JAMES ACS, еt al., Plaintiffs-Appellants, v. THE DETROIT EDISON COMPANY, Defendant-Appellee.
No. 05-1042
UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT
April 14, 2006
RECOMMENDED FOR FULL-TEXT PUBLICATION Pursuant to Sixth Circuit Rule 206
File Name: 06a0134p.06
Appeal from the United States District Court for the Eastern District of Michigan at Ann Arbor. Nos. 99-60795; 01-60192; 01-60232— Marianne O. Battani, District Judge.
Argued: March 9, 2006
Before: KENNEDY, MOORE, and SUTTON, Circuit Judges.
COUNSEL
OPINION
SUTTON, Circuit Judge. Congress enacted the Fair Labor Standards Act of 1938, Pub. L. No. 75-718, 52 Stat. 1060 (codified as amended at
Plaintiffs, employees of defendant Detroit Edison Company, appeal the district court‘s determination that Detroit Edison paid them on a salary basis, making them ineligible for time-and-a-half overtime compensation. Because Detroit Edison has established that the plaintiffs “regularly receive[] . . . a predetermined amount constituting all or pаrt of” their compensation,
I.
The seventh largest utility in the United States, Detroit Edison operates 24 hours a day seven days a week to provide power to more than two million customers in a 7,600 square mile region. Plaintiffs are an initial trial group of 24 (out of 383) employees of Detroit Edison who sued their employer alleging violations of the Fair Labor Standards Act. Plaintiffs argue that notwithstanding Detroit Edison‘s characterization of them as salaried employees, they satisfy the legal definition of hourly employees and thus are entitled to time-and-a-half overtime compensation.
A.
Detroit Edison pays all 8,500 of its employees—whether classified as salaried (“exempt“) employees or hourly (“non-exempt“) employees—under a single payroll system. Under this system, all Detroit Edison employees, from the CEO on down, must report the hours they work each week. Every two weeks, the payroll system generates a paycheck based on the employee‘s reported hours.
Salaried employees receivе notice of their exempt status and annual salary each year, usually in March. These notifications list the exempt employees’ previous and current salaries and explain that employees’ annual salaries are “converted to weekly” salaries by “divid[ing]” the “[a]nnual salaries . . . by 52 and round[ing] to the nearest [dollar].” JA 730. Detroit Edison then calculates an employee‘s “‘regular hourly’ rate . . . by dividing the employee‘s weekly salary by 40 hours.” JA 705. To receive their full annual salary, employees must report at least 40 hours each week. Detroit Edison‘s pay policy states that “[a]n exempt employee‘s
While Detroit Edison “[e]mployees normally work 40 hours a week,” the company‘s pay policy states that “alternative work schedules may be uniquеly designed to meet an organization‘s needs.” JA 501. As a group, plaintiffs work a variety of daily shifts, including “shifts of 8-, 10-, 12-hours, or a combination,” Det. Ed. Br. at 18, some of which do not add up to 40 hours a week. For example, an exempt employee who is assigned to 12-hour shifts typically works three shifts, or 36 total hours, the first week of a pay period, and four shifts, or 48 total hours, the second week of the pay period. To ensure that employees rеceive 1/26th of their annual salary each two-week pay period, Detroit Edison instructs its 12-hour shift employees to report 40 hours for the week in which they work just 36 hours (three 12-hour shifts).
Under this payroll system, employees occasionally inadvertently report fewer than 40 hours by forgetting to add in their four “free” hours to a week in which they worked just 36 hours. And under the system, employees occasionally deliberately report fewer than 40 hours by excusing themselves from work for a full “personal day” or to account for the fact that they began or ended their employment mid-week—circumstances under which an employer may legally reduce employees’ predetermined salaries without threatening their exempt status. See
To prevent employees from mistakenly under-reporting their time, Detroit Edison has implemented several safeguards. In addition to instructing exempt employees about the pay policy, the computerized time-entry program generates a “pop-up” screen to warn exempt employees when they have reported fewer than 40 hours for the week. And employees’ payсhecks also list the hours they reported for that pay period. If upon reviewing their paychecks employees discover that they failed to report all of their hours, they may submit an “Employee Time & Mileage Adjustment Notice” to correct the error.
Detroit Edison uses an hourly payroll system for several business reasons. Many of its salaried employees “receive hourly payments for hours worked over 40 in a workweek,” JA 705, and an hourly system offers one way to calсulate those extra hours. An hourly system permits the company to “record accrual and use of the various kinds of leave time (such as, vacation, sick and personal).”
B.
In 1999, plaintiffs filed a complaint against Detroit Edison in federal district court, seeking time-and-a-half overtime compensation from the company under the Fair Labor Standards Act. In May 2003, after considerable discovery, the district court determined that Detroit Edison guaranteed the plaintiffs a “predetermined amount” within the meaning of the applicable regulation,
II.
The Fair Labor Standards Act requires employers to pay time-and-a-half overtime compensation to all employees who work more than 40 hours a week—except executive, administrative and professional employees.
