Court Opinion

ID: 9486713
Source: CourtListenerOpinion
Date Created: 2023-08-05 11:57:01.73593+00
Date Added: 2024-06-11T17:51:53.066462
License: Public Domain

MIKVA, Chief Judge,
concurring in the result in part and dissenting in part:
The Fair Labor Standards Act (“FLSA” or “Act”) requires employers — including state and municipal employers — to pay one-and-one-half times their employees’ regular hourly rate for any overtime hours they work. Claiming coverage under the Act, a class of police captains and lieutenants (“plaintiffs”) sued for a declaratory judgment, liquidated damages, and backpay amounting to the difference between the FLSA rate and the District’s lower rate. The District defends on the ground that the plaintiffs are exempt from the Act under the “executive exemption,” which applies to “any employee employed in a bona fide executive, administrative, or professional capacity.” 29 U.S.C.A. § 213(a)(1) (West Supp.1993). The district court disagreed, holding that the District of Columbia pays its police captains and lieutenants on an hourly basis, and not “on a salary basis”; as such, the plaintiffs are not “executive employees” under applicable Department of Labor regulations, and the District must pay them the FLSA overtime rate. I would affirm the judgment and rationale of the district court in its entirety because I think hourly overtime, to which these employees have at all relevant times been entitled, defeats the executive exemption. Accordingly, I concur only in the result reached by Judge Williams with regard to the time period before September 6, 1991 and I dissent from both of my colleagues’ opinions and their result with regard to the subsequent time period.
I. Background
The Fair Labor Standards Act, 29 U.S.C.A. § 201 et seq. (West 1978 & Supp. 1993), was first enacted during the Great Depression as a means of improving the standard of living of workers. Id. § 202 (congressional finding and declaration of policy). Primarily governing hourly wage rates, it is designed to improve the lot of the hourly wage earner through minimum wage and maximum hour regulation. See id. § 206 (minimum hourly wage); id. § 207 (maximum hour). As amended, the Act currently applies to state and local government employees as well as to private employees. 29 U.S.C.A. § 203(e). Among other things, it requires employers to pay all employees covered by the Act overtime pay of one-and-one-half times their ordinary hourly rate. 29 U.S.C.A. § 207(a)(1). However, under the “executive exemption,” the time-and-a-half requirement does not apply to “any employee employed in a bona fide executive, administrative, or professional capacity.” 29 U.S.C.A. § 213(a)(1).
The District of Columbia has classified police captains and lieutenants as falling within the executive exemption. By municipal ordi*437nance, the District pays them (and ail other police officers, including the chief) an hourly overtime rate equivalent to their ordinary hourly rate. D.C.Code §§ 4 — 1104(c)—(f). Although captains and lieutenants receive a guaranteed weekly salary (subject to docking for absences), that salary is based upon a 40-hour workweek, and each hour of overtime work is paid at the same rate as each hour of non-overtime work. Id. These employees sued for a declaratory judgment that they are not, in fact, exempt from the Act, and that the District must pay them time-and-a-half for overtime. They also sought liquidated damages and backpay measured by the difference between the statutory requirement and the District’s overtime rate for all overtime hours worked since the Act was made applicable to municipal employers in 1985. See Garcia v. San Antonio Metropolitan Transit Auth., 469 U.S. 528, 105 S.Ct. 1005, 83 L.Ed.2d 1016 (1985).
The meaning of the executive exemption turns on Department of Labor (“DOL”) regulations interpreting the Act. Under these regulations, an employee is exempt only if she meets both the “primary duties test” and the “salary basis test.” The primary duties test looks at the nature of the employee’s job. 29 C.F.R. § 541.2(f). As this case comes before us, there is no dispute that the police captains and lieutenants satisfy that test for the exemption. Instead, the dispute is over the “salary basis test,” which evaluates the way in which the employee is paid. An employee is an “executive, administrative, or professional” under the salary basis test if she is paid on a job function basis, rather than on an hour-to-hour basis: This distinction is in keeping with the apparent purpose of the Act to protect hourly wage earners through minimum wage and maximum hour regulation. Thus understood, a salaried employee is beyond the scope of the FLSA. Specifically, the regulations state:
An employee will be considered paid ‘on a salary basis’ within the meaning of the regulations if under his employment agreement he regularly receives each pay period ... 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. Subject to the exceptions provided below, 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....
