Court Opinion

ID: 75606
Source: CourtListenerOpinion
Date Created: 2010-04-26 23:15:53+00
Date Added: 2024-06-11T09:39:25.370238
License: Public Domain

Tracy KLINEDINST, Plaintiff-Appellant,

                                                      v.
  SWIFT INVESTMENTS, INC., a Florida corporation d.b.a. Fantastic Finishes of Palm Beach, Inc.,
Defendant-Appellee.

                                               No. 00-13092.
                                      United States Court of Appeals,

                                              Eleventh Circuit.

                                                Aug. 6, 2001.

Appeal from the United States District Court for the Southern District of Florida. (No. 99-08913-CV-SH),
Shelby Highsmith, Judge.
Before TJOFLAT and WILSON, Circuit Judges, and RESTANI*, Judge.

        WILSON, Circuit Judge:

        Tracy Klinedinst appeals from the district court's grant of summary judgment in favor of his former
employer, Swift Investments. Klinedinst sued Swift for failure to pay overtime in violation of the Fair Labor

Standards Act (FLSA), 29 U.S.C. §§ 201, et seq. The district court held that Klinedinst's position falls within

an exemption to the Act for "commission" workers. Because the district court incorrectly determined that
the exemption applies, we vacate its grant of summary judgment.

                                             I. BACKGROUND

        Swift operates an auto repair and body shop. Klinedinst was employed as an automobile painter for
Swift. Klinedinst received a salary from Swift based on the number of "flag hours" worked in a forty-hour
work week.1 Klinedinst sued Swift for violating the Fair Labor Standards Act (FLSA). He alleges that
between January 1, 1998 and December 31, 1998, he worked approximately two thousand overtime hours

beyond his forty-hour work week and approximately one thousand additional overtime hours between January

1, 1999 and June 30, 1999. He contends that Swift did not compensate him for this overtime pursuant to the

FLSA. Swift stipulated that Klinedinst was not paid overtime.

        For each repair job, Klinedinst was compensated according to a repair estimate. The labor portion
of the estimate was calculated by multiplying the predetermined "flag hours" by the auto shop's hourly rate.

    *
     Honorable Jane A. Restani, Judge, U.S. Court of International Trade, sitting by designation.
    1
      Although the "Employee New Hire Sheet" (the equivalent to an employment contract) is not at issue
in this dispute, it states that Swift intends for Klinedinst to work forty-hour weeks.
The "flag hours" were derived from a database utilized by auto repair shops and insurance adjusters. Thus,

they did not necessarily reflect the actual time spent completing a job. If more than or fewer than the
predetermined number of flag hours were required to complete a job, Swift would nevertheless pay the painter

for the predetermined number of hours even though he did not actually work that many hours.

        The hourly rate varied from $12 to $15 depending on the number of hours worked per week and the

number of hours allotted to the paint labor component of the repair estimate. Klinedinst was compensated
for each paint job he performed based on the following formula: the "flag hours" allotted to the paint labor

component of the repair estimate was multiplied by his hourly rate. Swift did not maintain records of the
actual hours that Klinedinst worked, and Klinedinst was paid for the maximum amount of flag hours,

regardless of the actual hours worked. Both parties refer to this compensation method as a "flat rate" system.

Klinedinst contends that although Swift applied this flat rate system, it deducted some of his predetermined
flag hours and used them to compensate the detailers who worked on the cars after he painted them.
        Both parties filed motions for summary judgment. The district court granted Swift's motion for

summary judgment and denied Klinedinst's motion. The district court concluded that the overtime exception
applied because Klinedinst's compensation under the flat rate system constituted commissions on services

which were exempt from the FLSA's requirement of overtime pay and because Klinedinst's rate never fell
below twelve dollars per hour so he never earned less than one and a half times the minimum wage of five
dollars and fifteen cents per hour.

