fi ed h er 6

as bei ng e mp lo yedina “b on a f id e adminis tr ati

ve capaci ty .” We con clu de that th e t ier ed compensation system at iss ue satisfies the pertinent tests and plaintiff was not entitled to overtime8

compensation. “[B]ecause the FLSA is a remedialact, its exemptions . . . are to be na rrowly construed,” a nd th e bu r denr es ts onth e em pl oye r to pr ov e that

a par ti cul ar

emp lo yee i s exem pt

fr omth e Act ’s
r equ ir eme nt s . Martin v. Malcolm Pirnie, Inc. , 94 9 F .2d611 , 61 4 ( 2dCir . 19 91) . Acc or di ngl y, Ho meb ou ndmu s t e s tab lis h that un der wr it er s wer e pai d o n a s alar

y bas is . We h ave s tat ed that “[ g] en er ally, a n e mp lo ye r th a t ma in tain s the di scr etio n to re du ce a n e mp lo ye e’ s co mp en sa ti ona s a result of the employe e’s hours or the quality of the employe e’s work[ ] may not consider the emp lo yee t o b e pai d o n a s alar y bas is .” Id

. at 6 15. Ho weve r , “e xem pt s tatus will b e de ni ed o nly if th er e is either

. . . an ac tu al p r act

ice o f m aki ng . . . d edu ct

io ns ,” Ahe rn

v. Co unt y o f N ass au , 11 8 F .3d 118 , 12 1 ( 2dCir . 19 97) (al te r ati oninor igi nal ) ( in te rnal qu ot ati onmarks omit te d) , o r , f ail ing that , a “cle ar and particula rized policy —one whic h effectively

communica tes that deductions will be made ins pec if iedcir cum s tan ces .” Auer

, 519 U.S. a t 461 (internal quotation marks omitted). Gi venth e br oads cop e of

th e F LS A andit s im pl eme nt ing r egulat

io ns , whichr eachall emp lo yees invo lve d in i nt er s tat e co mm er ce, see 29 U.S.C . §§ 20 2(a)-(b), 207(a)(1), the regulations provide only ge neral guida nce to ac commodate the va rying needs of employe rs and employ ees in a di ver s e andvar

iednat io nal eco no my. Cf. Acs v. Detroit Edison Co. , 44 4 F .3d763 , 77 0 ( 6th Ci r . 20 06) (“ [P lai nt if fs hav e no t] s ho wn that

th e F air La bo r St and ar ds Act

gen er ally cir cum s cr

ib es an
em pl oy er ’s a uth ori ty

to c ho ose the me ch a ni cs o f aco mp en sa ti onsyst em tha t sui ts i ts bu sin ess
nee ds .”) . T he r egulat

io ns s pec if

y that a s alar iedemp lo yee m us t b e pai d a f ixe d an d p r ede te rmi ned
amo un t, see 29 C.F.R . § 541.1 18(b) (“minimum guarantee plus extras” regulation), but do not prescribe when or how frequently this fixed element of compensation ma y be de termined. Indeed, th e agen cy’s us e of

th e wo r d “p r ede te r mi ned ” t o d es cr ib e the s alar

y r equ ir eme nt in di cat es only that this element of an employe e’s compensation must be both fixed and determined prior to the period inwhi ch i t w ouldapp ly. T he r egulat io ns als o p r ohib it

“de du ct io ns . . . mad e f

or ti me whenwor k is
no t avail abl e” “i f the e mp lo yee i s r eady , willi ng, andabl e t o wo r k.” Id
. § 541.11 8(a)(1). Finally, theTo s uppor t her con t ent i on, H ave y s ubm i t t ed cer t ai n of H om ebound’ s pa yr ol l an d f i nan ci al r ecor ds , but t he 7 r ecor ds con cer ni ng tw o of t he unn am ed em pl oyee s i ndi cat e t hatt he r educt i ons occ urr ed at t he f i r s t pa y pe r i od af

