Dole v. Malcolm Pirnie, Inc., 89 Civ. 3554 (GLG).

• Decision Date: 04 March 1991
• Docket Number: No. 89 Civ. 3554 (GLG).,89 Civ. 3554 (GLG).
• Citation: 758 F. Supp. 899
• Parties: Elizabeth DOLE, Secretary of Labor, United States Department of Labor, Plaintiff, v. MALCOLM PIRNIE, INC., Defendant.
• Court: U.S. District Court — Southern District of New York

758 F. Supp. 899

Elizabeth DOLE, Secretary of Labor, United States Department of Labor, Plaintiff, v. MALCOLM PIRNIE, INC., Defendant.

No. 89 Civ. 3554 (GLG).

United States District Court, S.D. New York.

March 4, 1991.

Office of the Sol. U.S. Dept. of Labor, New York City (Percy S. Miller, of counsel), for plaintiff.

Epstein Becker & Green, P.C., New York City by Gilbert J. Ginsburg, and Robert L. Jauvtis (Bickel & Brewer, New York City of counsel), for defendant.

OPINION

GOETTEL, District Judge:

The narrow issue presented by these cross-motions for partial summary judgment is whether professional and managerial employees were exempt from the overtime requirements of the Fair Labor Standards Act ("FLSA") because the salary test set forth in 29 C.F.R. § 541.118 was satisfied, notwithstanding the fact that deductions for absences of less than a day were made from the paychecks of some of these employees.¹

BACKGROUND

Defendant Malcolm Pirnie, Inc. ("MP") is a consulting professional engineering firm with a major specialty in the area of water and waste water treatment for municipalities and industrial companies. Its roughly 900 employees are classified into eleven salary grades of which Levels 1 to 5 are considered non-exempt and Levels 6 to 11 are considered exempt. The jobs represented by grades 6 through 9 include positions such as engineers, accountants, architects, scientists, supervisors and administrators. Senior managers and officers of the corporation are grades 10 and 11. The exempt employees are well-compensated, earning salaries from over $30,000 per year to over $70,000 per year. When hired, each exempt employee is told what his or her monthly salary will be. Employees are paid twice a month. All MP employees are required to work forty hours per week and eight hours per day.

The FLSA requires that all employees working longer than forty hours per week be paid overtime at a rate of one and one-half times their regular hourly rate unless an exemption is applicable. MP considered its employees in grades 6 through 9 exempt from these overtime provisions. Nevertheless, the firm's policy was to pay overtime to employees in grades 6 through 9 in order to compensate them for the many hours they often worked beyond the required hours. Thus, an exempt employee working in excess of eight hours in a day or of forty hours in one week would receive overtime compensation. Though these employees were paid a monthly salary, in order to arrive at a rate at which to pay overtime, an hourly rate was calculated for each employee by dividing his or her total monthly compensation in half and then by 80. Grades 6 to 8 were paid overtime at an hourly rate of time and a quarter; Grade 9 received straight time pay. These practices were apparently typical of the industry.

During the period of May 1, 1987 to December 8, 1988, employees kept their own time sheets on which they charged their time to client projects (which would later be billed) or to various overhead accounts. Among these accounts were accrual accounts such as vacation and personal illness, holidays, and absence without pay. Absences of a day or more could be charged by the exempt employees to their accrued sick or vacation time, or to absence without pay. Absences of less than a day, resulting for instance from tardiness or car trouble, would also be charged to the overhead accounts. The corporate policy guide stated that:

if a staff member loses time because of inclement weather, car problems, or medical reasons, s/he may arrange with his/her Group Manager to make up the time, or to charge it to vacation or optional holidays; otherwise it will be treated as absence without pay. Whatever the arrangement, it should be recorded properly on the time sheet.

Malcolm Pirnie Policy Guide, at 6-23. This language was echoed in the Malcolm Pirnie Handbook of Information for the Staff.²

During the period of May 1, 1987 to December 8, 1988, 24 employees in grades 6 through 9 had their compensation reduced after recording an absence of less than a day in the "absence without pay" column on their time sheet. The total amount of the payroll deductions was $3269.78. This money was later reimbursed to the affected employees.

On December 8, 1988, MP amended its policy concerning absences of less than a day and specifically instructed its employees in grades 6 through 11 to charge absences of less than a day to a new overhead account called "Paid Absence" and not to their individual leave accounts.