                                             II. DISCUSSION
        Summary judgment is appropriate when there are no genuine issues of material fact and the movant

is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(c). We review the district court's grant of

summary judgment to Swift de novo. See Strickland v. Water Works & Sewer Bd. of the City of Birmingham,

239 F.3d 1199, 1203 (11th Cir.2001) (involving cross-motions for summary judgment).

        Generally, employers are required to pay employees overtime for hours worked in excess of forty
hours per week. The FLSA provides in pertinent part:

        Except as otherwise provided in this section, no employer shall employ any of his employees who
        in any workweek is engaged in commerce or in the production of goods for commerce, or is
        employed in an enterprise engaged in commerce or in the production of goods for commerce, for a
        workweek longer than forty hours unless such employee receives compensation for his employment
        in excess of the hours above specified at a rate not less than one and one-half times the regular rate
        at which he is employed.

29 U.S.C. § 207(a)(1). Swift contends that because Klinedinst worked on a commission basis and it met the
overtime exemption requirements, it was not obligated to pay Klinedinst overtime. The district court agreed.

We review to examine whether Swift met the statutory and regulatory requirements of the commission
exemption.

                             A. Did the payment system represent a commission?
         The issue before us is whether the district court properly concluded that Swift met the commissioned

work exemption to this provision.2 Whether Klinedinst's payments constituted commissions is an issue of

law. Yet, it is an issue that finds little illumination from the sparse case law and the vague references in
statutes and regulations. Nonetheless, it is the duty of the courts to determine whether wage payment plans

are in substantial compliance with FLSA. We undertake that duty by construing the remedial statutory

provisions both narrowly and sensibly. See Walling v. A.H. Belo Corp., 316 U.S. 624, 634-35, 62 S.Ct. 1223,

86 L.Ed. 1716 (1942); Brennan v. Valley Towing Co., Inc., 515 F.2d 100, 110 (9th Cir.1975); Birdwell v.

City of Gadsden, Ala., 970 F.2d 802, 805 (11th Cir.1992) (holding that FLSA provisions are interpreted

liberally in the employee's favor and its exemptions construed narrowly against the employer).
         Swift, as the employer, bears the burden of proving the applicability of a FLSA exception by " 'clear

and affirmative evidence.' " Birdwell, 970 F.2d at 805. Swift avers that the flat rate system it utilized is a

form of commission, which is incentive-based and encourages efficiency and speed. Klinedinst was assigned

an hourly rate (flag rate) for a particular task, but if it took longer than the allotted time, he would not be paid
extra. If he completed the task sooner, however, he would keep the difference. For example, deposition

testimony reveals that whether a technician took ten or thirty hours to complete a job, he would still be paid
the same. Specifically, Swift determined Klinedinst's compensation per job by multiplying the predetermined

flag hours by his hourly rate. He was to receive compensation under this formula regardless of whether he

actually worked the predetermined flag hours. The flat rate of pay was not the hours of time it actually took
the worker to complete a job. It is a method of providing employees with an incentive to "hustle" to finish

their jobs in order to obtain a larger number of jobs for greater compensation.

    2
     The commissioned work exemption as written in 29 U.S.C. § 207(i) states:

                 No employer shall be deemed to have violated [the overtime provisions of the Act] by
                 employing any employee of a retail or service establishment for a workweek in excess of
                 [40 hours], if (1) the regular rate of pay of such employee is in excess of one and one half
                 times the minimum [wage], and (2) more than half of his compensation for a
                 representative period (not less than one month) represents commissions on goods or
                 services.
            To bolster the claim that the flat rate system constituted a commission, Swift cites to the Wage and

Hour Division of the Department of Labor's Field Operations Handbook:

