HAROLD YOURMAN, RALPH BISHOP, WILLIAM H. DWORKIN, FREDERICK EWALD, JOHN L. HENDRICKSON, RICHARD KREPELA, ROBERT P. McCARTHY, FRANK MEYER, ANTHONY PUNZI, RONALD L. SAVITT, On Behalf of Themselves & All Other Employees Similarly Situated, RONALD A. BROW, Plaintiffs-Appellants,
v.
RUDOLPH GIULIANI, As Mayor of the City of New York, BOARD OF EDUCATION OF THE CITY SCHOOL DISTRICT OF THE CITY OF NEW YORK, NEW YORK CITY HEALTH & HOSPITALS CORPORATION, Defendants-Appellees.
Docket No. 99-9310
August Term, 1999
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
Argued: May 3, 2000
Decided: October 03, 2000
Employees of the City of New York, the New York Health and Hospitals Corporation, and the Board of Education of the City School District of the City of New York appeal a decision of the United States District Court for the Southern District of New York, Preska, J., granting summary judgment against them on their claims for overtime compensation under the Fair Labor Standards Act.
Vacated and remanded. [Copyrighted Material Omitted]
JOAN STERN KIOK, New York City (Robert N. Felix, New York City, of counsel), for Appellants.
MARILYN RICHTER, Assistant Corporation Counsel, City of New York, New York City (Michael D. Hess, Corporation Counsel of the City of New York, Leonard Koerner, Assistant Corporation Counsel, City of New York, New York City, of counsel), for Appellees.
Henry L. Solano, Solicitor of Labor, Steven J. Mandel, Associate Solicitor, Paul L. Frieden, Counsel for Appellate Litigation, United States Department of Labor, Washington, D.C., for Amicus Curiae The Secretary of Labor.
Before: MESKILL, CABRANES and KATZMANN, Circuit Judges.
MESKILL, Circuit Judge:
Plaintiffs-appellants represent a class of individuals employed by the City of New York, the New York City Health and Hospitals Corporation (HHC), and the Board of Education of the City School District of the City of New York (BOE). In April 1991 they filed this lawsuit in the United States District Court for the Southern District of New York, Preska, J., against defendants-appellees the Mayor of the City of New York, the HHC and the BOE seeking unpaid overtime compensation under the Fair Labor Standards Act, 29 U.S.C. §201 et seq. (FLSA). On cross-motions for summary judgment, the court held that the plaintiffs were not entitled to overtime, finding that they were "executive, administrative, or professional" employees exempt from the overtime pay requirement under the "salary basis" test promulgated by the Secretary of Labor (Secretary). After hearing oral argument in this case, we requested an amicus brief from the Department of Labor (DOL). Having reviewed the amicus brief and the parties' responses to it, we largely adopt the Secretary's interpretation of the salary basis test, and we vacate the district court's judgment and remand for further proceedings.
BACKGROUND
The facts in this case are presented thoroughly in the district court's opinions. See Yourman v. Dinkins,
Employees of the City, the HHC and the BOE are subject to written time and leave regulations that govern minimum work weeks, annual leave allowances, sick leave allowances, etc. Various scenarios exist under these regulations permitting pay deductions from employee compensation. For example, employees are subject to pay deductions in instances where they have been absent from work but have exhausted their leave allowances or have not received approval for use of leave allowances. Employees are also subject to discipline, including suspension without pay, for infractions such as insubordination, abuse of sick leave, refusal to report for drug testing, conduct unbecoming, theft of agency property, and misuse of an agency car.
In Yourman I, the district court granted summary judgment to the employees, appellants here, finding that they were not exempt under the FLSA because they were not compensated on a salary basis. See Yourman I,
The defendants appealed, and we affirmed. See Yourman v. Dinkins,
The Supreme Court granted certiorari and vacated and remanded in light of Auer v. Robbins,
On remand, the district court denied the employees' motion to reinstate the judgment. Instead, the court granted summary judgment to the employers, i.e., the City, the BOE and the HHC. See Yourman II,
DISCUSSION
The Fair Labor Standards Act entitles employees to time-and-a-half overtime for hours worked in excess of forty hours per week, see 29 U.S.C. §207(a)(1), except for those employees "employed in a bona fide executive, administrative, or professional capacity," see id. §213(a)(1). The Secretary of Labor has "broad authority to `defin[e] and delimi[t]' the scope of the exemption for executive, administrative, and professional employees." See Auer,
Regulations promulgated by the Secretary provide that an employee is employed in a "bona fide executive, administrative, or professional" capacity only if he or she is compensated on a "salary basis."1 See id. at 455 (citing 29 C.F.R. §§541.1(f), 541.2(e), 541.3(e)). "An employee will be considered to be paid `on a salary basis'... 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." 29 C.F.R. §541.118(a). Deductions from pay in less than one week increments for disciplinary violations are inconsistent with compensation on a salary basis. See Auer,
The regulation allows for a "window of correction," see Martin,
To interpret the rule otherwise would allow an employer to treat its employees as exempt for overtime purposes while, at the same time, intentionally failing to comply with the "salary basis" rule. In the event that its employees sued for overtime pay, such an employer simply could use the window of correction to comply retroactively with the salaried-basis requirements. According to the Secretary, such a result would render the "salary basis" rule "essentially meaningless" and run counter to the rule that FLSA exemptions are to be construed narrowly.