In May 1989, the Department of Labor commenced this suit alleging that employees in MP's pay grades 6 through 9 during the period of May 1, 1987 through December 8, 1988 were not exempt from the overtime provisions of the FLSA and were therefore entitled to payment of overtime wages at the rate of time and one half their regular rate of pay. At stake is a sum of roughly $500,000 which is the difference between the actual overtime compensated at the MP rates and that time calculated at the statutory time and one half.

DISCUSSION

A. Summary Judgment

Federal Rule of Civil Procedure 56(c) provides that the trial judge shall grant summary judgment if there is no genuine issue as to any material fact and if the moving party is entitled to judgment as a matter of law. The threshold inquiry is whether there are genuine factual issues that must be resolved by a finder of fact because they may reasonably be resolved in favor of either party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986). On occasion, a case will be presented in which there is no dispute about the material facts but only as to their significance. Summary judgment is appropriate in such situations, Transamerica Delaval Inc. v. Citibank, N.A., 545 F.Supp. 200 (S.D.N.Y.1982), so long as all inferences are drawn against the moving party, United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 994, 8 L.Ed.2d 176 (1962) (per curiam), and reasonable minds could not differ as to the import of the evidence before the court, Cable Science Corp. v. Rochdale Village, Inc., 920 F.2d 147, 151 (2d Cir.1990).

The material facts here are not in dispute. The parties agree that 24 MP employees in salary grades 6 through 9 were subjected to reductions in compensation as a result of their having recorded their time in the "absence without pay" account on their time sheets. The parties also agree that these parties were reimbursed for the deductions and that MP has promised to comply with Department of Labor regulations in the future. Additionally, there is no question that both the MP Policy Guide and Handbook instructed all employees losing time because of inclement weather, car problems, or medical reasons to make up the time or charge it to accrued time or an "absence without pay" account. What the parties dispute is whether the statements made in this corporate literature and the fact that such reductions were actually made in the compensation of 24 employees signified that the compensation of all employees was subject to reduction thereby destroying the exempt status of all MP employees in grades 6 through 9 during the period in question.

MP makes two arguments in support of its position that the employees in grades 6 through 9 were exempt from the FLSA overtime provisions. First, MP contends that these employees were salaried because their compensation was predetermined and not related to the number of hours actually worked. Second, MP argues that even if the payroll practices applied to these employees was not structured to satisfy the salary basis test of 29 C.F.R. § 541.118(a), by changing this policy, reimbursing the employees and promising to comply, the exempt status of these employees was preserved by a "window of correction" set forth in 29 C.F.R. § 541.118(a)(6). In its motion for partial summary judgment, the Department of Labor responds that the compensation of these employees was directly linked to the number of hours worked and that these employees were never exempt, therefore, from the provisions of the FLSA. The net result, the Department contends, is that the "window of correction" is not available at all to MP. These arguments will be considered below.

B. Salaried or Hourly?

The first question posed by the parties is whether the MP employees in grades 6 to 9 were salaried or hourly employees. After carefully considering the matter, we believe that this question need not be answered in order to successfully resolve the dispute between the Department of Labor and Malcolm Pirnie, Inc. However, the underlying jurisprudence, in addition to the applicable facts, provide the context in which the availability of the "window of correction" to MP must be addressed. Therefore, we will briefly sketch the relevant considerations.

Under 29 U.S.C. § 207(a) of the Fair Labor Standards Act, any employees working over forty hours per week must receive compensation for this extra time at a rate not less than one and one-half times the regular rate at which they are employed. A statutory exemption to this rule is provided for employees employed in a "bona fide executive, administrative, or professional capacity." 29 U.S.C. § 213(a)(1).³

The scope of the § 213(a)(1) exemptions is defined in Department of Labor regulations found at 29 C.F.R. § 541.1, 29 C.F.R. § 541.2, and 29 C.F.R. § 541.3. The regulations demand that a person for whom the managerial exemption is claimed must be compensated on a "salary basis," 29 C.F.R. § 541.1(f), and that persons for whom the administrative or professional exemptions are claimed must be compensated on a "salary or fee basis," 29 C.F.R. § 541.2(e)(1); 29 C.F.R. § 541.3(e). An employer is not required by the FLSA to pay overtime to any employee whose terms of employment satisfy the salary basis test of the regulations.⁴ The Department of Labor maintains that the compensation plan and payroll practices applied to the MP employees...