Opinion ID: 2994068
Heading Depth: 3
Heading Rank: 1

Heading: The Officers Come within the

Text: Executive Exemption State and municipal employers must abide by the FLSA, 29 U.S.C. sec. 201 et seq., just as private employers do. See Garcia v. San Antonio Metro. Transit Auth., 469 U.S. 528 (1985). Under the FLSA, employers must pay their employees at least one and a half times their regular wage for the number of hours worked that exceed forty in a given week. 29 U.S.C. sec. 207(a)(1). However, the statute exempts employees whose duties fit within one of the three statutory exemptions-- executive, administrative, or professional--from this requirement. The Secretary of Labor has the authority to define the scope of this section and the exemptions. See 29 U.S.C. sec. 213(a)(1). Thus, the Secretary’s regulations have the force and effect of law. Cf. Batterton v. Francis, 432 U.S. 416, 425 n.9 (1977). The Secretary has defined a long test and a short test to determine whether an employee falls within each exemption. See, e.g., 29 U.S.C. secs. 541.1(a)-(e) & .119 (providing long and short test for executive exemption). Under these tests, the employer bears the burden of establishing whether an employee fits within an exemption. See Corning Glass Works v. Brennan, 417 U.S. 188, 196-97 (1974). The short test may be used only if the employee is compensated on a salary or fee basis at a rate of not less than $250 per week exclusive [of] board, lodging, or other facilities. 29 C.F.R. sec. 541.119, .214, & .315. The SOS officials claim that the police officers are not entitled to overtime pay because they qualify for the executive exemption. Neither party disputes that the officers’ yearly salaries meet the requirements for the short test, so we focus our attention accordingly. In order to demonstrate that an employee comes within the short test of the executive exemption, the employer must show that: (1) the employee is compensated on a salary basis; (2) the employee’s primary duty consists of management responsibilities; and (3) the employee customarily and regularly supervises two or more other employees./5 29 C.F.R. sec. 541.119(a); see also Murray v. Stuckey’s, Inc., 939 F.2d 614, 617 (8th Cir. 1991). We can dispense with two of the three factors with brief discussion. The officers do not contest that they supervised two or more employees during the relevant time-frame and, therefore, meet the supervisory aspect of the short test. On appeal, they raise for the first time an issue regarding whether their duties are managerial in nature. The well-established rule in this Circuit is that a plaintiff waives the right to argue an issue on appeal if she fails to raise the issue before a lower court. Robyns v. Reliance Standard Life Ins. Co., 130 F.3d 1231, 1238 (7th Cir. 1997); see also Huntzinger v. Hastings Mutual Ins. Co., 143 F.3d 302, 307 (7th Cir. 1998) ([I]t is axiomatic that an issue not first presented to the district court may not be raised before the appellate court as a ground for reversal. (quoting Christmas v. Sanders, 759 F.2d 1284, 1291 (7th Cir. 1985)). A party opposing a motion for summary judgment must raise any genuine material factual disputes to the district court or risk losing. See Vance v. Peters, 97 F.3d 987, 991 (7th Cir. 1996); Waldridge v. American Hoechst Corp., 24 F.3d 918, 920 (7th Cir. 1994); Fed. R. Civ. P. 56(e). While it is true that the employer bears the burden of establishing that an employee meets each requirement of the exemption, this burden does not relieve the officers from their responsibility of raising the fact that the SOS officials failed to establish their burden before the district court. Before the district court, Plaintiffs did not dispute Defendants’ statements in Defendants’ Motion for Summary Judgment or those in Defendants’ Reply Memorandum in Support of Motion for Summary Judgment that the police officers supervised two to twenty-three subordinates and were responsible for making assignment[s], determining how assignments will be carried out, setting work schedules, reporting directly to the next superior officers, attending management meetings, etc. Because Plaintiffs failed to contest these statements of fact in a timely manner before the district court, they waived their right to raise this issue before us. The remaining thrust of Plaintiffs’ appeal is aimed at the district court’s determination that the officers were salaried employees under the executive exemption short test despite the Accident, Fitness, and Disciplinary Policies. Plaintiffs claim that the Accident, Fitness, and Disciplinary Policies created a significant likelihood that they would be subject to impermissible deductions in pay. They also argue that the five instances in which SOS improperly subjected employees to deductions in their pay as part of disciplinary actions demonstrate that SOS actually made impermissible deductions. Thus, they believe the district court incorrectly granted the motion for summary judgment. The regulations explain that an employee is deemed to be on a salary basis: if under his employment agreement he regularly receives each pay period on a weekly, or less frequent basis, 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. 29 C.F.R. sec. 541.118(a). This requirement, commonly referred to as the no-docking rule, prohibits employers from deducting an employee’s pay based on partial day absences, violations of rules, and other indicators of the quantity or quality of an employee’s work. See Bankston v. Illinois, 60 F.3d 1249, 1253 (7th Cir. 1995). However, [p]enalties imposed in good faith for infractions of safety rules of major significance will not affect the employee’s salaried status. 29 C.F.R. sec. 541.118(a)(5). The officers in this case contend that the SOS officials subjected them to improper pay deductions based on the policies and practices found in the Accident, Fitness, and Disciplinary Policies. In Auer v. Robbins, the Supreme Court settled the conflict growing between the circuits regarding the legal standard by which courts should determine whether an employee is subject to impermissible pay deductions. 117 S. Ct. at 910-11. In deferring to the Secretary’s interpretation of the salary basis test presented in the Secretary’s amicus brief, the Court held that an employer cannot claim exempt status for an employee and find shelter from liability under the FLSA, if its employees are covered by a policy that permits disciplinary or other deductions in pay ’as a practical matter.’ 