Killion v. Kehe Distribs., LLC
| Decision Date | 11 September 2014 |
| Docket Number | 13–4340.,Nos. 13–3357,s. 13–3357 |
| Citation | 761 F.3d 574 |
| Parties | Thomas E. KILLION et al., Plaintiffs–Appellants, v. KeHE DISTRIBUTORS, LLC, Defendant–Appellee. |
| Court | U.S. Court of Appeals — Sixth Circuit |
OPINION TEXT STARTS HERE
ARGUED:Robert A. Bunda, Bunda, Stutz & Dewitt, PLL, Perrysburg, Ohio, for Appellants. Cardelle B. Spangler, Winston & Strawn LLP, Chicago, Illinois, for Appellee. ON BRIEF:Robert A. Bunda, Barbara E. Machin, Bunda, Stutz & Dewitt, PLL, Perrysburg, Ohio, Kerry L. Morgan, Randall A. Pentiuk, Pentiuk, Couvreur & Kobiljak, P.C., Wyandotte, Michigan, for Appellants. Cardelle B. Spangler, Winston & Strawn LLP, Chicago, Illinois, for Appellee.
Before: SILER, GILMAN, and GIBBONS, Circuit Judges.
The plaintiffs in this case are numerous “sales representatives” who are or were employed by KeHE Distributors, LLC, a food distributor based in Naperville, Illinois. KeHE's management assigns each representative several stores of large chain retailers. At their assigned stores, the representatives are responsible for stocking shelves as well as reordering merchandise whenever a store is low on any of KeHE's products. In 2012, KeHE discharged a number of the plaintiffs as part of a restructuring. Four of the discharged plaintiffs sued, claiming that KeHE had failed to pay them overtime wages as required by the Fair Labor Standards Act (FLSA), 29 U.S.C. § 201 et seq.
The plaintiffs sought to certify a collective action under 29 U.S.C. § 216(b). In response, KeHE argued that many of the discharged employees had waived their right to participate in a collective action by agreeing to such a waiver in their separation agreements, and that, in any event, the plaintiffs are exempt from the overtime provisions of the FLSA because they are classified under the statute as “outside sales employees.”
The district court upheld the validity of the waivers and certified a collective action consisting only of employees who had not signed the agreements or who had modified their agreements to preserve their right to participate in a collective action. A motion for reconsideration by the plaintiffs followed. The court denied the motion, and the plaintiffs sought an interlocutory appeal (Case No. 13–3357). With that appeal pending, the district court granted summary judgment for KeHE, holding that all of the plaintiffs were outside sales employees and therefore exempt from the overtime requirements of the FLSA. A second appeal to this court followed (Case No. 13–4340).
For the reasons set forth below, we DISMISS the plaintiffs' interlocutory appeal (Case No. 13–3357) for lack of jurisdiction, but we AFFIRM IN PART and REVERSE IN PART the judgment of the district court based on the second Notice of Appeal (Case No. 13–4340). We hold that the district court erred in granting KeHE summary judgment on the outside-sales-exemption issue and further erred in excluding from the collective action those KeHE employees who had signed the waivers. With regard to a final issue raised by the plaintiffs concerning the exclusion of a report by their expert witness, however, we hold that the district court did not abuse its discretion.
KeHE is a distributor of specialty ethnic and health foods to retailers, some of which are independent stores and some of which are large chain stores. According to the Notice of Collective Action, the plaintiffsare current and former “sales representatives” of KeHE “who, since March 1, 2009, spent a majority of their work hours providing promotional services to KeHE's large retail chain customers in the Great Lakes Region, such as Meijer, Kroger, Giant Eagle and Walmart.”
KeHE's relationships with the chain stores involve multiple layers of personnel. Typically, KeHE's customer-development team establishes the initial relationship with such a store. The business-development team then negotiates the broad parameters of any overarching distribution contract. In turn, KeHE's account-management team negotiates with the chain store the list of products from KeHE's 40,000–plus product catalog that are authorized for sale at each of the customers' stores. Account managers also help each store develop a “plan-o-gram” that will best promote the KeHE products to be sold. A “plan-o-gram” is essentially a marketing plan for the particular store that designates shelf spaces, identifies which products are to be placed on the shelves, and lays out any in-store advertising plans. The account-management team then instructs the sales representatives on the requirements of the store. Account managers also execute “force outs” on occasion, meaning that they instruct the sales representatives to place certain products or additional products for sale at the stores.
