Opinion ID: 2193752
Heading Depth: 2
Heading Rank: 2

Heading: Salary Basis Test.

Text: Having concluded that the FSMA bears the burden of establishing that the District Chiefs are employees under KRS 337.285, we now turn to the merits of the City's appeal. We first look to Kentucky jurisprudence and find nothing other than the statutes themselves to aid in interpreting the issue which is presented before us today. In the absence of any Kentucky cases on point, we next look to federal cases interpreting the FLSA. Although the cases that allocate the burden of proof under the FLSA are not applicable under KRS Chapter 337 for that point, the substantive provisions of the FLSA, and specifically the salary basis test for bona fide executive employees, are substantially similar to those in KRS Chapter 337 and the relevant administrative regulations. Accordingly, we look to the federal cases for guidance as the analysis contained therein involving the salary basis test is relevant and pertinent to our review. In beginning our analysis, we first must adopt a standard for determining whether the salary basis test has been met in any particular case. Under federal caselaw, while consideration of employment policy is important, actual practice, i.e. application of that policy, is of heightened importance when making such a determination. Yet, the Court of Appeals held to the contrary, finding that the actual application of policy was not particularly relevant when determining whether the District Chiefs had satisfied the salary basis test. Kaelin v. City of Louisville, No.2003-CA-000740-MR, 2004 WL 1046372, slip op. at 14 (May 7, 2004). In Auer v. Robbins, 519 U.S. 452, 117 S.Ct. 905, 137 L.Ed.2d 79 (1997), the United States Supreme Court determined that actual practice was of seminal importance, and adopted the following standard: [T]he salary-basis test den[ies] exempt status when employees are covered by a policy that permits disciplinary or other deductions in pay as a practical matter. 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. Auer, 519 U.S. at 461, 117 S.Ct. at 911. This approach has since been uniformly followed by the federal circuits. See, e.g., 246 F.3d 776, 780 (6th Cir.2001); West v. Anne Arundel County, 137 F.3d 752, 762-63 (4th Cir.1998); Stanley v. City of Tracy, 120 F.3d 179, 183-84 (9th Cir.1997); Belcher v. Shoney's, Inc., 30 F.Supp.2d 1010, 1018-19 (M.D.Tenn.1998); DiGiore v. Ryan, 987 F.Supp. 1045, 1054 (N.D.Ill. 1997). We agree with the federal courts that a less wooden standard should be adopted when interpreting whether the salary basis test has been met in any particular case. Accordingly, we reject the Court of Appeals' view that actual application of employment policy is irrelevant when determining whether the salary basis test has been met and adopt the standard set forth in Auer above. With the Auer standard in mind, we next review the pertinent facts in this case in light of the applicable statutory language. 803 KAR 1:070(7) (2002) defines being compensated on a salary basis, in pertinent part, as regularly receiving 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. Id. However, if an employee is absent for a day or longer to handle personal affairs, his salaried status will not be affected if deductions are made from his salary for such absences. Id. Pursuant to the Cabinet's findings, the City did not have a written policy of making deductions in pay for absences of less than a full day. [6] We also find no evidence indicating that there was any unwritten policy to this effect. In actual practice, the Court of Appeals found the following facts to be relevant to whether the District Chiefs satisfied the on a salary basis test: (1) they were required to work scheduled shifts, amounting to a certain number of hours per week; (2) they were permitted to trade shifts with each other, and trading shifts is on an hour-for-hour basis; furthermore, the person initially assigned the shift was responsible for an absence if the person who subsequently agreed to cover the shift failed to report for the shift; (3) when the time changes twice annually, their pay is reduced or increased by one hour, according to the time change; (4) they were required to complete time sheets documenting hours worked each week; (5) they were required to get approval to use vacation or compensatory time in order to take time off work; (6) they were permitted to accrue overtime in the form of compensatory time; and (7) in one instance a District Chief, Major Ott, was disciplined for an unrelated administrative violation by the loss of two vacation days. When these facts are reviewed in light of the statutory language and the pertinent caselaw, we do not believe they are sufficient to meet the FSMA's burden of