t er t he end of quar t er , con s i s t ent wi t h t he c oncl us i on t hatt hes e r educt i ons were pr os pecti ve. The r ecor ds al s o s how t hatt he t h i r d e mp l o y e e e x p e r i e n c e d a s i mi l a r r e d u c t i o n r e f l e c t e d i n t h e f

i r s t p a y p e r i o d a f

t e r t h e e n d o f

t h e q u a r t e r . T h e s a me e m p lo y e e th e n sa w a n in tr a -q u a r te r in c r e a se a ss o c ia te d w ith a b o n u s r e c e iv e d a ft e r th e sta r t o f th e q u a r te r . H a v e y ’s f or m er co- pl ai nt i ff

t es t i f i ed t hatt he J ul y 20 03 s al ar y r educt i on was ba s ed on h er des i r e t o ha ve a r educed s chedul e i n t he su m m er m on t hs. T he r educt i on o ccur r ed as pa r t of an ag r eem ent at t he e nd of a quar t er con cer ni ng her pr os pecti ve sa la r y fo r th e n e x t q u a r te r . A c c o r d in g ly , th e r e is n o e v id e n c e o f a n in tr a -q u a r te r ly p a y re d u c tio n . 9 r egulat io ns pr os cr

ib e co mp ens ati ons ys te ms des ign ed t o “c ir cumven t[ ]” th e “s alar

y- bas is te s t. ” Id

. § 541 .11 8( b)
. A. Pay adj ustments within a pa y period Hav ey dis pu te s Ho meb ou nd ’s as s er ti onth at p ay level s wer e adj us te d o nly at th e en d o f e ach quarter on a prospective basis. According to Have y, Homebound reduce d pay in the middle of the qu ar te r fo r un der wr it er s who s e wo r k h ad anexce s s ive nu mb er of err or s or who faile d t o m eet

th eir pr od uct ivi ty tar get s . As we s tat ed ab ov e, o nce th e f ixe d minim umpo r ti onof

an em pl oye e’s
co mp en sa ti onha s be en de te rmi ne d, a ny re du ctio n b el owtha t se t a mo un t w ould , i n m ost cir cum s tan ces , vi ol ate th e “s alar y- bas is te s t. ” See 29 C. F. R. § 5 41. 118 (a) , see pag e 4 ante (text of pr ov is io n) ; se e al

so Ma rt in , 949 F.2d at 615 (“[I]t is clear that, under the strict definition contained in § 541 .11 8(a) thes e em pl oye es [wh os e pay was do ckedfo r

par t- day a bs enc es] m ay no t b e co ns id er ed salaried.”). Beca use Homeland dete rmined salary leve ls on a quarterly basis, an actua l practice or a clea r andpar ti cul ar

izedpo lic y that

permi tt ed i ntr a- qu ar te rly r edu ct io ns bel ow the p r ede te rmi ned
amo un t o n the b as is of

qu ant it y or qu ali ty of work p er fo rmedwouldr end er pl ain ti ff a no n- s alar

ied emp lo yee. Havey has failed to present any evidence of actual intra-quarterly deduc tions. B efore the M agis tr ate J udge, s he p r es ent ed evid enc e of pay a dj us tm ent s fo r

th r ee u nn ame d u nd er

wr it er s in Ja nu a ry 20 04 a nd for h erform erco -pl ain ti ff i n Ju ly 20 03 . H ow ev er , e a ch of t he se r ed uc ti on s wa s a pros pective quarterly pay a djustment. 7 La cki ng e xam pl es of

actual mi d- qu ar te r

r edu ct io ns , H avey

was r equ ir ed t o s ho w that10

Ho meb ou ndhada “cl ear

andpar ti cul ar

izedpo lic y” o f s uchr edu ct io ns . Auer

, 51 9 U. S. a t 4 61. Hav ey h as argue d that

s ucha po lic y exi s ts with r es pec t t o r edu ct io ns inpay d ue t o qual

it y err or s . T he j ob des cr

ip ti ons hee t i ndicat ed that an u nd er wr it er s ’ p ay co ul d b e r edu ced“t o the n ext lev el do wn ” i f th er e w a s evid en ce of qua li ty de fe ct s ex ce ed in g f

