Chao v. First Nat. Lending Corp.

• Decision Date: 31 March 2006
• Docket Number: No. 1:04 CV 617.,1:04 CV 617.
• Citation: 516 F.Supp.2d 895
• Parties: Elaine L. CHAO, Secretary of Labor, United States Department of Labor, Plaintiff, v. FIRST NATIONAL LENDING CORPORATION., et al., Defendants.
• Court: U.S. District Court — Northern District of Ohio

516 F.Supp.2d 895

Elaine L. CHAO, Secretary of Labor, United States Department of Labor, Plaintiff, v. FIRST NATIONAL LENDING CORPORATION., et al., Defendants.

No. 1:04 CV 617.

United States District Court, N.D. Ohio, Eastern Division.

March 31, 2006.

COPYRIGHT MATERIAL OMITTED

Maureen M. Cafferkey, U.S. Department of Labor, Office of the Solicitor, Cleveland, OH, for Plaintiff.

John A. Huettner, James R. Douglass, James R. Douglass Co. LPA, Shaker Heights, OH, for Defendants.

MEMORANDUM OPINION

DONALD C. NUGENT, District Judge.

This matter is before the Court subsequent to a three-day bench trial which began on July 11, 2005. Following trial, the parties were given the opportunity to file post trial briefs, and to submit proposed findings of fact and conclusions of law. The post-trial briefing was completed several months later.

The original Complaint was filed by the Secretary of Labor against First National Lending Corporation in March of 2004. (ECF # 1). That Complaint was amended in August of the same year. (ECF # 18). The Amended Complaint requests an injunction to prevent Defendants from violating the provisions of Sections 15(a)(2) and 15(a)(5) of the Fair Labor Standards Act of 1938, as amended (52 Stat. 1060, 29 U.S.C. 201 et seq. )(hereinafter the "FLSA"), and to recover damages for unpaid minimum wage and overtime compensation allegedly due to Defendants' employees.¹

ANALYSIS

The trial commenced on July 12, 2005. Opening statements were heard and the Plaintiff called the following witnesses: Gary Bise', Robin Samara, Victoria Terifaj, Rosemary Shell and Roger Citino. On the second day of trial, testimony continued with Roger Citino and Joann Lath, and the Plaintiff then rested its case. On the final day the Defense called Lisa Scherzer to testify and then rested. The parties submitted their final arguments in writing in the form of post-trial briefs and were given the opportunity to file proposed findings of fact and conclusions of law.

A. Overtime Pay for Hourly Workers

The Defendants concede that clerical and administrative workers are subject to the minimum wage and overtime provisions of the FLSA and that they should have been paid one and one-half times their hourly rate for any hours worked over forty hours per week. (ECF # 64). They have offered no credible evidence to contradict the findings of Joann Lach, the investigator for the United States Department of Labor, who calculated the amount of overtime pay owed to each hourly worker.

B. Minimum Wage for Loan Officers

Section 6 of the FLSA requires every employer who is subject to its requirements to pay each of its employees, the minimum wage of $5.15 per hour. An employee cannot waive his or her right to minimum wage. Barrentine v. Arkansas-Best Freight System, Inc., 450 U.S. 728, 101 S.Ct. 1437, 67 L.Ed.2d 641 (1981); Brooklyn Savings Bank v. O'Neil, 324 U.S. 697, 65 S.Ct. 895, 89 L.Ed. 1296 (1945). The Defendants have stipulated that they are subject to the requirements of the Act. (Joint Stipulations 2-9). Further, the Defendants have not challenged that allegation that they failed to pay each of their loan officers $5.15 per hour for each hour worked, each week of their employment. Rather, the Defendants assert that their loan officers are not employees for the purposes of the FLSA and that they fall within an exemption to minimum wage requirement.

1. Definition of "Employee"

The FLSA defines an employee as "any individual employed by an employer." 29 U.S.C. § 203(e)(1). There is no question that the Defendants are "employers" under the Act. An individual is employed under the FLSA if they are suffered or permitted to work. 29 U.S.C. § 203(g). The United States Supreme Court has held that in order to determine whether a work is an employee for purposes of the FLSA, courts must decide whether as a matter of "economic reality" an individual is an employee, economically dependent on the principal, or is an independent contractor in business for himself. Rutherford Food Corp. v. McComb, 331 U.S. 722, 728, 67 S.Ct. 1473, 91 L.Ed. 1772 (1947);² Lilley v. BTM Corp., 958 F.2d 746, 750 (6th Cir.1992).

