Court Opinion

ID: 2995742
Source: CourtListenerOpinion
Date Created: 2015-09-24 19:22:06.218418+00
Date Added: 2024-06-11T08:19:30.611188
License: Public Domain

In the
 United States Court of Appeals
                 For the Seventh Circuit
                         ____________

No. 01-4118
CHRISTOPHER J. HEDER,
                                              Plaintiff-Appellee,
                               v.

CITY OF TWO RIVERS, Wisconsin,
                                          Defendant-Appellant.
                         ____________
           Appeal from the United States District Court
              for the Eastern District of Wisconsin.
             No. 00-C-274—Lynn Adelman, Judge.
                         ____________
      ARGUED APRIL 17, 2002—DECIDED JULY 10, 2002
                     ____________

 Before EASTERBROOK, MANION, and KANNE, Circuit
Judges.
  EASTERBROOK, Circuit Judge. After the City of Two
Rivers decided that all of its firefighters must be certified as
paramedics, the City and the firefighters’ union agreed that
one third of any necessary training would occur during
normal work hours, one third would be treated as overtime
at the contractual overtime rate, and the remaining third
would be treated as “donated” time. When the City learned
that, by virtue of the Fair Labor Standards Act, time re-
quired of an employee may not be treated as “donated,” it
decided to compensate the firefighters at half of their
2                                               No. 01-4118

regular hourly rate. Christopher Heder’s regular rate in
1997, when his training occurred, was $11.16 per hour, so
he received $5.58 per hour for the “donated” time. The deal
between the City and the union included a 3% increase in
the wages of firefighters who held certifications, plus an
undertaking that any firefighter leaving the City’s employ
within the next three years would reimburse the City for
the cost of the training, which would give each firefighter a
portable credential. Two and a half years after beginning
his training, Heder quit. Two Rivers withheld all of Heder’s
pay from his last two pay periods. Heder filed suit under
the FLSA, and the City counterclaimed for the remainder of
the money that it believes Heder owes under its memoran-
dum of agreement with the union.
  The district judge held that the FLSA requires the City to
pay time and a half for the “donated” hours and forbids
recoupment by setting terminal wages to zero. Although the
court held that the union’s agreement with the City is not
vitiated by the fact that Heder commenced his training
before the details were ironed out, this conclusion (the only
aspect of the decision adverse to Heder) turned out not to
matter given the court’s next rulings: that, under Wisconsin
law, an employer must reduce any reimbursement obliga-
tion as time passes, so that someone such as Heder, who
quit 5/6 of the way into the reimbursement period, cannot be
required to repay more than 1/6 of the training expense.
Because the collective bargaining agreement did not reduce
the obligation as time passed, the judge deemed the repay-
ment obligation completely invalid and directed the City to
pay Heder his full wages for the last two pay periods, plus
whatever extra is required to raise his compensation for
“donated” time to the statutory overtime rate. 149 F. Supp.
2d 677 (E.D. Wis. 2001). On appeal Heder seeks to defend
his judgment by renewing his argument that the agreement
is impermissibly retroactive, but we agree with the district
court’s rejection of this submission and thus turn to the
City’s contentions.
No. 01-4118                                                3

  Although Two Rivers argued in the district court that it
was entitled to reimbursement for all of the wages paid at
the overtime and “donated” time rates, it now concedes that
Heder is entitled to keep any compensation that the FLSA
specifies as a statutory floor below which no contract may
go. That means, in particular, that Heder was entitled to at
least the statutory minimum wage for his final two pay
periods (leaving the City to collect any residue as an or-
dinary creditor), see 29 U.S.C. §206(a)(1), and that Heder is
entitled to time and a half for any overtime hours for which
the FLSA requires that premium. But the parties do not
agree on what this means in practice, because the fire-
fighters do not work an ordinary 40-hour week. Instead the
City has prescribed a longer base period over which time is
calculated—216 hours on the job over a span of 27 days.
This is a lawful arrangement for firefighters’ work. See 29
U.S.C. §207(a), (k); 29 C.F.R. §553.230. The collective bar-
gaining agreement specifies that the first 204 hours are
paid at the regular rate and any excess is overtime. The
statutory minimum rate for overtime hours depends on
whether the firefighters work a “fluctuating workweek.” If
they do, then their standard compensation covers any num-
ber of hours, so that the only statutorily required payment
is the 50% premium for overtime. See 29 C.F.R. §778.114.
That’s where the $5.58 figure came from: it was half of
Heder’s regular hourly rate at the time.
  Under the FLSA an employee who works a “fluctuating
workweek” may be paid 50% of the regular wage for over-
time on the theory that the base wage covers any number
of hours at straight time. But a person working a “variable
workweek”—which is to say, a schedule that may call for
more or less time at work—must be paid at least 150% for
overtime hours. Two Rivers insists that its firefighters work
a “fluctuating workweek” because the 216 hours over a 27-
day period are distributed unevenly under what the par-
ties call the California Plan. Each firefighter works three
4                                                No. 01-4118

