Block v. City of Los Angeles

• Decision Date: 06 June 2001
• Docket Number: 99-56107,DEFENDANTS-APPELLANTS-CROSS-APPELLEES,DEFENDANT-APPELLAN,99-56062,DEFENDANT-APPELLANT,PLAINTIFFS-APPELLEES-CROSS-APPELLANTS,AND,PLAINTIFFS-APPELLEES,Nos. 99-56061,s. 99-56061
• Citation: 253 F.3d 410
• Parties: (9th Cir. 2001) WAYNE BLOCK; ANICK CHARRON; EUGENE GREENE; ROBERT B. HYDE; DAVID G. LEATHERMAN; SHU TAN,, v. CITY OF LOS ANGELES,DEPARTMENT OF WATER AND POWER, DEFENDANT. WAYNE BLOCK; ANICK CHARRON; EUGENE GREENE; ROBERT B. HYDE; DAVID G. LEATHERMAN; SHU TAN,, v. CITY OF LOS ANGELES, DEFENDANT, AND DEPARTMENT OF WATER AND POWER, WAYNE BLOCK; ANICK CHARRON; EUGENE GREENE; ROBERT B. HYDE; DAVID G. LEATHERMAN; SHU TAN,-CROSS-APPELLANTS, v. CITY OF LOS ANGELES; DEPARTMENT OF WATER AND POWER,
• Court: U.S. Court of Appeals — Ninth Circuit

Page 410

253 F.3d 410 (9th Cir. 2001)

WAYNE BLOCK; ANICK CHARRON; EUGENE GREENE; ROBERT B. HYDE; DAVID G. LEATHERMAN; SHU TAN, PLAINTIFFS-APPELLEES, v. CITY OF LOS ANGELES, DEFENDANT-APPELLANT, AND DEPARTMENT OF WATER AND POWER, DEFENDANT.

WAYNE BLOCK; ANICK CHARRON; EUGENE GREENE; ROBERT B. HYDE; DAVID G. LEATHERMAN; SHU TAN, PLAINTIFFS-APPELLEES, v. CITY OF LOS ANGELES, DEFENDANT, AND DEPARTMENT OF WATER AND POWER, DEFENDANT-APPELLANT.

WAYNE BLOCK; ANICK CHARRON; EUGENE GREENE; ROBERT B. HYDE; DAVID G. LEATHERMAN; SHU TAN, PLAINTIFFS-APPELLEES-CROSS-APPELLANTS, v. CITY OF LOS ANGELES; DEPARTMENT OF WATER AND POWER, DEFENDANTS-APPELLANTS-CROSS-APPELLEES.

Nos. 99-56061, 99-56062, 99-56107

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

Argued and Submitted December 12, 2000

Filed June 6, 2001

[Copyrighted Material Omitted]

[Copyrighted Material Omitted] Robert Cramer, City of Los Angeles Department of Water and Power, Los Angeles, California, for the defendants-appellants-cross-appellees.

Stuart Libicki, Schwartz, Steinsapir, Dohrmann & Sommers, Los Angeles, California, for the plaintiffs-appellees-cross-appellants.

Appeal from the United States District Court for the Central District of California A. Howard Matz, District Judge, Presiding. D.C. No. CV-91-05461-AHM-03; D.C. No. CV-91-05461-AHM; D.C. No. CV-91-05461-AHM-4

Before: Warren J. Ferguson, Andrew J. Kleinfeld, and Michael Daly Hawkins, Circuit Judges.

Hawkins, Circuit Judge

The City of Los Angeles (the "City") and the City's Department of Water and Power (the "DWP") (collectively, the "Defendants") appeal from a grant of summary judgment to the plaintiff-employees on their Fair Labor Standards Act ("FLSA") claim for overtime wages. The Defendants contend the employees are exempt from the overtime requirements of the FLSA because they are professional, executive or administrative employees who were at all times compensated on a salary basis. The employees do not dispute that their duties were executive, professional or administrative, but argue that they were not compensated in a manner consistent with a salary basis because they were subject to partial week suspensions for violations of rules unrelated to safety.

I. BACKGROUND REGULATIONS AND CASELAW

A. The Salary Basis Test

Under Wage and Hour Administration regulations, an employee is considered to be paid on a salary basis if his pay "is not subject to reduction because of variations in the quality or quantity of the work performed." 24 C.F.R.§§ 541.118(a). The salaried status of an employee, however, is not affected by "penalties imposed in good faith for infractions of safety rules of major significance." 29 C.F.R. §§ 541.118(a)(5). Nor does a suspension of a salaried employee for a full week change the salaried status, because the policy is"subject to the general rule that an employee need not be paid for any workweek in which he performs no work." 29 C.F.R. §§ 541.118(a). Thus, a disciplinary suspension of less than a full workweek for reasons other than major safety violations can result in a failure to meet the "salary basis test" required for overtime exemption.

B. Auer v. Robbins

In Auer v. Robbins, 519 U.S. 452 (1997), the Supreme Court addressed the proper application of this salary basis test to employees of the St. Louis Metropolitan Police Department who sought overtime wages under the FLSA. Id. at 455. The employees claimed their pay was "subject to" reduction for disciplinary infractions because the department manual provided for partial week suspensions, even though there had been only one instance in which a purportedly salaried employee's pay was so reduced. Id. at 462.