        Some auto service garages and car dealerships compensate mechanics and painters on the following
        basis: The painter or mechanic gets so much a "flat rate" hour for the work he or she performs. A
        "flat rate" hour is not an actual clock hour. The painter or mechanic may work only 7, 8 or 9 hours
        a day and still receive credit for 10, 11 or 12, etc., flat rate hours depending upon how much work
        he or she has done. Each job is assigned a certain number of hours for which the customer is
        charged, regardless of the actual time it takes to perform the job. The employee is given a certain
        proportion of that charge expressed in terms of so many dollars and cents per "flat rate" hour rather
        than in terms of a percentage of the charge to the customer. The dealer does not change the
        employee's share per flat rate hour if the charge to the customer is changed. In such situations Wage-
        Hour will not deny that such payments represent "commissions on goods or services" for purposes
        of Sec. 7(i) (see IB 778.117 and 779.413(b)). Such employment will qualify for exemption under
        Sec. 7(i) provided all the other tests of the exemption are met.

Field Operations Handbook, Section 21h04(d). An agency's internal directives to its employees, however,

are without the force of law. See Brennan v. Ace Hardware Corp., 495 F.2d 368, 376 (8th Cir.1974) (the

Labor Department's Field Operations Handbook is without "the force and effect of law."); Kirkland Masonry,

Inc. v. C.I.R., 614 F.2d 532, 533 (5th Cir.1980) ("Although federal agencies are bound by their own

regulations, a simple administrative directive to agency employees does not suffice to create a duty to the
public").

        Although the Field Operations Handbook is not entitled to Chevron deference,3 we find it persuasive.

Further support for this interpretation of commission may be found in 29 C.F.R. § 779.413(b), which states:
        Although typically in retail or service establishments commission payments are keyed to sales, the
        requirement of the exemption is that more than half the employee's compensation represent
        commissions "on goods or services," which would include all types of commissions customarily
        based on the goods or services which the establishment sells, and not exclusively those measured by
        "sales" of these goods or services.

See also Mechmet v. Four Seasons Hotels, Ltd., 825 F.2d 1173, 1175 (7th Cir.1987) ("persons not engaged

in the sale of goods—receivers, trustees, bailees, and others—are sometimes compensated in the form of what
are commonly called commissions, and ... [may be considered] 'commissions' within the meaning of 29

U.S.C. § 207(i) if the other requirements of the section are satisfied"); Black's Law Dictionary 264 (7th ed.

1999) ("Commission: ... 5. A fee paid to an agent or employee for a particular transaction, usu. As a

percentage of the money received from the transaction"); Merriam-Webster's Collegiate Dictionary 231 (10th

ed.1996) (same).

    3
    See Chevron U.S.A., Inc. v. Natl. Resources Defense Council, Inc., 467 U.S. 837, 844-45, 104 S.Ct.
2778, 81 L.Ed.2d 694 (1984). Chevron held that if a statute was ambiguous, the courts would defer to an
agency's reasonable interpretation of that statute. Id.; Bank of America, N.A. v. FDIC, 244 F.3d 1309,
1314 (11th Cir.2001).
         The cumulative effect of these citations is persuasive because they support the basic conception of

a commission without undermining the purpose or logic behind overtime.4 The flat rate at issue (1) provides

workers with an incentive to work quickly, while (2) paying them at a rate that exceeds minimum wage. The
function of a commission exemption as embodied by section 7(i) is to ensure that workers who are paid on

a commission basis are guaranteed to receive at least the legislated minimum wage without requiring them

to work overtime for it. See 29 U.S.C. § 207(i). Payments of between $12 and $15 per flagged hour provide

incentives for employees to work efficiently and effectively to the benefit of the employer, who may then take
on more customers at a greater profit margin, and the employee, who reaps the benefits of increased flag

hours regardless of the actual amount of hours worked. With this in mind, we conclude that Klinedinst's flat

rate wages constitute a "commission" but are only exempt from overtime pay if Swift can establish that it has

qualified for the overtime exemption provided in section 7(i). See Field Operations Handbook, Section

21h04(d).
         Section 7(i) states:

         No employer shall be deemed to have violated [the overtime provisions of the Act] by employing any
         employee of a retail or service5 establishment for a workweek in excess of [40 hours], if (1) the
         regular rate of pay of such employee is in excess of one and one half times the minimum [wage], and
         (2) more than half of his compensation for a representative period (not less than one month)
         represents commissions on goods or services.
29 U.S.C. § 207(i). As it is undisputed that all of Klinedinst's wages were derived from the flat rate system

and we have determined that the aforementioned system constitutes a commission, the second component of
section 7(i) is fulfilled.