iv e p er10 0 fo ld er s, b ut d id no t di scu ss whe n thi s r edu ct

io n will o ccu r . H avey

con te nd s th at thi s r edu ct

io n co ul d o ccu r

mi d- qu ar te r , while Homebound argues that this is impos sible beca use a mecha nism was never develope d to implement this policy. The Magistrate Judge did not decide this disputed fact, beca use as he rightly noted, “Eve n assuming the policy wa s in place, how ever, any reductions were prospective, and w ere to ef fi cien cy p ay only, nev er

to th e bas e s alar

y of $48 ,00 0 p er

year .” Havey , 20 05 WL

171 906 1, a t * 5. No matte r

ho w ma ny qual

it y err or s wer e co mmit te d, Hav ey h as faile d t o s ho w that un der Homebound’s policy, he r pay could be reduced bel ow her predetermined gua ranteed salary of $48 ,00 0. Give n the n atur e of her du ti es , the f

act th at h er ov er all com pen s ati onfo r

th at q uar te r
couldbe d ecr eas ed d ue t o qual it y err or s do es no t r end er

Hav ey a n on -s alar

iedemp lo yee i f, un der the employe r’s policy, the adjustments do not aff ect a “ predetermined amount” portion of salary
exce edi ng the r egulat or

y thr es ho ldr ate andonly i mp act s th e s ize o f the i ncr eas e abo ve thi s amo un t. See 29 C. F. R. § 5 41. 118 (a) (n ot ing that any e mp lo yee wh o “r egular ly r ecei ves eachpay p er

io d . . . a predetermined amount constituting all or part of his compensation, which amount is not subject to
r edu ct io n b ecau s e of

var iat io ns inth e qu ali ty

or qu ant it y of th e wo r k p er fo rmed ” is con s id er ed an emp lo yee p aid“ona s alar

y bas is ”)
. B
. Ho meb ou nd ’s tw o- par t s alar y s che me i nv ol

ving a “minim umgua r ant ee p lu s extr as ” Havey next claims that Homebound’s s ala ry scheme, whic h adjusts s ala ries each qua rter on a pr os pec ti ve b as is , is aki n t o the e xam pl e of a no n- s alar

y s ys te m p r ov

id ed i n 2 9 C.F .R. § 541 .11 8( b)
. T hat is , s he ar gue s th at altho ughan u nd er wr it er is gua r ant eeda mi ni mu m co mp ens ati onof $48 ,00 0 per year , any qu ar te rly d own

war d ad ju s tm ent

of a “b as e lev el” s alar

y abo ve $ 48, 000 per

year bas ed on the quantity or quality of loa ns is still a “reduction bec ause of variations in the quality or quantity11

of th e wo r k p er fo r med ” pr ohib it ed b y 29 C.F .R. § 541 .11 8(a). I n s up po r t o f h er clai m, Hav ey ci te s to th e exa mp le o f ano n- s alar y s che me g

ive n i n 2 9 C.F .R. § 541 .11 8( b) whi ch s tat es : “The test of

payme nt on a salary ba sis will not be me t . . . if the salary is divided into two parts f

or the purpos e of circumventing the requireme nt of payment ‘on a sala ry basis.’ For

example , a sala ry of $200 in ea ch we ek in whi ch any work is performed, andan ad di ti on al $5 0 whichis mad e s ub ject to ded uct io ns whi ch ar e no t p ermi tt ed [u nd er 29 C. F. R. § 5 41. 118 (a) ]. ” A two-part salary scheme in which employ ees receive a “predete rmined amount,” plus, on a quarterly prospective basis, an additiona l portion s ubject to deduc tions f or quality errors does not violate the “salary-basis test ” unless the sys tem is designed to circumvent the requirements of the FL SA. See 29 C.F.R . § 541.1 18(b). There is an import ant difference betw een the e xample of anons alar y s che me p r ov

id ed i n 2 9 C.F .R. § 541 .11 8( b) andHo meb ou nd ’s s alar y s che me. Pu r s uan t t o 2 9 C.F .R. § 541 .2(e) (2

