JEFF FALUDI v. U.S. SHALE SOLUTIONS, L.L.C.
No. 17-20808
United States Court of Appeals for the Fifth Circuit
February 14, 2020
Appeals from the United States District Court for the Southern District of Texas
JENNIFER WALKER ELROD, Circuit Judge:
We WITHDRAW the court’s prior opinion of August 21, 2019, and substitute the following opinion.
Appellant Jeff Faludi, a former practicing attorney, took a consulting job at an oil and gas services company. When Faludi left the company, he filed this lawsuit under the Fair Labor Standards Act (FLSA), seeking to recover unpaid overtime wages. Because Faludi is an independent contractor, though, the FLSA does not apply. We therefore AFFIRM the district court’s summary judgment in favor of his former employer, albeit on a different ground. However, because the district court did not state its reasons for declining to
I.
Jeff Faludi became a licensed lawyer in 1998, and he practiced law for sixteen years until he allowed his license to lapse. Around the same time, one of his former colleagues offered him a consulting position at a newly-formed oil and gas services company, U.S. Shale Solutions, L.L.C. Faludi accepted the position, and the parties signed an “Independent Contractor Master Consulting Services Agreement” in November 2014.
Under the agreement, Faludi agreed to work for U.S. Shale for “an indefinite period of time” at a rate of $1,000 per day for every day he worked in Houston and $1,350 per day for every day he worked outside of Houston. The agreement required Faludi to submit invoices to U.S. Shale for payment twice a month. The agreement also contained a non-compete clause prohibiting Faludi from working for U.S. Shale’s competitors while the agreement was in effect and for one year after its termination.
During the approximately sixteen months that Faludi worked for U.S. Shale, he submitted invoices to U.S. Shale once or twice a month. Although his day rate applied regardless of how many hours he worked, he often billed U.S. Shale for less than the day rate when he did not work a full day. Faludi testified that he did this voluntarily, and U.S. Shale paid the requested amounts without asking why Faludi had billed for less than his day rate. Even with these prorated invoices, Faludi was paid at least $1,000 for every week in which he performed work for U.S. Shale, and his annual compensation was approximately $260,000.
Faludi provided his own phone and computer, but U.S. Shale reimbursed him for those purchases, along with any work-related travel expenses. Faludi independently made investments in his continuing education and home office
Faludi left U.S. Shale in March 2016 after an internal reorganization. Shortly thereafter, he filed this lawsuit against the company for unpaid overtime wages he claimed he was owed under the FLSA. U.S. Shale sought summary judgment in the district court, arguing that Faludi was an independent contractor and thus not subject to the FLSA, or alternatively that he was an exempt employee under either the “practice of law” exemption or the “highly compensated employee” exemption to the FLSA. Faludi also sought a partial summary judgment on the ground that he was an employee under the FLSA and did not fall under any exemption.
The district court determined that genuine issues of material fact existed as to whether Faludi was an employee or an independent contractor and whether he fell within the FLSA’s practice of law exemption. However, the district court granted U.S. Shale’s summary judgment motion because it determined that Faludi was exempt as a matter of law under the highly compensated employee exemption to the FLSA. Although U.S. Shale was the prevailing party, the district court did not award U.S. Shale costs, nor did it explain why it declined to do so. Faludi appeals the adverse summary judgment, and U.S. Shale cross-appeals on the issue of costs.
II.
We review a district court’s grant of summary judgment de novo. Johnson v. Heckmann Water Res. (CVR), Inc., 758 F.3d 627, 630 (5th Cir. 2014). Where the parties filed cross-motions for summary judgment, “we review each
III.
Under the FLSA, an employer must pay overtime compensation to its non-exempt employees who work more than forty hours a week. Cleveland v. City of Elmendorf, 388 F.3d 522, 526 (5th Cir. 2004). In contrast, independent contractors are not entitled to overtime under the FLSA. See
Faludi argues on appeal that he was an employee and that no FLSA exemption applied to him, so U.S. Shale was required to pay him overtime under the statute. U.S. Shale counters that Faludi was either an independent
A.
“[T]he ultimate decision whether [an] employee is exempt from the FLSA’s overtime compensation provisions is a question of law.” Lott, 203 F.3d at 331. The employer has the burden of establishing that an exemption applies by a preponderance of the evidence. Meza v. Intelligent Mexican Mktg., Inc., 720 F.3d 577, 581 (5th Cir. 2013). Under the Supreme Court’s decision in Encino Motorcars, we must give FLSA exemptions a “fair reading” rather than narrowly construing them against the employer. Encino Motorcars, LLC v. Navarro, 138 S. Ct. 1134, 1142 (2018); see also Carley v. Crest Pumping Techs., L.L.C., 890 F.3d 575, 579 (5th Cir. 2018).
Under the version of the highly compensated employee exemption in effect when Faludi worked for U.S. Shale, an employee is exempt from the FLSA’s overtime requirements if (1) he receives “total annual compensation of at least $100,000“; and (2) he “customarily and regularly performs any one or more of the exempt duties or responsibilities of an executive, administrative or professional employee[.]” Highly Compensated Employees, 69 Fed. Reg. 22,122, 22,269 (April 23, 2004) (current version at
An employee will be considered to be paid on a “salary basis” within the meaning of these regulations 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. . . . [A]n exempt employee must receive the full salary for any week in which the employee performs any work without regard to the number of days or hours worked. Exempt employees need not be paid for any workweek in which they perform no work.