                                   B. What was the regular rate of pay?
         We next review whether Swift satisfied the first component of the exemption, which is the regular

rate of pay. The "regular rate of pay" is the "hourly rate actually paid the employee for the normal,
nonovertime workweek for which he is employed" and "by its very nature must reflect all payments which

the parties had agreed shall be received regularly during the workweek, exclusive of overtime payments."

    4
     The purpose of the FLSA-required overtime is two-fold: (1) to spread out employment by placing
financial pressure on the employer to hire additional workers rather than employ the same number of
workers for longer hours; and (2) to compensate employees who for a variety of reasons worked
overtime. See H.R.Rep. No. 1452, 75th Cong., 1st Sess. (1937); S.Rep. No. 884, 75th Cong., 1st Sess.
(1937); Donovan v. Brown Equipment and Service Tools, Inc., 666 F.2d 148, 152 (5th Cir.1982);
Mechmet, 825 F.2d at 1175-76.
    5
    Automobile repair shops have been explicitly recognized as retail establishments. See 29 C.F.R. §
779.320.
29 C.F.R. § 779.419(b) (quoting Walling v. Youngerman-Reynolds Hardwood Co., 325 U.S. 419, 65 S.Ct.

1242, 89 L.Ed. 1705 (1945)). The regular rate is determined by dividing the employer's total compensation

during the workweek by the number of hours worked. See 29 C.F.R. § 779.419(b) (citing Overnight Motor

Co. v. Missel, 316 U.S. 572, 62 S.Ct. 1216, 86 L.Ed. 1682 (1942)).

         Swift states that Klinedinst's regular rate of pay was between $12 and $15 per hour. Assuming

Klinedinst worked only forty hours per week, this represents at least double the then minimum wage of $5.15

per hour. See 29 U.S.C. § 206(a)(1).6 However, both parties offer contradictory statements as to the number

of hours Klinedinst actually worked and both at some point during the summary judgment proceedings admit

that this disagreement forms the basis of an active factual dispute. Nonetheless, neither party kept records
of the number of hours Klinedinst worked. Thus, neither we nor the district court can ascertain from the

record developed to date Klinedinst's "regular rate" to compute his overtime compensation. Swift was
obligated to "maintain and preserve" records of the "regular hourly rate of pay for any workweek in which
overtime compensation is due under [§ 207(a) ].... " 29 C.F.R. § 516.2(a)(6)(i). It was also obligated to

maintain records of the "[h]ours worked each workday and total hours worked each workweek." 29 C.F.R.
§ 516.2(a)(7). Swift failed to do so. The number of hours worked per week is a genuine issue of material

fact for the factfinder. Cf. Valley Towing Co., 515 F.2d at 111-112 (appellee failed to record applicable

hourly rates or maintain records of both straight overtime hours worked and hours spent working on

commission; on remand, the district judge was to order appellees to comply with the applicable record
keeping requirements and determine overtime pay award since record was sufficient for this determination).

As Klinedinst maintained that he worked at least 3000 hours more than the regular forty-hour week during
his period of employment, this is still very much a live issue.

