Opinion ID: 2234714
Heading Depth: 1
Heading Rank: 2

Heading: The Window of Correction Regulation.

Text: Under the FLSA, employers generally must pay their employees at least one and one-half times their regular rate of pay for hours worked in excess of forty hours per week. 29 U.S.C. § 207(a)(1). Employees who are employed in executive, administrative, or professional capacities are exempt from that overtime requirement. 29 U.S.C. § 213(a)(1). The Secretary of Labor is authorized to define by rule the scope of those exemptions. Id. Under these rules, three tests must be satisfied for an executive, administrative, or professional employee to be considered exempt. These are a duties test (29 C.F.R. § 541.1); a salary level test (29 C.F.R. § 541.1(f)); and a salary basis test (29 C.F.R. § 541.118). Only the salary-basis test is at issue in this case. An employee is considered to be paid on a salary basis if 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. § 541.118(a). In order to qualify for exempt status, the employee must receive his full salary for any week in which he performs any work without regard to the number of days or hours worked. Id. The rule makes an exception for [p]enalties imposed in good faith for infractions of safety rules of major significance. 29 C.F.R. § 541.118(a)(5). But, other reductions in pay such as disciplinary suspensions without pay are impermissible reductions that destroy an employee's exempt status. Auer v. Robbins, 519 U.S. 452, 456, 117 S.Ct. 905, 909, 137 L.Ed.2d 79, 87 (1997). The State's disciplinary suspension policies applicable to the plaintiff-employees did provide for disciplinary suspensions without pay, and that policy had been invoked in at least eight instances. The Secretary's regulations also contain a window of correction clause. The rule implementing that clause provides: 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 to him during the entire period 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. 29 C.F.R. § 541.118(a)(6) (emphasis added). In the Auer case, the Supreme Court adopted the Secretary of Labor's interpretation of when a category of employees is considered to have satisfied the salary-basis test. It held that an employer has not demonstrated an objective intent to treat a category of employees as exempt from the FLSA if that employer has an employment policy that creates a significant likelihood of disciplinary pay deductions or has an actual practice of making disciplinary deductions from such employees' pay. Auer, 519 U.S. at 461-63, 117 S.Ct. at 911-12, 137 L.Ed.2d at 90-91. As to the category of employees involved in Auer, the court held that no clear inference could be drawn as to the likelihood of a sanction being applied to the employees because the employer's policy manual did not specifically identify the employees as being subject to disciplinary pay deductions. The Court explained that in the absence of actual deductions the Secretary's interpretation required a clear and particularized policyone which `effectively communicates' that deductions will be made in specified circumstances. Id. at 461, 117 S.Ct. at 911, 137 L.Ed.2d at 90. One employee in the group of employees before the Court in the Auer case had received a disciplinary pay deduction. As to that employee, the Court determined that the employer was entitled to a window-of-correction defense under 29 C.F.R. § 541.118(a)(6). In so holding, the Court stated: One small issue remains unresolved: the effect upon the exempt status of Sergeant Guzy ... of the one-time reduction in his pay. The Secretary's regulations provide that if deductions which are inconsistent with the salary-basis testsuch as the deduction from Guzy's payare made in circumstances indicating that there was no intention to pay the employee on a salary basis, the exemption from the FLSA is [not] applicable to him during the entire period when such deductions were being made. Conversely, where a deduction not permitted by [the salary-basis test] 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. Id. at 463, 117 S.Ct. at 912, 137 L.Ed.2d at 91 (citation of regulation omitted). The Auer decision was initially interpreted so as to allow the window of correction to be invoked in any instance in which the deductions were for reasons other than lack of work. Paresi v. City of Portland, 182 F.3d 665, 668 (9th Cir.1999); DiGiore v. Ryan, 172 F.3d 454, 465 (7th Cir.1999); Davis v. City of Hollywood, 120 F.3d 1178, 1180 (11th Cir.1997); Childers v. City of Eugene, 120 F.3d 944, 947 (9th Cir.1997); Balgowan v. New Jersey, 115 F.3d 214, 219 (3d Cir.1997). Following this first wave of appellate decisions, the second circuit in Yourman v. Giuliani, 229 F.3d 124, 128 (2d Cir.2000), and the sixth circuit in Takacs v. Hahn Automotive Corp., 246 F.3d 776, 783 (6th Cir.2001), took the position that the window-of-correction defense is not available to an employer who has a policy of making pay deductions from salaries due to disciplinary infractions. The seventh circuit and ninth circuit have also embraced this view, thus abandoning their earlier pronouncements. See Whetsel v. Network Property Servs., 246 F.3d 897, 902 (7th Cir.2001); Klem v. County of Santa Clara, 208 F.3d 1085, 1094 (9th Cir.2000). We find the views expressed in the more recent federal cases to be persuasive. The Auer case interpreted the FLSA and the Secretary of Labor's regulations to provide that, if an employer is shown to have a general policy of making deductions from salaries for disciplinary violations, its pay plan for that class of employees is deemed not to be on a salary basis. Nothing contained in 29 C.F.R. § 541.118(a)(6) purports to nullify that interpretation. The factual setting in which the Court in Auer applied the window of correction was one in which no policy of docking pay was found to exist. Consequently, we favor an interpretation of the regulation in which the window of correction is only available to those employers who do not have an established policy of deducting their employees' pay for disciplinary reasons yet, in a few selected instances, have imposed such discipline. See Whetsel, 246 F.3d at 901; Takacs, 246 F.3d at 783. We conclude that the record on the summary judgment motion revealed without dispute that the State did have a policy of imposing deductions from pay for disciplinary reasons with respect to the members of the plaintiff class. Based on our interpretation of the applicable federal law, that circumstance is outcome determinative on the issue of liability. The district court was wrong in granting summary judgment for the State. It should have granted summary judgment for plaintiffs on the issue of liability. We have considered all issues presented and conclude that the State's claim of sovereign immunity should be rejected. The district court's grant of summary judgment to the State, based on the window-of-correction regulation, is reversed. The case is remanded to the district court with directions to grant summary judgment for the plaintiffs on the issue of liability and to proceed as necessary in the determination of damages. All costs on appeal are assessed to the State. REVERSED AND REMANDED ON APPEAL; AFFIRMED ON CROSS APPEAL. SNELL, S.J., [] participates in lieu of STREIT, J., who takes no part.