proving that the District Chiefs are employees under KRS 337.285. Moreover, we hold that the Labor Cabinet's and the Jefferson Circuit Court's ruling that the District Chiefs are paid on a salary basis as the term was defined in 803 KAR 1:070(7) (2002) is supported by substantial evidence in the record. The fact that District Chiefs are required to work scheduled shifts does not deprive them of their status as salaried employees. Employer control of employee work schedules play[s] no part in defining salaried employees. Renfro v. Ind. Mich. Power Co., 370 F.3d 512, 516 (6th Cir. 2004). See also Klein v. Rush-Presbyterian-St. Luke's Med. Ctr., 990 F.2d 279, 284 (7th Cir.1993) (Of course, when a nurse is assigned a particular shift, she cannot simply arrive at work or leave whenever it pleases her; she must necessarily be there when her assigned shift begins and ends.). Indeed, the necessity of imposing and enforcing scheduled shifts is especially critical in the emergency response fields, where it is imperative that firefighters and related administrators be on hand at all times. The ability of District Chiefs to accrue overtime for every hour worked in excess of their regularly scheduled shifts is also irrelevant to their status as salaried employees. The [Department of Labor] has unequivocally and consistently declared that additional compensation in the form of hourly overtime payment does not defeat exempt status under the salary-basis test. Boykin v. Boeing Co., 128 F.3d 1279, 1281 (9th Cir.1997). Additional compensation does not alter the status of salaried employees, so the receipt of overtime does not defeat the salary basis of plaintiffs' employment. West v. Anne Arundel County, 137 F.3d 752, 762 (4th Cir.1998). See also Spradling v. City of Tulsa, 95 F.3d 1492, 1500 (10th Cir.1996); York v. City of Wichita Falls, 944 F.2d 236, 242 (5th Cir.1991); Caperci v. Rite Aid Corp., 43 F.Supp.2d 83, 95 (D.Mass.1999); Aiken v. County of Hampton, 977 F.Supp. 390, 397 (D.S.C.1997); Aaron v. City of Wichita, 54 F.3d 652, 658 (10th Cir. 1995). Additionally, the City's requirement that District Chiefs maintain timesheets is not inconsistent with a finding that they are salaried employees. Schaefer v. Ind. Mich. Power Co., 358 F.3d 394, 400 (6th Cir.2004) (salary-basis test satisfied even though employee was required to account for forty hours worked each week on timesheet). This measure is justified by both the practicality of ensuring that the District Chiefs are paid for any time worked over the scheduled amount, Aaron, 54 F.3d at 658, and the necessity of public accountability accompanying any government-funded service organization. Aiken v. County of Hampton, South Carolina, 977 F.Supp. 390, 397 (D.S.C.1997); Kuchinskas v. Broward County, 840 F.Supp. 1548, 1556 (S.D.Fla.1993). As for the requirement that the District Chiefs get approval for using vacation time or compensatory time in order to take time off work for personal reasons, such a requirement is both practical and necessary to ensure efficient institutional functioning especially with a municipal government body where accountability is needed. See Kuchinskas, 840 F.Supp. at 1556 (policy requiring employees to obtain approved leave is premised on the concept of public accountability which is not inconsistent with the FLSA and do[es] not negate Plaintiffs' status as `salary based' employees). No good reason compels this Court to interpret the salary basis test to require that an employer permit its employees to absent themselves from work for personal reasons without prior permission so long as they had accrued some form of leave time. The salary basis test is concerned with the basis of compensation for an employee and not the absolute freedom granted to an employee to determine his or her own schedule. We next address the City's policy that allowed District Chiefs to trade shifts with each other. [7] The City's Standard Operating Procedure Rule 103.14 states in pertinent part: A member failing to report for duty on an authorized trade will be considered A.W.O.L. If the member who was regularly assigned to work cannot be reached or another member cannot work the trade, the regularly assigned member will be absent (off the payroll). Consideration may be given for use of vacation time. The effect of SOP 103.14 is that a District Chief will be considered absent without excuse if the person with whom the trade was made fails to cover the shift as agreed. Although such language could arguably designate a policy of reducing a District Chief's pay for absence of a day or less, such isolated and ambiguous language falls far from establishing an actual practice of making such deductions or an employment policy that creates a `significant likelihood' of such deductions. Auer, 