Court Opinion

ID: 2670505
Source: CourtListenerOpinion
Date Created: 2014-04-19 00:00:16.092535+00
Date Added: 2024-06-11T09:18:41.977447
License: Public Domain

United States Court of Appeals
                        For the First Circuit

No. 13-1132

                   ERIC NEWMAN and NESTOR PATAGUE,

                       Plaintiffs, Appellants,

                                  v.

                ADVANCED TECHNOLOGY INNOVATION CORP.,

                         Defendant, Appellee.

          APPEAL FROM THE UNITED STATES DISTRICT COURT

                  FOR THE DISTRICT OF MASSACHUSETTS

              [Hon. Patti B. Saris, U.S. District Judge]

                                Before

                      Howard, Selya, and Lipez,

                           Circuit Judges.

     Phillip B. Leiser, with whom Shalev I. Ben-Avraham and Leiser,
Leiser and Hennessy, PLLC were on brief, for appellants.

     Thomas J. Gallitano, with whom Christopher K. Sweeney and Conn
Kavanaugh Rosenthal Peisch & Ford, LLP were on brief, for appellee.

                            April 18, 2014
          LIPEZ, Circuit Judge.        The Fair Labor Standards Act

requires that non-exempt employees who work more than forty hours

in a week must be paid overtime at a rate of at least one-and-a-

half times their "regular rate" of pay.      Plaintiffs in this case

contend that their employer wrongly labeled part of their regular

hourly wage a "per diem" and excluded the per diem when calculating

the rate for overtime, thus depriving them of overtime pay.       The

proof, plaintiffs claim, is in the numbers.        When they worked a

full forty-hour week, the per diem and hourly wage added up to $60

per hour, the regular wage that they claimed they were promised

when recruited.    When plaintiffs worked less than forty hours in a

week, the per diem payment was reduced.      Plaintiffs contend that

this scenario unmasked the scheme:       the reductions show the per

diem was tied to hours worked in a week and thus, in reality, was

a shadow wage.

          The district court granted summary judgment in favor of

the employer after examining the company's formula for calculating

the per diem.    This disposition was erroneous.   As we explain, the

company's formula, as guidance from the Department of Labor puts

it, was impermissibly "based upon and thus varie[d] with the number

of hours worked" per week.   Wage & Hour Div., Dep't of Labor, Field

Operations Handbook § 32d05a(c) (1983).     We therefore reverse the

summary judgment for the employer and remand for entry of partial

summary judgment in plaintiffs' favor as to liability.

                                 -2-
                                   I.

            Plaintiffs Eric Newman and Nestor Patague both found

engineering jobs in 2010 at a General Dynamics Land Systems plant

in Woodbridge, Virginia, through Advanced Technology Innovation

Corporation ("Advanced Technology"), a recruiting firm.         The jobs

required them to be away from their homes:         Newman lived in West

Virginia, about 65 miles away, and Patague lived in California.

Although General Dynamics supervised plaintiffs and set their job

tasks, they were paid by Advanced Technology.

            Each plaintiff signed a consulting agreement and offer

letter with Advanced Technology.     Both agreements listed an hourly

wage, an overtime rate more than one-and-a-half times that hourly

wage, and a "per diem expense reimbursement" in light of their

remote work assignments. Newman's agreement set his hourly wage at

$35.32 per hour, overtime at $60 per hour, and a weekly per diem of

no more than $987.      Patague's agreement set his hourly wage at

$42.37, overtime at $63.56, and a weekly per diem of no more than

$705.

            For the per diem, each plaintiff signed a Consultant Per

Diem    Certification   that   provided   for   reimbursement   "for   any

business expenses on a per diem basis" using the relevant Internal

Revenue Service Federal Travel Reimbursement rate.        This rate was

                                   -3-
a maximum of $141 at the time of Newman's agreement.1                  Newman was

eligible for that per diem figure for "each day actually worked" up

to seven days, with a per diem paid for Saturdays and Sundays "if

work is actually performed on those days or performed on the

immediate preceding client work day."            Patague's agreement set the

same per diem, but capped it at a weekly maximum of $705 for five

days if each day was "actually worked."

                  Because a per diem either can be excluded from, or

counted as, a regular wage depending on how it operates, plaintiffs

assert that here the per diem operated like an hourly wage.                    The

per diem, if calculated by the hour, was about $24.68 for Newman

and $17.63 for Patague.                These figures made up the difference

between the regular rate in each plaintiff's contract and the

supposedly promised hourly figure of $60 ($35.32 + $24.68 for

Newman; $42.37 + $17.63 for Patague).             Plaintiffs contend the per

diem should count as part of the regular wage, and thus they should

have       been    paid   at   least   one-and-a-half   times   this    wage   for

overtime, meaning at least $90 per hour.

