Ellis v. J.R.'s Country Stores, Inc.

• Decision Date: 09 March 2015
• Docket Number: No. 13–1346.,13–1346.
• Citation: 779 F.3d 1184
• Parties: Sandra ELLIS, on behalf of herself and others similarly situated, Plaintiff–Appellant, v. J.R.'S COUNTRY STORES, INC., a Colorado corporation, Defendant–Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

779 F.3d 1184

Sandra ELLIS, on behalf of herself and others similarly situated, Plaintiff–Appellant

v.J.R.'S COUNTRY STORES, INC., a Colorado corporation, Defendant–Appellee.

No. 13–1346.

United States Court of Appeals, Tenth Circuit.

March 9, 2015.

Donna E. Dell'Olio (Bradley J. Sherman, Cornish & Dell'Olio, P.C., Colorado Springs, CO, with her on the briefs), Cornish & Dell'Olio, P.C., Colorado Springs, CO, for Plaintiff–Appellant.

Christian D. Hammond (Lawrence D. Stone, Dufford & Brown, P.C., Denver, CO, with him on the brief), Dufford & Brown, P.C., Denver, CO, for Defendant–Appellee.

Before HOLMES, McKAY, and BACHARACH, Circuit Judges.

Opinion

HOLMES, Circuit Judge.

Sandra Ellis appeals from the district court's grant of summary judgment in favor of J.R.'s Country Stores, Inc., her former employer, on her claim for violation of the Fair Labor Standards Act of 1938 (“FLSA”), 29 U.S.C. § 207. Our jurisdiction arises under 28 U.S.C. § 1291, and we affirm.

I

We offer at the outset an overview of the applicable statutory framework. We then provide the factual background and procedural history of this case, reciting all summary-judgment evidence in the light most favorable to Ms. Ellis as the nonmovant. See Salazar v. Butterball, LLC, 644 F.3d 1130, 1136 (10th Cir.2011) ; Gwinn v. Awmiller,

354 F.3d 1211, 1215 (10th Cir.2004).

A

Congress enacted the FLSA in order to “protect all covered workers from substandard wages and oppressive working hours, ‘labor conditions [that are] detrimental to the maintenance of the minimum standard of living necessary for health, efficiency and general well-being of workers.’ ” Barrentine v. Arkansas–Best Freight Sys., Inc., 450 U.S. 728, 739, 101 S.Ct. 1437, 67 L.Ed.2d 641 (1981) (alteration in original) (quoting 29 U.S.C. § 202(a) ); see Chavez v. City of Albuquerque, 630 F.3d 1300, 1304 (10th Cir.2011) (“The purpose of FLSA overtime is ‘to compensate those who labored in excess of the statutory maximum number of hours for the wear and tear of extra work and to spread employment through inducing employers to shorten hours because of the pressure of extra cost.’ ” (quoting Bay Ridge Operating Co. v. Aaron, 334 U.S. 446, 460, 68 S.Ct. 1186, 92 L.Ed. 1502 (1948) )). The FLSA effectuates this purpose by “generally requir[ing] an employer to pay its employees at a rate of one and one-half times their regular rate of pay for any time worked in excess of forty hours in a given workweek.”Archuleta v. Wal–Mart Stores, Inc., 543 F.3d 1226, 1228 (10th Cir.2008) ; accord Albers v. Bd. of Cnty. Comm'rs, 771 F.3d 697, 699 (10th Cir.2014). In other words, the statute provides for overtime pay in specified circumstances. See 29 U.S.C. § 207(a)(2). If an employee satisfies her burden of “prov[ing] that the employer is violating the FLSA,” Archuleta, 543 F.3d at 1233, she may be entitled to recoup unpaid overtime compensation and liquidated damages, see 29 U.S.C. § 216(b).

But despite “the remedial nature of [the] FLSA,” Pacheco v. Whiting Farms, Inc., 365 F.3d 1199, 1206 (10th Cir.2004), “not all workers require[ ] the same kind of protection” under the statute, Ackerman v. Coca–Cola Enters., Inc., 179 F.3d 1260, 1263 (10th Cir.1999). Notably, as is relevant here, “employee [s] employed in a bona fide executive, administrative, or professional capacity ... as such terms are defined ... by regulations of the Secretary [of Labor],” 29 U.S.C. § 213(a)(1), are exempt from the FLSA's requirements and are thus ineligible for overtime compensation. These regulations “are entitled to judicial deference and are the primary source of guidance for determining the scope of exemptions to the FLSA.” Ackerman, 179 F.3d at 1264 (internal quotation marks omitted).

Exercising its delegated authority on behalf of the U.S. Department of Labor (“DOL”), the Secretary of Labor (“Secretary”) has promulgated several implementing regulations for the FLSA, one of which defines the term “employee employed in a bona fide executive capacity” as an employee who is:

(1) Compensated on a salary basis at a rate of not less than $455 per week ...;

(2) Whose primary duty is management of the enterprise in which the employee is employed or of a customarily recognized department or subdivision thereof;

(3) Who customarily and regularly directs the work of two or more other employees; and

(4) Who has the authority to hire or fire other employees or whose suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees are given particular weight.

