Court Opinion

ID: 9477597
Source: CourtListenerOpinion
Date Created: 2023-08-05 06:26:57.948049+00
Date Added: 2024-06-11T17:45:57.421724
License: Public Domain

STAPLETON, Circuit Judge,
Concurring:
I reach the same conclusion as my colleagues; the case must be remanded for further proceedings. I am in fundamental disagreement with them, however, on the issue for resolution on remand. Accordingly, I write separately.
The undisputed record evidence in this case indicates (1) that each pit boss, floor-person and boxperson had a legally enforceable agreement entitling him or her to a weekly compensation calculated by reference to the number of hours worked with a minimum guarantee of $250, and (2) that in the course of compensating employees in these categories for between 60,000 and 70,000 work weeks during the audit period, Claridge failed to pay in accordance with this agreement on only twelve occasions. This undisputed evidence establishes that Claridge purported to have a compensation plan under which these employees were to be paid “on a salary basis” as defined in the Secretary’s regulations and at least suggests that, with very few exceptions, Claridge’s compensation scheme operated in practice in accordance with this compensation plan. The court is able to conclude that Claridge did not pay the employees “on a salary basis” only by endorsing a concept of “salary” which is in conflict not only with the position taken by the Secretary in her regulations but also with the position taken by the Secretary in this appeal.
As the court correctly notes, if pit bosses, floorpersons and boxpersons engage primarily in managerial tasks, as they con-cededly do, and are “compensated on a salary basis at a rate of not less than $250 per week,” Claridge has no obligation under the regulations to pay overtime for hours worked in excess of forty. The concept of “on a salary basis” is described in some detail in § 541.118 of the regulations which provides in relevant part as follows:
§ 541.118 Salary Basis.
(a) An employee will be considered to be paid “on a salary basis” within the meaning of the regulations if under his employment agreement 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. 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. This policy is also subject to the general rule that an employee need not be paid for any workweek in which he performs no work.
*190(1) An employee will not be considered to be “on a salary basis” if deductions from his predetermined compensation are made for absences occasioned by the employer or by the operating requirements of the business. Accordingly, if the employee is ready, willing, and able to work, deductions may not be made for time when work is not available.
(2) Deductions may be made, however, when the employee absents himself from work for a day or more for personal reasons, other than sickness or accident. Thus, 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.
(3) Deductions may also be made for absences of a day or more occasioned by sickness or disability (including industrial accidents) if the deduction is made in accordance with a bona fide plan, policy or practice of providing compensation for loss of salary occasioned by both sickness and disability....
(4) Deductions may not be made for absences of an employee caused by jury duty, attendance as a witness, or temporary military leave....
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(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. Such arrangements are subject to the exceptions in paragraph (a) of this section_ (emphasis . supplied).
For me, the underlined portions of this regulation communicate in unmistakable terms that an employer is compensating its employees “on a salary basis” when its compensation plan calls for payment for managerial services in accordance with a formula based on the “quantity of work performed” so long as there is a minimum guarantee of $250 per week unreduced by deductions other than those expressly authorized in the regulation.
The court suggests that an employee cannot be compensated “on a salary basis” unless he or she “decide[s] for himself [or herself] the number of hours to devote to a particular task,” Typescript at 184, and presumably unless those decisions have no bearing on the amount of compensation he or she receives. The court therefore holds that an employee whose pay is determined on an hourly basis with a minimum guarantee cannot qualify under the regulations as written. This holding is inconsistent (1) with the clear implication of § 541.118 that compensation above the $250 floor can be based on the quantity of work performed, (2) with the regulation’s example of a permissible compensation plan based on days or shifts worked, and (3) with the Secretary’s position before us and in the prior rulings referred to by the court.
While the Secretary’s investigation of Claridge’s pay practices appears to have been conducted with a view more in line with that adopted by the court, she has acknowledged before us that a compensation plan calling for a $250 floor and additional compensation based on the number of hours worked can qualify under § 541.118. The Secretary does go further, however. She maintains that, despite the fact that payment on an hourly basis can *191sometimes qualify, Claridge’s plan does not. She advances two arguments in support of this position. First, the Secretary insists that the regulation applies to plans such as Claridge’s only when “ ‘there is a reasonable relationship between the hourly rate, the regular or normal working hours and the amount of the weekly guarantee’ ” so that the weekly guarantee is “ ‘roughly equivalent to the employee’s earnings at the assigned hourly rate for his normal ... [work week].”’ Secretary’s Brief in Response to the Amici Curiae at 9, quoting II Wage and Hour Division Field Operations Handbook § 22b03. The Secretary notes that this “reasonable relationship” test is set forth in a five volume “Wage and Hour Division Field Operations Handbook” that “provides instructions for Wage and Hour enforcement.” Id. at 9 n. 2.