                  Newman worked for Advanced Technology from May 2010 until

July 2011; Patague worked for the company from November 2010 until

April 2011.         In January 2012, plaintiffs filed suit in the Eastern

District of Virginia, alleging that the company violated 29 U.S.C.

       1
       The maximum rate had increased slightly by the time of
Patague's hiring, but he received the same $141 per diem.

                                          -4-
§ 207(a)(1)-(2) by failing to pay the required overtime rate.

After the case was transferred to the District of Massachusetts,

Advanced Technology moved for summary judgment and plaintiffs moved

for partial summary judgment as to liability.

               At oral argument and in its opinion, the district court

focused on Advanced Technology's formula for the per diem payment

when plaintiffs did not work forty hours in one week.               There were

eight such weeks for Newman, and three for Patague.                Those weeks

were particularly important because they could shed light on the

formula for prorating the per diem and, consequently, on whether

the per diem varied simply by hours worked.                  An affidavit from

Anthony Calisi, chairman and treasurer of Advanced Technology,

described the formula used.2             Citing this affidavit, the district

court held that Calisi's explanation "disapproves Plaintiffs'

contention that the per diem was calculated simply by multiplying

the number of hours worked in a week" by an hourly "per diem"

supplement.        Further, the court noted that plaintiffs' proposed

hourly value for the per diem "only arrives at the actual payment

amount on certain weeks."            The district court thus held that

Advanced Technology "properly paid Plaintiffs' overtime based upon

the hourly rates to which they agreed in the contract, and paid per

diem       rates   provided   in   the    federal   travel   regulations   that

reasonably approximated work-related expenses."

       2
           We discuss the formula in Section II.B.

                                          -5-
            On appeal, plaintiffs again press their argument that the

company tied the per diem to hours worked.             They seek reversal of

the summary judgment in Advanced Technology's favor and entry in

their favor on liability, with a remand for proceedings to assess

damages. They offer two other theories of liability, both of which

we do not reach because we agree with plaintiffs on their central

argument.

                                       II.

            We review the district court's grant of summary judgment

de novo.    One Nat'l Bank v. Antonellis, 80 F.3d 606, 608 (1st Cir.

1996). Summary judgment is appropriate when "the movant shows that

there is no genuine dispute as to any material fact and the movant

is entitled to judgment as a matter of law."                 Fed. R. Civ. P.

56(a).   "A fact is material if it carries with it the potential to

affect   the     outcome   of   the   suit   under   the   applicable   law."

Antonellis, 80 F.3d at 608 (internal quotation marks omitted).

A.   Legal Framework

            1.    Statutes And Regulations

            The Fair Labor Standards Act ("FLSA"), 29 U.S.C. §§ 201-

219, requires that when non-exempt employees work more than forty

hours in a work week, they must be paid for overtime hours at a

rate of at least one-and-a-half times the "regular rate" of pay.

                                       -6-
Id. § 207(a)(1).3    The regular rate includes "all remuneration for

employment paid to, or on behalf of, the employee."    Id. § 207(e).

This general rule has exceptions, see id. § 207(e)(1)-(8), which

"are to be interpreted narrowly against the employer, and the

employer bears the burden of showing that an exception applies."

O'Brien v. Town of Agawam, 350 F.3d 279, 294 (1st Cir. 2003)

(citation omitted).

          As is relevant here, the regular rate does not include

"reasonable payments for traveling expenses, or other expenses,

incurred by an employee in the furtherance of his employer's

interests and properly reimbursable by the employer; and other

similar payments to an employee which are not made as compensation

for his hours of employment."      29 U.S.C. § 207(e)(2) (emphasis

added). A regulation interpreting Section 207(e) provides examples

of payments that "will not be regarded as part of the employee's

regular rate."      29 C.F.R. § 778.217(b).   These include amounts

"expended by an employee, who is traveling 'over the road' on his

employer's business, for transportation . . . and living expenses

away from home," id. § 778.217(b)(3), "'[s]upper money' . . . to

cover the cost of supper when he is requested by his employer to

continue work during the evening hours," id. § 778.217(b)(4), and

expenses incurred "because the employee, on a particular occasion,

     3
       No party argues that plaintiffs are exempt from the FLSA's
requirements.

                                 -7-
is required to report for work at a place other than his regular

workplace," id. § 778.217(b)(5).           By contrast, the employer's

payments for "expenses normally incurred by the employee for his

own benefit," such as "buying lunch, paying rent, and the like,"

are included in the regular rate.         Id. § 778.217(d).