29 C.F.R. § 541.118(a) (1991).
I think the central and dispositive question in this case is whether an employee can receive hourly overtime payments, over and above a minimum weekly predetermined amount, and still be paid “on a salary basis” and not on an hourly basis. D.C.Code § 4-1104(f)(1)(B). The DOL regulations continue:
(b) Minimum guarantee plus extras. It should be noted that the salary may consist of a predetermined amount constituting all or part of the employee’s compensation. In other words, additional compensation besides the salary is not inconsistent with the salary basis of payment. The requirement will be met, for example, by a branch manager who receives a salary of $155 or more a week and in addition, a commission of 1 percent of the branch sales. The requirement will also be met by a branch manager who receives a percentage of the sales or profits of the branch, if the employment arrangement also includes a guarantee of at least the minimum weekly salary (or the equivalent for a monthly or other period) required by the regulations. Another type of situation in which the requirement will be met is that of an employee paid on a daily or shift basis, if the employment arrangement includes a provision that the employee will receive not less than the amount specified in the regulations in any week in which the employee performs any work....
29 C.F.R. § 541.118(b). Although this section explains that additional compensation for extra time worked is not necessarily inconsistent with payment on a salary basis, it does not speak directly to the question whether additional compensation paid by the hour, for working more than a prescribed number of hours in a workweek, defeats the exemption.
Despite this ambiguity, the parties did not initially argue this issue below. Instead, *438their dispute focused on another facet of the salary basis test known as the “no-docking rule.” An exception to the salary basis test of section 541.118(a) covers absences from work of a day or more; an employee can have his pay docked for such absences without losing the exemption under the salary basis test. 29 C.F.R. § 541.118(a)(2). But the negative inference of this exception mandates that if absences of less than a day lead to a reduction in salary, then the employee is not paid “on a salary basis.” See D’Camem v. District of Columbia, 693 F.Supp. 1208, 1212 (D.D.C.1988). This negative inference is known as the “no-docking rule.” Plaintiffs alleged before the district court that their salaries were subject to reduction for absences of less than a day and that they could not, therefore, fall within the executive exemption. Subsequently, on September 6, 1991, the DOL revised its regulations, making the “no-docking rule” inapplicable to public employees. 56 Fed.Reg. 45824.
In a recent case, this Circuit applied the “no-docking rule” to hold that D.C. firefighters (paid under the same system as the police officers in the present case) were not entitled to the “executive, administrative, or professional employee” exemption prior to September 6, 1991, because they could have their salaries docked for absences of less than a day. Kinney v. District of Columbia, 994 F.2d 6 (D.C.Cir.1993). In that case, the District argued that the “no-docking rule” was an unreasonable construction of the FLSA, as evidenced by the DOL’s subsequent amendment of the rule for public-sector employees. But the District raised this defense for the first time on appeal, and the Court therefore refused to consider it. Id. at 9-10.
Although the parties’ arguments before the district court focused on the “no-docking rule,” the court raised sua sponte the separate issue of the employees’ entitlement to hourly overtime. This issue proved disposi-tive below. The district court held that the police captains and lieutenants are not within the executive exemption because they receive overtime pay on an hourly basis, and thus they are not paid “on a salary basis.” Accordingly, the court entered summary judgment for the police captains and lieutenants on this ground and did not decide the “no-docking rule” issues. Hilbert v. District of Columbia, 784 F.Supp. 922 (D.D.C.), motion for reconsideration denied, 788 F.Supp. 597 (D.D.C.1992). The District appeals. Besides contesting the district court’s grounds for decision, the District also takes issue (as a preemptive strike) with the potential alternative ground of affirmance on the basis of the “no-docking rule.” On this latter ground, the District asserts the argument that was found to have been waived in Kinney: that the “no-docking rule” is unreasonable as applied to state and municipal employees.
