Craig Coates, et al., Plaintiffs - Appellees v. Dassault Falcon Jet Corp., Defendant - Appellant
No. 19-2167
United States Court of Appeals For the Eighth Circuit
Submitted: January 15, 2020; Filed: June 10, 2020
Before SMITH, Chief Judge, LOKEN and GRUENDER, Circuit Judges.
Appeal from United States District Court for the Eastern District of Arkansas - Little Rock
LOKEN,
Craig Coates and Edwin Smith commenced this action under the
I. FLSA Exemption Principles1
For an employer such as Falcon Jet, the FLSA exempts from its overtime requirements “any employee employed in a bona fide executive, administrative, or professional capacity . . . as such terms are defined and delimited from time to time by regulations of the Secretary [of Labor].”
The regulations provide that an employee is paid on a salary basis “if the employee regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of the employee‘s compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed.”
- “An exempt employee‘s earnings may be computed on an hourly, a daily or a shift basis, without losing the exemption or violating the salary basis requirement, if the payment arrangement also includes a guarantee of at least the minimum weekly required amount paid on a salary basis regardless of the number of hours, days or shifts worked . . . .”
§ 541.604(b) .
- “[T]he exemption is not lost if an exempt employee who is guaranteed [the minimum weekly salary amount] also receives additional compensation based on hours worked for work beyond the normal workweek. Such additional compensation may be paid on any basis (e.g. . . . straight-time hourly amount . . .), and may include paid time off.” § 541.604(a) .- Employers “may take deductions from [salaried employee] leave accounts” and may require exempt employees “to record and track hours,” so long as the employee‘s predetermined salary is not reduced. Ellis v. J.R.‘s Country Stores, Inc., 779 F.3d 1184, 1200 (10th Cir. 2015). Exempt status “is only affected by monetary deductions for work absences and not by non-monetary deductions from fringe benefits such as personal or sick time.” Schaefer v. Ind. Mich. Power Co., 358 F.3d 394, 400 (6th Cir. 2004); see
Defining & Delimiting the Exemptions, 69 Fed. Reg. at 22178 . Employers can “make deductions for absences from an exempt employee‘s leave bank in hourly increments, so long as the employee‘s salary is not reduced.” U.S. Dep‘t of Labor, Wage & Hour Div., Opinion Letter on FLSA (Jan. 16, 2009), 2009 WL 649020, at *2 (emphasis added). Several circuits have applied this guidance. See, e.g., McBride v. Peak Wellness Center, Inc., 688 F.3d 698, 705 (10th Cir. 2012).- “Deductions from pay may be made when an exempt employee is absent from work for one or more full days for personal reasons . . . .”
§ 541.602(b)(1) ; see Guerrero v. J.W. Hutton, Inc., 458 F.3d 830, 835-36 (8th Cir. 2006). But reductions for partial day absences are inconsistent with a salary that is “not subject to reduction because of variations in the . . . quantity of the work performed.” SeeDefining & Delimiting the Exemptions, 69 Fed. Reg. at 22176 .
- “An employer is not required to pay the full salary for weeks in which an exempt employee takes unpaid leave under the Family and Medical Leave Act [FMLA].”
§ 541.602(b)(7) .- Deductions from pay of exempt employees may be made for infractions of safety rules of major significance and for infractions of workplace conduct rules.
§ 541.602(b)(4) -(5) .- “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. An actual practice of making improper deductions demonstrates that the employer did not intend to pay employees on a salary basis.”
§ 541.603(a) .3
This is a complex, intricate regulatory scheme, one that has changed relatively little in the last 80 years. In Auer v. Robbins, 519 U.S. 452, 456-57 (1997), the Supreme Court noted that the FLSA “grants the Secretary broad authority to ‘defin[e] and delimi[t]’ the scope of the exemption.” The regulation requiring that an exempt employee be paid on a “salary basis” -- now found in
II. Falcon Jet‘s Payroll Procedures
The summary judgment record includes a Falcon Jet Payroll Notification, effective October 26, 2015, advising team leader Coates of a “merit increase” changing his compensation to an “annual salary” of $74,244.96 and a “new rate” of $2,855.5754. Production liaison Smith received a notice effective the same day increasing his compensation to an “annual salary” of $71,549.57 and a “new rate” of $2,751.9064. Each team leader and production liaison Plaintiff received a comparable Payroll Notification. The record also includes a form completed by plaintiff Robert Anderson when he was promoted to team leader stating that his compensation switched from hourly wage to annual salary.