             "[T]he regular rate cannot be stipulated by the parties;

instead, the rate must be discerned from what actually happens

under the governing employment contract." O'Brien, 350 F.3d at 294

(citing Bay Ridge Operating Co. v. Aaron, 334 U.S. 446, 462-63

(1948)).     Thus, the regular wage rate here is a fact question.       See

Bay Ridge, 334 U.S. at 461 ("'The regular rate by its very nature

must reflect all payments which the parties have agreed shall be

received regularly during the workweek, exclusive of overtime

payments.     It is not an arbitrary label chosen by the parties; it

is   an   actual   fact.'"   (quoting   Walling   v.    Youngerman-Reynolds

Hardwood Co., 325 U.S. 419, 424 (1945))).

             2. Department of Labor Handbook

             The Department of Labor Wage and Hour Division's Field

Operations Handbook ("Handbook") contains further guidance, which

we   treat    as   persuasive   authority.        See   Gagnon   v.   United

Technisource, Inc., 607 F.3d 1036, 1041 n.6 (5th Cir. 2010)

("Although the Handbook does not bind our analysis, we can and do

consider its persuasive effect." (citing Skidmore v. Swift & Co.,

                                    -8-
323 U.S. 134, 140 (1944))).    Both parties focus their arguments on

Section 32d05a(c) of the Handbook.     That paragraph states in full:

            If the amount of per diem or other subsistence
       payment is based upon and thus varies with the number of
       hours worked per day or week, such payments are a part of
       the regular rate in their entirely [sic]. However, this
       does not preclude an employer from making proportionate
       payments for that part of a day that the employee is
       required to be away from home on the employer's business.
       For example, if an employee returns to his home or
       employer's place of business at noon, the payment of only
       one-half the established per diem rate for that
       particular day would not thereby be considered as payment
       for hours worked and could thus be excluded from the
       regular rate.

There is seemingly some tension in the Handbook's guidance. On the

one hand, the passage notes that it is a permissible result for an

employer to reduce a day's per diem, such as by paying half of a

day's worth of per diem where an employee worked for half of the

day.    Yet it also states that the per diem is part of the regular

rate of pay if it is based upon, and varies with, hours worked in

a week or day.    In an eight-hour workday, paying an employee half

of a day's per diem yields the same result as paying for four

hours' worth of per diem.

            This coincidence suggests that the Handbook's concern is

not the result of paying half of a day's per diem, which is by

itself innocuous.     Instead, the Handbook's teaching is that the

method of calculating the per diem in that circumstance must use a

day as its measuring unit, and not an hour.      Breaking a day into

two segments to reflect the presumably common practice of an early

                                 -9-
departure at week's end is not the same as paying only a portion of

the maximum weekly per diem based precisely on the time worked

during the week. If the per diem method makes reductions from that

maximum on an hourly basis — such that it would reduce the total

per diem by a mere hour's worth — it runs afoul of the Handbook's

guidance.

B.   Applicability to the Summary Judgment Record

             The key to this case is the comparison between how

Advanced Technology says it reduces per diem payments and the

actual formula it used.     The comparison makes clear that not only

was summary judgment wrongly entered in the company's favor, but in

fact plaintiffs must prevail on partial summary judgment as to

liability.

             Advanced Technology contends that it reduced the per diem

only when the shortfall below forty hours worked was entirely

attributable to an early end of the work week.       Anthony Bonanno,

the company's president, asserted in an affidavit that in "those

weeks when [plaintiffs] reported that they did not work a full

week, and worked less than a full day on the last work day . . .

then . . . Advanced Technology paid the [p]laintiffs a [prorated]

amount of that day's per diem expense reimbursement."     The company

further insists that these reductions were not based on hours

worked.

                                  -10-
           Despite this claim that it complied with the Handbook,

the description of the formula from company treasurer Anthony

Calisi   makes   clear   that    the   only    factor    that   mattered   in

calculating the weekly per diem was the number of hours worked.

Recognizing that "a full week traditionally means working a full

forty (40) hours," Calisi explained that for Newman the company:

     utilized the following formula to [prorate] the per diem
     reimbursement for that week: [(# of hours ÷ 40) × 7] ×
     $141. The result of the bracketed mathematical operation
     yielded the fractional number of days worked.         The
     resulting figure was rounded to the nearest hundredth.
     This figure was entered into our payroll system, which
     then multiplied that figure by the per diem reimbursement
     rate of $141 to yield Mr. Newman's per diem reimbursement
     for that week.