To establish an overtime exemption for executive, administrative or professional employees,
That leaves the question whether the сompany has satisfied the salary-basis test contained in
In our view, Detroit Edison has satisfied the administrative requirements of the salary-basis test. The company regularly sets an annual salary for its exempt employees, and the employees are guaranteed
What matters is that “deductions may not be made for time when work is not available” “if the employee is ready, willing, and able to work.”
In filing this lawsuit, plaintiffs principally challenged Detroit Edison‘s eligibility for this regulatory exemptiоn on the ground that when exempt employees under-reported their hours, they received less than their predetermined salary and thus allegedly violated the salary-basis test. As the district court correctly concluded, however, the Department of Labor‘s July 9, 2003 opinion letter undermines this argument.
The factual settings of the opinion letter and of this case share several similarities. As here, the Department considered “one of the nation‘s largest producers of energy,” a regulated utility “that typically operate[s] 365 days per year and 24 hours per day.” Opinion Letter, 2003 DOLWH LEXIS 3, at *1. As here, “[s]ome of the Company‘s exempt employees work rotating 12-hour shifts. Other exempt employees work eight-hour shifts. The exempt employees are paid an annual salary computed on a biweekly basis” and the company “also pays additionаl compensation, often referred to as ‘overtime,’ to many of its exempt employees at the straight-time rate for hours worked in excess of 40 per week. Exempt employees typically are provided with sufficient information based on their annual salary in order to calculate their hourly pay rate in the event that they perform overtime or premium-time work.”
As here, the Company has a “pay pоlicy that states that employees may be required to record and report their time and associated tasks each week. This is so for two principal reasons. First, when a Company is regulated, it is usually important for rate-making purposes to know the amount of time each exempt (and non-exempt) employee devotes to various
And as here, “[e]mployee time-entry errors or omissions may occur. For example, exempt employees may under-report their time. In such circumstances, such errors or omissions may result in an initial payment to employees of less than 1/26th of their annual salary. The Company has a pay adjustment process for correcting employee time-entry errors or omissions. Moreover, the Company‘s formal, written pay policy expressly prohibits partial day dockings and exempt employees are expected to report at least 80 hours of time each biweekly pay period.”
Faced with these comparable circumstances, the Department reasoned that “[t]he salary basis requirement of the [Fair Labor Standards Act] allows employees to enter and describe their time on a weekly basis to generate a biweekly paycheck equal to at least 1/26th of their annual salary. Employees paid according to a pay plan under which they are, in fact, guaranteed to receive no less than 1/26th of their annual salary each biweekly pay period, except for deductions otherwise expressly permitted by
The Department then concluded that “[a]n employee‘s time-entry error or omission or other clerical or mechanical error or omission that results in an initial payment by the Company tо an employee of less than 1/26th of the employee‘s annual salary in a biweekly pay period is not an unlawful ‘docking’ or deduction in the typical sense (e.g. such as a prohibited disciplinary deduction), does not call into question the Company‘s intention to pay on a salary basis, and does not affect exempt status. Any shortage that results from the employee‘s error or omission may be adjusted by completing аn adjustment form (a process that is consistent with the window of correction contained in
Plaintiffs do not contest the Secretary‘s authority to interpret her own regulation—
They first argue that the opinion letter does not govern this appeal because it assumes away one of the issues in this case, namely whether “a salary guarantee is in effect and operational” at Detroit Edison. Opinion Letter, 2003 DOLWH LEXIS 3, at *4. The opinion letter, true enough, proceeds from that assumption. But plaintiffs have failed to explain why the considerable evidence submitted by Detroit Edison in support of its claimed salary-guarantee policy—affidavits and deposition testimony by relevant employees of the company along with various employee time-keeping forms, pay stubs, and payroll department reports—does not establish that very point. See JA 500, 705, 730, 1015–59, 1198, 1680–84, 1742, 1780, 1897–99, 1988–89, 1994–2001, 2006, 2256–2300. They offer no legal support for the proposition that the uncontested evidence contained in these depositions, affidavits and documents does not suffice to satisfy an employer‘s burden to show its eligibility for the exeсutive, administrative or professional exemption. In the end, the undisputed evidence amply supports the district court‘s conclusion that the plaintiffs receive a predetermined amount each pay period within the meaning of
Plaintiffs persist that even if they receive a predetermined amount each pay period, they nonetheless have received less than this predetermined amount on certain occasions under Detroit Edison‘s payroll system. But as the Department of Labor‘s opinion letter points out, “[e]mployee time-entry errors or omissions may occur” under such an hourly payroll system, Opinion Letter, 2003 DOLWH LEXIS 3, at *3, and the occurrence of those errors by itself does “not affect [the] exempt status” of salaried employees,
Neither is this a case in which the sheer number of payroll shortfalls by itself suggests that the salaries of these employees were not predetermined. Plaintiffs claim that they have identified 40 occasions in a six-and-a-half year time span when some exempt employees did not receive the full 1/26th of their salary in a pay period (reductions that affected 29 of the 383 employees in this lawsuit). See Employees Br. at 5–7. A hеalthy percentage of these shortfalls, Detroit Edison points out, “involved the types of situations where an employer may lawfully reduce” the employee‘s salary and the “remaining incidents” were the result of employee time-keeping errors. Det. Ed. Br. at 24; JA
III.
For these reasons, we affirm.