Falcon Jet paid Plaintiffs bi-weekly. Though it classified team leaders and production liaisons as exempt salaried employees, it required them to clock in and out of work and to track the projects on which they worked on an hourly basis. This enabled Falcon Jet to accurately determine project costs for cost accounting purposes and to pay Plaintiffs straight-time overtime compensation for hours they were “directed” to work over 40 hours in a one-week period. For “regular” hours worked, Falcon Jet calculated the hourly rate by dividing each employee‘s annual salary by 2,080 -- 40 hours per week multiplied by 52 weeks in a year.5 When a team leader or production liaison recorded fewer than 40
III. Discussion
On its face, Falcon Jet‘s payroll construct was consistent with the above-summarized rules interpreting the Secretary‘s general definition of salary basis, provided that, in “actual practice,” the predetermined bi-weekly salaries were not “subject to reduction because of variations in the quality or quantity of the work performed.” This evidence is not, as Plaintiffs assert, a “conclusory and self-serving claim” that Falcon Jet paid them a salary. It is at least prima facie evidence that Plaintiffs were compensated on a salary basis. The district court nonetheless ruled that all Plaintiffs were not paid on a salary basis as a matter of law. The court primarily relied on Falcon Jet interrogatory responses stating that “Plaintiffs were paid for the hours posted on their time cards,” and that “Plaintiffs were paid a salary using an hourly rate multiplied by hours,” plus the deposition testimony of a Rule 30(b)(6) witness explaining this system. “But for the word ‘salary,‘” the court observed, Falcon Jet “described wages paid on an hourly basis,” not wages constituting a predetermined amount not subject to reduction based on the quality or quantity of work performed.
The district court‘s observation reflects a misunderstanding of the governing FLSA standards. Falcon Jet notified Plaintiffs when they received merit increases that they would begin being paid an annual salary at a specific predetermined amount on a bi-weekly basis. The FLSA requires no other contractual “bells and whistles.” Rather, the salary basis requirement is substantive -- the predetermined amount must not be subject to reduction based on the quality or quantity of the work performed, a general principle the regulations amplify with a host of special interpretive rules.6 If Falcon Jet complied with those fact-intensive interpretive rules, Plaintiffs were exempt employees, no matter how much Falcon Jet‘s method of compensation resembled payroll procedures for the typical hourly wage-earner. See Acs v. Detroit Edison Co., 444 F.3d 763, 769-70 (6th Cir. 2006).
A.
Falcon Jet argues that its payroll records show that eleven Plaintiffs “received at least their guaranteed minimum compensation amount for every single pay period” -- that is, compensation equivalent to at least 80 hours of work. That fact “end[s] [ ] the Court‘s consideration of the salary-basis test for these [Plaintiffs].” We disagree. An employer using an hourly-based payroll system may be entitled to summary judgment if there is no evidence of an actual practice of reducing the guaranteed minimum salary of exempt employees, and undisputed evidence shows that no exempt employee was paid less than this amount. See Litz v. Saint Consulting Grp., Inc., 772 F.3d 1, 4 (1st Cir. 2014); Judson v. JM Family Enters., Inc., 212 F. App‘x 786, 786 (11th Cir. 2006). But the largely undeveloped summary judgment record in this case includes evidence that
Because exempt employees in the same job classification working for the same managers responsible for the actual improper deductions may reasonably believe that their salary will also be docked, such employees should also lose their exempt status . . . . [F]inal section 541.603 calls for a case-by-case factual inquiry. . . . [A] corporate-wide policy permitting improper deductions is some evidence that an employer has an actual practice of not paying employees on a salary basis, but not sufficient evidence by itself to cause the exemption to be lost if a manager has never used that policy to make any actual deductions from the pay of other employees.
B.