As Calisi's explanation indicates, the "fractional number of days

worked" is the measure of how many days' worth of per diem the

plaintiff should receive.       This measure is determined by the only

variable in the formula, the total number of hours worked in the

week.    All other numbers are fixed:         forty hours in a work week,

five available days of per diem for Patague or seven for Newman,

and $141 for the value of the per diem.                 In this formula of

straightforward division and multiplication, a reduction to the per

diem is necessarily hours-based.

           Indeed, in the most glaring example, the company reduced

Newman's per diem for one week to reflect that he would receive

only 38.5-hours' worth of per diem. Further, because the company's

formula uses hours, not days, as its frame of reference, an

                                   -11-
employee who worked for seven hours in a day, in a five-day work

week, could accrue less than the $141 daily per diem through the

formula, while an employee who worked for 12 hours in a day could

accrue   more   than   the   $141   daily   per    diem.   Yet   in   both

circumstances the employees must receive no less, and no more, than

the day's $141 per diem if the reimbursement formula is based on

days and not hours.     For these reasons, even in those instances

where Advanced Technology reduced the per diem only for an early

end to the week, the reductions remain precisely tied to the total

hours worked in the week.4

           In rejecting plaintiffs' claim that the per diem was

hourly, the district court noted that plaintiffs' proposed "hourly

per diem" figures did not yield results that quite matched the

weekly pay statements in the record.              That is true, but only

because the company's formula rounded at an intermediate step of

the calculations, thereby slightly altering the final number.

Plaintiffs furthered the confusion by offering rounded figures at

times for the proposed hourly per diem rates — $24.68 for Newman

and $17.63 — rather than the precise figures of $24.675 and $17.625

respectively.   If neither plaintiffs' hourly figures nor Advanced

     4
       The district court should not have found that Advanced
Technology's "last day worked" theory actually explained when the
shortfall in hours occurred. The pay statements in evidence show
only the weekly total of hours worked. The formula itself paid no
attention to when the missing hours occurred.         It was thus
plausible that missing hours came from earlier in the week, and not
from an early weekend.

                                    -12-
Technology's "fractional number of days worked" were rounded, both

formulas yield the same per diem results for all the weeks where

plaintiffs were paid less than the full per diem.5             In short, each

side's rounding made the calculations harder to recreate. But once

these rounding steps are identified, it becomes clear that Advanced

Technology's formula neatly falls within the Handbook's concern:

it is "based upon and thus varies with the number of hours worked

per day or week," Handbook § 32d05a(c).

                                    III.

           The animating concern of the FLSA statutes, regulations,

and DOL Handbook is to examine the substance of a purported per

diem payment and to ensure that it is actually used to offset

expenses   an   employee   incurs   due    to   time   spent    away   on   the

employer's business. The goal is to pierce the labels that parties

affix to the payments and instead look to the realities of the

method of payment.    Here, even if Advanced Technology reduced the

per diem only for an early end to the work week, it still based

those reductions on the exact number of hours worked in the week.

The reduction of one-and-a-half hours of per diem for one week for

     5
       As one example, for one week Newman worked 36.5 hours.
Multiplied by plaintiffs' precise hourly per diem figure of
$24.675, the resulting per diem is $900.6375.       The company's
formula first calculates the "fractional number of days worked":
((36.5 ÷ 40) × 7) = 6.3875. The last step is to multiply by $141.
If the company left 6.3875 unrounded, the total would also be
$900.6375. Because the company rounded 6.3875 to 6.39, the total
was slightly different:    $900.99, the amount of per diem that
Newman received for that 36.5-hour week.

                                    -13-
Newman, described above, illustrates this approach.   Although the

Handbook provision allows a discount in the per diem for partial

days, it does not permit an employer to set this discount as a

reduction of a fixed amount for each missing hour in the weekly

total.   We see no material dispute of fact once the formula is

examined, and thus the correct outcome is partial summary judgment

in plaintiffs' favor as to liability.6

          Specifically, we reverse the district court's decision to

grant summary judgment for Advanced Technology and remand for the

court to enter partial summary judgment in plaintiffs' favor as to

liability, and then to conduct further proceedings as to damages.

          So ordered.

     6
       Plaintiffs made two other arguments: (1) that the Handbook
Section 32d05 creates two categories of employees, those on day (or
short) trips for an employer and those on a longer remote
assignment, and prorating a per diem is only permissible for the
day trippers; and (2) that as to Newman specifically, defendants
knew he was actually commuting from his home in West Virginia, and
thus his per diem did not reasonably approximate his expenses.
Because we decide this case on plaintiffs' central argument, we do
not reach these remaining issues.

                               -14-