Judge Williams would hold that the District waived that argument in the present case as well, and he would affirm the district court’s decision for the period prior to September 6, 1991 under the “no-docking rule,” while reversing for the subsequent period because of the regulatory change in that rule. Judge Henderson agrees that the old “no-docking rule” would defeat the District’s claim for the pre-September, 1991 period, but she would hold that the District did not waive its argument for the invalidity of that rule, and that the rule was in fact invalid. Both Judge Williams and Judge Henderson agree that the new “no-docking rule” allows the District to claim the executive exemption for these employees, and they would reverse the district court’s judgment for the period subsequent to September 6, 1991. But I would affirm the decision of the district court in its entirety on the ground that hourly overtime defeats the executive exemption. As a consequence, I would not decide the “no-docking rule” issues, and I express no opinion on those issues here. I concur solely in the result reached by Judge Williams as to the period prior to September 6, 1991, and I dissent from both the result and the reasoning of the majority as to the subsequent period.
II. Discussion
Circuit courts are split on the hourly overtime issue. The Third and Ninth Circuits have agreed with the district court that hourly overtime supplementing a guaranteed weekly salary strongly suggests compensa*439tion on an hourly basis. See Abshire v. County of Kern, 908 F.2d 488, 486 (9th Cir.1990), cert. denied, 498 U.S. 1068, 111 S.Ct. 785, 112 L.Ed.2d 848 (1991) (“Such additional compensation for extra hours worked is ... not generally consistent with salaried status.”); Brock v. Claridge Hotel and Casino, 846 F.2d 180, 185 (3d Cir.), cert. denied, 488 U.S. 925, 109 S.Ct. 307, 102 L.Ed.2d 326 (1988) (“Such encouragement [to work more hours] is inconsistent both with salary payment and executive employment.”). In contrast, the Fifth and Fourth Circuits have held that hourly overtime does not destroy the exemption for an employee who otherwise is paid a guaranteed salary without regard to hours worked. York v. City of Wichita Falls, 944 F.2d 236, 242 (5th Cir. 1991) (“Paying an hourly rate for each hour worked beyond the regular schedule does not defeat the executive exemption.”); Hartman v. Arlington County, 720 F.Supp. 1227 (E.D.Va.1989), aff'd, 903 F.2d 290 (4th Cir.1990) (same).
I agree with the Third and Ninth Circuits. The executive exemption covers only those employees who are paid “on a salary basis.” The salary basis test is designed to distinguish “executive” employees, who are paid on a job function basis, from non-executive employees, whose compensation depends upon the number of hours they put in. The opposite of payment on a salary basis, then, is payment on an hourly basis. And the difference between these two categories of compensation is the difference between payment for performing a specified job and payment for putting in a certain amount of time on the job. When an employee is paid for overtime in hourly installments, that implies that she is paid to work a certain number of hours in the first place, because any hour beyond that is paid as an hour of “extra” time at work. By contrast, when an employee is paid on a salary basis, an additional hour is not considered an “extra” hour because she is paid to perform a certain set of tasks and not to work for a set amount of time. That hour, then, is a standard part of her job and does not entitle her to overtime compensation.
This is not to say that an employee can never receive additional compensation and yet be “paid on a salary basis.” On the contrary, additional payments are explicitly allowed under paragraph (b) of the DOL regulations, entitled “Minimum guarantee plus extras,” see supra page 435, which expressly permits employees to earn additional payments on top of a guaranteed minimum salary and yet remain within the executive exemption. However, it does not suggest that all additional payments are permissible; nor does it specifically address the question whether those additional payments may be made on an hourly basis. If DOL had meant that all additional payments were permissible, it could have said so. Instead, by giving examples of permissible additional payments, DOL clearly intended for some other additional payments to be impermissible.
Paragraph (b) gives three examples of legitimate additional payments: the first two are commission or percentage payments; the third example is “an employee paid on a daily or shift basis, if the employment agreement includes a provision that the employee will receive not less than the amount specified in the regulations in any week in which the employee performs any work.” 29 C.F.R. § 541.118(b). These examples are meant to be illustrative, not exclusive, but a court’s creativity should be tempered by the general rule that exemptions from the FLSA requirements are to be narrowly construed to fulfill Congress’s purpose of providing broad federal employment protection. E.g., Abshire, 908 F.2d at 485.