24-hour shifts during a nine-day window. Three nine-day
cycles form the 27-day pay block. The number of hours at
work in any given week fluctuates widely. Like the district
court, however, we think that Two Rivers has applied a lay
understanding of “fluctuating workweek” to what is under
the FLSA and its regulations a term with a technical mean-
ing.
  The paradigm of an employee working a “fluctuating
workweek” is one who receives a fixed salary no matter how
many hours the work requires that week. Consider an em-
ployee paid $400 per week for however many hours worked.
That employee may work 30 hours one week and 50 hours
the next. The salary is not diminished even if the number
of hours falls below 40, nor is the employee expected to
make them up in the future. The possibility of a higher
hourly rate in one week justifies a reduction in overtime
compensation if, in future weeks, hours rise above 40. Nu-
merically it works like this. In the 30-hour week, the $400
salary produces a straight-time compensation of $13.33 per
hour ($400/30), all of which the employee keeps. In the 50-
hour week, the straight-time rate is $8 per hour ($400/50);
10 of these 50 hours are overtime, but because the base rate
includes $8 for each of these hours, the incremental pay for
overtime is only $4 per hour more, and the total wages for
the week are $440. This includes time and a half for the 10
overtime hours, giving the employer credit for the $8 base
rate spread over 50 hours. See 29 C.F.R. §778.114(b).
   Two Rivers does not fit the model, because its firefighters
never work fewer than 216 hours in a 27-day period. There
is no shortfall of time (and correspondingly higher hourly
rate) in one pay period that might make up for longer work
in another. Every hour is accountable. A firefighter who
does not put in 216 hours in a 27-day period is docked un-
less he has sick or vacation hours to use. In any event, Two
Rivers could not use the “fluctuating workweek” option even
if it fit that model, for only a “clear mutual understanding”
No. 01-4118                                                  5

that the base rate constitutes straight time for any overtime
worked enables the employer to calculate pay under the
fluctuating workweek plan. See 29 C.F.R. §778.114(a). The
collective bargaining agreement does not express a “clear
mutual understanding”; to the contrary, it calls for overtime
pay at time and a half, or more, for hours in excess of 204
per 27-day period. Every extra hour is calculated and paid
for. That is incompatible with treating the base wage as
covering any number of hours at straight time. See Condo
v. Sysco Corp., 1 F.3d 599 (7th Cir. 1993) (an agreement
fixing overtime at 50% of straight time displays the re-
quired “clear mutual understanding”). So the FLSA required
the City to pay—and entitles Heder to retain, despite the
union’s agreement—time and a half for all hours over 204
per 27-day period, even if some of those hours were devoted
to paramedic training. As the district judge held, Heder has
a good FLSA claim for extra compensation (the City does not
contend that his suit is untimely). Next we must decide
whether the City has a good claim for reimbursement of at
least some outlays.
  Heder depicts a repayment obligation as a covenant not
to compete that is invalid under Wis. Stat. §103.465. The
district judge adopted this characterization; we do not, be-
cause in Wisconsin (as in other states) a covenant not to
compete must be linked to competition. An agreement to
repay Two Rivers if a firefighter goes to work for a rival fire
department would be treated as a covenant not to compete.
See Union Central Life Insurance Co. v. Balistrieri, 19
Wis. 2d 265, 120 N.W.2d 126 (1963). But the agreement
between Two Rivers and the firefighters’ union does not
restrict Heder’s ability to compete against the City after
leaving its employ. The obligation is unconditional: a fire-
fighter departing before three years have expired must
repay training costs even if he goes back to school, changes
occupation, or retires. Competition has nothing to do with
the matter.
6                                                No. 01-4118