117 S. Ct. at 911 (summarizing the Secretary’s interpretation of the regulations). The Court also relied upon the Secretary’s amicus brief to explain this standard further: That standard is met . . . if there is either an actual practice of making such deductions or an employment policy that creates a significant likelihood of such deductions. The Secretary’s approach rejects a wooden requirement of actual deductions, but in their absence it requires a clear and particularized policy--one which effectively communicates that deductions will be made in specified circumstances. This avoids the imposition of massive and unanticipated overtime liability . . . in situations in which a vague or broadly worded policy is nominally applicable to a wide range of personnel but is not significantly likely to be invoked against salaried employees. Id. Our previous opinion in Bankston comports with the interpretation in Auer that the no-docking rule does not require proof that a deduction actually has been made from an employee’s salary, 60 F.3d at 1253, but the Court in Auer established a higher bar than we had. We had previously concluded that it is enough that [a deduction] could have been made for this regulation to remove an employee from exempt status. Id. (emphasis added). We reasoned that employees who were subject to policies that created a theoretical possibility of improper disciplinary deductions from the exemptions did not qualify as salary basis employees. In Auer, the Supreme Court clarified that a theoretical possibility of an impermissible pay deduction is not enough to demonstrate that an employee does not qualify under the salary basis prong of the exemption. 117 S. Ct. at 911. Rather, absent an actual practice, the employer must subject employees to a policy that creates the significant likelihood of impermissible pay deductions in order to remove the employee from salary basis status. Id. A policy that falls within the scope of this category is one which ’effectively communicates’ that deductions will be made in specified circumstances. Id. Thus, under Auer, an employer whose policy creates a significant likelihood of impermissible deductions or who actually engages in practices of making impermissible deductions is considered to be impermissibly docking an employee’s pay.
a Significant Likelihood of Improper Salary Deductions We agree with the district court’s conclusion that Plaintiffs did not face a significant likelihood of pay deductions. The officers present a factual situation similar to that posed in Auer, in which the Supreme Court addressed the issue of whether St. Louis police sergeants and a police lieutenant were subject to disciplinary deductions so as to disqualify them from the executive exemption. Id. at 910. The Court concluded that the policy upon which the officers relied to establish their claims did not create a significant likelihood that they would be subject to impermissible deductions even though the policy, as described in the Police Manual, listed various rule violations and specified the range of penalties for each. Id. at 911. It found that the manual did not effectively communicate that the officers would be subject to impermissible pay deductions because the manual applied to employees paid on a salary basis, as well as those who were not. Id. The Court stated: [T]he manual does not effectively communicate that pay deductions are an anticipated form of punishment for employees in petitioners’ category, since it is perfectly possible to give full effect to every aspect of the manual without drawing any inference of that sort. If the statement of available penalties applied solely to petitioners, matters would be different; but since it applies both to petitioners and to employees who are unquestionably not paid on a salary basis, the expressed availability of disciplinary deductions may have reference only to the latter. No clear inference can be drawn as to the likelihood of a sanction’s being applied to employees such as petitioners. Id. at 911-12; see also Balgowan v. New Jersey, 115 F.3d 214, 219 (3d Cir. 1997) (finding that the State’s broad-based policy fails to ’effectively communicate’ that pay deductions are an anticipated form of punishment for the employees because it applied to all employees, not just those who maintained the status of salary basis.); Carpenter v. City & County of Denver, 115 F.3d 765, 767 (10th Cir. 1997) (finding that the City Charter applies to all members of the classified service, and, thus, does not ’effectively communicate’ that the statement of available penalties applies only to plaintiffs.). The policies upon which the officers rely similarly apply to salary basis and non-salary basis employees of the police department, in the case of the Accident and Fitness Policies, and of the SOS, in the case of the Disciplinary Policy. The officers do not demonstrate that SOS communicated through these policies, its employment manuals, or other forums that it would subject salary basis employees, such as the officers, to the relevant deductions in these policies. Thus, unlike the employees in Ahern v. County of Nassau, 118 F.3d 118, 121-22 (2d Cir. 1997), who established that the employment manual stated that salary basis employees were subject to the deductions, but who failed to demonstrate that the deductions would be made in specific instances, the officers in the case before us did not show that the broad-based policies subjected them, along with the non-salary basis employees, to deductions that would be impermissible under the FLSA. The manner in which SOS applied the policies also makes it significantly unlikely that salary basis employees would be subject to impermissible deductions. In addition to its broad application of the policy to all employees regardless of their salary status, SOS implemented a review practice to ensure that the policies would not impact salary basis employees in a way that would violate the FLSA. We agree with the Ninth Circuit’s conclusion that a similar review process conducted by city managers in which all disciplinary suspensions were examined to ensure compliance with applicable laws, including the FLSA, see Stanley v. City of Tracy, 120 F.3d 179, 184 (9th Cir. 1997), makes it improbable that the policies create a significant likelihood of impermissible deductions. Because the officers failed to demonstrate that the Accident, Fitness, and Disciplinary Policies effectively communicated that they would be subject to deductions in specified circumstances, we conclude that the policies did not create a significant likelihood that the officers would be subject to improper deductions.
