Court Opinion

ID: 181446
Source: CourtListenerOpinion
Date Created: 2010-12-21 00:24:42+00
Date Added: 2024-06-11T17:25:55.376957
License: Public Domain

Case: 10-20355 Document: 00511326977 Page: 1 Date Filed: 12/20/2010

           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT  United States Court of Appeals
                                                    Fifth Circuit

                                                 FILED
                                                                         December 20, 2010

                                     No. 10-20355                           Lyle W. Cayce
                                   Summary Calendar                              Clerk

SYLVESTER TALBERT, Individually and on Behalf of All Others Similarly
Situated; SHERYL WANT, Individually and On Behalf of All Others
Similarly Situated,

                                                   Plaintiffs - Appellants
v.

AMERICAN RISK INSURANCE COMPANY, INC.; SAFEER HASSAN;
SAROSH AHMED,

                                                   Defendants - Appellees

                    Appeal from the United States District Court
                         for the Southern District of Texas
                              USDC No. 4:09-CV-1023

Before JOLLY, GARZA, and STEWART, Circuit Judges.
PER CURIAM:*
       Sylvester Talbert and Sheryl Want (“the plaintiffs”) appeal the summary
judgment in favor of American Risk Insurance Company, Inc., Safeer Hassan,
and Sarosh Ahmed (collectively, “ARI”), denying relief on their claims for

       *
         Pursuant to 5TH CIR . R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR .
R. 47.5.4.
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overtime compensation under the Fair Labor Standards Act (“FLSA”), 29 U.S.C.
§ 216(b). We AFFIRM.
                                      I.
      Talbert was employed by ARI as an assistant claims adjuster from
September 29, 2008, until February 3, 2009. His duties included handling
claims made against insurance policies underwritten by ARI. Most of the claims
that he handled related to property damage sustained by homeowners as a
result of Hurricane Ike. ARI classified Talbert as an administrative employee
who was exempt from the overtime requirements of the FLSA.
      Want worked for ARI as a claims adjuster from October 21, 2008, through
January 5, 2009. She also handled claims against policies underwritten by ARI,
and most of the claims that she handled related to property damage sustained
by homeowners as a result of Hurricane Ike.       ARI classified Want as an
independent contractor.
      Talbert filed suit against ARI under section 216(b) of the FLSA, alleging
that ARI failed to pay him overtime compensation. Want consented to become
a party to the action.    ARI filed an answer denying the allegations of the
complaint. After the discovery deadline had passed, ARI moved for summary
judgment, asserting that Talbert was an administrative employee who was
exempt from the FLSA’s overtime requirements and that Want was not entitled
to overtime compensation because she was an independent contractor. In their
response in opposition to the summary judgment motion, the plaintiffs argued
that ARI’s affirmative defenses had been waived because they had not been
specifically pleaded, as required by Rule 8(c) of the Federal Rules of Civil
Procedure.
      ARI filed a motion to amend its answer to assert the affirmative defense
that Talbert is an exempt administrative employee. In the motion, ARI argued
that the amendment should be allowed because the plaintiffs were clearly aware

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that ARI was relying on the defense, inasmuch as it was discussed in the written
settlement offer made prior to filing the answer and was subsequently disclosed
in ARI’s responses to the plaintiffs’ interrogatories. The motion was referred to
a magistrate judge for resolution.    The plaintiffs opposed the amendment,
arguing that ARI had waived the affirmative defense and that leave to amend
should be denied because the request was untimely. The magistrate judge
weighed ARI’s delay in seeking to amend the answer against the lack of
prejudice to the plaintiffs, and granted leave to amend. The plaintiffs did not
seek district court review of the magistrate judge’s order and did not move for
a continuance to conduct discovery on the affirmative defense.
      The district court granted summary judgment for ARI. It held that the
plaintiffs’ argument that ARI waived the affirmative defense that Talbert was
subject to the administrative employee exemption under the FLSA was
unavailing because ARI had amended its answer to assert that defense. The
court further held that Talbert was exempt from the FLSA’s overtime
requirements because he was an administrative employee; and that Want was
an independent contractor and not entitled to overtime compensation. The
plaintiffs timely appealed.
                                       II.
      The plaintiffs first argue that the district court abused its discretion by
permitting ARI to amend its answer to add the affirmative defense that Talbert
was exempt from the overtime requirements of the FLSA after the deadline to
file motions for leave to amend pleadings had passed and after ARI had filed a
motion for summary judgment on the defense that it failed to plead. They
therefore contend that the district court erred by holding that ARI had not
waived the defense that Talbert is an exempt administrative employee. They
contend further that, even if ARI did not waive that affirmative defense, the
district court erred in granting summary judgment because there are genuine

