Marshall v. Chala Enterprises, Inc.

• Citation: 645 F.2d 799
• Decision Date: 18 May 1981
• Docket Number: No. 79-3286,79-3286
• Parties: 24 Wage & Hour Cas. (BN 1372, 91 Lab.Cas. P 34,013 Ray MARSHALL, Secretary of Labor, United States Department of Labor, Plaintiff-Appellant, v. CHALA ENTERPRISES, INC., dba Chala Tire Co., et al., Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 799

645 F.2d 799

24 Wage & Hour Cas. (BN 1372, 91 Lab.Cas. P 34,013

Ray MARSHALL, Secretary of Labor, United States Department

of Labor, Plaintiff-Appellant, v. CHALA ENTERPRISES, INC., dba Chala Tire Co., et al.,

Defendants-Appellees.

No. 79-3286.

United States Court of Appeals,

Ninth Circuit.

Argued and Submitted Feb. 3, 1981.

Decided May 18, 1981.

Eleanor Jenkins, Atty., Washington, D. C., for plaintiff-appellant.

Bernard A. Leckie, Meserve, Mumper & Hughes, Newport Beach, Cal., for defendants-appellees.

Appeal from the United States District Court for the Central District of California.

Before SCHROEDER, PREGERSON and REINHARDT, Circuit Judges.

REINHARDT, Circuit Judge:

The Secretary of Labor commenced this action under section 17 of the Fair Labor Standards Act, 29 U.S.C. sections 201-219, seeking restitutionary and prospective injunctive relief against Chala Enterprises, Inc., on behalf of ten of Chala's employees. The Secretary alleged that Chala had violated the record keeping and overtime ¹ provisions of the Act by failing to pay those employees a regular hourly rate for the first forty hours of work, and one and one-half times the regular rate for each hour in excess of forty per week. Chala admitted the record keeping violations, but denied that its compensation scheme violated the overtime provisions.

Although the faulty record keeping made it rather difficult to determine the method by which the employees' compensation was calculated, the district court found that Chala had not violated the overtime provision. The court then declined to issue either a prospective or restitutionary injunction, partly for the reason that, in the court's opinion, "the compensation paid by the defendants to their employees was reasonable."

The dispute centers on ten employees of the defendant who worked as attendants at various gasoline service stations operated by Chala in the Los Angeles vicinity. ² These employees were paid a fixed lump sum amount for a sixty hour workweek. Chala's basic contention is that the lump sum salary figures were actually based on the requisite regular hourly rate, and reflected payment for forty hours at such rate and time and a half for hours in excess of forty. Chala thus contends that the hourly rate was predetermined, but that the method of computation was designed to produce a round figure, e. g., $800 or $1,000, for each month. This apparent anomaly was explained by testimony that the employees were more interested in knowing their monthly salary than the hourly rate upon which it was based. The Secretary claims that Chala simply computed hypothetical regular and overtime rates post hoc, by breaking down the predetermined fixed salary. He urges that the employer's payment scheme resulted in fixed lump sum salaries, without any breakdown into a regular rate for the first forty hours and one and one-half times the regular rate for the remaining twenty hours. In support of this contention, the Secretary notes several circumstances that, taken together, cast serious doubt on Chala's assertion that the employees were paid an hourly wage. For example, it appears that deductions for hours missed from the regular sixty-hour week were made on a straight time basis. If the employees were being paid time and a half for the twenty overtime hours, one would expect the deductions to mirror this up to twenty hours. ³ The Secretary also notes that increases in compensation came The district court accepted Chala's argument that the lump sum figure for a sixty-hour week consisted of predetermined regular and overtime components, although it noted that the company's records failed to reflect this computational scheme. In light of this finding, and in reliance on the "reasonableness" and "non-exploitive" nature of the rate of compensation, the district court denied all relief.

in the form of an increase from one round lump sum figure to another, rather than as an increase in the hourly wage.

ANALYSIS

A. The Section 7 Violation

We need not reach the issue whether the district court erroneously accepted Chala's computation of an hourly rate, arrived at after the fact by dividing the monthly salary into a regular hourly wage and a stepped-up overtime rate. ⁴ The decisive factor in this case is the failure of the defendant to carry its burden of showing an express agreement with its employees as to a regular rate of pay for the first forty hours of work per week. This court has held that when employees are compensated on a lump sum basis, "(a)bsent explicit proof of another mutually agreed upon rate of pay, the court must infer that 'the regular rate actually paid was substantially that obtained by dividing the weekly wage payable for the working of the scheduled workweek by the number of hours in such scheduled workweek.' " Brennan v. Valley Towing Co., Inc., 515 F.2d 100, 106 (9th Cir. 1975) (emphasis added) (quoting 149 Madison Ave. Corp. v. Asselta, 331 U.S. 199, 204, 67 S.Ct. 1178, 1181, 91 L.Ed. 1432 (1947)). See also Brennan v. Elmer's Disposal Service, Inc., 510 F.2d 84, 87 (9th Cir. 1975). ⁵ Thus, when a weekly salary is paid, the employer is deemed to have paid the same rate for all hours worked, rather than the requisite overtime compensation, unless it can demonstrate the existence of a mutual agreement regarding the regular rate to be paid for the first forty hours.