), an i ndivi du al wh o earns mo r e than$25 0 p er week andis engagedpr

im ar ily in
wo rk d ire ctly

re la te d to ma na ge me nt p olic ie s or g en er al b usi ne ss op er a ti on s “re quiri ng the ex er ci se of discretion and independent judgment” qualifie s as one who is employed in a“bona fide administrative capa city” a nd this is not subject to the overtime provis ions of the FLSA. In the
exam pl e gi

venby the r egulat

io n quo te d ab ov e of

a no n- qu ali fy

ing di vid ed s alar

y, the p r ede te rmi ned amount of salary guarantee d to an employe e is only $200 a nd therefore fails to conform to the specification of a “ rate of not less than $250 pe r week.” The example given il lustr ates an effort to “ci r cumven t[

] the r equ ir eme nt [s]” by allo wing de du ct io n f r oma s alar

y of $25 0 p er week , which would drop the salary belowthe minimum threshold f or the test . By contrast, Homebound’s twopart salary scheme gua rantees the underwriter a predetermined amount we ll in exc ess of the regulatory threshold. The defendant’s two-part s ala ry scheme wa s not des igned for the purpos e of cir cumven ti ng the r equ

ir eme nt s of

th e F LS A. Rather , it

was des ign ed t o gi

ve u nd er wr it er s an incentive to take on la rger quantities of work, while maintaining standards of care so that they were
no t r ecei ving ad di ti on al p ay f

or s ho ddy wo r k that

nee dedto be d on e ov er . Havey further argues that once a n employe r and employe e enter into an e mploymentIn a sim ila r c o n te x t, th e T e n th C irc u it fo u n d th a t q u a r te r ly , p r o sp e c tiv e a d ju stm e n ts b a se d o n th e re d u c tio n in 8
w orkl oad as s oci at ed w i t h t he bu s i ness need s of t he em pl oyer d i d not vi ol at e t he “sal ary- basi s t est . ” T h e T e n th C irc u it r e a so n e d th a t: A l t houg h [ 29 C. F. R
. ] § 541. 118 does notdef i ne “ pr edet er m i ned am ount , ” t he n at ura l r eadi ng of t he t er m i s t hat i t r ef er s t o t he a m ount pr evi ous l y a gr eed on f or t he p er i od f

or whi ch t he s al ar y i s t o be pa i d, notan am ount t ha t ha d be en agre ed on for som e e arli er p eriod
. N othing i n the l an gu ag e o f t he regu l ati on sug ge st s a co ntrary r e a d in g . S e c tio n 5 4 1 .1 1 8 p r o h ib its v a r io u s d e d u c tio n s f r o m th e c o n tr a c tu a l sa la r y , b u t it c o n ta in s n o e x p lic it re q u ire m e n t t h a t t h e sa lary se t ( “ d e ter m ine d ” ) fo r o n e p a y p e rio d b e c o n ti n u e d to th e n e x t. In r eWal -M art S to re s , Inc. , 3 9 5 F
. 3 d 1 1 7 7 , 1 1 8 4 (10 th C ir. 2 0 0 5 ). W hi l e we do not ha ve t he b enef i t of t he v i ews of

t he D epa r t m ent of

Labor i n t hi s pa r t i cul ar ca s e, our hol di ng 9 is c o n sis te n t w ith th e p o sitio n o f th e D e p a r tm e n t in c e r ta in o f its o p in io n le tte r s s u b m itte d in sim ila r c a se s. S ee Wa l -M a rt S to re s , Inc. , 395 F. 3d at 1185

