Clements v. Serco, Inc.

Decision Date01 July 2008
Docket NumberNo. 06-4316.,No. 07-4005.,06-4316.,07-4005.
Citation530 F.3d 1224
PartiesGary CLEMENTS and David Gerber, Plaintiffs-Appellees/Cross-Appellants, v. SERCO, INC., Defendant-Appellant/Cross-Appellee, Fairfax County Chamber of Commerce, Amicus Curiae.
CourtU.S. Court of Appeals — Tenth Circuit

Lino S. Lipinsky de Orlov (Herbert L. Fenster and Jennette Campopiano Roberts with him on the briefs), McKenna Long & Aldridge LLP, Denver, CO, for Defendant-Appellant/Cross-Appellee.

Richard M. Hymas (Erin T. Middleton with him on the briefs), Durham Jones & Pinegar, Salt Lake City, UT, for Plaintiffs-Appellees/Cross-Appellants.

Daniel B. Abrahams and Shlomo D. Katz, Epstein Becker & Green, P.C., Washington, D.C., on the brief for Amicus Curiae.

Before MURPHY, SEYMOUR, and McCONNELL, Circuit Judges.

MURPHY, Circuit Judge.

Serco, Inc. ("Serco") appeals the district court's ruling on summary judgment that civilian military recruiters employed by the company are entitled to overtime compensation under the Fair Labor Standards Act ("FLSA"). We conclude that because Serco's employees did not obtain commitments from recruits, they were not engaged in sales. They therefore do not fall under FLSA's "outside salesmen" exemption. The employees, Gary Clement and David Gerber ("Employees"), cross-appeal the district court's calculation of back-pay based on the "fluctuating workweek" approach, and ask this court to remand for calculation under the "time-and-a-half" method. Exercising jurisdiction pursuant to 28 U.S.C. § 1291, we affirm the district court's summary judgment ruling and its calculation of back-pay.

I. Factual Background

The United States Army contracted with Serco1 in 2002 to provide recruiting services to the Army and the Army Reserves. Under the Army-Serco contract, Serco was paid every time its recruiting efforts resulted in one of the following: (1) a recruit with no prior military experience enlisted in the U.S. Army or the U.S. Army Reserves; (2) a member of the U.S. Army Reserves transferred to the U.S. Army; (3) a former member of the military enlisted in the U.S. Army or U.S. Army Reserves; or (4) an applicant shipped to his or her assigned training center. Both Clements and Gerber were hired by Serco in September 2002 to recruit potential applicants for the U.S. Army and U.S. Army Reserves. Gerber's employment ended in June 2003 and Clements' in August 2003.

The parties describe the Employees' duties differently. The Employees characterize their jobs as cold-calling individuals to inform them about opportunities to serve in the U.S. Army or U.S. Army Reserves. The Employees testified that they spent most of their time in Serco's office making phone calls to prospective recruits. Serco, on the other hand, cites to deposition testimony and affidavits describing the nature of the job as one in which the Employees were expected to be in the community, actively recruiting applicants.2 The job description required recruiters to establish a working relationship with representatives of educational, parental, civic, military, religious, social, and fraternal organizations and to give formal and informal presentations on the advantages of serving in the Army. Recruiters were also to distribute and display publicity materials to high school and college students.

Once a recruit expressed interest, the Employees set up an initial interview and administered pre-screening math and English tests to determine if the recruit met the minimum requirements for enlistment. If the requirements were met, the Employees maintained contact with the recruit and engaged in other follow-up activities, such as obtaining background checks, court records, birth certificates, health records, and other documents required for enlistment.

The Employees had no authority to enlist a recruit. Instead, recruits were enlisted at a Military Entrance Processing Station ("MEPS"), owned and operated by the United States. At the MEPS, a recruit first underwent a physical exam. If she passed, she interviewed with U.S. Army officials and decided whether to enlist. Recruits also met with guidance counselors to discuss the various jobs available to the recruit. Recruits spent an entire day at the MEPS, usually starting at six o'clock in the morning and ending at three or four o'clock in the afternoon. A recruit could only sign an Oath of Enlistment in the Armed Forces of the United States at the MEPS. The Employees, although unable to enlist a recruit, often drove their recruits to the MEPS, and then returned at the end of the day to give them a ride home.

After a recruit enlisted, the Employees met with recruits regularly. They provided additional training and often made telephone calls to the recruits to reinforce their decision to join the U.S. Army or U.S. Army Reserves. The goal of this continued contact was to keep the recruits enthused about their decision to enlist.

