Klinedinst v. Swift Investments Inc.

• Decision Date: 06 August 2001
• Docket Number: No. 00-13092,00-13092
• Citation: 260 F.3d 1251
• Parties: (11th Cir. 2001) TRACY KLINEDINST, Plaintiff-Appellant, v. SWIFT INVESTMENTS, INC., a Florida corporation d.b.a. Fantastic Finishes of Palm Beach, Inc., Defendant-Appellee
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1251

260 F.3d 1251 (11th Cir. 2001)

TRACY KLINEDINST, Plaintiff-Appellant, v. SWIFT INVESTMENTS, INC., a Florida corporation d.b.a. Fantastic Finishes of Palm Beach, Inc., Defendant-Appellee.

No. 00-13092

UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT

August 6, 2001

Appeal from the United States District Court for the Southern District of Florida.

Before TJOFLAT and WILSON, Circuit Judges, and RESTANI^*, Judge.

WILSON, Circuit Judge:

Tracy Klinedinst appeals from the district court's grant of summary judgment in favor of his former employer, Swift Investments. Klinedinst sued Swift for failure to pay overtime in violation of the Fair Labor Standards Act (FLSA), 29 U.S.C. §§ 201, et seq. The district court held that Klinedinst's position falls within an exemption to the Act for "commission" workers. Because the district court incorrectly determined that the exemption applies, we vacate its grant of summary judgment.

I. BACKGROUND

Swift operates an auto repair and body shop. Klinedinst was employed as an automobile painter for Swift. Klinedinst received a salary from Swift based on the number of "flag hours" worked in a forty-hour work week.¹ Klinedinst sued Swift for violating the Fair Labor Standards Act (FLSA). He alleges that between January 1, 1998 and December 31, 1998, he worked approximately two thousand overtime hours beyond his forty-hour work week and approximately one thousand additional overtime hours between January 1, 1999 and June 30, 1999. He contends that Swift did not compensate him for this overtime pursuant to the FLSA. Swift stipulated that Klinedinst was not paid overtime.

For each repair job, Klinedinst was compensated according to a repair estimate. The labor portion of the estimate was calculated by multiplying the predetermined "flag hours" by the auto shop's hourly rate. The "flag hours" were derived from a database utilized by auto repair shops and insurance adjusters. Thus, they did not necessarily reflect the actual time spent completing a job. If more than or fewer than the predetermined number of flag hours were required to complete a job, Swift would nevertheless pay the painter for the predetermined number of hours even though he did not actually work that many hours.

The hourly rate varied from $12 to $15 depending on the number of hours worked per week and the number of hours allotted to the paint labor component of the repair estimate. Klinedinst was compensated for each paint job he performed based on the following formula: the "flag hours" allotted to the paint labor component of the repair estimate was multiplied by his hourly rate. Swift did not maintain records of the actual hours that Klinedinst worked, and Klinedinst was paid for the maximum amount of flag hours, regardless of the actual hours worked. Both parties refer to this compensation method as a "flat rate" system. Klinedinst contends that although Swift applied this flat rate system, it deducted some of his predetermined flag hours and used them to compensate the detailers who worked on the cars after he painted them.

Both parties filed motions for summary judgment. The district court granted Swift's motion for summary judgment and denied Klinedinst's motion. The district court concluded that the overtime exception applied because Klinedinst's compensation under the flat rate system constituted commissions on services which were exempt from the FLSA's requirement of overtime pay and because Klinedinst's rate never fell below twelve dollars per hour so he never earned less than one and a half times the minimum wage of five dollars and fifteen cents per hour.

II. DISCUSSION

Summary judgment is appropriate when there are no genuine issues of material fact and the movant is entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(c). We review the district court's grant of summary judgment to Swift de novo. See Strickland v. Water Works & Sewer Bd. of the City of Birmingham, 239 F.3d 1199, 1203 (11th Cir. 2001) (involving cross-motions for summary judgment).

Generally, employers are required to pay employees overtime for hours worked in excess of forty hours per week. The FLSA provides in pertinent part:

Except as otherwise provided in this section, no employer shall employ any of his employees who in any workweek is engaged in commerce or in the production of goods for commerce, or is employed in an enterprise engaged in commerce or in the production of goods for commerce, for a workweek longer than forty hours unless such employee receives compensation for his employment in excess of the hours above specified at a rate not less than one and one-half times the regular rate at which he is employed.