- 86 ( col l ect i ng an d ana l yz i ng D O L opi ni on l et t er s )
. I n on e of t hes e l et t er s , t he D epa r t m ent ex pl a i ne d t ha t i t h a s “ co ns i s t en t l y t a ke n t he p os i t i on t ha t a b on a f i de r edu cti on i n a n em pl oy ee ’ s s a l a r y doe s n otp r ec l ude sa la r y -b a sis p a y m e n t a s lo n g a s th e re d u c tio n is n o t d e sig n e d to c irc u m v e n t th e re q u ire m e n t th a t th e e m p lo y e e s b e p a id t hei r f ul l s al ar y i n a ny week i n whi ch t hey per f or m work. ” U
. S. D epa r t m ent of Labor , W ag e & H our D i v. , O pi ni on L et t er dat ed Februa r y 23 , 1998 , 1998 W L 8526 96. 12 agreeme nt that sets a “ba se level” salary, there ca n be no reduction belowthat base leve l. Such a
r igi d rul e f in ds no s up po r t i n the t ext of th e F LS A or

it s r egulat io ns . Hav ey’s argum ent

might hav e 8 val idit y if th e s alar y s che me f

ail ed t o p r ov

id e an i nv io lab le an d s uf

fi cien t minim umpr ede te rmi ned
amo un t. Ho meb ou nd , h owever , gu ar ant eedto Hav ey a p r ede te rmi nedmi ni mu m o f $ 48, 000 , which tak en t oge th er

with h er adminis tr ati

ve d ut ies , s ati s fi es th e t es ts . The ability of an e mployer, ac ting unilaterally or as part of a voluntary agree ment with its employe e, to modify an e mployment agreement is not without limits . Whe re the practice of pros pective ly cha nging sala ries occurs s o as to render the s ala ry a “sham—the functional e quivale nt of ho ur ly wages ,” id. at 1 179 , it

wouldof fe ndth e “s alar

y- bas is te s t. ” See 29 C. F. R. § 5 41. 118 (b). Ho meb ou nd ’s qu ar te rly p r os pec ti ve ad ju s tm ent

of a “b as e lev el, ” alw ays mat chi ng o r exce edi ng a predetermined amount of $48,000, could not be considered asham. 9 Un der it s ti er ed c om pen s ati ons ys te m, Ho meb oundandan i ndivi du al u nd er wr it er pr os pec ti vely s et a “b as e lev el” s alar

y eachqu ar te r , al

ways mat chi ng o r

exce edi ng apr ede te rmi ned $48 ,00 0, a ndpo te nt

ially r eaching a high er

lev el b as ed o n the u nd er

wr it er ’s agr eem ent

to pr oce s s an elevate d v olum e of

lo ans du r ing a gi venqu ar te r

while m ain tai ni ng acer tai n qual it y lev el. An underwriter would receive the predetermined portion of her pay (equival ent to $48,000 pe r year) for13

the follo wi ng

qu a rte r whe the r or n ot sh e m etthe pro du ctiv ity o r qu ali ty

ta rge ts. Any c hange s to the “base lev el” for the subs equent quarter would then be agreed upon by the employe r and the underwriter. (Indeed, there is evidence that some of thes e cha nges were prompted by the
un der wr it er s th ems elv es whe n they want ed t o wo r k le s s .) T he “ bas e lev el, ” an d the e mp lo yee’ s pay, ho weve r was nev er

bel ow the p r ede te r mi ned$48 ,00 0 r ate . Acc or di ngl y, we con clu de, giv en an
un der wr it er ’s du ti es , that

Ho meb ou nd ’s pr act

ice o f q uar te rly, pr os pec ti

ve ad ju s tm ent s to an underwriter’s “base level,” ba sed in part on the projected amount of work undertaken for the quarter but never falling below$48,000, does not give the underwriter an entitleme nt to overtime pay. CONCLUSI ON For t he fore go in g re a son s, the ju dgme nt o f th e D ist ric t C ou rt i s AF F IRME D
.