Herman v. Fabri-Centers of America, Inc.

• Decision Date: 17 October 2002
• Docket Number: No. 01-3080.,01-3080.
• Parties: Alexis M. HERMAN, Secretary of Labor, United States Department of Labor, Plaintiff-Appellant, v. FABRI-CENTERS OF AMERICA, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

308 F.3d 580

Alexis M. HERMAN, Secretary of Labor, United States Department of Labor, Plaintiff-Appellant, v. FABRI-CENTERS OF AMERICA, INC., Defendant-Appellee.

No. 01-3080.

United States Court of Appeals, Sixth Circuit.

Argued: June 14, 2002.

Decided and Filed: October 17, 2002.

Leif Jorgenson (argued and briefed), Paul Frieden (briefed) U.S. Department of Labor, Office of the Solicitor, Washington, D.C., for Appellant.

Keith L. Pryatel (argued and briefed), Harley M. Kastner (briefed), Kastner, Westman & Wilkins, Akron, OH, for Appellee.

Before SILER and CLAY, Circuit Judges; WILLIAMS, District Judge.^*

CLAY, J., delivered the opinion of the court. WILLIAMS, D.J. (p. 593), delivered a separate opinion concurring in the result. SILER, J. (pp. 593-94), delivered a separate dissenting opinion.

OPINION

CLAY, Circuit Judge.

Plaintiff, Alexis M. Herman, former Secretary of Labor of the United States Department of Labor ("the Secretary"), appeals from the judgment ordering Defendant, Fabri-Centers of America, Inc. ("FCA"), to pay $431,948.58 for its violations of sections 7, 11(c), 15(a)(2) and 15(a)(5) of the Fair Labor Standards Act of 1938 ("the FLSA"), 29 U.S.C. § 207(a)(1), § 211(c), § 215(a)(2) and § 215(a)(5).¹ The district court determined that FCA owed the aggregate amount of $545,262.21 for its overtime liabilities under the FLSA, but that FCA was entitled to an "extra compensation" credit of $113,313.63 pursuant to 29 U.S.C. § 207(h)(2). On appeal, the Secretary challenges the district court's award of the extra compensation credit to FCA. For the reasons set forth below, we AFFIRM in part, REVERSE in part, and REMAND for further proceedings consistent with this opinion.

BACKGROUND

A. Procedural History

On April 24, 1998, the Secretary brought this enforcement action under section 17 of the FLSA, 29 U.S.C. § 217, in the United States District Court for the Northern District of Ohio, to enjoin FCA and its chief executive officer, Alan Rosskamm, from violating sections 7, 11(c), 15(a)(2) and 15(a)(5) of the FLSA. In the complaint, the Secretary sought overtime liabilities on behalf of FCA's unionized warehouse employees. Section 7 requires employers to pay covered employees for hours worked longer than forty in a workweek at a rate not less than one and one-half times the regular rate at which they are employed. 29 U.S.C. § 207(a)(1). Section 11(c) requires covered employers to "make, keep, and preserve such records of the persons employed by him and of the wages, hours, and other conditions and practices of employment maintained by him...." 29 U.S.C. § 211(c). Under section 15(a)(2), it is unlawful for any person "to violate any of the provisions of section 206 or section 207 of this title." 29 U.S.C. § 215((a)(5)). Section 15(a)(5) makes it unlawful "to violate any of the provisions of section 211(c)...." 29 U.S.C. § 215(a)(5). On June 11, 1998, the Secretary voluntarily dismissed Rosskamm under Fed.R.Civ.P. 41(a)(1).

The parties then prepared and filed a joint stipulation of the facts on September 14, 1998. On October 2, 1998, the parties filed their respective motions for summary judgment under Fed.R.Civ.P. 56. The Secretary sought a determination of the amount of the overtime liabilities that FCA owed to the workers, while FCA, in its cross-motion, petitioned for extra compensation credit against any determined overtime liabilities under the FLSA.

The district court issued a memorandum opinion and order on September 29, 2000, granting in part the Secretary's Rule 56 motion and granting in part FCA's cross-motion for summary judgment. Pursuant to a joint stipulation, the aggregate amount of FLSA overtime that FCA was liable to pay was $545,262.21. However, the district court determined that FCA was entitled to an "extra compensation" credit of $113,313.63. Thus, the net amount that FCA owed as a result of the district court's order was $431,948.58. A final judgment incorporating the joint stipulation was entered on November 21, 2000. The Secretary filed a timely appeal.