  According to Heder, Wisconsin would act as if this were
a covenant not to compete, on the ground that repayment
induces “involuntary servitude” that is more onerous than
the agreements explicitly regulated under §103.465. Yet
this is not what the Supreme Court of Wisconsin said in
Balistrieri: there it limited application of §103.465 to agree-
ments that condition repayment on going to work for the
exemployer’s rival. True enough, as the district judge em-
phasized, Two Rivers’ repayment obligation shares with
genuine restrictive covenants the feature that it makes
changing jobs costly. But that is not enough to throw a
contract out the window. Employers offer their workers
many incentives to stay, so that they can reap the benefit of
training and other productivity enhancers that depend on
employees’ tenure with the firm. Pay that increases with
longevity is one common device; an employee who leaves
must start elsewhere at the bottom rung. Firm-specific
training (the value of which is lost if the employee changes
jobs) likewise penalizes departures. See Daniel Parent,
Wages and Mobility: The Impact of Employer-Provided
Training, 17 J. Labor Econ. 298 (1999). Seniority systems
that link duration of service to better assignments, protec-
tion against layoffs, and so on, have a similar effect; to quit
is to give up accumulated seniority. Private employers give
employees profit-sharing plans and stock options that vest
later (if the person remains employed) and bonuses that
accrue after extra years have been served. Defined-benefit
pension systems usually are back-loaded, so that the last
years of work before retirement add more to the monthly
pension benefit than do earlier years. See Jones v. UOP, 16
F.3d 141 (7th Cir. 1994). The common formula that starts
with multiplying the final salary by the number of years
served produces this effect automatically because salaries
tend to rise with inflation and years of service. Yet no one
believes that this powerful financial incentive to stick with
one’s employer until retirement is unlawful, even though it
is much larger than the amount Heder must repay Two
No. 01-4118                                                 7

Rivers for paramedic training. The parties do not cite, and
we could not find, any Wisconsin decision that character-
izes the kind of incentives mentioned above as restrictive
covenants regulated by Wis. Stat. §103.465. Instead, Wis-
consin applies Wis. Stat. §103.465 only to the extent that a
consequence is linked on working for a competitor. See
Zimmermann v. Brennan, 78 Wis. 2d 510, 254 N.W.2d 719
(1977); Holsen v. Marshall & Ilsley Bank, 52 Wis. 2d 281,
190 N.W.2d 189 (1971).
  Nor can we see any reason why Wisconsin would want to
extend its precedents to block reimbursement agreements
such as the one Two Rivers made with its union. Employees
received considerable benefits as a result: paramedic train-
ing that will be useful for years to come, a 3% increase in
compensation starting in 1998 (rising to 3.5% in 1999) for
those who are certified paramedics, and extra compensation
(at overtime rates) for the training time. Residents of Two
Rivers received the benefit of a fire department more likely
to save lives. Cities fearing that employees would take their
new skills elsewhere would be less likely to provide these
benefits. Or they might use other ways to acquire a work-
force with better skills. They could, for example, require the
employees to undergo and underwrite their own training,
with none of the time compensated. This is what law firms
do when they limit hiring to persons who already have law
degrees, what school systems do when hiring only teachers
who hold state certificates. The employer must pay indi-
rectly, through a higher salary, but no court would dream
of calling this system (under which employees finance their
own training) “involuntary servitude.” If an employer may
require employees to pay up front, why can’t the employer
bear the expense but require reimbursement if an early
departure deprives the employer of the benefit of its
bargain? A middle ground also would be feasible (and law-
ful): The employer could require the worker to pay for his
own training but lend the worker the money and forgive
8                                                No. 01-4118