         Therefore, the district court incorrectly concluded that Klinedinst's regular rate of pay never fell

below twelve dollars per hour. In making this determination, the court improperly assumed that Klinedinst
never worked more hours than the number of hours paid under the flat rate system. As both parties

acknowledge, the number of hours Klinedinst actually worked did not necessarily equal the number of hours
for which he was paid under the flat rate system and, in any given week, the number of hours actually worked

could have been greater than or less than the number of flag rate hours for which Klinedinst was paid. See

29 C.F.R. § 778.117 ("Commissions (whether based on a percentage of total sales or of sales in excess of a

    6
     This reflects the minimum wage for the period of January 1998 to June 1999.
specified amount, or on some other formula) are payments for hours worked and must be included in the

regular rate. This is true regardless of whether the commission is the sole source of the employee's
compensation or is paid in addition to a guaranteed salary or hourly rate, or on some other basis ..."). As a

result, the assumption of a static forty-hour work week was error. Without knowing the regular rate of pay,

we cannot determine whether it is greater than one and one half times the minimum wage. Hence, remaining

factual inquiries preclude the legal determination of whether the section 207(i)(1) element of the overtime
payment exception is satisfied.

                                            III. CONCLUSION
        Swift's flat rate system constitutes a form of commission payment. Klinedinst, however, is still

entitled to overtime compensation pursuant to the FLSA unless Swift meets the exemption requirements of

section 7(i) of the FLSA. Because there is not enough evidence in the record to determine whether Swift met
the first component of the exemption requirement—the regular rate of pay—we find that the district court
erred in granting summary judgment to Swift. Accordingly, the district court's order is VACATED and

REMANDED for further proceedings consistent with this opinion.
        RESTANI, Judge, concurring in part, dissenting in part:

        I concur in the majority's decision to vacate the district court's order and to remand for a
determination of Klinedinst's regular rate of pay. I disagree, however, with the majority's conclusion that
Swift's flat rate pay system results in "commissions" within the meaning of 29 U.S.C. § 207(i) (1994), so that

the questions to be determined on remand are whether Klinedinst had any employment in excess of 40 hours
per week and whether such work was compensated at one and one-half times the minimum wage.

        The majority acknowledges that the FLSA is a remedial statute which is to be construed against the
employer, so that the employer must prove its entitlement to an FLSA exception by "clear and affirmative

evidence." Birdwell v. City of Gadsden, 970 F.2d 802, 805 (11th Cir.1992) (quoting Donovan v. United

Video, Inc., 725 F.2d 577, 581 (10th Cir.1984)). The majority, however, applies an expansive definition of

"commissions" in order to bring the method of pay at issue here within the exception set forth in § 207(i).

It seems to accord any payment that is based on a percentage of the payment to the employer status as a

"commission" payment. By any ordinary understanding of the meaning of commissions, the payments to
Klinedinst are not commissions. Klinedinst does not generate sales or jobs for his employer. Rather, he is

an ordinary wage-earning employee performing service work in an automobile garage.
        Not every method of payment which might encourage efficiency is a commission method. For

example, piecework pay is not a commission. See 29 C.F.R. § 778.111(a) (2000) (overtime compensated at

one and one-half piece rates).1 Further, work in excess of forty hours per week is entitled to extra half-time
pay if the worker is compensated by the day or by the job. 29 C.F.R. § 778.112.
        Although sales commissions are the most common form of commissions, there is no doubt that some

other forms of payment representing a percentage of the value of goods or services are easily recognized as

commissions. Indeed, in finding that banquet waiters earned "commissions" under § 207(i), the Seventh

Circuit notes that some persons paid on a percentage basis, such as receivers, trustees, and bailees, are not

engaged in generating sales and their compensation is commonly called "commissions." Mechmet v. Four

Seasons Hotels, Ltd., 825 F.2d 1173, 1175 (7th Cir.1987).            Nonetheless, because the meaning of

"commissions" in § 207(i) is unclear and because it recognized that a simple dictionary definition could result
in unintended loopholes, the Seventh Circuit carefully examined the purposes of the FLSA and the particular

context of the banquet waiters' employment before recognizing an expansion of the usual categories of

commission earners. Id. at 1175-77.

        An examination of the purposes of the FLSA indicates that Klinedinst's employment does not fit the
exception. One purpose of the FLSA's time and a half provisions was to prevent workers from working
abnormally long hours and thereby taking jobs away from workers who preferred more normal hours.

