Chao v. Gotham Registry, Inc.

• Decision Date: 24 January 2008
• Docket Number: Docket No. 06-2432-cv.
• Parties: Elaine L. CHAO, Secretary of Labor, Plaintiff-Appellant, v. GOTHAM REGISTRY, INC., Gotham Per Diem, Inc., Defendants-Appellees.
• Court: U.S. Court of Appeals — Second Circuit

514 F.3d 280

Elaine L. CHAO, Secretary of Labor, Plaintiff-Appellant, v. GOTHAM REGISTRY, INC., Gotham Per Diem, Inc., Defendants-Appellees.

Docket No. 06-2432-cv.

United States Court of Appeals, Second Circuit.

Argued March 1, 2007.

Decided January 24, 2008.

Maria Van Buren, Washington, D.C. (Howard M. Radzely, Solicitor of Labor, Steven J. Mandel, Associate Solicitor, Paul L. Frieden, U.S. Department of Labor, Office of the Solicitor, Washington, D.C., of counsel), for Plaintiff-Appellant.

Steven Kapustin, Blue Bell, Pennsylvania (Barry A. Furman, Kaplin, Stewart, Meloff, Reiter & Stein, P.C., Blue Bell, Pennsylvania, of counsel), for Defendant-Appellee.

Before: JACOBS, Chief Judge, CARDAMONE, and SOTOMAYOR, Circuit Judges.

Judge JACOBS concurs in a separate opinion.

Chief Judge JACOBS concurs in a separate opinion.

CARDAMONE, Circuit Judge:

In 1937 America was in the depths of a depression and employment was scarce. President Franklin Roosevelt introduced a measure to address this problem in a bill that became the Fair Labor Standards Act. The bill aimed to raise the pay of the underpaid and reduce the hours of the overworked or, as stated in the Presidential message accompanying the proposed legislation, to obtain "a fair day's pay for a fair day's work." 81 Cong. Rec. 4983 (1937) (message of President Roosevelt). Today, things are different, particularly in the nursing profession where there are not enough nurses to meet the demand for their services. This shortage and the frequent resort to overtime to compensate for it precipitated the instant action.

The litigation before us was initiated in 1992 in the United States District Court for the Southern District of New York before Judge Louis L. Stanton by the Secretary of Labor against defendants Gotham Registry, Inc. and its affiliate Gotham Per Diem, Inc. Suit was brought under the provisions of the Fair Labor Standards Act, 29 U.S.C. § 201 et seq. (FLSA or Act), and resulted on June 6, 1994 in a consent judgment against Gotham, requiring it to pay its nurses time and one-half wages for overtime in compliance with the Act. On December 29, 2004 plaintiff Elaine L. Chao, the current Secretary of Labor (Secretary or plaintiff), filed a petition for adjudication of civil contempt against Gotham Registry, Inc. and its president, Caroline Barrett (collectively, Gotham, employer or staffing agency), for their alleged failure to abide by the terms of the consent judgment. The Secretary sought an order requiring Gotham to pay back wages plus interest from January 1, 1999 through the present. On January 19, 2005 Gotham filed a response and counterclaim to the petition denying any violation of the consent decree and requesting the district court to vacate the decree's injunctive provision because of changed circumstances.

Judge Stanton, who had maintained jurisdiction over this matter since its inception, conducted an evidentiary hearing on March 20, 2006. At the close of plaintiff's case, Gotham moved for judgment in its favor pursuant to Fed.R.Civ.P. 52(c). Judge Stanton granted that motion from the bench and held Gotham not in contempt of the consent judgment. In an order entered March 23, 2006 the district court denied the Secretary's petition. From this order the Secretary appeals.

BACKGROUND

We turn to the facts. A typical Gotham placement begins when one of its client hospitals requests a nurse to fill a temporary vacancy or to support hospital personnel during a peak period. Gotham then offers the assignment to a nurse on its register, and the nurse who accepts the position reports directly to the hospital. The nurse is required to sign in and out on daily time sheets, which are compiled and reviewed by the hospital and forwarded to Gotham each week. Gotham is not permitted to go on hospital premises to verify the nurse's hours or otherwise supervise his or her performance. The hospital pays Gotham an hourly fee multiplied by the number of hours worked by the nurse and Gotham pays most of this money to the nurse.

Until the early 1990s, Gotham did not pay its nurses overtime wages for hours worked in excess of 40 hours in any workweek because it viewed the nurses as independent contractors. After the Department of Labor commenced an enforcement action in 1992 against the staffing agency asserting that its practice of paying nurses straight-time wages for overtime hours violated the Act, Gotham consented to treat the nurses on its register as employees for purposes of the Act. Specifically, the 1994 consent judgment included a prospective injunction requiring Gotham to comply with 29 U.S.C. § 207(a) by paying its nurses time and one-half wages for time worked over 40 hours in any week.