repayment if he sticks around. See Milwaukee Area Joint
Apprenticeship Training Committee v. Howell, 67 F.3d 1333
(7th Cir. 1995). A worker who left before the loan had been
forgiven would have to come up with the funds from his own
sources, just as Heder must do. If that system is lawful, as
it is, then the economically equivalent system that Two
Rivers adopted must be lawful. The cost of training equates
to the loan, repayment of which is forgiven after three
years.
  The district judge objected to the cliff in the repayment
system: instead of a slow reduction (equivalent to amortiza-
tion of a loan), the collective bargaining agreement calls for
full repayment before three years and none after. The judge
inferred from this that the useful life of paramedic training
is three years; as Heder quit with only 1/6 of this time re-
maining his union could not legally bind him to repay more
than 1/6 of these expenses. The inference is unsound: One
could as easily infer from the fact that the 3% wage boost is
perpetual that paramedic training lasts indefinitely. We
know from the record that Heder spent 582 hours undergo-
ing the initial round of training and eight hours to re-certify
two years later. This implies that paramedic skills have a
useful life that can be extended indefinitely with small
recurring investment—and it also implies that the three-
year period is generous to workers. Two Rivers could have
made the period much longer (say, 10 years). Then even if
the debt had been amortized, as the district judge preferred,
many workers (all who stayed longer than 3 years but quit
or retired before 10) would have been worse off. The actual
structure cannot be set aside as onerous—even if Wisconsin
had a rule, which it does not, that no onerous term in a col-
lective bargaining agreement is enforceable. The day Heder
quit, his paramedic skills were effectively as valuable as the
day he received his certification. We do not think that the
Supreme Court of Wisconsin is apt to require employers and
employees to amortize training costs with precision, to
No. 01-4118                                                 9

factor in the time value of money (the agreement does not
require Heder to pay interest, though it might have done
so), or to craft an individual schedule based on the number
of years each employee is expected to remain able to work.
The collective bargaining agreement is valid under state
law, so Heder must repay the full cost of his books and
tuition, which came to about $1,400.
  What else, if anything, must be repaid? The agreement
seems to call for repayment of the overtime compensation,
but as we have already observed this violates the FLSA to
the extent that it would leave Heder with less than time
and a half for all overtime hours. See 29 U.S.C. §207(a)(1),
(k); Martino v. Michigan Window Cleaning Co., 327 U.S.
173, 177-78 (1946); Brooklyn Savings Bank v. O’Neil, 324
U.S. 697, 707 (1945). The third of the training time that the
City and union originally agreed to treat as overtime was
paid at $23.09 per hour, more than double Heder’s regular
hourly rate of $11.16 per hour. The remaining third was
paid at $5.58 per hour. Thus for an average overtime hour
Heder’s compensation was $14.34, about 128% of his reg-
ular rate rather than the required 150%. (Note that we
have combined hours compensated at more than 150% with
hours compensated at less. This is the right method because
the accounting unit is the whole week or other pay period,
rather than the hour. See 29 U.S.C. §207(h)(2).) But the
district judge expressed some doubt about Heder’s regular
hourly rate, and we think it best to remand so that any
necessary findings may be made and calculations done. (To
the extent that the judge assumed that Heder’s regular rate
must have been 2/3 of the contractual overtime rate, it failed
to give effect to 29 U.S.C. §207(e)(5). But perhaps some-
thing else sparked the judge’s doubt.) It also is necessary to
take into consideration the 3% and 3.5% additions, which
the district court held are part of a firefighter’s “regular
rate.” Two Rivers does not contest this conclusion on ap-
peal, so we need not decide whether it is correct. Last,
Heder is entitled to the minimum wage for his final two pay
10                                               No. 01-4118

periods, see 29 U.S.C. §206(a)(1); Calderon v. Witvoet, 999
F.2d 1101, 1107 (7th Cir. 1993), and to credit against the re-
imbursement obligation for the difference between that
minimum wage and the total withholding ($2,281.21) that
the City effected. We can’t tell in whose favor the net judg-
ment runs, but calculation should be a mechanical task in
light of our rulings.
  One final matter. The district judge suggested that by
withholding any amount from the final two pay periods Two
Rivers violated Wis. Stat. §109.03(2), which requires all
departing employees to be paid in full. This statute does not
prevent employees from striking agreements that reduce
what “in full” means, and as we have held that the collec-
tive bargaining agreement’s repayment proviso is valid
there is no problem under §109.03(2).
  By the way, the City’s protest that some of the district
judge’s original calculations and legal theories did not cor-
respond directly to the parties’ arguments is not a ground
of any additional relief. The City has made to us whatever
arguments are available to it, and as appellate review of a
decision on summary judgment is plenary it does not matter
whether the district judge’s decision was based on inde-
pendent research. See Scaife v. Racine County, 238 F.3d 906
(7th Cir. 2001). All of the City’s arguments now have been
taken into account.
  The judgment is vacated, and the case is remanded for
further proceedings consistent with this opinion.

A true Copy:
       Teste:

                        ________________________________
                        Clerk of the United States Court of
                          Appeals for the Seventh Circuit

                    USCA-97-C-006—7-10-02