Brennan v. Valley Towing Co., Inc.

• Decision Date: 17 April 1975
• Docket Number: No. 73-2896,73-2896
• Parties: 22 Wage & Hour Cas. (BN 251, 76 Lab.Cas. P 33,242 Peter J. BRENNAN, Secretary of Labor, United States Department of Labor, Plaintiff-Appellant, v. VALLEY TOWING CO., INC., a corporation and Robert Dyar, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 100

515 F.2d 100

22 Wage & Hour Cas. (BN 251, 76 Lab.Cas. P 33,242

Peter J. BRENNAN, Secretary of Labor, United States

Department of Labor, Plaintiff-Appellant, v. VALLEY TOWING CO., INC., a corporation and Robert Dyar,

Defendants-Appellees.

No. 73-2896.

United States Court of Appeals, Ninth Circuit.

April 17, 1975.

Donald S. Shire, Asst. U. S. Atty. (argued), Phoenix, Ariz., for plaintiff-appellant.

Richard E. Fay (argued), Phoenix, Ariz., for defendants-appellees.

OPINION

Before BARNES, WRIGHT and WALLACE, Circuit Judges.

EUGENE A. WRIGHT, Circuit Judge:

This is an appeal from a final judgment refusing to enjoin alleged violations of the overtime compensation and record keeping provisions of the Fair Labor Standards Act (29 U.S.C. §§ 201 et seq. (1970)), and to order payment of over $18,000 in unpaid overtime compensation said to be due individual employees of defendant corporation. After a full hearing, the district court concluded that the company's compensation scheme was in compliance with the Act, and that a back pay award on behalf of the company's employees who had worked in excess of the statutory maximum workweek of forty hours between 1969 and 1971 was therefore unwarranted. The district court concluded also that "(t)he evidence fail(ed) to show inadequacy of the books and records of defendants under applicable law and regulation." We affirm in part, reverse in part, and remand for further proceedings.

The Secretary of Labor sued under § 217 of the FLSA, which gives the district courts jurisdiction to restrain violations of § 215 of the Act. In turn, §§ 215(a)(2) and 215(a)(5) respectively make unlawful non-compliance with § 207's provisions for premium overtime compensation, and with regulations regarding record keeping and record preservation promulgated under § 211(c). Relevant portions of these provisions are set out in the margin. ¹

At issue was the system devised by Valley Towing and its president, Robert Dyar, for compensating company employees, most of whom are wrecker-drivers. Valley Towing, which provides towing and emergency road service for both business and private customers in and near Phoenix, Arizona, had oral contracts with its drivers under which it paid them guaranteed monthly salaries ranging from $400 to $550 for regular 47 hour, six-day workweeks. The company also had explicit understandings with its employees that those who chose to remain on duty after regular working hours would be compensated either by a flat rate payment of $3.00 per hour, or by being permitted to retain 25% of any gross tow bill.

Aside from unfinished jobs carried over from regular working hours, the employees were free to choose either method of compensation, and it was generally to their advantage to choose the latter. It was stipulated that employees remaining on duty or call beyond regular working hours averaged an additional eight hours each week for a total workweek of 55 hours. ²

The Secretary does not question the trial judge's characterization of the company's compensation scheme. Rather, he contends that the "oral contracts" and "explicit understandings" referred to in the findings of fact did not satisfy the Act's overtime pay provisions. In particular, he objects to the failure of these agreements to specify a basic hourly rate of pay, and an overtime rate not less than time and one-half that "regular rate" for hours in excess of forty per week.

Absent such specifications, it is asserted, the district court should have determined the "regular rate" of pay by dividing the total weekly compensation paid to each employee by the actual hours worked. The district court should then have awarded such employee an amount representing half of that regular rate for each overtime hour worked in the relevant period.

We agree with the Secretary's argument as to the guaranteed monthly salaries and reverse the district court's determination that disbursements under oral contracts providing for payment of these salaries were adequate to satisfy the Act's overtime pay requirements. However, we do not find the trial court's similar determination as to the compensation plan for afterhours work inconsistent with the Act.

Hence, we affirm the district court's conclusion that the "extra compensation" paid thereunder "is creditable toward overtime compensation and not to be included in computing the regular rate." We also hold that defendants failed to establish any exceptions or exemptions taking them out of the Act's coverage and that their record keeping and record preservation failed to satisfy § 211(c).

