Faludi v. U.S. Shale Solutions, L. L.C.

• Decision Date: 21 August 2019
• Docket Number: No. 17-20808,17-20808
• Citation: 936 F.3d 215
• Parties: Jeff FALUDI, Plaintiff – Appellant / Cross-Appellee, v. U.S. SHALE SOLUTIONS, L.L.C., Defendant – Appellee / Cross-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

936 F.3d 215

Jeff FALUDI, Plaintiff – Appellant / Cross-Appellee,

v.U.S. SHALE SOLUTIONS, L.L.C., Defendant – Appellee / Cross-Appellant.

No. 17-20808

United States Court of Appeals, Fifth Circuit.

FILED August 21, 2019

REVISED August 22, 2019

Charles Alfred Sturm, Sturm Law, P.L.L.C., Houston, TX, for Plaintiff – Appellant Cross-Appellee.

Kerry E. Notestine, Attorney, Kelcy Leigh Palmer, Littler Mendelson, P.C., Houston, TX, Thomas A. Kennedy, General Counsel, Portfolio Legal Services, L.L.C., Philadelphia, PA, for Defendant – Appellee Cross-Appellant.

Before HIGGINBOTHAM, ELROD, and HO, Circuit Judges.

JENNIFER WALKER ELROD, Circuit Judge:

Appellant Jeff Faludi, a former practicing attorney, took a consulting job at an oil and gas services company. When Faludi left the company, he filed this lawsuit under the Fair Labor Standards Act (FLSA), seeking to recover unpaid overtime wages. Because Faludi was exempt from the FLSA, we AFFIRM the district court’s summary judgment in favor of his former employer. However, because the district court did not state its reasons for declining to award costs to the prevailing party, we VACATE the award of costs and REMAND that issue to the district court.

I.

Jeff Faludi became a licensed lawyer in 1998, and he practiced law for sixteen years until he allowed his license to lapse. Around the same time, one of his former colleagues offered him a consulting position at a newly-formed oil and gas services company, U.S. Shale Solutions, L.L.C. Faludi accepted the position, and the parties signed an "Independent Contractor Master Consulting Services Agreement" in November 2014.

Under the agreement, Faludi agreed to work for U.S. Shale for "an indefinite period of time" at a rate of $1,000 per day for every day he worked in Houston and $1,350 per day for every day he worked outside of Houston. The agreement required Faludi to submit invoices to U.S. Shale for payment twice a month. The agreement also contained a non-compete clause prohibiting Faludi from working for U.S. Shale’s competitors while the agreement was in effect and for one year after its termination.

During the approximately sixteen months that Faludi worked for U.S. Shale, he submitted invoices to U.S. Shale once or twice a month. Although his day rate applied regardless of how many hours he worked, he often billed U.S. Shale for less than the day rate when he did not work a full day. Faludi testified that he did this voluntarily, and U.S. Shale paid the requested amounts without asking why Faludi had billed for less than his day rate. Even with these prorated invoices, Faludi was paid at least $1,000 for every week in which he performed work for U.S. Shale, and his annual compensation was approximately $260,000.

Faludi left U.S. Shale in March 2016 after an internal reorganization. Shortly thereafter, he filed this lawsuit against the company for unpaid overtime wages he claimed he was owed under the FLSA.

U.S. Shale sought summary judgment in the district court, arguing that Faludi was an independent contractor and thus not subject to the FLSA, or alternatively that he was an exempt employee under either the "practice of law" exemption or the "highly compensated employee" exemption to the FLSA. Faludi also sought a partial summary judgment on the ground that he was an employee under the FLSA and did not fall under any exemption.

The district court determined that genuine issues of material fact existed as to whether Faludi was an employee or an independent contractor and whether he fell within the FLSA’s practice of law exemption. However, the district court granted U.S. Shale’s summary judgment motion because it found that Faludi was exempt as a matter of law under the highly compensated employee exemption to the FLSA. Although U.S. Shale was the prevailing party, the district court did not award U.S. Shale costs, nor did it explain why it declined to do so. Faludi appeals the adverse summary judgment, and U.S. Shale cross-appeals on the issue of costs.

II.

We review a district court’s grant of summary judgment de novo. Johnson v. Heckmann Water Res. (CVR), Inc. , 758 F.3d 627, 630 (5th Cir. 2014). Where the parties filed cross-motions for summary judgment, "we review each party’s motion independently, viewing the evidence and inferences in the light most favorable to the nonmoving party." Parrish v. Premier Directional Drilling, L.P. , 917 F.3d 369, 380 (5th Cir. 2019) (quoting Duval v. N. Assurance Co. of Am. , 722 F.3d 300, 303 (5th Cir. 2013) ). Summary judgment is appropriate when "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). We review a district court’s award of costs for an abuse of discretion. Gagnon v. United Technisource, Inc. , 607 F.3d 1036, 1045 (5th Cir. 2010).