The sales representative is the on-the-ground contact for each individual store. Sales representatives meet KeHE's delivery trucks several times per week, oversee the unloading of products into the store's backroom, and then return to the store several times during the week to stock KeHE's products on the shelves from the inventory in the backroom. They also place orders for more products based on depleted inventory, meaning that, in general, the sales representatives are to order one additional case of products when the store has only one or two units remaining. Finally, the sales representatives are responsible for transporting any damaged products back to KeHE's storage areas in their personal vehicles.
KeHE selects its sales representatives based on their sales experience, and the plaintiffs initially believed that their jobs would in fact entail sales. In addition to their responsibilities with chain retailers, sales representatives are permitted to cold-call on smaller independent retailers and solicit them to purchase KeHE products. The solicitation of such customers, however, is primarily the responsibility of KeHE's “Alternative Channel Department.”
Sales representatives are paid entirely on commission through a formula that KeHE's documents describe as “a variable compensation plan where they are paid for two types of services, ordering and stocking.” During the earlier part of the time period in question, from 2009 to 2011, the plan was byzantine to say the least, involving a ten-step calculation complete with discounts, mark-downs, and a calculation of profit margins on various products. By April 2011, however, KeHE appears to have simplified the system and began paying the sales representatives commissions of 2% for stocking products on shelves, 1.4% for store maintenance, 1% for promotional marketing (but only in independent stores), .75% for maintaining proper inventory levels that are ordered automatically through KeHE's own systems or the customer's computer systems, .10% for orders written by the sales representatives in question, .25% for marking prices on the items (but only in the states requiring that products be marked), .25% for rotating stock and processing credits, .15% for checking in delivered products, and .10% for adjusting invoices if they are short, or if products are damaged.
KeHE's sales representatives stated in their affidavits that they regularly work in excess of 60 hours per week to complete their above-described responsibilities. But KeHE does not pay the plaintiffs overtime because it classifies its sales representatives as exempt from the overtime requirements of the FLSA under the “outside sales employee” exemption, 29 U.S.C. § 213(a)(1).
On February 17, 2012, KeHE discharged 69 sales representatives in the Great Lakes Region in “a restructuring effective March 17, 2012.” KeHE notified the affected representatives by mail and included in the mailing a separation agreement. The agreements promised the affected employees a retention bonus of $2,000 in exchange for continuing their work through March 17, 2012 and the employees' agreement to “release all claims against [KeHE] arising out of [their] employment with the Company.” In addition, the agreements purportedly bound the employees “not to consent to become[ ] a member of any class or collective action in a case in which claims are asserted against the Company that are related in any way to [their] employment or the termination of [their] employment with the Company.”
Thomas Killion and Brion Haley filed this lawsuit on February 27, 2012 in the Northern District of Ohio. They claimed that KeHE violated the FLSA by failing to pay them overtime wages even though they regularly worked in excess of 40 hours per week. A similar lawsuit brought by Barney Dolan and Mark Walters was consolidated with the lawsuit brought by Killion and Haley.
In March 2012, Killion and Haley moved to conditionally certify a collective action under the FLSA. They proposed to include in the lawsuit all KeHE sales representatives employed between February 27, 2009 and the date of filing. The plaintiffs also moved to void the collective-action waivers in the severance agreements for those who had signed them. With these motions pending, Anthony Basnec consented to join the collective action.
The district court issued an initial order determining that those plaintiffs who had modified their agreements by excising the waiver portion could join in the collective action. Two months later, the district court issued another order refusing to void the language waiving the right to participate in a collective action by those who had signed unmodified separation agreements. The court also dismissed Basnec from this lawsuit because he had signed a separation agreement containing the waiver. Shortly thereafter, the district court refused the plaintiffs' request that it certify an interlocutory appeal on the validity of the waivers.
The district court then conditionally certified a collective action “of KeHE sales representatives who, since March 1,...
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