Engage in the Actual Practice of Improper Salary Deductions Plaintiffs’ alternative charge that the SOS officials engaged in the actual practice of improper pay deductions with respect to some of the officers also falls short of the mark. They contend that the SOS issued five suspensions that were impermissible under the FLSA. The SOS does not deny that it issued the suspensions, but it also points out that it notified the officers of the improper disciplinary actions and told them that they would be compensated for the deductions. While it is true that the practice of actually suspending sergeants and lieutenants without pay for less than one week would raise an issue that could defeat a motion for summary judgment, see Auer, 117 S. Ct. at 911, the district court found that these five isolated incidents did not amount to an actual practice and that even if they did rise to that level, the defendants had preserved the officers’ status as exempt employees by compensating the officers for the improper deduction in accordance with the FLSA’s window of correction. Plaintiffs argue that the undisputed actual incidents in which the SOS officials improperly deducted the pay of some sergeants and lieutenants as part of disciplinary actions demonstrate that the SOS officials engaged in the actual practice of making impermissible deductions. Like the district court, we find Plaintiffs’ argument unpersuasive. In Auer, the Supreme Court concluded that a one-time deduction under unusual circumstances did not remove an employee from exempt status. Id. Similarly, the Tenth Circuit concluded that two cases of improper deductions under unusual circumstances also did not remove an employee from exempt status. See Carpenter, 115 F.3d at 767. The Eleventh Circuit has found that six disciplinary suspensions would not prevent an employer from availing itself of the window of correction. See Davis v. City of Hollywood, 120 F.3d 1178, 1180 (11th Cir. 1997)./7 Plaintiffs base their claims that the five suspensions constitute an actual practice based on a record that persuades us to conclude otherwise. The general practice of SOS is to limit officer suspensions to full week periods, which are permissible forms of disciplinary actions for salary basis employees. No split week suspensions have been issued since 1990. SOS updated the Disciplinary Policy manual to reflect this practice as well in 1993. Individual examination of the five suspensions demonstrates that they occurred under unusual circumstances. Juliano’s suspension occurred before any of the defendants took office. Those suspensions that occurred in 1991 were also unusual in that Pecoraro, one of the individuals who must approve suspensions, was absent. These instances simply do not demonstrate that improper deductions occurred with some frequency or under circumstances that were anything but unusual. Even if these five incidents rose to the level of frequent and, thus, constituted an actual practice by the SOS officials, the officers would still be exempt from the FLSA because the SOS officials availed themselves of the regulatory window of correction. The Secretary provided employers with a window of correction to permit them to retain the exempt status of their employees if they inadvertently made deductions inconsistent with the salary basis test. The regulations provide that when 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. 29 C.F.R. sec. 541.118(a)(6); see also Auer, 117 S. Ct. at 912. The employer does not have to reimburse the employee immediately, so long as it conveys its genuine intent to compensate the employee for the improper deduction. See 29 C.F.R. sec. 541.118(a)(6). In November 1997, Prose sent the officers who had been suspended improperly a letter notifying them of the impermissible disciplinary action and stating that SOS would reimburse them for the improper deductions. Plaintiffs have not cast doubt upon the sincerity of SOS’s attempts to redress its previous wrongs. Thus, the SOS officials fall within the protection offered by the window of correction, and the employees cannot discard their exempt status based on these isolated incidents. Because the Accident, Fitness, and Disciplinary Policies do not create the significant likelihood that Plaintiffs would be subject to impermissible deductions and because SOS did not engage in the actual practice of imposing improper deductions, the SOS officials met their burden of establishing that Plaintiffs are employed on a salaried basis. And, because Plaintiffs concede they engaged in supervisory duties and waived their right to dispute whether their duties are managerial in nature, we conclude that the SOS officials established that Plaintiffs come within the executive exemption and, therefore, are exempt from compensating them on an overtime basis.