Minizza v. Stone Container Corp. Corrugated Container Div. East Plant, 87-1348

Decision Date26 April 1988
Docket NumberNo. 87-1348,87-1348
Parties28 Wage & Hour Cas. (BN 849, 56 USLW 2572, 108 Lab.Cas. P 35,044 MINIZZA, Anthony, et al., v. STONE CONTAINER CORP. CORRUGATED CONTAINER DIV. EAST PLANT, Chesapeake Corrugated Co., Owens-Illinois, Inc., Stone Container Corp. West Plant, Stone Container Corp. East Plant, Appellants.
CourtU.S. Court of Appeals — Third Circuit

Michael L. Banks (argued), Timothy P. O'Reilly, Morgan, Lewis & Bockius, Philadelphia, Pa., for appellants.

Margaret A. Browning (argued), Mariann E. Schick, Spear, Wilderman, Sigmond, Borish, Endy and Silverstein, Philadelphia, Pa., for appellees.

Michael Hamilton, Nashville, Tenn., for United Paperworkers Int'l Union, AFL-CIO, CLC as amicus curiae.

Michael B. Weir, Mark E. Brossman, Donald W. Rose, Ronald Richman, Chadborne & Parke, New York City, for American Paper Institute, Inc. as amicus curiae.

Peter G. Nash, Dixie L. Atwater, Frances C. Moran, Ogletree, Deakins, Nash, Smoak and Stewart, Washington, D.C., Stephen A. Bokat, Paula J. Connelly, Washington, D.C., for Chamber of Commerce of the U.S. as amicus curiae.

Before GIBBONS, Chief Judge, SLOVITER and COWEN, Circuit Judges.

OPINION OF THE COURT

COWEN, Circuit Judge.

This appeal arises from an order of the district court, which required that defendant employers' payment of two lump sum amounts, pursuant to the terms of a collective bargaining agreement be included in the "regular rate" for purposes of calculating overtime rates under the Fair Labor Standards Act ("FLSA"), 29 U.S.C. Sec. 201 et seq. Since we conclude that these payments are excluded from regular rate calculations because they are similar to the types of payments excluded under 29 U.S.C. Sec. 207(e)(2), we will reverse.

I.

This controversy arose out of the filing of eleven separate, albeit identical, lawsuits by plaintiff employees who are members of the United Paperworkers International Union Local 375 ("Union"). The employees alleged that their employers violated section 7(a) of the FLSA 1 by excluding certain lump sum payments they received pursuant to the terms of collective bargaining agreements between the Union and the employers from their regular rate of compensation in calculating overtime pay.

The employers were each parties to collective bargaining agreements with the Union and, with the exception of Stone West, 2 joined together as the Philadelphia Container Association for the purpose of negotiating a new agreement with the Union in May of 1984. Prior agreements had included annual increases in hourly wages and other benefits. In these negotiations, however, the employers sought a new agreement with a freeze on hourly wages and a cap on medical insurance costs. 3

After considerable bargaining and a rejection of one proposal by vote of the Union rank and file, an agreement was reached between the parties. One of the terms of the new contract was the payment in the first year of the agreement of a lump sum of $750.00, payable on July 1, 1984, and an additional payment in the second year of the contract of $500.00, payable on July 1, 1985. 4 To be eligible for the first year payment, the employee had to have been an active employee for three months prior to the date of the payment. In order to qualify for the second year payment, the employee had to have six months active status prior to the payment date. Employees on long-term disability or lay-off returning within 12 months of the bonus date received a pro-rata share.

The lump sum payments were negotiated as a trade-off for wage increases and also served as an inducement to the employees to ratify the agreement, given the employers' minimal wage concessions and insistence on including medical deductibles. Although similar payments of a lesser amount were included in the first agreement rejected by the employees, the substantial increase in the amount of the sums which were to be paid on an earlier schedule than first proposed, along with the small ten-cent-per-hour wage increase in the third year of the contract, were sufficient inducement to convince the Union members to ratify the second agreement.

The parties agreed that there would be no "roll-up" effect of the lump-sum payments, that is, the amounts would not be included in wages for purposes of calculating holiday pay, worker's compensation premiums, FICA, FUTA, and overtime. Nevertheless, in September of 1984, counsel for the Union expressed his opinion that the payments should be included in the base rate for purposes of calculating overtime. The employers disagreed and therefore refused to calculate overtime using these sums.