At the Court's request, the Secretary of Labor filed an amicus brief regarding its interpretation of the salary basis regulation. Id. at 461. The Secretary took the position that an employer cannot assert overtime exempt status when"employees are covered by a policy that permits disciplinary or other deductions in pay `as a practical matter.' " Id. This test is satisfied if there is (1) "an actual practice of making such deductions" or (2) "an employment policy that creates a `significant likelihood' of such deductions." Id. In the absence of actual deductions, a clear policy is required that" `effectively communicates' that deductions will be made in specific circumstances." Id.

In Auer, there had been only one actual deduction under what the Court called "unusual circumstances. " Id. at 462. Therefore the Court focused on the policy prong of the test, and determined that the police department manual did not effectively communicate that pay deductions were likely for similarly situated employees. Id.

The employees here are governed by the Los Angeles City Civil Service Commission's "Guide to Disciplinary Standards." The guide lists various offenses and sets forth suggested actions for the first, second and third offenses. Suspensions are suggested for some offenses, including ones that are not related to violations of major safety rules. The guide does not require suspension for certain offenses and does not distinguish between salaried and hourly employees. On March 12, 1993, the Mayor of Los Angeles issued a directive to the heads of all City departments, prohibiting the suspension of "any exempt employee, whose salary is above the time and one-half cap . . . for less than a workweek, unless such discipline is related to a major violation of a safety rule." Reviewing the City's disciplinary guide in light of Auer, the district court concluded that there was not an employment policy which created a significant likelihood of disciplinary deductions. This ruling has not been appealed.

C. "Actual Practice"

The district court did, however, find that the first prong of Auer had been satisfied because both the City and the DWP had an "actual practice" of making improper disciplinary deductions. This ruling was based on the court's conclusion that there had been eight impermissible suspensions by the City over a six-year period, and six by the DWP during the same time frame.

Our few decisions on the disciplinary suspension issue since Auer focus on the "policy" prong of Auer or dismiss the "actual practice" argument with little discussion. See, e.g., McGuire v. City of Portland, 159 F.3d 460 (9th Cir. 1998) ("actual practice" issue not raised); Childers v. City of Eugene, 120 F.3d 944, 947 (9th Cir. 1997) (one isolated suspension not an "actual practice"); Stanley , 120 F.3d 179, 184 (9th Cir. 1997) (no actual suspensions). Similarly, most cases from other circuits have involved only one or two isolated suspensions or deductions, and therefore also dismissed any "actual practice" argument without significant analysis. See, e.g., Spradling v. City of Tulsa, 198 F.3d 1219, 1224 (10th Cir. 2000) (no actual deductions in pay); Aiken v. City of Memphis, 190 F.3d 753, 762 (6th Cir. 1999) (one actual suspension); West v. Anne Arundel County, 137 F.3d 752, 762 (4th Cir. 1998) (no actual suspensions); Ahern v. County of Nassau, 118 F.3d 118, 120-21 (2d Cir. 1997) (one actual suspension).

Our recent case decision in Klem v. County of Santa Clara, 208 F.3d 1085 (9th Cir. 2000), however, may shed some light on the "actual practice" concept. There the district court found the employer had an "actual practice" of making impermissible deductions based on fifty-three disciplinary suspensions over a six-year period. 208 F.3d at 1088. Although the sole issue on appeal in Klem appears to have been whether the "window of correction" was available to correct these suspensions, rather than the propriety of the "actual practice" determination in the first place, these issues become intertwined by the decision in Klem. Relying in large part on an amicus brief filed by the Secretary of Labor, Klem suggests that there is only an "actual practice" if the employer's practices reflect an objective intention not to pay a class of employees on a salaried basis. See id. at 1091; see also id. at 1093-94 (intentional violations of the FLSA "can be rectified through the window of correction, so long as those violations do not amount to a pattern or practice of violations demonstrating an intention not to pay employees on a salaried basis") (emphasis added); id. at 1095 ("The question here is whether Defendant's improper suspensions of those employees whom it classified as exempt demonstrate that it lacked the intent to pay such employees on a salaried basis.") (emphasis added).

Relying on Klem and on yet another amicus brief filed by the Secretary, the Second Circuit has similarly noted that "there can be no bright-line test for determining what constitutes an `actual practice' of making impermissible deductions," stressing that the object of the inquiry must be "whether the employer's practices reflect an`objective intention' to pay its employees on a salaried basis." Yourman v. Giuliani, 229 F.3d 124, 130 (2d Cir. 2000) (citing Klem, 208 F.3d at 1091), cert. denied, 121 S. Ct. 1362, 149 L.Ed.2d 291 (2001).

In some cases, the number of suspensions alone may be sufficient indicia of the employer's intent to resolve the "actual practice" determination. For example, the number may be so small that there would be no way to say that the employer meant to treat an entire class of employees as hourly rather than salaried by virtue of one or two isolated suspensions. See Paresi v. City of Portland, 182 F.3d 665, 668 (9th Cir. 1999) (two improper suspensions not sufficient to constitute an "actual practice"); Childers, 120 F.3d at 947 (one suspension); see also Carpenter v. City and County of Denver, 115 F.3d 765, 767 (10th Cir. 1997) (two suspensions). In other cases, however, a number of factors may need to be considered to resolve the question of the employer's objective intentions. See DiGiore v. Ryan, 172 F.3d 454, 464 (7th Cir. 1999) (five suspensions made over several years and under unusual circumstances did not...