The burden of establishing an express agreement regarding the method of computation is on the employer. See Brennan v. Elmer's Disposal Service, Inc., 510 F.2d at 86-87 n.1, 88. This serves to minimize the possibility that implementation of the important purposes of section 7 will be dependent upon the resolution of ambiguities as to what individual employees understood regarding the scheme of compensation. The record here is replete with such ambiguities, and they are directly reflected in the finding by the district judge on this issue. ⁶ Even if we accept that finding, it falls far short of establishing an express agreement regarding the regular rate of pay and, thus, is insufficient as a matter of law to avoid the conclusion that Chala violated section 7 of the Act. For this reason, we reverse and remand to the district court for imposition of the proper remedy. To assist the district court upon remand, we add a discussion of the standards by which

the relief to which the Secretary is entitled is to be determined. ⁷

B. Remedy

The district court, quoting Dunlop v. Saghatelian, 520 F.2d 788, 790 (9th Cir. 1975), denied injunctive relief, restitutionary or prospective, in light of its conclusions that the employees were compensated at a "reasonable" rate, that they were not exploited by their employer, and that Chala "had no gains accruing to (it) through (its) violation." These factors do not exhaust those relevant to a determination of the proper remedy, and we think the emphasis that they suggest is at odds with the policy of the Fair Labor Standards Act. We conclude that the district court incorrectly relied on Saghatelian.

The Supreme Court has stated, in an analogous context, that "such discretionary choices are not left to a court's 'inclination, but to its judgment; and its judgment is to be guided by sound legal principles.' " ⁸ Addressing the issue of a court's discretion to award reimbursement for lost wages following a discharge in violation of the Fair Labor Standards Act, the Court has noted that "(w)hen Congress entrusts to an equity court the enforcement of prohibitions contained in a regulatory enactment, it must be taken to have acted cognizant of the historic power of equity to provide complete relief in light of the statutory purposes." Mitchell v. Robert De Mario Jewelry, Inc., 361 U.S. 288, 291-92, 80 S.Ct. 332, 334-35, 4 L.Ed.2d 323 (1960).

In Mitchell, the Court set forth what we believe to be the basic framework for determining whether restitutionary relief should be afforded in cases involving violations of the minimum wage or overtime pay requirements of the Fair Labor Standards Act. After examining the purposes of the Act, the Court stated, "because of what we have found to be the statutory purposes there is doubtless little room for the exercise of discretion not to order reimbursement...." Id. at 296, 80 S.Ct. at 337. We conclude that in the case before us the district court did not properly exercise its discretion.

We first address the restitutionary injunction sought by the Secretary. "It must be remembered that restraining appellees from withholding the ... overtime compensation is meant to vindicate a public, rather than a private, right, and that the withholding of the money due is considered a 'continuing public offense.' " Wirtz v. Malthor, Inc., 391 F.2d 1, 3 (9th Cir. 1968); Wirtz v. Jones, 340 F.2d 901 (5th Cir. 1965). The policies underlying the overtime provision (section 7) of the FLSA are distinct from those served by the minimum wage requirement (section 6), although there are some common purposes. Section 6 deals with the subject of "wages," while section 7 deals with the regulation of "hours." Section 7 is intended to address the "evil of A restitutionary injunction prevents unjust enrichment, and affords employees payments that Congress has determined they are entitled to receive. Denial of an injunction deprives them of the opportunity to recover these amounts. In addition, the prospect of a restitutionary injunction discourages future violations of the Act whether intentional or negligent in nature. Even if the total compensation Chala would have paid its employees would not have been different had the company complied with the Act, such an injunction will, both in this case and generally, encourage the careful record keeping the Act requires, and will assure that the employees are paid in the manner that the Act requires.

'OVERWORK.' " OVERNIGHT MOTOR TRANSPORTAtion co. v. missEL, 316 u.s. 572, 578, 62 S.Ct. 1216, 1220, 86 L.Ed. 1682 (1942). A...