In applying this test, courts consider a variety of factors including, but not limited to: (1) the degree to which the alleged employee was independent or subject to the control of the defendant, (2) the worker's opportunity for profit and risk of loss, (3) the worker's investment in the facilities of the business, (4) the permanency of the working relationship, (5) the degree of skill required to perform the work, (6) and the degree to which the worker's services were an integral part of the defendant's business. United States v. Silk 331 U.S. 704, 67 S.Ct. 1463, 91 L.Ed. 1757 (1947); Rutherford Food Corp. v. McComb, 331 U.S. 722, 67 S.Ct. 1973, 91 L.Ed. 1772 (1947); Western Union Telegraph Company v. McComb, 165 F.2d 65 (6th Cir.1947), cert. denied, 333 U.S. 862, 68 S.Ct. 743, 92 L.Ed. 1141 (1948); Luther v. Z. Wilson, Inc., 528 F.Supp. 1166 (S.D.Ohio 1981). No one factor is determinative.

The loan officers were subject to loose time requirements. Nonetheless, they were supervised to some degree by FNL administrative employees. The offices and meeting rooms were provided by the Defendants. Clerical assistants for the loan officers were hired and paid for by the Defendants. There is no evidence that the loan officers had any substantial share in the risk of loss for the company or that they made any payment toward or had any input in the expenses incurred by the office. However, if FNL had gone out of business, it does not appear that the loan officers could have remained in business on their own. The loan officers were paid by commission, so in that sense had an independent opportunity for personal profit, but they did not share in the business' overall profit or loss. The fact that sales people are paid on commission does not automatically render them independent contractors.

The Defendants argue that loan officers were free to spend their own money advertising and marketing the products they sold, but they cite to no testimony supporting this fact, nor to any evidence that any of the loan officers at issue actually acted on this alleged freedom. There is testimony in the record, however, that the Defendants placed ads in the yellow pages, newspapers and on the radio, and that the business paid for those ads. (Tr. 374-376). There was also testimony that many loan officers relied entirely on leads that came from that advertising and from cold calls or walk-ins to the business. (Tr. 15, 34; Ex. 25).

Both Defendants and the loan officers appear to have intended an indefinite working relationship which is consistent with general at-will principles of the employee/employer relationship under Ohio law. Further, although the loan officers positions required some skill, many of the loan officers hired by FNL had no prior experience in mortgage sales and they were trained by the by senior loan officers also hired by the Defendants. (Tr. 183-186). The parties agree that the work performed by the loan officers is clearly an integral part of the Defendants' business, and that Defendants oversaw the loan officers compliance with RE SPA and other industry regulations.

Possibly most telling, however, is Defendant Scherzer's testimony that a loan officer may not work at two mortgage companies at the same time and that once a loan officer leaves a particular mortgage company, that loan officer's license is sent back to the State of Ohio until it can be transferred to a new broker company. (Tr. 373-374). Thus, the loan officers were not free to work for other companies while working at FNL, and their licensing was tied to their employment with FNL. Under the circumstances, it is clear to this Court that the loan officers working for the Defendants were economically dependent on FNL and, therefore, were employees and not independent contractors for purposes of the FLSA.

2. Exemptions

There are exceptions to the minimum wage requirement which are enumerated under Section 13(a) of the FLSA. Exemptions under the Act are to be narrowly construed against the employer who asserts them. Arnold v. Ben Kanowsky, Inc., 361 U.S. 388, 392, 80 S.Ct. 453, 4 L.Ed.2d 393 (1960). The employer bears the burden of proving that an exemption applies. Walling v. General Industries Co., 330 U.S. 545, 548, 67 S.Ct. 883, 91 L.Ed. 1088 (1947); Herman v. Palo Group Foster Home, 183 F.3d 468, 472 (6th Cir. 1999). The employer must establish that the employee meets every aspect of the definition for an exempt employee. Schaefer v. In. Mich. Power Co., 197 F.Supp.2d 935, 938 (W.D.Mich.2002)(citing Corning Glass Works v. Brennan, 417 U.S. 188, 196-97, 94 S.Ct. 2223, 41 L.Ed.2d 1 (1974)).

The only exception the Defendants are claiming is the "outside sales exception" established in 29 C.F.R. § 541.500(e). (See Post-Trial Brief of Defendants at 21; Tr. 395-396). Under the prior regulations, applicable to those claims which arose from August 2001 to August 23, 2004, an "outside salesman" was defined as an employee

(a) Who is employed for the purpose of and who is customarily and regularly engaged away from his employer's place or places of business in:

(1) Making sales within the meaning of section 3(k) of the Act, or

(2) Obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer, and

(b) Whose hours of work of a nature other than that described in paragraph (a)(1) or (2) of this section do not exceed 20 percent of the hours worked in the workweek by nonexempt employees of the employer: Provided, That work performed incidental to and in conjunction with the employee's own outside sales or solicitations, including incidental deliveries and collections, shall not be regarded as nonexempt work.

29 C.F.R. § 541.5. Under the pre-August 23, 2004 regulations, there was a 20 percent tolerance...