The district court concluded that even though Faludi reduced his own compensation, he was still guaranteed $1,000 per day if he showed up for work and performed the agreed-upon services. Faludi v. U.S. Shale Sols. LLC, No. H-16-3467, 2017 WL 5969261, at *10 (S.D. Tex. Nov. 30, 2017). That satisfies the minimum guaranteed amount required to be paid on a salary basis. Id.
On appeal, Faludi contends that his day rate of $1,000 (or $1,350 for work outside of Houston) did not satisfy the salary basis requirement because it was not calculated “on a weekly, or less frequent basis.”
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 employment 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, and a reasonable relationship exists between the guaranteed amount and the amount actually earned. The reasonable relationship test will be met if the weekly guarantee is roughly equivalent to the employee’s usual earnings at the assigned hourly, daily or shift rate for the employee’s normal scheduled workweek.
Although we think U.S. Shale’s arguments are well-taken as to why Faludi fits within the highly compensated employee exemption to the FLSA, we need not reach that issue given that Faludi is an independent contractor not covered by the FLSA’s requirements. For that reason, we also need not determine whether he would fit within the practice of law exemption.
B.
The district court, after considering the evidence on Faludi’s independent contractor status, concluded that genuine issues of material fact remained. We must determine whether a material fact issue actually exists.
“To determine if a worker qualifies as an employee, we focus on whether, as a matter of economic reality, the worker is economically dependent upon the alleged employer or is instead in business for himself.” Hopkins v. Cornerstone Am., 545 F.3d 338, 343 (5th Cir. 2008). To assist in the inquiry, we consider five non-exhaustive factors: (1) the degree of control exercised by the alleged employer; (2) the extent of the relative investments of the worker and the alleged employer; (3) the degree to which the worker’s opportunity for profit or loss is determined by the alleged employer; (4) the skill and initiative required in performing the job; (5) and the permanency of the relationship. Id. No single factor is determinative, and the ultimate determination of whether an individual is an employee within the meaning of the FLSA is a question of law. Brock v. Mr. W Fireworks, Inc., 814 F.2d 1042, 1043–45 (5th Cir. 1987).
U.S. Shale argues that it did not exercise a large degree of control over Faludi because he worked independently and managed his own workload and schedule. He was not expected to be at the office during a set period of time
Faludi counters that U.S. Shale controlled his schedule and that he worked at the company’s office every day. U.S. Shale also reimbursed him for his computer, cell phone, and work-related travel. Faludi also argues that even if he controlled his opportunity for profit, he had no opportunity to lose money. Finally, Faludi emphasizes that he worked exclusively for U.S. Shale during his tenure there, with no other source of income, and that a non-compete clause prohibited him from working for the company’s competitors.
Where the district court saw a fact issue on this evidence, we see none. A fact issue does not exist simply because facts point in both directions. See Hickey v. Arkla Indus., Inc., 699 F.2d 748, 752 (5th Cir. 1983). And the mere existence of a non-compete clause does not automatically negate independent contractor status. Cf. Talbert v. Am. Risk Ins. Co., 405 F. App’x 848, 856 (5th Cir. 2010) (upholding the district court’s independent contractor determination despite the presence of a confidentiality agreement that the plaintiff claims would have effectively precluded her from working for competing companies).
IV.
We next turn to the question of whether the district court erred in declining to award U.S. Shale costs as the prevailing party. U.S. Shale contends that it was entitled to costs under
V.
Although the district court concluded that Faludi was not entitled to overtime compensation under the FLSA because he was exempt as a highly compensated employee, we do not reach that issue because we conclude that Faludi is an independent contractor not subject to the FLSA’s requirements. We therefore AFFIRM summary judgment in favor of U.S. Shale. We VACATE the district court’s award of costs and REMAND that issue, directing the district court to either award costs to U.S. Shale or state its reasons for declining to do so.
JEFF FALUDI v. U.S. SHALE SOLUTIONS, L.L.C.
No. 17-20808
United States Court of Appeals for the Fifth Circuit
February 14, 2020
Under a proper reading of the relevant regulations, Jeff Faludi is not exempt from the overtime requirements of the Fair Labor Standards Act as a highly compensated employee. See Faludi v. U.S. Shale Sols., L.L.C., 936 F.3d 215, 221 (Aug. 21, 2019) (Ho, J., dissenting). Accordingly, as I previously explained, Faludi’s entitlement to overtime pay should turn not on whether he is a highly compensated employee, but on whether he is an independent contractor. Id. at 223.
The majority reaches the same conclusion today, correctly noting that “we need not reach” the issue of whether Faludi “fits within the highly compensated employee exemption to the FLSA . . . given that Faludi is an independent contractor not covered by the FLSA’s requirements.” In doing so, the majority expressly leaves it to a future panel to decide whether an employee like Faludi does or does not qualify as a highly compensated employee under the relevant regulations.
For those reasons, I am pleased to concur in the judgment.