Opinion ID: 1468675
Heading Depth: 3
Heading Rank: 4

Heading: The pre-August 23, 2004 period

Text: Plaintiffs assert that the district court erred by applying Auer 's subject-to-reduction test to the pre-August 23, 2004 claim period. They argue that the district court improperly concluded that because Life Time Fitness made no deductions from January 1, 2004 through August 23, 2004, there was neither an actual practice nor a policy creating a significant likelihood of deductions. (Pls.' Br. at 48-57.) Plaintiffs claim that the district court erred in two distinct ways: First it was error to bifurcate the entire time period by the date of the regulation. ... Second, the District Court improperly considered the fact that no actual deductions were made ... not to determine there was no actual practice, but that there was not a policy [creating a significant likelihood of deductions]. Id. at 45-46. As previously discussed, Plaintiffs are incorrect that the DOL's new regulation does not bifurcate the class period. However, Plaintiffs are correct that the district court erred in determining that Plaintiffs' salaries were not subject to deduction under Auer. As explained above, the proper test for analyzing the pre-August 23, 2004 period is set out in Auer. The Auer test asks if there is either an actual practice of making such deductions or an employment policy that creates a `significant likelihood' of such deductions. 519 U.S. at 461, 117 S.Ct. 905 (emphasis added). We examine both sections of the Auer test below.
Plaintiffs argue that Life Time Fitness's compensation plan had an actual practice of deductions during the pre-August 23, 2004 period. Plaintiffs contend that, in analyzing the pre-August 23, 2004 period, that the district court should have looked at the number of deductions and the number of employees affected over the entire time period. See Takacs, 246 F.3d at 781 (concluding that an actual practice of deductions existed where seven members of management (including three plaintiffs) faced pay reductions over the course of a year and a half) (other citations omitted). But this argument simply rehashes an old one. The analysis period for actual deductions is determined by the promulgation of the DOL's new rules, and it is undisputed that Life Time Fitness made no actual deductions between January 1, 2004 and August 23, 2004. Thus, the district court properly found there was no actual practice of deductions under Auer before August 23, 2004.
Plaintiffs also argue that Life Time Fitness's 2004 corporate bonus-pay plan created a significant likelihood of deductions. They argue that the district court improperly failed to find that the bonus-pay plan created a significant likelihood of improper deductions. In this instance, Plaintiffs are correct. The district court looked to Whisman v. Ford Motor Co., 157 Fed.Appx. 792 (6th Cir.2005), for support of the proposition that the possibility of salary deductions alone is not enough as it is not the same thing as working under a policy that makes it significantly likely that deductions will occur. Baden-Winterwood, 2007 U.S. Dist. LEXIS 49777, at , 2007 WL 2029066, at . In Whisman, a company executive issued a memorandum warning of possible pay deductions based on audit reports that were being generated as employees entered and exited the building. 157 Fed.Appx. at 795. Despite the threat of deduction, there was no evidence that the company routinely monitored the employees or that such deductions were ever made, id., and this Court concluded that there was no more than a theoretical possibility that deductions would occur. Id. at 798. Relying on Whisman, the district court determined that Life Time Fitness's policy reserved the right to make salary deductions as a theoretical possibility but did not rise to the level of providing clear notice that Plaintiffs' pay was subject to deduction. Baden-Winterwood, 2007 U.S. Dist. LEXIS 49777, at , 2007 WL 2029066, at . Thus, the district court determined that Life Time Fitness's policy did not establish a significant likelihood that deductions would occur. Id. The district court erred in concluding that there was not enough evidence to suggest Life Time Fitness intended to enforce its permissive policy. The Auer subject-to-reduction test requires only a clear and particularized policyone which `effectively communicates' that deductions will be made in specified circumstances. 519 U.S. at 461, 117 S.Ct. 905. The test does not require a formulaic set of magic words indicating that the test is mandatory. If employers can avoid overtime liability by crafting payment policies with permissive ( may ) language instead of mandatory ( will ) language, then the purposes of the FLSA would clearly be frustrated. Rather, as set out by this Court in Takacs and Whisman, Auer 's test is better satisfied by a policy that demonstrates that deductions are more than a mere theoretical possibility and that permit[s] disciplinary or other deductions in pay `as a practical matter.' 246 F.3d at 781. Here, Life Time Fitness's pre-August 23, 2004 compensation plan subjected employees' pay to reductions under the Auer test. The compensation plan at issue does more than create a theoretical possibility of deduction; instead it plainly lays out a policy under which Life Time Fitness would make future deductions. First, as in Takacs, Life Time Fitness's compensation plan targeted specific members of management. Second, the policy set out a particularized formula whereby Plaintiffs' pay would be in jeopardy: If, during the year, YTD EBITDA Before Occupany $ performance drops below the minimum performance level of 80% of plan, and payments have been made in previous months, the [Life Time Fitness] reserves the right to reclaim the amount of previous payments by reducing future semi-monthly guarantee payments. (Stip. 5, JA 50.) Third, unlike in Whisman, Life Time Fitness took affirmative steps to demonstrate that the pay-deduction plan would be enforced: Life Time Fitness organized a Performance Pay Committee, which oversaw the administration of the corporate bonus plans, monitored performance levels, and ultimately determined when deductions would be made. Moreover, at least one company official testified that Life Fitness employees were keenly aware that Life Time Fitness would take deductions from their guaranteed pay if an employees' performance dropped below certain benchmarks. Life Time Fitness's Compensation and Human Resource Information Systems manager provided the following testimony: Q. ... Prior to 2005 fall, these employees had no idea that they were subject to this deduction, did they? A. I don't know that. I would disagree with that. Q. Why would you disagree with that? A. Well, it's on the comp plan. Q. Their performance  or their compensation plan? A. Well, it says right there on the front page. Q. And you're holding which exhibit? A. 6. Q. And did they receive those plans? A. Oh, yeah. Q. Well, those  wouldn't you agree that those plans are very ambiguous, that I could read it and say, Well, I'm not going to be subject to that; that's not too clear? A. I would disagree with that. Q. Would you say that it's very clear that under that plan, that if there was an overpayment, it wasn't an income; it was definite that you're subject to this deduction? A. Yes. (Deposition of Derrick Boaz 49-50, JA 198-99.) Thus, it was clear to the Plaintiffs, and those in charge of compensation, that pay was subject to deduction under the compensation plans at issue here. Lastly, Life Time Fitness did indeed take actual deductions from Plaintiffs' salaries not long after employees stopped meeting their performance goals. While these deductions fell outside the time period governed by Auer (January 1, 2004 through August 23, 2004), there is no reason that this Court cannot consider those later deductions to be relevant in analyzing whether the compensation plan creates a significant likelihood of deductions. We find the actual deductions from Plaintiffs guaranteed pay in 2005 support the conclusion that Plaintiffs pay was subject to reduction under Life Time Fitness's 2004 corporate bonus-pay plan. For the above reasons, this Court reverses the district court and concludes that Life Time Fitness's compensation plan satisfies Auer 's subject-to-reduction test for the period January 1, 2004 through August 23, 2004. Therefore, for this time period, Plaintiffs were not exempt from the FLSA's overtime requirements, and Life Time Fitness is liable for overtime for all Plaintiffs subject to a corporate bonus-pay plan from January 1, 2004 through August 23, 2004.