Plaintiffs argue that summary judgment in their favor must be affirmed because “Falcon Jet cannot overcome the admission” of Senior Human Resource Generalist Richard Cart, who agreed at his deposition that Plaintiffs’ salaries were not fixed, but rather fluctuated based on the number of hours worked. This contention requires a close look. Cart was designated a Rule 30(b)(6) witness on a number of topics, including “recording hours” and “payroll records.” He initially testified that team leaders and production liaisons “are paid a salary and they‘re compensated for any overtime. . . . If there was no overtime directed, they would see the same paycheck.” He was then questioned about specific payroll records:
Q: [I]f there‘s time recorded that‘s less than 80 hours in a biweekly pay period for liaisons or team leaders, then the payroll department will present the employee with an option of . . . vacation time or sick time; is that correct?
Cart: That‘s correct. . . .
Q: And so the employee has a certain amount of vacation and sick time they can use and still be paid for that; is that correct?
Cart: That‘s correct.
Q: And so once a liaison or team lead uses all of their vacation or sick time, they might not be paid for that time; is that correct?
Cart: Yes.
Q: And that‘s true of all team leads or liaisons?
Cart: I would assume so.
Q: Even though they‘re salaried.
Cart: Yes.
(Emphasis added.) Cart gave an accurate general description of Falcon Jet‘s hourly-based payroll records, a system which, as we have explained, is not inconsistent with the Secretary‘s salary-basis regulations. His testimony does not establish as a matter of law that Falcon Jet failed to pay any Plaintiff a guaranteed salary in a predetermined amount that was not subject to impermissible reductions. Proof of that requires affirmative evidence of non-compliance, not the assumptions of a human resource generalist explaining, in general terms, an hourly-based payroll system. Mr. Cart certainly made what appears to be a damaging admission against Falcon Jet‘s interest. But it is an admission that can be “overcome” by detailed evidence, at a trial or in further summary judgment proceedings on remand. Cart‘s testimony shows at most the possibility Falcon Jet would make impermissible reductions, which is not a basis to grant summary judgment for plaintiffs under the 2004 regulations.
C.
In concluding that the summary judgment record established, as a matter of law, that all eighteen Plaintiffs were not exempt employees for the entire period in question, the district court noted two examples of a Plaintiff not being paid the predetermined salary rate in a specific bi-weekly pay period: (i) Plaintiff Smith was paid for one period an amount not divisible by eight “meaning that [Falcon Jet] reduced the base pay by partial days,” and (ii) Falcon Jet reduced the pay of two Plaintiffs during another pay period due to “Christmas shutdown,” violating the rule that, “[i]f the employee is ready, willing and able to work, deductions may not be made for time when work is not available,”
First, the record does not conclusively establish that Falcon Jet made any impermissible salary reductions. For example, Plaintiff Smith received less than 80 hours of pay for numerous paychecks between September 4, 2016 and April 16, 2017. The payroll records describe his hourly shortfalls as unpaid FMLA leave, a statutorily-mandated reduction expressly authorized by
Second, even if Falcon Jet made impermissible reductions, it did not lose any exemption unless “the facts demonstrate that the employer did not intend to pay employees on a salary basis. An actual practice of making improper deductions demonstrates that the employer did not intend to pay employees on a salary basis.”
Third, even if Plaintiffs establish an actual practice, the exemption is lost only “during the time period in which the improper deductions were made for employees in the same job classification working for the same managers responsible for the actual improper deductions.”
D.
On appeal, Plaintiffs rely heavily on the Sixth Circuit‘s decision in Hughes v. Gulf Interstate Field Servs. Inc., 878 F.3d 183 (6th Cir. 2017), where the court reversed the grant of summary judgment in favor of the employer because the record did not establish that “the employment arrangement also include[d] a guarantee of at least the minimum weekly required amount paid on a salary basis.” Id. at 189, quoting
whether one looks to the phrase “includes a guarantee,”
29 [C.F.R.] § 541.604(b) , or to the phrase “which amount is not subject to reduction,”29 C.F.R. § 541.602(a) , it is legally significant whether Hughes and McDonald‘s weekly salary was a matter of right or a matter of grace.
Id. at 191. However, we do not agree that the word “guarantee” in
IV. Conclusion
For the foregoing reasons, we conclude the district court erred in granting Plaintiffs summary judgment on this limited record. Accordingly, the Consent Judgment is reversed and the case is remanded for further proceedings not inconsistent with this opinion.
LOKEN
CIRCUIT JUDGE