Brock v. Superior Care, Inc.

• Decision Date: 05 April 1988
• Docket Number: D,No. 407,407
• Parties: 28 Wage & Hour Cas. (BN 1016, 28 Wage & Hour Cas. (BN 801, 28 Wage & Hour Cas. (BN 940, 56 USLW 2475, 108 Lab.Cas. P 35,029, 108 Lab.Cas. P 35,053 William E. BROCK, Secretary of Labor, United States Department of Labor, Plantiff-Appellee, v. SUPERIOR CARE, INC.; National Nursing Services, Inc.; Ann T. Mittasch, Individually and as President; and Robert M. Rubin, Individually and as Secretary and Treasurer, Defendants-Appellants. ocket 87-6195.
• Court: U.S. Court of Appeals — Second Circuit

Page 1054

840 F.2d 1054

28 Wage & Hour Cas. (BN 1016, 28 Wage & Hour

Cas. (BN 801,

28 Wage & Hour Cas. (BN 940, 56 USLW 2475,

108 Lab.Cas. P 35,029, 108 Lab.Cas. P 35,053

William E. BROCK, Secretary of Labor, United States

Department of Labor, Plantiff-Appellee, v. SUPERIOR CARE, INC.; National Nursing Services, Inc.; Ann

T. Mittasch, Individually and as President; and

Robert M. Rubin, Individually and as

Secretary and Treasurer,

Defendants-Appellants.

No. 407, Docket 87-6195.

United States Court of Appeals, Second Circuit.

Argued Dec. 1, 1987.

Decided Feb. 16, 1988.

Opinion on Motion to Clarify April 5, 1988.

Ronald M. Green, New York City (Epstein Becker Borsody & Green, New York City, on the brief), for defendants-appellants.

William J. Stone, U.S. Dept. of Labor, Washington, D.C. (Patricia M. Rodenhausen, Regional Sol., George R. Salem, Sol. of Labor, Monica Gallagher, Associate Sol., Linda Jan S. Pack, U.S. Dept. of Labor, Washington, D.C., on the brief), for plaintiff-appellee.

Before NEWMAN and CARDAMONE, Circuit Judges, and GRAY, District judge. ^*

JON O. NEWMAN, Circuit Judge:

Defendant Superior Care, Inc., two of its officers, and its wholly owned subsidiary (collectively "Superior Care") appeal from a judgment of the District Court for the Eastern District of New York (Leonard D. Wexler, Judge), entered after a bench trial, enjoining it from violating the record-keeping and overtime pay provisions of the Fair Labor Standards Act ("FLSA"), 29 U.S.C. Secs. 207, 211(c), 215(a)(2), and 215(a)(5) (1982 & Supp. III 1985), and awarding liquidated damages. Superior Care is a health-care service that provides nurses to individuals, hospitals, and nursing homes. The District Court found that the nurses were "employees" subject to the FLSA and that the defendants' violations were willful for purposes of the three-year statute of limitations. The Court enjoined Superior Care from withholding $697,140.66 of unpaid overtime compensation and awarded an equal amount as statutory liquidated damages. We agree with the District Court that the nurses are employees covered by the FLSA and that Superior Care's violations of the Act were willful. However, we conclude that the Secretary may not collect liquidated damages because the Secretary did not bring this action under the provision authorizing such damages.

BACKGROUND

Superior Care is a New York corporation engaged in the business of referring temporary health-care personnel, primarily nurses, to individual patients, hospitals, nursing homes, and other health care institutions. Nurses who wish to work for Superior Care are interviewed and placed on a roster. As work opportunities become available, Superior Care assigns nurses from the list. The nurses are free to decline a proposed referral for any reason. Once an assignment is accepted, the nurse reports directly to the patient, where treatment is prescribed by the patient's physician. Superior Care supervises its nurses through visits to the job sites once or twice a month. Nurses are also required to submit to Superior Care patient care notes that the nurses keep pursuant to state and federal law. The length of a particular assignment depends primarily upon the patient's condition and may vary from less than a week to several months.

Patients contract directly with Superior Care, not with the nurses, and the nurses are prohibited from entering into private pay arrangements with the patients. The nurses are paid an hourly wage by Superior Care. Most of the time, the hourly wage is set by Superior Care, depending on the market conditions in the local geographic area. Occasionally, if an assignment involves special patient treatment or an inconvenient location, nurses may be able to negotiate a pay rate just for that job. Superior Care permits its nurses to hold other jobs, including positions with other nursing-care providers. Many of the nurses take advantage of this opportunity and are listed with several health-care providers simultaneously. Thus, many of the nurses work for Superior Care only several weeks a year, and few rely on Superior Care for their primary source of income.