Klem,
In Auer, the Supreme Court held that the Secretary's interpretation of the salary basis test is "controlling unless plainly erroneous or inconsistent with the regulation[s]." Auer,
Thus, in reviewing the district court's decision to grant summary judgment, we must consider whether the appellants have shown either an employment policy creating a "significant likelihood" of pay deductions or an "actual practice" by the employers of making pay deductions.
I. Employment Policy Creating Significant Likelihood of Deductions
The district court found no genuine issue of material fact as to the existence of an employment policy creating a "significant likelihood" of impermissible pay deductions. See Yourman II,
"A finding of `significant likelihood' pursuant to Auer requires the existence of a `clear and particularized policy -- one which effectively communicates that deductions will be made in specified circumstances.'" Ahern,
Likewise, the appellants here point to admissions by the employers that managerial employees were subject to disciplinary deductions and that, at least in rare instances, such deductions were made. Even assuming those facts to be true, the appellants have shown only that such deductions were permitted, not that they would "in fact be made in specified circumstances." Therefore, the district court properly granted summary judgment on this issue.
II. Actual Practice Of Impermissible Deductions
The more complex question is whether the appellants have shown, sufficient to avoid summary judgment, the existence of an "actual practice" of making impermissible pay deductions. The district court held that they had not. See Yourman II,
Having thus framed its analysis, the court considered, for each City agency, the BOE and the HHC, whether there was an actual practice of pay deductions. Of the forty-eight City agencies, only fifteen agencies employed one or more of the appellants, and only seven of those were "alleged to have actually used suspensions or fines as a form of discipline for misconduct of managers within the relevant time period." Id. Of the seven agencies, the court found that one had imposed no improper deductions and that six had imposed one or two impermissible deductions over the relevant time period. See id. at *9-13. The court, citing Auer, held that one or two deductions did not constitute an actual practice and, therefore, permitted each agency to utilize the window of correction and cure the impermissible deductions by reimbursing the affected employees for such deductions. See id. In the alternative, the court noted that if all the City agencies were viewed as one entity, "there would be twelve deductions out of a workforce of 1,814 managers, roughly 0.7%" and found "that number insufficient to establish an actual practice." Id. at *13 (footnote omitted).
Turning to the BOE, the court found only one impermissible deduction. See id. at *13-14. Therefore, the court held that no actual practice of impermissible deductions existed and allowed the BOE to cure the impermissible deduction. See id.
Finally, the court found four impermissible deductions imposed by the HHC. However, the court noted that "out of 3,708 HHC managers, four deductions constitute only 0.1%. This is not sufficient to constitute a practice of deductions." Id. at *15. Therefore, the court also permitted the HHC to cure the impermissible deductions. See id.
We disagree with the district court's analysis in several respects. First and foremost, the existence vel non of an "actual practice" of imposing pay deductions cannot be decided by the simple expedient of dividing the number of impermissible deductions by the number of managerial employees. Second, the court applied the wrong standard in holding that the existence of an actual practice was to be determined on an agency-by-agency basis. Third, the court incorrectly excluded pay deductions imposed outside of the statute of limitations period. Each of these issues is addressed in greater detail below.