III.

Under the FLSA, an employer must pay overtime compensation to its non-exempt employees who work more than forty hours a week. Cleveland v. City of Elmendorf , 388 F.3d 522, 526 (5th Cir. 2004). In contrast, independent contractors are not entitled to overtime under the FLSA. See 29 U.S.C. § 207(a)(1) ("[N]o employer shall employ any of his employees ... for a workweek longer than forty hours unless such employee receives [overtime] compensation[.]" (emphasis added)); Parrish , 917 F.3d at 379 (explaining that to make a prima facie case for unpaid overtime, a plaintiff must prove, inter alia , that "there existed an employer-employee relationship during the unpaid overtime periods claimed"). In addition, the FLSA describes various types of exempt employees who are excluded from the overtime requirement. See 29 U.S.C. §§ 207, 213. Relevant here, "the FLSA excludes from this requirement those employees working in a bona fide executive, administrative or professional capacity." Lott v. Howard Wilson Chrysler-Plymouth, Inc. , 203 F.3d 326, 331 (5th Cir. 2000) (citing 29 U.S.C. § 213(a)(1) ).

Faludi argues on appeal that he was an employee and that no FLSA exemption applied to him, so U.S. Shale was required to pay him overtime under the statute. U.S. Shale counters that Faludi was either an independent contractor or, in the alternative, an exempt employee under the highly compensated employee and practice of law exemptions to the FLSA—both of which are regulatory expansions on the "bona fide executive, administrative, or professional" exemption in 29 U.S.C. § 213(a)(1). See 29 C.F.R. § 541.601 (highly compensated employee exemption); 29 C.F.R. § 541.304(a)(1) (practice of law exemption). We agree with the conclusion reached by the district court: Faludi was exempt from the FLSA as a highly compensated employee and was therefore not entitled to overtime as a matter of law.

"[T]he ultimate decision whether [an] employee is exempt from the FLSA’s overtime compensation provisions is a question of law." Lott , 203 F.3d at 331. The employer has the burden of establishing that an exemption applies by a preponderance of the evidence. Meza v. Intelligent Mexican Mktg., Inc. , 720 F.3d 577, 581 (5th Cir. 2013). Under the Supreme Court’s decision in Encino Motorcars , we must give FLSA exemptions a "fair reading" rather than narrowly construing them against the employer. Encino Motorcars, LLC v. Navarro , ––– U.S. ––––, 138 S. Ct. 1134, 1142, 200 L.Ed.2d 433 (2018) ; see also Carley v. Crest Pumping Techs., L.L.C. , 890 F.3d 575, 579 (5th Cir. 2018).

Under the version of the highly compensated employee exemption in effect when Faludi worked for U.S. Shale, an employee is exempt from the FLSA’s overtime requirements if (1) he receives "total annual compensation of at least $100,000"; and (2) he "customarily and regularly performs any one or more of the exempt duties or responsibilities of an executive, administrative or professional employee[.]" Highly Compensated Employees, 69 Fed. Reg. 22,122, 22,269 (April 23, 2004) (current version at 29 C.F.R. § 541.601(a) ). The employee also "must be compensated on a salary basis at a rate of not less than $455 per week[.]" 29 C.F.R. § 541.600(a). The parties agree that Faludi received at least $100,000 in annual compensation and that he performed the duties of an executive, administrative, or professional employee under the regulation. Thus, the only remaining issue is whether Faludi was compensated on a "salary basis." In relevant part, the regulations provide the following with regard to the salary basis requirement:

An employee will be considered to be paid on a "salary basis" within the meaning of these regulations if the employee regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of the employee’s compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed. ... [A]n exempt employee must receive the full salary for any week in which the employee performs any work without regard to the number of days or hours worked. Exempt employees need not be paid for any workweek in which they perform no work.

29 C.F.R. § 541.602(a).

Faludi contends that his day rate of $1,000 (or $1,350 for work outside of Houston) did not satisfy the salary basis requirement because it was not calculated "on a weekly, or less frequent basis." 29 C.F.R. § 541.602(a). U.S. Shale responds that Faludi was nonetheless compensated on a salary basis because his day rate guaranteed him $1,000 for every day that he worked, so he would receive more than the minimum of $455 per week for any week in which he performed work. The text of the regulation favors U.S. Shale.

Faludi’s $1,000 day rate plainly constituted "a rate of not less than $455 per week" under 29 C.F.R. § 541.600(a) : If Faludi worked for even one hour in a given week, he was guaranteed $1,000, which exceeds the regulatory minimum of $455. And although Faludi contends that 29 C.F.R. § 541.602(a) required his compensation to be calculated "on a weekly, or...