During the relevant time periods, Superior Care maintained two payrolls for its nursing staff. One payroll included nurses for whom employee payroll taxes were deducted ("taxed nurses"), and the other payroll included nurses for whom no payroll taxes were deducted ("nontaxed nurses"). Superior Care considered the taxed nurses to be employees and did not permit them to work overtime. The nontaxed nurses were permitted to work overtime, but they were considered to be independent contractors and consequently were not paid time and a half for overtime hours. The determination whether a nurse appeared on the taxed or nontaxed payroll was usually made unilaterally by Superior Care or, at times, at a Superior Care was first investigated by the Department of Labor in 1979 at which time no FLSA violations were found. In February 1980 and January 1981, additional investigations were conducted, overtime violations were discovered, and Superior Care agreed to pay approximately $32,000 in back wages and to comply with the FLSA in the future. Richard Mormile, the Department of Labor compliance officer who conducted the 1980 and 1981 investigations, testified that during those investigations he was shown the records of only the taxed employee nurses. Superior Care inquired of Mormile whether the taxed nurses could be treated as independent contractors rather than employees. Mormile advised that the nurses were employees. He suggested that if Superior Care disagreed, it could obtain a formal opinion on the matter from the Department of Labor's Regional Solicitor's office. Superior Care never sought such an opinion.

nurse's request. The parties stipulated that the two sets of nurses perform exactly the same work.

The existence of the two separate payrolls was discovered during a subsequent investigation conducted from November of 1981 until mid-1982. During this investigation, Mormile learned that several hundred nontaxed nurses were being paid straight-time wages for overtime hours. On the basis of this investigation, the Secretary of Labor initiated the present suit. The Secretary's complaint alleged jurisdiction under section 17 of the FLSA, 29 U.S.C. Sec. 217, and asked for an injunction restraining Superior Care from withholding the unpaid overtime wages. The complaint also alluded to the possibility of liquidated damages, although it did not mention section 16 of the Act, which authorizes such a remedy.

The District Court found that the nurses were "employees" within the meaning of the FLSA and that the exemption for bona fide professional employees, 29 U.S.C. Sec. 213(a)(1) (1982), was unavailable. The District Court further determined that Superior Care's overtime and record-keeping violations were willful, thereby making applicable a three-year statute of limitations period, 29 U.S.C. Sec. 255(a) (1982). The Court enjoined Superior Care from withholding $697,140.66 in back pay owed from December 1980. The Court also awarded an equal amount as statutory liquidated damages. 29 U.S.C. Sec. 216(c) (1982).

DISCUSSION

On this appeal, Superior Care contends that (1) the nurses are independent contractors, not subject to the FLSA, (2) even if the nurses are employees, they are bona fide professional employees exempt from the Act's overtime pay requirements, (3) any violations of the Act were not willful and should therefore have been subject to a two-year statute of limitations, and (4) liquidated damages should not have been awarded because the Secretary failed to allege a violation of section 16 of the Act authorizing such an award. We conclude that only Superior Care's contention as to liquidated damages has merit; the decision of the District Court was in all other respects correct.

A. Employment Status

The FLSA defines "employee" as "any individual employed by an employer," and to "employ" as including "to suffer or permit to work." 29 U.S.C. Secs. 203(e)(1), 203(g) (1982 & Supp. III 1985). The definition is necessarily a broad one in accordance with the remedial purpose of the Act. See United States v. Rosenwasser, 323 U.S. 360, 363, 65 S.Ct. 295, 296, 89 L.Ed. 301 (1945); Real v. Driscoll Strawberry Associates, Inc., 603 F.2d 748, 754 (9th Cir.1979).

Several factors are relevant in determining whether individuals are "employees" or independent contractors for purposes of the FLSA. These factors, derived from United States v. Silk, 331 U.S. 704, 67 S.Ct. 1463, 91 L.Ed. 1757 (1947) (Social Security Act), and known as the "economic reality test," include: (1) the degree of control exercised by the employer over the workers, (2) the workers' opportunity for profit or loss and their investment in the business, (3) the degree of skill and independent The existence and degree of each factor is a question of fact while the legal conclusion to be drawn from those facts--whether workers are employees or independent contractors--is a question of law. Thus, a district court's findings as to the underlying factors must be accepted unless clearly erroneous, while review of the ultimate question of employment status is de novo. See Brock v. Mr. W. Fireworks, Inc., 814 F.2d 1042, 1043-45 (5th Cir.), cert. denied, --- U.S. ----, 108 S.Ct. 286, 98 L.Ed.2d 246 (1987); Bonnette v. California Health and Welfare Agency, 704 F.2d 1465, 1469 (9th Cir.1983). In the present case, the District Judge properly looked to the economic reality test and the Silk factors in deciding that the nurses were employees. Superior Care contends that some of his findings of fact were clearly erroneous and that he relied on irrelevant evidence. We disagree.

                initiative required to perform the work, (4) the permanence or duration of the working relationship, and (5) the extent to which the work is an integral part of the employer's business.  See id. at 716, 67 S.Ct.

...