29 U.S.C. § 207(a)(1). Swift contends that because Klinedinst worked on a commission basis and it met the overtime exemption requirements, it was not obligated to pay Klinedinst overtime. The district court agreed. We review to examine whether Swift met the statutory and regulatory requirements of the commission exemption.

A. Did the payment system represent a commission?

The issue before us is whether the district court properly concluded that Swift met the commissioned work exemption to this provision.² Whether Klinedinst's payments constituted commissions is an issue of law. Yet, it is an issue that finds little illumination from the sparse case law and the vague references in statutes and regulations. Nonetheless, it is the duty of the courts to determine whether wage payment plans are in substantial compliance with FLSA. We undertake that duty by construing the remedial statutory provisions both narrowly and sensibly. See Walling v. A.H. Belo Corp., 316 U.S. 624, 634-35 (1942); Brennan v. Valley Towing Co., Inc., 515 F.2d 100, 110 (9th Cir. 1975); Birdwell v. City of Gadsden, Ala., 970 F.2d 802, 805 (11th Cir. 1992) (holding that FLSA provisions are interpreted liberally in the employee's favor and its exemptions construed narrowly against the employer).

Swift, as the employer, bears the burden of proving the applicability of a FLSA exception by "'clear and affirmative evidence.'" Birdwell, 970 F.2d at 805. Swift avers that the flat rate system it utilized is a form of commission, which is incentive-based and encourages efficiency and speed. Klinedinst was assigned an hourly rate (flag rate) for a particular task, but if it took longer than the allotted time, he would not be paid extra. If he completed the task sooner, however, he would keep the difference. For example, deposition testimony reveals that whether a technician took ten or thirty hours to complete a job, he would still be paid the same. Specifically, Swift determined Klinedinst's compensation per job by multiplying the predetermined flag hours by his hourly rate. He was to receive compensation under this formula regardless of whether he actually worked the predetermined flag hours. The flat rate of pay was not the hours of time it actually took the worker to complete a job. It is a method of providing employees with an incentive to "hustle" to finish their jobs in order to obtain a larger number of jobs for greater compensation.

To bolster the claim that the flat rate system constituted a commission, Swift cites to the Wage and Hour Division of the Department of Labor's Field Operations Handbook:

Some auto service garages and car dealerships compensate mechanics and painters on the following basis: The painter or mechanic gets so much a "flat rate" hour for the work he or she performs. A "flat rate" hour is not an actual clock hour. The painter or mechanic may work only 7, 8 or 9 hours a day and still receive credit for 10, 11 or 12, etc., flat rate hours depending upon how much work he or she has done. Each job is assigned a certain number of hours for which the customer is charged, regardless of the actual time it takes to perform the job. The employee is given a certain proportion of that charge expressed in terms of so many dollars and cents per "flat rate" hour rather than in terms of a percentage of the charge to the customer. The dealer does not change the employee's share per flat rate hour if the charge to the customer is changed. In such situations Wage-Hour will not deny that such payments represent "commissions on goods or services" for purposes of Sec. 7(i) (see IB 778.117 and 779.413(b)). Such employment will qualify for exemption under Sec. 7(i) provided all the other tests of the exemption are met.

Field Operations Handbook, Section 21h04(d). An agency's internal directives to its employees, however, are without the force of law. See Brennan v. Ace Hardware Corp., 495 F.2d 368, 376 (8th Cir. 1974) (the Labor Department's Field Operations Handbook is without "the force and effect of law."); Kirkland Masonry, Inc. v. C.I.R., 614 F.2d 532, 533 (5th Cir. 1980) ("Although federal agencies are bound by their own regulations, a simple administrative directive to agency employees does not suffice to create a duty to the public").

Although the Field Operations Handbook is not entitled to Chevron deference,³ we find it persuasive. Further support for this interpretation of commission may be found in 29 C.F.R. § 779.413(b), which states:

Although typically in retail or service establishments commission payments are keyed to sales, the requirement of the exemption is that more than half the employee's compensation represent commissions "on goods or services," which would include all types of commissions customarily based on the goods or services which the establishment sells, and not exclusively those measured by "sales" of these goods or services.

See also Mechmet v. Four Seasons Hotel, Ltd., 825 F.2d 1173, 1175 (7th Cir. 1987) ("persons not engaged in the sale of goods - receivers, trustees, bailees, and others - are sometimes compensated in the form of what are commonly called commissions, and . . . [may be considered] 'commissions' within the meaning of 29 U.S.C. § 207(i) if the other...