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issues of material facts as to whether Talbert qualified for the administrative
exemption and whether Want was an independent contractor. We address the
amendment/waiver issue first, and then turn to consider the FLSA status of
Talbert and Want.
                                         A.
      Rule 8(c)(1) of the Federal Rules of Civil Procedure requires a litigant to
“affirmatively state any avoidance or affirmative defense.”         F ED. R. C IV. P.
8(c)(1). “Generally, a party’s failure to raise an affirmative defense in its first
responsive pleading results in waiver.” Bayou Fleet, Inc. v. Alexander, 234 F.3d
852, 860 (5th Cir. 2000). “However, where the matter is raised by the trial court
[or the litigants and] does not result in unfair surprise, technical failure to
comply precisely with Rule 8(c) is not fatal, and in such a situation a court may
hold that the defense is not waived.” Id. (internal quotation marks and citations
omitted). “An affirmative defense is not waived if it is raised at a pragmatically
sufficient time, and the plaintiff was not prejudiced in its ability to respond.” Id.
(internal quotation marks and citation omitted).
      An exemption must be asserted as an affirmative defense to a claim under
the FLSA. See Corning Glass Works v. Brennan, 417 U.S. 188, 196-97 (1974).
As the plaintiffs concede, this court has never held that independent contractor
status is an affirmative defense to a claim for overtime compensation under the
FLSA, but they urge us to so hold in this case.
      The plaintiffs argue that ARI waived its affirmative defenses by failing to
assert them in its original answer and, therefore, the district court abused its
discretion by permitting ARI to amend its answer. However, as we have noted,
ARI’s motion for leave to amend was referred to a magistrate judge for
resolution. The plaintiffs did not seek district court review of the magistrate
judge’s order granting leave to amend, as required by Federal Rule of Civil
Procedure 72(a). See F ED. R. C IV. P. 72(a) (“A party may not assign as error a

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defect in [a magistrate judge’s order on a nondispositive pretrial matter] not
timely objected to.”).   Accordingly, their argument that it was an abuse of
discretion to grant ARI leave to amend its answer is not properly before us. See
Lehmann v. GE Global Ins. Holding Corp., 524 F.3d 621, 624 n.4 (5th Cir. 2008)
(stating that if appellant’s briefing were construed as a challenge to the
magistrate judge’s denial of leave to amend the complaint, that argument was
not properly before the court because appellant “failed to appeal the magistrate
judge’s order to the district court”). Further, because the magistrate judge
granted ARI leave to amend its answer, and the plaintiffs did not file objections
to that order, the district court did not err by holding that ARI had not waived
its defense that Talbert is an administrative employee who is exempt from the
FLSA’s overtime compensation requirements.
      We need not address the plaintiffs’ contention that independent contractor
status is an affirmative defense to a claim for overtime compensation under the
FLSA because, even if we assume that it is, ARI did not waive the defense. ARI
asserted, in both its original and amended answers, that Want was an
independent contractor and thus was not entitled to payment of overtime
compensation under the FLSA.
      We now turn to consider whether the district court properly granted
summary judgment for ARI on the plaintiffs’ claims for overtime compensation
under the FLSA.
                                       B.
      The FLSA generally requires payment of overtime compensation for work
in excess of forty hours per week. 29 U.S.C. § 207(a)(1). However, there are
exceptions to that general requirement. At issue in this case is the exemption
for employees “employed in a bona fide executive, administrative, or professional
capacity.” 29 U.S.C. § 213(a)(1). “The decision whether an employee is exempt
from the FLSA’s overtime compensation provisions under 29 U.S.C. § 213(a)(1),