None of these examples alters my conclusion that hourly overtime defeats the salary basis test. It is true that the third example allows that payment on a daily or shift basis can sometimes be payment “on a salary basis.” But employees virtually always are paid for some increment of time on the job, whether it be an hour, a shift, a day, a week, or a year. Yet we know that the increment is not irrelevant, because the essential distinction drawn by the DOL regulations is between payment on a salary basis (which presumably includes payment on a weekly or yearly basis) and payment on an hourly basis. Therefore, the third example in paragraph (b) merely illustrates the DOL’s deter*440mination that daily or shift payment, supported by a guaranteed weekly minimum, is more analogous to weekly payment than to hourly payment. This is essentially a line-drawing question, and I think the DOL has drawn a reasonable line in paragraph (b) between hourly compensation and compensation for larger increments.
Indeed, this line between hourly and non-hourly compensation is particularly well-suited to the Act, which seeks to ensure that hourly wage earners receive fair compensation for their labor. Congress’s concern for the hourly laborer led it to base its remedies upon the hourly compensation scheme, providing for a minimum wage and a maximum-length workday (before the time-and-a-half requirement kicks in) — both measured by the hour. Thus, the measuring cup for distinguishing between exempted salaried employees and covered employees has always been the hourly unit. That it sometimes leads to arbitrary line-drawing is not a rationale for abandoning the distinction. Congress and the DOL were aware that this regulatory scheme would require a means of distinguishing between covered and exempt employees, and they chose the hourly measure. True, DOL has endeavored in paragraph (b) to allow some play in the executive exemption, permitting some payments for extra effort by an exempted employee. But such allowances cannot include a measurement of extra effort based solely on hours worked without destroying the basis for the distinction between covered and exempted employees. Judge Henderson’s disavowal of the shift/hour distinction, Op. at 435-36, thus fails to recognize that some time-based distinction must be made if we are to apply the executive exemption to some employees and not to others, as the Act plainly contemplates. It begs the question whether the hourly measure is a proper dividing line. I think it is, and I think to be applied faithfully it must exclude employees receiving hourly overtime from the executive exemption.
The District responds, and Judge Henderson apparently agrees, Op. at 435-36, that paragraph (b) is best construed to mean that an employee may always earn extra money over and above a sufficient guaranteed minimum salary and yet be paid “on a salary basis,” regardless of the increments of time for which the additional payments are made. See McReynolds v. Pocohontas Corp., 192 F.2d 301, 303 (4th Cir.1951) (“Any formula which results in such a guarantee is sufficient.”). As one district court has noted in a footnote, employees are traditionally given bonuses for extra time put into a job, and “we see little reason why the payment of overtime would negate the exempt status of an employee.” Dole v. Malcolm Pirnie, Inc., 758 F.Supp. 899, 903 n. 5 (S.D.N.Y.), rev’d on other grounds sub nom. Martin v. Malcolm Pirnie, Inc., 949 F.2d 611 (2d Cir.1991), cert. denied, — U.S. -, 113 S.Ct. 298, 121 L.Ed.2d 222 (1992). Thus, the District argues that the “minimum guarantee” regulation should be read only to ensure that employees receive a minimum guaranteed salary if they are to be exempt, and to allow additional payments beyond that regardless of their precise form.
I disagree. There is a difference between a bonus for hard work and an entitlement to overtime pay for each hour worked that is crucial to the nature of the employment relationship. A bonus goes to an employee who has done the task for which she is paid a salary, and who has exceeded expectations in some way. The employer may show his appreciation for her hard'work (including extra time put into the job) by granting additional compensation, and still the employee will be paid on a salary basis. But when the bonus becomes a contractual entitlement, and when it is measured by the hour, the employee is no longer paid on a salary basis. Hourly overtime is purely an incentive to work more hours, not to do a better job. See Brock, 846 F.2d at 185. It denotes that payment for regular time is also measured by the hour— even if the latter is paid in weekly installments — because an employer cannot measure overtime on an hourly basis unless he expects a certain number of hours from his employee in the first instance. In this case, the plaintiffs are expected to work forty hours a week. If they work more hours, they receive overtime pay by the hour. This is employment on an hourly basis. The fact that the District pays it out in the form of a weekly “salary” does not change the fact that *441this “salary” is determined solely by reference to the number of hours worked. And when an employee’s compensation depends on the hours she puts in, she is paid on an hourly basis — even if she receives a guaranteed minimum weekly wage.
