Fraser v. Patrick O'Connor & Assocs., L.P.
| Citation | 954 F.3d 742 |
| Decision Date | 03 April 2020 |
| Docket Number | No. 18-20687,18-20687 |
| Parties | Monique FRASER; Cassandra Malvo ; Mahlon Smith; Christian Foster ; Veronica Taylor ; Lakisher Miles; Antoinette Johnson; Kimberley Despania; Michael Dunkin; Sean Anderson ; Sean Davidson, Plaintiffs – Appellees, v. PATRICK O’CONNOR & ASSOCIATES, L.P., Doing Business as O’Connor & Associates; O’Connor Management, L.L.C. ; Patrick O’Connor; Kathleen O’Connor, Defendants – Appellants. |
| Court | U.S. Court of Appeals — Fifth Circuit |
David M. Minces, Gabriela M. Barake, Francisco Javier Caycedo, Minces, P.L.L.C, Bellaire, TX, for Plaintiffs-Appellees.
Bryant Steven Banes, Attorney, Brian Sanchez, Neel Hooper & Banes, P.C., Houston, TX, for Defendants-Appellants
Before ELROD, SOUTHWICK, and HAYNES, Circuit Judges.
O’Connor & Associates appeals from the district court’s determination that its property-tax-consultant employees are not administratively exempt from the FLSA’s overtime requirements and that the "fluctuating workweek" method of calculating overtime does not apply. We affirm.
O’Connor is a Houston-based real estate firm specializing in property tax consulting, appraisal, and market research. To help provide its valuation and tax-reduction services to homeowners, O’Connor uses a proprietary algorithm capable of compiling and analyzing numerous data points to generate a range of potential tax values. Property-tax consultants, like the plaintiffs in this action, then review these files and use the generated numbers to negotiate for reduced tax assessments on behalf of O’Connor’s clients. The consultants do not create the files themselves nor do they perform any independent research. All the information they need is contained within those files. Indeed, the consultants rarely, if ever, meet with the clients personally, and they never offer advice or counseling.
In addition to reviewing client files, consultants also attend two types of protest hearings: informal and formal. During informal hearings, the consultant negotiates with a district appraiser to try to reduce a home’s assessed value. The hearing begins with the consultant giving an opinion as to the property’s value. According to the plaintiffs, O’Connor requires its consultants to automatically use the lowest value contained in the file (as generated by O’Connor’s proprietary algorithm) for the initial opening opinion. After providing the opinion, O’Connor expects consultants to then rely on file materials to support a value reduction. Informal hearings sometimes end with a value agreement. When they do not, a formal hearing follows.
At formal hearings, instead of negotiating with a district appraiser, the property-tax consultant attempts to convince an appraisal review board composed of three homeowners to reduce a property’s assessed value. As with the informal hearing, the consultant begins by giving the opinion value listed in the file, even if the consultant thinks the figure unreasonable. The district then provides its proposed value. The consultant can subsequently offer a short rebuttal. At the end of the proceedings, the board assigns a value.
O’Connor’s internal procedures prohibit consultants from making value agreements during these formal hearings, even if the board concurs with the consultant’s proposed value. For example, one of O’Connor’s guidelines provides that "[i]f an ... appraiser agrees to an agent’s value at the formal hearing[,] [t]he agent must clearly state, ‘[I] do not have the property owner’s authority to enter into an agreement/or authority to agree with the district to a specific figure.’ " In fact, a consultant’s inability to reach a value agreement sometimes prompts the board to increase a home’s assessed value. Consultants who violated the rule could be fired or fined via payroll deduction.
Most of the property-tax consultants are seasonal employees, hired to work only during the "peak" tax season—May through September. During the peak season, each consultant is assigned sixty-five files per day. An average file contains 50–100 pages, so a day’s docket requires review of 3,000 to 6,500 pages. During nights and weekends, consultants "prep" files, meaning they "take out the right documents" and "choose the right evidence." During the day, consultants conduct hearings and negotiations in front of appraisal boards, beginning at 7:30am and generally lasting until 5:00pm. Given this schedule, consultants worked as much as sixty to ninety hours a week, although at the times they were hired, the plaintiffs purportedly knew that they were expected to work more than forty hours a week. O’Connor admits that no employee received overtime pay.
The plaintiffs thus filed this lawsuit seeking unpaid overtime wages under the Fair Labor Standards Act (FLSA). A four-day bench trial was held in 2018 before Magistrate Judge Frances Stacy. The court entered a final judgment for $286,671 in favor of the plaintiffs. O’Connor appeals.