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is primarily a question of fact . . . .” Lott v. Howard Wilson Chrysler-Plymouth,
Inc., 203 F.3d 326, 330 (5th Cir. 2000). “However, the ultimate decision whether
the employee is exempt from the FLSA’s overtime compensation provisions is a
question[] of law.” Id. “We construe FLSA exemptions narrowly; and the burden
of proof lies with the employer.” . Cheatham v. Allstate Ins. Co., 465 F.3d 578,
584 (5th Cir. 2006). We review the grant of a summary judgment motion de
novo, applying the same standard as the district court. Id. at 582.
       The Secretary of Labor has promulgated regulations which define the term
“employee employed in a bona fide administrative capacity” as an employee who
is:
             (1) Compensated on a salary or fee basis at a rate of not less
       than $455 per week . . .;

            (2) Whose primary duty is the performance of office or non-
       manual work directly related to the management or general
       business operations of the employer or the employer’s customers;
       and

             (3) Whose primary duty includes the exercise of discretion
       and independent judgment with respect to matters of significance.
29 C.F.R. § 541.200.
                                        1.
       It is undisputed that Talbert was paid a salary in excess of $450 per week
— his salary was $32,000 per year. Talbert argues that ARI treated him as an
hourly employee because he earned compensatory time off when he worked more
than forty hours per week, and was required to use compensatory time when he
worked less than forty hours a week. He contends that the use of compensatory
time is clear evidence that ARI did not intend to pay him on a salary basis, and
that compensatory time off is only permitted for use by public agencies, citing 29
U.S.C. § 207(o). He therefore contends that ARI’s use of compensatory time
caused ARI to lose the exemption, citing 29 C.F.R. § 541.602(a) (“an exempt

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employee must receive the full salary for any week in which the employee
performs any work without regard to the number of days or hours worked”); and
29 C.F.R. § 541.603(a) (“An employer who makes improper deductions from
salary shall lose the exemption if the facts demonstrate that the employer did
not intend to pay employees on a salary basis”).
      Talbert’s arguments are without merit. He cites no authority for his
contention that Section 207(o), which authorizes governmental employers to
provide compensatory time off in lieu of the payment of overtime compensation
to non-exempt employees, prohibits private employers from using compensatory
time for exempt, salaried employees.         There is no evidence submitted that
Talbert was not always paid his full salary. Further, he presented no evidence
that ARI’s use of compensatory time resulted in any improper deductions from
his salary.
                                        2.
      With respect to the second element, it is undisputed that all of Talbert’s
work was in the office and was directly related to the general business
operations of ARI.
                                        3.
      The primary focus of the dispute is whether Talbert’s “primary duty
include[d] the exercise of discretion and independent judgment with respect to
matters of significance.” 29 C.F.R. § 541.200(3). “In general, the exercise of
discretion and independent judgment involves the comparison and the
evaluation of possible courses of conduct, and acting or making a decision after
the various possibilities have been considered.” 29 C.F.R. § 541.202(a). “The
term ‘matters of significance’ refers to the level of importance or consequence of
the work performed.” Id.
      The regulations, which contain examples of jobs that fall within the
administrative exemption, provide that insurance claims adjusters “generally

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meet the duties requirements for the administrative exemption, whether they
work for an insurance company or other type of company, if their duties include
activities such as interviewing insureds, witnesses and physicians; inspecting
property damage; reviewing factual information to prepare damage estimates;
evaluating and making recommendations regarding coverage of claims;
determining liability and total value of a claim; negotiating settlements; and
making recommendations regarding litigation.” 29 C.F.R. § 541.203(a)
      In support of its motion for summary judgment, ARI submitted an
affidavit of Kyle La Croix, its Vice President of Commercial Lines, in which he
described Talbert’s duties as follows:
      As an in-house claims adjuster, Talbert’s duties included:
      interviewing the insureds, reviewing the factual information from
      contractors and field adjusters to prepare damage estimates,
      making recommendations regarding the coverage of the claims,
      modifying reserves (subject to review). Talbert would also negotiate
      settlements and make recommendations to the claims manager
      regarding the claim. If litigation ensued, Talbert as an assistant
      claims adjuster would be expected to participate and make
      recommendations regarding the litigation; however, Talbert was
      terminated less than six months after he was hired and therefore he
      was never required to participate in litigation.
The affidavit stated further that
      ARI depended on Talbert, as a licensed insurance adjuster, to use
      his independent judgment and discretion to make recommendations
      concerning ARI’s response to their insured’s claims. In the vast
      majority of cases, the recommendations of ARI’s assistant claims
      adjusters are approved by the claims manager.
      In opposition to the motion for summary judgment, Talbert argued that
he was not required to exercise discretion or independent judgment. In his
affidavit, Talbert stated:
      5.    In handling these claims, coverage was typically a foregone
            conclusion.