In March of 1985, the Union's parent organization, United Paperworkers International Union, requested an advisory opinion from the Wage and Hour Division of the Department of Labor regarding the excludability of these payments from overtime calculations. In a letter dated April 21, 1986, however, the Department of Labor responded equivocally, stating, in part Because there is so much variation in the form of these bonuses, and because the employees involved are collectively represented, it is our view that, as a general matter, this is an area in which compliance with the provisions of the Act is best left to the parties to achieve, through litigation or otherwise.

App. at 36. The members thereafter initiated suit and the eleven separate cases were consolidated for all purposes into Civil Action No. 86-3862. The parties stipulated to a bifurcation of the issues of liability and damages. After a trial, the district court found for plaintiffs on the question of liability, Lopez v. Art Craft Containers, Corp., 660 F.Supp. 404 (E.D.Pa.1987), the court determining that the payments did not fall within any exclusion contained in the FLSA, and that the employers therefore should have included the payments in overtime calculations. Thereafter, the Court determined the method by which damages would be calculated, and by stipulation the parties agreed that damages would be awarded based on this or whichever formula was upheld on appeal. The Court's order became final on June 19, 1987. The employers appeal to this Court. We have jurisdiction pursuant to 28 U.S.C. Sec. 1291.

II.

On appeal the employers argue that the district court erred when it determined that the payments made pursuant to the collective bargaining agreement under these facts were not subject to exclusion from the "regular rate" under one of the exemptions to the FLSA for purposes of calculating overtime. The district court's findings of fact in that regard may not be disturbed unless clearly erroneous. Anderson v. City of Bessemer, 470 U.S. 564, 573, 105 S.Ct. 1504, 1511, 84 L.Ed.2d 518 (1985). However, our review of the district court's interpretation and application of the statutory language is plenary. Creque v. Luis, 803 F.2d 92, 93 (3d Cir.1986). We turn to an examination of the reasons underlying the district court's decision.

III.
A.

The FLSA requires that employees working more than forty hours a week be compensated at a rate one and one-half times their regular rate for any hours exceeding forty. 29 U.S.C. Sec. 207(a)(1). The scope of the term "regular rate" is defined to include "all remuneration for employment paid to, or on behalf of, [an] employee." Id. Sec. 207(e). However, there are several exceptions to the otherwise all-inclusive rule set forth in section 207(e). As the district court correctly recognized, these exceptions are narrowly construed, Mitchell v. Kentucky Finance Co., 359 U.S. 290, 295-96, 79 S.Ct. 756, 759-60, 3 L.Ed.2d 815 (1959); Guthrie v. Lady Jane Collieries, Inc., 722 F.2d 1141, 1143 (3d Cir.1983), and the employer bears the burden of establishing an exemption, Idaho Sheet Metal Workers, Inc. v. Wirtz, 383 U.S. 190, 209, 86 S.Ct. 737, 749, 15 L.Ed.2d 694 (1966); Guthrie, 722 F.2d at 1143. Nevertheless, we must differ with the conclusion drawn by the district court that the payments were not exempted for several reasons.

First, as one of the bases for its holding, the district court determined that the payments were compensation for hours of employment, stating: "While not tied directly to hours worked, the correlation in the eligibility provisions between work and bonus receipt supports the conclusion that the bonuses were compensation for employment." 660 F.Supp. at 407. The district court found evidence in the contract negotiations that the payments were tied to proposals for cents-per-hour increases, and concluded that the payments were made in lieu of wage increases.

The employers aver that this determination is irrelevant to an analysis under the FLSA. While we cannot say that the finding of a trade-off of the payments for a smaller increase in wages was irrelevant to the issue before the district court, it is of little help in settling the ultimate question whether the payments may be excluded. All remuneration by an employer not paid directly in dollars-per-hour comes at the expense of wage increases. Employers have a finite amount to spend for the labor component of their product or service. This sum can be allocated solely as compensation on an hourly basis (in which event the payment would be fully includable in the "regular rate"), or it can assume any number of other forms, including insurance or medical benefits, paid vacations, etc. (in which case the payments may or may not be includable), in any ratio the parties care to set. However, as there is a limit to the labor cost component, there will always be a trade-off between wages and wage substitutes, such as these payments. Therefore, to state as the district court did that the payments at issue were made in lieu of wage increases is true, but that does not necessarily preclude their falling within the language of the exclusions contained in section 207(e), since certain wage substitutes are...

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