Serco paid the Employees a starting salary of $600.00 per week. The Employees' salaries were nominally increased in February 2003. Additionally, Serco paid a commission if the Employees reached established quotas for recruits who enlisted and reported to their assigned training center. The Employees kept time cards which were submitted to a supervisor at the end of each week or pay period. Clements worked 480 overtime hours and Gerber worked 596.5 overtime hours. Serco, however, did not pay either employee overtime.

II. Analysis

Congress enacted the FLSA in order to improve "labor conditions detrimental to the maintenance of the minimum standard of living necessary for the health, efficiency, and general well-being of workers." 29 U.S.C. § 202(a). To further this remedial aim, the FLSA requires employers to pay time and one-half to employees who work more than forty hours a week and who are not exempt. 29 U.S.C. § 207(a)(2)(C). The FLSA exempts employees who are classified as "outside salesmen" from the overtime-pay requirement. 29 U.S.C. § 213(a)(1). Congress delegated authority to the Secretary of Labor to define this exemption. Id.

Exercising the delegated authority, the Secretary promulgated 29 C.F.R. § 541.500, defining "outside salesman" as any employee:

(a) who is employed for the purpose of and who is customarily and regularly engaged away from his employer's place or places of business in:

(1) making sales within the meaning of section 3(k) of the Act; or

(2) Obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer; and

(b) Whose hours of work of a nature other than that described in paragraph (a)(1) or (2) of this section do not exceed 20 percent of the hours worked in the workweek by nonexempt employees of the employer: Provided, that work performed incidental to and in conjunction with the employee's own outside sales or solicitations, including incidental deliveries and collections, shall not be regarded as nonexempt work.

29 C.F.R. § 541.500 (2003).3 Under § 3(k) of the FLSA, the word "`[s]ale' or `sell' includes any sale, exchange, contract to sell, consignment for sale, shipment for sale, or other disposition." 29 U.S.C. § 203(k). The district court ruled the Employees were not "outside salesmen" as defined by the regulations because the recruiters were not engaged in sales and, even if the Employees were engaged in sales, Serco failed to prove the Employees' nonexempt work did not exceed twenty percent of the hours worked, as required by 29 C.F.R. § 541.500(b).

We review the grant of a summary judgment motion de novo, viewing all evidence and reasonable inferences in the light most favorable to the nonmoving party. Fye v. Okla. Corp. Comm'n, 516 F.3d 1217, 1222-23 (10th Cir.2008). "[I]n light of the FLSA's broad remedial aims, exemptions must be narrowly construed." Ackerman v. Coca-Cola Enters., Inc., 179 F.3d 1260, 1264 (10th Cir.1999). Further, as the employer, Serco bears the burden of proving that the Employees fit "plainly and unmistakably within the exemption's terms." Id. (quotation and alteration omitted); see also Arnold v. Ben Kanowsky, Inc., 361 U.S. 388, 392, 80 S.Ct. 453, 4 L.Ed.2d 393 (1960). "The Department of Labor regulations are entitled to judicial deference and are the primary source of guidance for determining the scope of exemptions to the FLSA." Ackerman, 179 F.3d at 1264 (quotation and alteration omitted); see also Chevron U.S.A., Inc. v. Natural Res. Def. Council, 467 U.S. 837, 843-44, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984).

Serco argues the district court erred by concluding the Employees were not outside salesmen because they did not have the authority to "close the sale." The inability of the Employees, Serco contends, to accompany recruits into the MEPS and obtain their commitment, by way of signing the Oath of Enlistment, is not dispositive. No one other than the Employees "sold" the Army to the recruits. We disagree. Although the Employees engaged in sales training and "sold" the idea of joining the Army to potential recruits, it did not engage in sales work as defined by the Department of Labor regulations.

The touchstone for making a sale, under the Federal Regulations, is obtaining a commitment. This can be done by making a sale or obtaining an order or contract for services. 29 C.F.R. § 541.500. This requirement is spelled out in numerous Department of Labor regulations. For example, 29 C.F.R. § 541.504 explains that promotional work is not exempt, unless it is actually performed incidental to and in conjunction with an outside employee's own sales. By way of illustration, the regulation describes a distribution scenario in which a manufacturer's representative visits a retailer:

This manufacturer's representative may perform various types of promotional activities such as putting up displays and posters, removing damaged or spoiled stock from the merchant's shelves or rearranging the merchandise. Such persons can be considered salesmen only if ...

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