Judge Williams’s opinion relies on another ground to differ with my approach to the hourly overtime question. He rests his disagreement on the DOL’s regulatory change to the “no-docking rule.” Apparently, Judge Williams believes that by changing the “no-docking rule” to provide that salary reductions for hourly absences need not defeat the executive exemption, the DOL must also have intended to do likewise for hourly additions to a public employee’s salary. Op. of Williams, J., supra at 432-33.
This simply does not follow. The DOL changed the “no-docking rule” out of concern that virtually no public employees would fall within the executive exemption because nearly all could have their salaries docked for absences from work of less than a day. 56 Fed.Reg. 45824 (Sept. 6, 1991). This is because the public sector takes pains to avoid the appearance of dubious employment practices — such as paying out salaries to patronage “employees” who perform no actual function except collecting a paycheck. Id. at 45825. In that respect, public employees face different circumstances than private employees, and the DOL determined that they should be subject to a less-stringent “no-docking rule” to take account of these different circumstances. Id. Nowhere did the DOL suggest that public sector circumstances differ from those of the private sector with respect to hourly overtime, and the DOL accordingly made no changes to any aspect of the salary basis test for public or private employees except for the relaxation of the “no-docking rule.”
On the contrary, in implementing the final regulation relaxing the “no-docking rule,” the DOL expressly stated that it was not changing the preexisting rules for salary additions. 57 Fed.Reg. 37666, 37673 (August 19, 1992). In response to public comments suggesting that the new rules should address additional compensation as well as docking, DOL responded:
Exempt employees may receive additional compensation in addition to a guaranteed salary without defeating the salary basis in accord with § 5^1.118(b), entitled “Minimum guarantee plus extras,” which was not open for comment during the present rulemaking affecting the public sector.
The Department expects to address this issue as appropriate in proposed revisions of Part 541 at a later date.
The new § 541.5d modifies the “salary basis” test only by providing that an otherwise-exempt public sector employee under certain circumstances would not be disqualified from exemption where a deduction is taken from the employee’s pay for part-day absences. The change was proposed because of public sector employers’ inability, because of principles of public accountability, to avoid not paying their employees for hours not worked, thereby necessitating deductions for such part-day absences. Principles of public accountability do not provide a basis for making a special public sector rule for additional compensation paid.
Id. (emphasis added).
There is no reason to think, then, that the change in the “no-docking rule” in any way affected the impact of hourly overtime on the executive exemption. On the contrary, the DOL chose to alter the “no-docking rule” and to leave untouched both the preexisting definition of “salary basis” and the preexisting explanation of “minimum guarantee plus extras.” Whatever those sections meant before the regulatory change is what they mean today — for public and private employees alike. And what they meant and continue to mean is that hourly overtime payments defeat the executive exemption.
Far from “incoherent,” maj. Op. at 433, this strikes me as the only sensible way to view the regulatory change. Judge Williams’s response — that such a system would discourage public employers from paying hourly overtime to compensate for the “no-docking” rule — ignores two rather obvious points. First, there is no evidence to suggest that DOL ever considered whether employers would be so discouraged; if it had seen this as a problem, it could have specified that hourly overtime would no longer defeat the exemption for public employees. In*442stead, it expressly chose to leave intact the effect of additional compensation on the salary basis test. Second, even if Judge Williams’s concern for the public employer’s ability to compensate and yet claim the exemption were valid, this regulation does not foreclose such compensation. On the contrary, if the public employer finds that the “no-docking” rule discourages potential employees or demoralizes current ones, the employer may simply raise their base salaries or grant non-hourly bonuses for hard work— without losing the executive exemption. But the employer may not claim the exemption if he decides instead to convert his salaried employees into hourly ones. Hourly overtime has that effect.
I would hold that the plaintiffs are paid on an hourly basis under the District of Columbia’s compensation scheme: therefore, they are not covered by the executive exemption and the District owes them time-and-a-half overtime for both the pre- and post-September 6, 1991 time periods. Accordingly, I concur only in the result as to the period prior to the regulatory change, and I dissent as to the subsequent period.