29 C.F.R. § 541.100(a) ; accord Maestas v. Day & Zimmerman, LLC, 664 F.3d 822, 827 (10th Cir.2012).

Pursuant to the FLSA's regulatory framework, an employee must be paid on a salary basis to satisfy the requirements of an “executive” exempt from the statute's overtime requirements. See Auer v. Robbins, 519 U.S. 452, 455–56, 117 S.Ct. 905, 137 L.Ed.2d 79 (1997) ; In re Wal–Mart Stores, Inc., 395 F.3d 1177, 1180 (10th Cir.2005). “An employee will be considered to be paid on a ‘salary basis' ” under the Secretary's regulations if she “regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of [her] compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed.” 29 C.F.R. § 541.602(a).¹ As we have explained, “[s]ince exempt employees are not paid by the hour, the FLSA's implementing regulations prohibit employers from docking their pay for working less than a full eight-hour day.” McBride v. Peak Wellness Ctr., Inc., 688 F.3d 698, 705 (10th Cir.2012). We are obliged to interpret this “executive” exemption narrowly against employers. See Chessin v. Keystone Resort Mgmt., Inc., 184 F.3d 1188, 1192 (10th Cir.1999) (“In a case involving the FLSA, an employer bears the burden of proving ... the applicability of an FLSA exemption; we must construe the exemption narrowly against the employer.”); Aaron v. City of Wichita, 54 F.3d 652, 657 (10th Cir.1995) (“Exemptions to the FLSA are to be narrowly construed.... An employer must prove that the employee is exempt by ‘clear and affirmative’ evidence.” (citation omitted) (quoting Donovan v. United Video, Inc., 725 F.2d 577, 581 (10th Cir.1984) )).

An employer may lose the right to treat otherwise eligible employees as exempt “executives” in certain situations. For instance, “[a]n employer who makes improper deductions from salary shall lose the exemption if the facts demonstrate that the employer did not intend to pay employees on a salary basis.” 29 C.F.R. § 541.603(a) [hereinafter “subsection (a)”]. Whether an employer making such improper deductions should be deemed not to have intended to pay on a salary basis turns on whether the employer has an “actual practice of making improper deductions,” id., as opposed to a “theoretical possibility of such deductions,” McBride, 688 F.3d at 705. The Secretary has provided guidance in that regard, namely by detailing five applicable factors for courts to consider:

The factors to consider when determining whether an employer has an actual practice of making improper deductions include, but are not limited to: the number of improper deductions, particularly as compared to the number of employee infractions warranting discipline; the time period during which the employer made improper deductions; the number and geographic location of employees whose salary was improperly reduced; the number and geographic location of managers responsible for taking the improper deductions; and whether the employer has a clearly communicated policy permitting or prohibiting improper deductions.

29 C.F.R. § 541.603(a).

On the face of subsection (a), it is evident that one variable which may inform courts as to the existence vel non of an “actual practice of making improper deductions” is whether the employer has promulgated a “clear [ ]” policy concerning improper deductions. Id. The Secretary provides helpful explication regarding this final salary-basis-test factor in another subsection of the same regulation, noting that a “clearly communicated policy” is one “that prohibits the improper pay deductions specified in [subsection] (a) and includes a complaint mechanism.” Id. § 541.603(d) [hereinafter “subsection (d)”]. Further, according to subsection (d):

[t]he best evidence of a clearly communicated policy is a written policy that was distributed to employees prior to the improper pay deductions by, for example, providing a copy of the policy to employees at the time of hire, publishing the policy in an employee handbook or publishing the policy on the employer's Intranet.

Id.

In sum, under the rubric of subsection (a)—as informed by subsection (d)—“if the facts demonstrate that” the employer maintained “[a]n actual practice of making improper deductions,” the default conclusion is that the employer “shall lose the exemption.” Id. § 541.603(a) (emphasis added). The employer is stripped of the exemption because its “actual practice” of improperly deducting pay vitiates the intent to pay a salary under the salary-basis test. See id. Consequently, when the facts so indicate, “the exemption is lost during the time period in which the improper deductions were made.” Id. § 541.603(b) ; accord Baden–Winterwood v. Life Time Fitness, Inc., 566 F.3d 618, 628 (6th Cir.2009).

However, the Secretary has carved out a savings provision for “[i]mproper deductions that are either isolated or inadvertent,” which allows the exemption to stand “if the employer reimburses the employees for such improper deductions.” 29 C.F.R. § 541.603(c) [hereinafter “subsection (c)”]; see Archuleta, 543 F.3d at 1235 (discussing an employer's attempt to “take advantage of” this savings provision “by reimbursing its pharmacists for the times it paid them less than their guaranteed minimum salary”). As a practical matter, “[t]he ‘window of correction’ provided by [subsection (c) ] allows employers to...