Another purpose was to spread work to reduce unemployment. A third purpose was to protect workers from

impairing their health or incurring more accidents from tiredness. See H.R.Rep. No. 75-1452, at 8-9 (1937);

S.Rep. No. 75-884, at 3-5 (1937); Mechmet, 825 F.2d at 1175-76. Unlike the banquet workers in Mechmet,

who worked irregular and nonhazardous jobs, where accidents due to tiredness may not be a large concern,

automobile repair, including painting, can be hazardous, and there is nothing to suggest that this work does

not result in regular employment. Further, banquets were found to be large ticket items, and the business was

described as "feast or famine." Mechmet, 825 F.2d at 1177. Reliable, long range estimation of the need for

workers and the length of their hours was not possible. See id. This does not describe the case at hand. Swift

has not shown that Klinedinst's type of employment is not exactly the type of employment that Congress

intended be covered by the FLSA.

    1
    A flat fee for cleaning used cars was found to be piece work. See Op. Ltr. FLSA-1042 (Dep't of
Labor October 14, 1982).
          Further, the majority, while recognizing that the Labor Department's Field Operations Handbook is

not entitled to Chevron deference, nonetheless relies on it. The Labor Department appears somewhat at sea

on the issue of commissions.2 In an opinion letter regarding dancers who were compensated principally from
a mandatory $5.00 charge per dance collected by the dancers for the club, the Labor Department stated that
the charge was a flat fee not based on the value of the service and was therefore not a commission.3 Op. Ltr.

FLSA-1332 (Dep't of Labor Nov. 19, 1996). The Department also stated:
          [29 U.S.C. § 207(i) ] is designed to exempt those employees who can increase their productivity, and
          hence, their earning, by applying their ingenuity, skill and experience to tasks which will vary in
          difficulty from job to job. These types of employees perform a service that has an identifiable
          monetary value to the customer, but the amount of time and effort required to complete the service
          and the complexity of the task performed may often vary from job to job.

Id.
          Putting aside the fact that the dancers could actually generate profits for the employer by selling more

dances, and consequently look more like commission earners than banquet waiters, there was no reliance in
either the Field Operations Handbook or in this case on increase in productivity based on ingenuity, skill and
experience. Labor's opinion letter seems to represent a narrow view of what constitutes a § 207(i)

commission, perhaps based on its unwillingness to accord any value to the particular service at issue. On the
other hand, the portions of Field Operations Handbook applicable to garage workers relied on by the majority
presents an expansive view. Neither expression of Labor's position reflects persuasive reasoning.4

          The FLSA accepts that the willingness of workers to contract for a particular method of payment is
not controlling. Whatever one's view of the current efficacy of this 1937 remedial legislation, it is not our

place or the Labor Department's to circumvent it by adopting a definition of commission not clearly intended
by Congress. Because there is considerable doubt as to whether Congress intended a payment plan such as

Swift's to qualify as a commission plan under § 207(i), I would hold that Swift has failed in its burden to

      2
     While 29 C.F.R. § 779.413(b), also relied upon by the majority, is entitled to deference, it does not
define "commissions"; it merely recognizes that commissions may be based on either sales or services, as
we acknowledge.
      3
    The letter is also entitled to deference only to the extent it has power to persuade. See Christensen v.
Harris County, 529 U.S. 576, 587, 120 S.Ct. 1655, 146 L.Ed.2d 621 (2000).
      4
     See Skidmore v. Swift & Co., 323 U.S. 134, 140, 65 S.Ct. 161, 89 L.Ed. 124 (1944) ("The weight of
[an agency's] judgment will depend upon the thoroughness evident in its consideration, the validity of its
reasoning, its consistency with earlier and later pronouncements, and all the factors which give it power
to persuade, if lacking power to control.").
demonstrate that it satisfies the exception to FLSA's time-and-a-half provisions.