519 U.S. at 460-61, 117 S.Ct. at 910-11. In fact, nonenforcement of an existing policy may actually support an employer's claim that its employees are salaried. See Balgowan v. New Jersey, 115 F.3d 214, 219 (3d Cir. 1997) (Furthermore, the DOT's nonenforcement of its disciplinary policy and the fact that no engineer has ever suffered a reduction in pay under the policy, provide even stronger evidence that the DOT's disciplinary policy is not one under which there is a `significant likelihood' of deductions.). As for the bi-annual decrease or increase by one hour of the District Chiefs' pay to account for time changes, a daylight savings policy is not dispositive. . . . Quirk v. Baltimore County, Md., 895 F.Supp. 773, 781 n. 2 (D.Md.1995). Furthermore, for District Chiefs who have been employed a complete fiscal year, the effect of this policy is that they will suffer no deduction in pay. The final remaining fact that the Court of Appeals considered in holding that the District Chiefs were employees pursuant to KRS 337.285 was a single administrative disciplinary incident where a District Chief, Major Ott, agreed to surrender two days of accrued vacation leave. The Court of Appeals considered this occurrence to be irrefutable evidence that District Chiefs are treated as hourly, not salaried, employees, Kaelin v. City of Louisville, No.2003-CA-000740-MR, 2004 WL 1046372, slip op. at 12-13 (May 7, 2004), reasoning that the loss of annual time is effectively a reduction in pay because annual time has an actual dollar value. Id. at 14. However, the great majority of cases hold that reductions in a salaried employee's accrued vacation or compensatory leave does not constitute a reduction in pay for purposes of the salary basis test. [8] The Sixth Circuit is in the majority of this trend: Although the planners concede that they receive at least $250 per week, they argue that they cannot be exempt even though salaried because AEP requires them to account for at least 40 hours of work each week and to make up for partial-day absence either by working extra hours or by taking vacation time or paid time off. An employer may require exempt salaried employees to make up for time missed from work due to personal business. It is only when an employer actually deducts from an employee's paycheck that the employee is ineligible for the exemption. Renfro v. Indiana Michigan Power Co., 370 F.3d 512, 516 (6th Cir.2004) (emphasis added). See also Cowart v. Ingalls Shipbuilding, Inc., 213 F.3d 261, 265 (5th Cir. 2000) (There is no support in the case law for the proposition that requiring salaried employees to make up time missed from work due to personal business is inappropriate. Although the salary basis regulation prohibits deductions from an employee's salary for personal absences of less than a day, the regulation does not prohibit an employer from requiring an employee to make up the time he misses.); Schaefer v. Indiana Michigan Power Co., 358 F.3d 394, 400 (6th Cir.2004) (Exempt status, however, is only affected by monetary deductions for work absences and not by non-monetary deductions from fringe benefits such as personal or sick time.); Barner v. City of Novato, 17 F.3d 1256, 1261-62 (9th Cir.1994) (We conclude that `amount' refers to `cash' or `salary.' Thus, a reduction in the paid leave time does not affect the Plaintiffs' status as salaried employees.); McDonnell v. City of Omaha, 999 F.2d 293, 298 (8th Cir.1993), overruled on other grounds by Auer, 519 U.S. 452, 117 S.Ct. 905, 137 L.Ed.2d 79 (1997); Caperci v. Rite Aid Corp., 43 F.Supp.2d 83, 94 (D.Mass.1999); Cruz v. McAllister Bros., Inc., 52 F.Supp.2d 269, 290 (D.P.R. 1999); Cooke v. Gen. Dynamics Corp., 993 F.Supp. 50, 53-55 (D.Conn.1997); Aiken v. County of Hampton, 977 F.Supp. 390, 397 (D.S.C.1997); Kuchinskas v. Broward County, 840 F.Supp. 1548, 1555 (S.D.Fla. 1993); Int'l Ass'n of Fire Fighters v. City of Alexandria, 720 F.Supp. 1230, 1232 (E.D.Va.1989). [9] Thus, the incident involving Major Ott is insufficient to support the FSMA's claim that the District Chiefs are subject to deductions in pay for variations in the quality or quantity of work performed. When the record is reviewed in its entirety, we find substantial evidence to support the conclusion that the District Chiefs are paid on a salary basis as that term was defined in 803 KAR 1:070(4) (2002). The District Chiefs are, therefore, supervisory, salaried personnel not entitled to time-and-a-half overtime pay under KRS 337.285. The judgment of the Court of Appeals is reversed, and the judgments of the Labor Cabinet and the Jefferson Circuit Court are reinstated. LAMBERT, C.J., GRAVES, MINTON, and ROACH, J.J. concur. WINTERSHEIMER, J., dissents in a separate opinion in which McANULTY and SCOTT, J.J., join.