A. What Constitutes An Actual Practice?
The purpose of the salary basis test is to distinguish "true" executive, administrative, or professional employees from non-exempt employees, i.e., employees who may be disciplined "by piecemeal deductions from... pay." See Auer,
Thus, in determining what constitutes an "actual practice" of pay deductions, we bear in mind the object of the inquiry: whether the employer's practices reflect an "objective intention" to pay its employees on a salaried basis. See id. That question cannot be answered by simply dividing the number of impermissible pay deductions by the number of managerial employees, but necessarily involves consideration of additional factors such as the number of times that other forms of discipline are imposed, the number of employee infractions warranting discipline, the existence of policies favoring or disfavoring pay deductions, the process by which sanctions are determined, and the degree of discretion held by the disciplining authority. Cf. Auer,
The Secretary of Labor takes the same position in its amicus brief, stating that "[t]here can be no bright-line test for determining what constitutes an `actual practice' of making impermissible deductions" and suggesting various factors (included among those listed above) that may be pertinent to this "factual determination... best left to the trial court." In addition to the deference we owe to the DOL's interpretation of its own regulation, see id. at 461, we agree with that interpretation. Compare two examples: (1) an employer that regularly docks the pay of managers who come to work five hours late, and (2) an employer that only sporadically docks the pay of managers who come to work five minutes late. The first employer surely would have more of an "actual practice" than the second employer, even though the penalties imposed by the second employer could far outnumber the penalties imposed by the first. A mechanical comparison of the number of deductions with the number of managerial employees simply cannot capture the fact specific inquiry into an employer's intent, as reflected in its practice of imposing deductions from pay, and inevitably will produce inconsistent results. See, e.g., Klem,
On remand, the district court should weigh the factors listed above, in addition to any others relevant to the existence of an actual practice, in determining whether either party is entitled to summary judgment. It is worth noting that this more nuanced inquiry renders somewhat irrelevant a dispute that was argued both below and on appeal: whether a single disciplinary fine that is imposed as multiple pay deductions counts as a single pay deduction or as multiple pay deductions. The district court held that such fines should be treated as single deductions, see id. at *9, and the DOL agrees. To hold otherwise would "penalize[] defendants for an accommodation made to the individual employees, that is, spreading a single fine over a number of installments." Id. In other words, an employer's decision to provide such an accommodation, standing alone, does not reflect an "objective intention" not to pay its employees on a salaried basis. Nevertheless, the number of impermissible pay deductions is only one factor to consider among many, and it ultimately may not matter whether a fine is viewed as a single deduction or as multiple deductions once the district court properly weighs all the circumstances under which such fines are, or are not, imposed.
B. Who Is The Employer?
Next, the district court erred by deciding, as a matter of law, that its analysis must proceed on an agency-by-agency basis rather than on a citywide basis. In holding that each agency must be considered separately, see id. at *4-6, the district court in essence granted summary judgment to the City on the employees' claim that the City itself engaged in an actual practice of imposing pay deductions, without properly applying the usual standards governing summary judgment.
Drawing all factual inferences in favor of the party opposing summary judgment, i.e., the City employees, see Chambers v. TRM Copy Ctrs. Corp.,
The district court, however, pointed out that "responsibility for employee discipline is vested in the head of each City agency" and that some agencies "have their own policies concerning codes of conduct and/or discipline." Id. at *5. The district court concluded that "each agency must be considered separately because of the different rules applicable and the authority of each individual agency head over discipline in his or her agency." Id. at *6. Although the district court's analysis shows, perhaps, that each City agency has sufficient autonomy, organizational structure, and governmental character to be treated as an employer under the FLSA, cf. United States Census Bureau, 1 1997 Census of Governments: Government Organization, at ix (1999) ("[T]o be counted as a government, any entity must possess... [e]xistence as an organized entity, governmental character, and substantial autonomy.") [hereinafter, Census of Governments], it does not show that the City is incapable, as a matter of law, of also engaging in (or not engaging in) an actual practice of impermissible pay deductions.
The Secretary of Labor, in her amicus brief, states that the question of whether a municipal agency must be treated independently of the municipality in determining the existence of an actual practice "ultimately must be a case-by-case analysis," guided in large part by the Census of Governments. Cf. 29 C.F.R. §§553.102(b), 553.227(c), 825.108(c)(1) (relying on Census of Governments in various contexts); 52 Fed. Reg. 2012, 2019-20 (1987). Because the City agencies discussed by the district court are not viewed as separate entities in the Census of Governments, the DOL takes the position that those agencies cannot be treated independently. We do not agree. The DOL assumed, like the district court, that the appellants could proceed either against the City or against each City agency, but not, as a matter of law, against both. That assumption is flawed, and the appellants may offer to show an actual practice of pay deductions by any entity that satisfies the FLSA definition of an "employer." See 29 U.S.C. §203(d) (defining "employer"); Torres-Lopez v. May,
Therefore, we remand for the district court to decide, in light of the relevant factors, whether the City employees have shown an actual practice by the City or by any relevant City agency sufficient to defeat summary judgment.
C. Which Pay Deductions Are Relevant?
Having determined that the appellants may attempt to show a citywide practice of pay deductions, it follows that the district court should consider pay deductions imposed by any of the City agencies, not only pay deductions imposed by agencies employing one or more of the appellants. See Klem,
Furthermore, the district court must consider pay deductions dating back to April 1986, when the mandate issued in Garcia v. San Antonio Metro. Transit Auth.,
As the Secretary's amicus brief notes, a somewhat analogous situation exists under Title VII, where we have explained that "statistical evidence of pre-Act discrimination can be probative of ongoing, post-Act discrimination." Ottaviani v. State Univ. of New York at New Paltz,
CONCLUSION
The district court's judgment is vacated, and the case is remanded for proceedings not inconsistent with this opinion.
Note:
Notes
Administrative and professional employees may also be compensated on a "fee basis." See 29 C.F.R. §§ 541.2(e), 541.3(e); see also id. § 541.313. However, none of the parties here claims that the appellants were paid on a fee basis.