I would decline to accept the Secretary’s contention. The Act itself creates the “executive capacity” exemption that Claridge here claims, and the Act expressly provides that this exemption shall have the scope “defined and delimited from time to time by the regulations of the Secretary ...”. 29 U.S.C. § 213(a)(1). Nothing resembling a “reasonable relationship” requirement can be found in the Secretary’s regulations and I would hold that inserting one involves more than “interpretation”, as claimed by the Secretary. Unlike the court, I find Marshall v. Western Union Telegraph Co., 621 F.2d 1246 (3d Cir.1980) precisely on point and would decline to defer to the Secretary’s attempt to impose a requirement found only in her instructions to her enforcement personnel.
The second arrow to the Secretary’s bow is her contention that the final paragraph of the written “Weekly Salary Guarantee” renders the defendant’s compensation plan nonconforming. The Secretary here points to language providing that the $250 minimum will not be applicable when “some service is performed [in a given week] but absence is voluntary or due to a personal reason.” In another context, I would acknowledge that this language could reasonably be interpreted as impermissibly broad, i.e., as applying not only to days of voluntary absence but also to voluntary absences of less than a day. However, in a context involving a contract that tracks the provisions of the applicable regulation, I am disinclined to resolve the ambiguity against the employer. I would refuse to do so in the absence of persuasive evidence that the parties gave their agreement such a broad interpretation in practice.
The Secretary insists that even if Clar-idge’s compensation plan on its face compensates “on a salary basis,” it was not carried out in practice. The Secretary’s evidence at trial failed to support this position, however. The Secretary’s investigator, Patrick Reilly, was able to testify only that there were 305 instances between July of 1981 and January of 1983 in which Clar-idge paid an employee less than $250 for a week in which he or she worked. This testimony is of little probative value because the regulation and the agreement between the defendant and its employees permit payment of less than $250 in a number of circumstances and Mr. Reilly was unable to testify about the circumstances surrounding these transactions. Claridge, on the other hand, came forward with affirmative evidence that the defendant complied with the terms of the regulation and its employment agreements in all of the 60,000 to 70,000 transactions during the audit period except twelve transactions affecting eleven employees. Claridge’s payroll supervisor testified that she conducted an audit of all “under $250 weekly payment” and “less than 8 hour absence” situations during the audit and found only this limited number of offending transactions. She further testified that supplemental payments were promptly made to the eleven employees affected.
While it is clear that the district court concluded that pit bosses, floorpersons and boxpersons were not compensated by defendant on a salary basis, the underpinnings of that conclusion are not clear. As I read its opinion, the district court appears to have regarded Claridge’s compensation plan as a noncomplying hourly wage plan based primarily on the fact that, given the relatively high level at which these employees were compensated, the weekly salary *192guarantee rarely came into play. While the court does not refer to the Secretary’s Handbook, such a conclusion reflects an acceptance of her “reasonable relationship” requirement. As previously indicated I would hold that this was error.
This does not mean, however, that the frequency or infrequency of occasions calling for payment of the $250 per week minimum salary is not relevant to a proper analysis of this case. As the district court noted there are admittedly twelve instances during the audit period in which Claridge deducted for voluntary partial day absences and thus paid less than $250 for a week in which services were performed. The key issue is the inference to be drawn from this fact. That issue is framed by § 541.118(a)(6) of the regulations which provides as follows:
(6) 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.
As this provision suggests, resolution of the crucial issue of whether the twelve errors were attributable to inadvertence or to an intention not to pay the employee “on a salary basis” depends in large part on how many instances there were in which the $250 minimum guarantee came into play or would have come into play but for the impermissible deductions. If because of the relatively high level of compensation received by these employees, the twelve impermissibly low payments constitute a substantial percentage of the instances when the $250 minimum guarantee was implicated, an inference of an intentional failure to pay “on a salary basis” would be appropriate. On the other hand, if as suggested by the 305 instances of payments below $250, the number of instances in which the minimum guarantee was implicated was large in relation to the twelve underpayments, inadvertence would be the more appropriate inference and an inference of intentional noncompliance might well be clearly erroneous.
The district court’s refusal to find that Claridge had “willfully” violated the FLSA and its finding that Claridge acted “in good faith” suggests that it did not view the twelve impermissible underpayments as intentional refusals to pay “on a salary basis.” I agree with the court, however, that the district court's comments on these matters are too cryptic to permit us to be confident about what its views were.
Based on the foregoing anaysis, I would remand to the district court with instructions that it apply § 541.118(a)(6) to the record in this case and determine whether the twelve impermissible underpayments were attributable to inadvertence, to an intentional refusal to pay “on a salary basis,” or to a reckless indifference as to whether these employees were paid “on a salary basis.”1 If the district court found only inadvertence, the defendant would be entitled to the benefit of the “executive capacity” exemption and, therefore, to a judgment in its favor.

. I agree with the court that Claridge has the burden of showing its entitlement to the "executive capacity” exemption. Whether or not defendant has presented a prima facie case of entitlement would depend on an analysis of record that is best undertaken initially on the district court level.