This court reviews the district court’s factual findings for clear error and its legal conclusions de novo . Ivy v. Jones , 192 F.3d 514, 516 (5th Cir. 1999). A factual finding is clearly erroneous only if, "based upon the entire record, we are ‘left with the definite and firm conviction that a mistake has been committed.’ " S. Travel Club, Inc. v. Carnival Air Lines, Inc. , 986 F.2d 125, 128 (5th Cir. 1993) (quoting Anderson v. City of Bessemer City , 470 U.S. 564, 573, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985) ). Thus, when the district court’s account of the evidence is plausible, reversal is improper, even if the reviewing court "would have weighed the evidence differently." Id. at 128–29 (quoting Anderson , 470 U.S. at 573–74, 105 S.Ct. 1504 ). Giving greater weight to certain testimony "can virtually never be clear error" because "only the trial judge can be aware of the variations in demeanor and tone of voice that bear so heavily on the listener’s understanding of and belief in what is said." Anderson , 470 U.S. at 575, 105 S.Ct. 1504 ; see also Fed. R. Civ. P. 52(a)(6).
O’Connor argues that it did not need to pay overtime to its property-tax consultants because they were exempt. We disagree.
The FLSA requires employers to pay overtime compensation to employees who work more than 40 hours a week. 29 U.S.C. § 207(a)(1). Exempt from the FLSA, however, are individuals "employed in a bona fide executive, administrative, or professional capacity." Id. § 213(a)(1). "[T]he ultimate decision whether [an] employee is exempt from the FLSA’s overtime compensation provisions is a question of law." Lott v. Howard Wilson Chrysler-Plymouth, Inc. , 203 F.3d 326, 331 (5th Cir. 2000). With respect to the underlying facts, 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." Faludi v. U.S. Shale Sols., L.L.C. , 950 F.3d 269, 273 (5th Cir. 2020) (quoting Encino Motorcars, LLC v. Navarro , ––– U.S. ––––, 138 S. Ct. 1134, 1142, 200 L.Ed.2d 433 (2018) ).
Relevant here is the FLSA’s administrative exemption. For it to apply, three requirements must be satisfied: (1) the employee must be "[c]ompensated on a salary or fee basis at a rate of not less than $455 per week;" (2) the employee’s primary duty must be "work directly related to the management or general business operations of the employer or the employer’s customers;" and (3) the employee must "exercise ... discretion and independent judgment with respect to matters of significance." Dewan v. M-I, L.L.C. , 858 F.3d 331, 334 (5th Cir. 2017) (quoting 29 C.F.R. § 541.200(a) ).
We address the second requirement first because it is dispositive. To satisfy this requirement, an employee’s work must directly relate to assisting with the running of the company, as opposed to simply doing work related to the production of the business’s products or services. Id. This court has described the distinction between these two types of work as: "between those employees whose primary duty is administering the business affairs of the enterprise from those whose primary duty is producing the commodity or commodities, whether goods or services, that the enterprise exists to produce and market." Dalheim v. KDFW-TV , 918 F.2d 1220, 1230 (5th Cir. 1990).
The district court concluded, based on the testimony heard and on Department of Labor guidance, that the plaintiffs’ "duties were ‘production’ in nature," such that O’Connor did not meet its burden of proving that its employees’ duties related to the management or general business operations of the company. Fraser v. Patrick O’Connor & Assocs., L.P. , No. H-11-3890, 2018 WL 8732101, at *4 (S.D. Tex. Sep. 17, 2018). We agree with the district court.
On appeal, O’Connor, although initially conceding that its property-tax consultants were not generally involved in the management of the business itself and that the consultants were the ones responsible for actually providing the tax-reduction services sold by O’Connor, argues that it nonetheless meets this requirement because the consultants "played an important role in assisting [O’Connor] in ‘managing the clients.’ " They ostensibly did so through their representation of clients at hearings, negotiating for lower tax values on the clients’ behalf. In addition, O’Connor touted the consultants’ fiduciary duty to their clients as evidence that their work was related to the management of the company.
That is not enough. No consultant helped run or service any business, no consultant was ever a supervisor or manager, and no consultant formulated management policies, provided tax advice, prepared tax returns, or helped with regulatory or legal compliance. O’Connor is in the business of tax reduction; property-tax...
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