A. Coverage Under the Act.

Appellees suggest that we might dismiss this appeal on the jurisdictional ground that Valley Towing was not an "enterprise engaged in commerce or in the production of goods for commerce" within the meaning of § 203(s).

This contention fails to recognize that the Act provides three independent bases for coverage. Under § 207, the Act's overtime pay requirements apply to each employee "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." Section 211(c)'s record keeping requirements apply to "(e)very employer subject to any provision of (the Act) or of any order issued under (the Act)."

The Secretary's complaint did not contend that Valley Towing was an "enterprise engaged in commerce," but only that its employees were engaged "in commerce" within the meaning of the Act. The company so stipulated. Since the Act sets out the scope of its overtime requirements in the disjunctive, it is clear that the court had jurisdiction over any § 207 or § 211 violations as to each employee specifically referred to in the pre-trial order embodying that stipulation. ³

Appellees also contend that Valley Towing was exempt from the Act's overtime requirements (and consequently also from its record keeping requirements) because it qualified as a "retail or service establishment" within the meaning of § 213(a)(2). The decisions are uniform that this exemption is a matter of affirmative defense which must be pleaded by the employer, or be waived. See, e. g., Mitchell v. Williams, 420 F.2d 67, 68 n. 2 (8th Cir. 1969), and cases cited therein.

Since Valley Towing neither pleaded the § 213(a)(2) exemption, nor offered proof to support each element required for it to be applicable, ⁴ we shall not depart from those decisions nor from the general rule that an affirmative defense is waived if not pleaded. See, e. g., Sorenson v. United States, 226 F.2d 460, 462 (9th Cir. 1955); Fed.R.Civ.P. 8(c).

Moreover, we have narrowed the potential applicability of this exemption to companies providing commercial and private towing services, holding that operations similar to those of appellees failed to fall within the letter, Gray v. Swanney-McDonald, Inc., 436 F.2d 652, 653-54 (9th Cir. 1971), or within the spirit, Brennan v. Keyser, 507 F.2d 472, 476-77 (9th Cir. 1974), of the exemption. Even if appellees had timely raised this defense, it is doubtful that it would have been of any avail to them.

B. Guaranteed Monthly Salary Plan.

The adequacy under § 207 of both the fixed monthly salary plan and the afterhours compensation agreements must be evaluated in relation to the "regular" rate of pay received by each employee. Therefore, the primary question facing us is how this rate should be determined. Once the regular rate has been established, it will be a simple algorithmic process to determine whether the actual weekly wages paid under each part of the company's compensation scheme satisfied the Act's premium overtime compensation requirements.

At trial, defendants admitted that Mr. Dyar had failed to inform his employees of an hourly rate of pay constituting the basis on which their guaranteed monthly salaries had been determined. They suggest to us, however, that the guaranteed monthly wage contracts did embody "regular" hourly rates, ones readily determinable by rudimentary mathematical calculations.

First, the monthly rates could be transformed into guaranteed weekly scales which provide for payment for 47 hours of work per week. This would involve multiplying the monthly wage by 12, dividing the product by 52. See 29 C.F.R. § 778.113(b) (1974).

Second, the guaranteed weekly salary so computed could be broken down into regular and overtime pay components consisting of compensation for 40 hours at a designated hourly rate, plus payments for the remaining seven hours at one and one-half times that rate. The designated hourly rate so determined would exceed the minimum wage even as to lower paid salaried employees, and be considerably above that figure (which during no part of the relevant period exceeded $1.60 per hour) ⁵ in the case of the company's higher paid employees. ⁶

This method of calculating the "regular rate" of pay was apparently accepted by the district court in concluding that appellant had failed to show "by the preponderance of the evidence that defendants have violated the overtime provisions of (§§ 207 and 215(a)(2)) of the Act." ⁷ Appellees urge that the rates so determined for each employee were the proper ones for the district court to have used in evaluating the adequacy under § 207 of the salaries and compensation for afterhours work paid by Valley Towing. ⁸

While appellees' position is imaginative, it ignores the established principle that the "regular rate" is not a hypothetical construction but an " actual fact." 149 Madison Ave. Corp. v. Asselta, 331 U.S. 199, 204, 67 S.Ct. 1178, 1181, 91 L.Ed. 1432 (1947). "(I)n testing the validity of a wage agreement under the Act, the courts are required to look beyond that which the parties have purported to do." Id.

Appellees concede that no stepped-up overtime rate was contemplated for the last seven hours of regular weekly work, much less communicated and agreed to by the employees....