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      6.    I rarely interviewed the insured when processing claims. In
            fact, appraisers hired by Defendants would typically interview
            the insured, take pictures of the property damage, and take
            whatever measurements were necessary. I usually only
            reviewed the statements and pictures taken by the appraisers
            and determined whether the measurements complied with the
            applicable standards.

      7.    I had no independent authority to settle claims. Every claim
            handled by me during my employment with Defendants was
            subject to review by Fred Behzadi who had the authority to
            settle the claim.

      8.    I was prohibited from speaking to any attorney retained by a
            policy holder. In fact, if an attorney became involved, I was
            instructed to forward the claim to Fred Behzadi who would
            review it and take over further handling of the claim.

      9.    If a policyholder sued my employer over a claim, I was not
            involved in developing or approving litigation strategy, hiring
            experts or negotiating settlement.

      10.   Throughout my employment with Defendants, I spent very
            little time interacting with policyholders and was, at all
            times, closely supervised by my employer. When I did
            interact with policyholders, it was only because they were
            upset that they had not been paid for their losses.
      Although Talbert asserts that “coverage was typically a foregone
conclusion” for the claims that he handled during his brief employment with
ARI, he does not deny that it was part of his job to make recommendations
regarding coverage if coverage was at issue. The fact that Talbert was not able
to settle claims on his own, but had to seek approval from his supervisor, does
not preclude his classification as an exempt administrative employee. See 29
C.F.R. § 541.202(c) (“The decisions made as a result of the exercise of discretion
and independent judgment may consist of recommendations for action rather
than the actual taking of action.”); see also Cheatham, 465 F.3d at 585 (stating

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that “the requirement that Allstate adjusters must consult with manuals or
guidelines does not preclude their exercise of discretion and independent
judgment”). Although Talbert asserts that he rarely interviewed policyholders,
he does not dispute ARI’s evidence that interviewing policyholders was part of
his job. And, although Talbert was instructed not to talk to policyholders’
attorneys, he does not challenge ARI’s evidence that he would have been
expected to assist in litigation of claims if that had become necessary during the
time that he was employed by ARI.
      Based on our consideration of all of the summary judgment evidence, we
agree with the district court that Talbert’s duties involved the exercise of
discretion and independent judgment. Accordingly, the district court did not err
by holding that, as a matter of law, Talbert is subject to the administrative
exemption and therefore not entitled to overtime compensation.
                                         C.
      Having determined that Talbert was exempt from the overtime
compensation requirements of the FLSA, we now turn to consider whether Want
was an employee of ARI within the meaning of the FLSA, or an independent
contractor and thus not subject to the FLSA’s overtime compensation
requirements.
      “To determine if a worker qualifies as an employee [under the FLSA], we
focus on whether, as a matter of economic reality, the worker is economically
dependent upon the alleged employer or is instead in business for himself.”
Hopkins v. Cornerstone America, 545 F.3d 338, 343 (5th Cir. 2008).           “The
contractual designation of the worker as an independent contractor is not
necessarily controlling.” Thibault v. Bellsouth Telecommunications, Inc., 612
F.3d 843, 845-46 (5th Cir. 2010).
      To aid us in this inquiry, we consider five non-exhaustive factors:
      (1) the degree of control exercised by the alleged employer; (2) the

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      extent of the relative investments of the worker and the alleged
      employer; (3) the degree to which the worker’s opportunity for profit
      or loss is determined by the alleged employer; (4) the skill and
      initiative required in performing the job; and (5) the permanency of
      the relationship. No single factor is determinative. Rather, each
      factor is a tool used to gauge the economic dependence of the alleged
      employee, and each must be applied with this ultimate concept in
      mind.
Hopkins, 545 F.3d at 343 (citations omitted).
      In his affidavit submitted in support of ARI’s motion for summary
judgment, La Croix stated:
           4. ARI hired Sheryl Want as a contract claims adjuster. She
      worked for ARI for approximately 12 weeks during which time she
      was paid an hourly rate of $18.00 /hour.