As Gotham's clients do not pay Gotham a premium for overtime hours in all cases, Gotham's promise to abide by the Act quickly proved expensive. After seeking advice of counsel, the staffing agency adopted a policy designed to check unauthorized overtime or, failing that, insulate itself from claims for time and one-half compensation for unauthorized hours. Gotham's overtime policy is printed on the time sheets completed by its nurses and reads: "You must notify GOTHAM in advance and receive authorization from GOTHAM for any shift or partial shift that will bring your total hours to more than 40 hours in any given week. If you fail to do so you will not be paid overtime rates for those hours."

In the course of their assignments at client hospitals, Gotham nurses are sometimes asked to work overtime by hospital staff. Nurses who agree to work an unscheduled shift will on occasion contact Gotham first to request approval in compliance with Gotham's rule. If Gotham authorizes an assignment, the nurse is guaranteed premium wages for any resulting overtime. But three out of four approval requests are denied. At other times, nurses accept unscheduled shifts without obtaining the staffing agency's approval. When these nurses report their overtime for the preceding week, Gotham attempts to negotiate with the hospital to procure an enhanced fee for the overtime hours already worked. If Gotham succeeds—as it does ten percent of the time— it pays the nurse time and one-half wages for the unauthorized overtime hours. Otherwise, the nurse receives straight-time wages for the extra hours worked.

It is this scenario that gives rise to the Secretary's contention that Gotham's overtime practices violate 29 U.S.C. § 207(a) and, by extension, the 1994 consent judgment. The plaintiff's petition seeks back wages in excess of $100,000 plus pre-judgment interest for the period from January 1999 through June 2002 and calls for an accounting of Gotham's wage obligations from 2002 to the present. After a one-day trial in March 2006, Judge Stanton granted Gotham's motion for judgment based on partial findings at the conclusion of the Secretary's case. He denied the Secretary's petition to hold defendants in contempt. The district court also denied the Secretary's claim concerning record-keeping violations and Gotham's counterclaim to dissolve the injunction, but neither of these latter two rulings have been appealed.

The Secretary challenges that portion of the district court's March 20, 2006 judgment that denies her petition for civil contempt against Gotham. That court believed the unauthorized hours did not constitute work under the Act or, if these were working hours, the legal question was too much in doubt to warrant civil contempt. On this appeal the Secretary presents us with two questions: first, whether Gotham's overtime practices violate the Act; and second, if so, whether the violation provides an adequate basis for civil contempt.

We think the trial court erred in labeling the nurses' overtime hours as anything other than work and answer the first question in the affirmative. But because we believe Gotham acted on a reasonable interpretation of then unsettled law, we answer the second question in the negative, and affirm the district court's judgment on the alternative ground that the Secretary did, not meet her burden to prove contempt.

DISCUSSION

I Standard of Review

We review the denial of a petition for civil contempt under the abuse of discretion standard. Dunn v. N.Y. State Dep't of Labor, 47 F.3d 485, 490 (2d Cir. 1995). While we uphold the district court's factual findings unless they are clearly erroneous, the ultimate legal question of whether an employee is entitled to overtime pay under the FLSA is subject to plenary review. See Barrentine v. Arkansas-Best Freight Sys., Inc., 450 U.S. 728, 743, 101 S.Ct. 1437, 67 L.Ed.2d 641 (1981); Holzapfel v. Town of Newburgh, 145 F.3d 516, 521 (2d Cir.1998). Further, where a party challenges a principle of law relied on by the district court in making a discretionary determination, we review de novo its choice and interpretation of such principles. Scalisi v. Fund Asset Mgmt., 380 F.3d 133, 137 (2d Cir.2004).

II Violation of the Act's Overtime Provisions

Our first question is whether Gotham's failure to pay time and one-half wages to its nurses for unauthorized overtime violated the Act's overtime provisions. The Act provides that "no employer shall employ any of his employees . . . 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).

"Employ" is defined in the Act as including "to suffer or permit to work," 29 U.S.C. § 203(g), but Congress did not define the word "work." See IBP, Inc. v. Alvarez, 546 U.S. 21, 25, 126 S.Ct. 514, 163 L.Ed.2d 288 (2005). The broad meaning that has emerged from Supreme Court cases describes work as exertion or loss of an employee's time that is (1) controlled or required by an employer, (2) pursued necessarily and primarily for the employer's benefit, and (3) if performed outside the...