            5. In Texas, claims adjusters are licensed by the Texas Board
      of Insurance. ARI did not pay for the licensing. Any independent
      contractor would have to provide proof of their current license in
      order to be engaged. The claims adjusters hired by ARI as
      independent contractors, such as Want, were expected to do their
      job with little or no day to day supervision by ARI personnel. ARI
      expected Want to handle the files assigned to her and to make a
      recommendation to the ARI claims manager with regard to coverage
      and the amount of the claim, with little or no day to day supervision.

            6. Although ARI preferred that its independent contractors
      work during normal working hours, the independent contractors, as
      opposed to employees were allowed to set their own hours.
      Moreover, Want and the other independent contractors were free to
      work for other insurance companies at the same time the[y]
      performed services for ARI. Want represented to ARI that she had
      previously worked as an independent contract adjuster for a number
      of years working for various insurance companies. . . .

             7. Want often came in later than ARI employees, took long or
      late lunches and set her own hours. Want was not required to work
      in the ARI offices; however, because she was required to update the
      information related to a claims file into the Simple Insure program

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      on the ARI computers, as a practical matter she spent much of her
      time in the ARI offices.

            8. The position of claims adjuster did not require any
      specialized tools. It did, however, require that Want enter
      information concerning the claims she [was] handling into the
      computer program contained on ARI’s computer.

            9. ARI paid the independent contractors that worked for
      them, like Sheryl Want, on an hourly basis. ARI did not dictate the
      number of hours Want was required to work, did not set her
      schedule, nor did it prohibit her from working for other insurance
      companies. Based on the resume that Want provided ARI, Want
      had worked as an independent contractor for multiple companies in
      the past. Want completely controlled the number of hours she
      worked for ARI or any other insurance company.

             10. From the beginning of her relationship with ARI, Want
      was aware that her position was temporary and that ARI considered
      her to be an independent contractor. The Personnel Change Notice
      signed by Want states that her employment is as a “contractor.” . . .
      As indicated on the Change Notice, Want’s job title was “Contract
      Claims Adjuster” and under the comments it clearly states,
      “Contractor for temporary position. Compensation @ $18/hr.
      Contract may be terminated by either party. Will receive a 1099
      from [ARI] for Compensation in 2008.” Want performed services for
      ARI for less than three months.
      Although not specifically disputing the above statements, in her affidavit
submitted in support of her opposition to the motion for summary judgment,
Want stated that she was required to sign and comply with a confidentiality
agreement; that she was required to comply with an employee code of conduct
and was subject to discipline; that she was expected to be at work from 9:00 a.m.
until 6:00 p.m., at a minimum, and was required to sign in and out on time
sheets provided by ARI; that, because of the number of hours she worked and
because of the confidentiality agreement, she was not effectively permitted to
work for another insurance company while working for ARI; and that she was

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so closely supervised by ARI that she exercised very little, if any, independent
skill and initiative in performing her job.
      “The determination of whether an individual is an employee or
independent contractor is highly dependent on the particular situation
presented.” Thibault, 612 F.3d at 848. The particular circumstances of Want’s
brief relationship with ARI following Hurricane Ike, considered in their entirety,
do not reflect, as a matter of economic reality, the degree of economic dependence
on ARI that constitutes employee status. Want’s resume, submitted by ARI in
support of its motion for summary judgment, reflects that Want had worked as
an independent contract adjuster for multiple companies prior to working for
ARI for twelve weeks. Want was a licensed professional, and she, not ARI, bore
the cost of licensing. She was expected to handle the files assigned to her with
little or no day-to-day supervision.     Want argues that the confidentiality
agreement that she was required to sign as a condition of working for ARI, and
the number of hours that she worked for ARI, precluded her from working for
other insurance companies. However, she does not dispute that she, and not
ARI, ultimately controlled the number of hours she worked for ARI. Further,
there is nothing in the confidentiality agreement that would have precluded her
from working for other insurance companies so long as she did not violate the
terms of the agreement. Finally, it is undisputed that, from the beginning of her
relationship with ARI, Want was aware that her position was expressly
temporary.
      Taking into account all of the summary judgment evidence, we conclude
that the district court did not err in holding that, as a matter of law, Want was
an independent contractor, and not an employee of ARI.
                                       III.
      For the foregoing reasons, the summary judgment is
                                                                    AFFIRMED.

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