B. Substantive History

The relevant facts are undisputed. FCA owns and operates various retail stores, principally under the names of Jo-Ann Fabrics and Crafts, Cloth World, New York Fabrics, and Jo-Ann, to sell fabrics, notions and crafts. It also operates a warehouse and distribution center for the retail sale of fabrics, crafts and notions at 5555 Darrow Road in Hudson, Ohio. Pursuant to the FLSA, FCA is an "enterprise engaged in commerce or the production of goods for commerce" under 29 U.S.C. § 203(s)(1) and is an "employer" under 29 U.S.C. § 203(d). Thus, it is undisputed that FCA is subject to the provisions of the FLSA.

The district court succinctly explained the nature of dispute as follows:

The gravamen of this action is FCA's calculation of overtime. Prior to renegotiating the collective bargaining agreement, overtime pay for FCA employees was based solely on their base rate of pay. Notwithstanding the other rates of pay available at FCA, all overtime hours were compensated at the lowest rate possible. It is undisputed, however, that FCA's compensation plan allowed employees to earn premiums in excess of FLSA standards. These premiums accrued regardless of whether employees worked overtime. Thus, the question at the heart of this matter is whether the premiums paid under the plan offset any alleged shortcomings in calculating overtime pay.

Plaintiff, Alexis M. Herman, Secretary of Labor, United States Department of Labor ("DOL"), contends that the FLSA dictates that FCA incorporate all employee pay rates into the base rate (or regular rate) for overtime purposes. The DOL further contends that premiums earned by employees may only offset overtime due within the same workweek. In rebuttal, FCA argues that the premiums can offset the total overtime due. After spot investigations at FCA, the DOL brought this action on behalf of FCA employees to recover overtime compensation that is allegedly owed under the former compensation plan.

(J.A. at 18-19.)

Central to these questions was the compensation formula that FCA used to determine the wages of warehouse employees during the time period in dispute, April 1, 1996 to May 17, 1998.² The warehouse employees ("the employees") were represented by the United Steelworkers of America, ALF-CIO-CLC (Upholstery and Allied Industries Division), Local Union No. 48U.³ The employees were assigned a job code that represented their home base within the Hudson, Ohio warehouse where the employees were typically assigned to perform their work. Under the collective bargaining agreement, the employees were paid a "base rate" when working at their primary location or home job codes in the Hudson, Ohio warehouse. Their "regular pay" was determined by multiplying their weekly in-home job hours worked times their hourly base rate.

For employees who worked outside of their home job codes, their "regular pay" was determined by the higher of one of two formulas. Under the first formula, if the calculated "average rate" resulted in compensation that was greater than the employees' non-home base hours multiplied by their hourly base rate plus "bonus pay," then the employees were entitled to compensation based upon their non-home base hours worked multiplied by their calculated "average rate." The employees' "average rate" was calculated by dividing the employees' aggregate earnings, including "overtime pay," for a six-month period and dividing the aggregate amount by the aggregate number of hours worked by the employees, including overtime hours, for that six-month period. If the use of the "average rate" for the employees working outside of their home job code did not result in a higher figure, then their "regular pay" was determined by multiplying their hours worked times their hourly rate plus "bonus pay."

Under the second formula used for employees who performed work outside of their home job codes, the employees received "bonus pay." FCA determined "bonus pay" by using either (1) the units of merchandise completed at each bonus tier multiplied by a set bonus rate for each such tier, or (2) special bonuses calculated by the job identification. If the "average rate" for employees working outside their home job code did not result in a higher figure, then the wage equaled the product of hours worked multiplied by the base rate plus any "bonus pay." In other words, compensation equaled the number of hours worked times the base rate, to which "bonus pay" was added.

FCA's warehouse employees also were paid "overtime pay," which was calculated by the aggregate "overtime" hours multiplied by 1.5 times their hourly base rates. Employees received overtime pay when they worked more than eight hours per day, or when they worked Saturdays after working forty hours during the work week. Employees were paid twice their hourly base rates for all Sunday work hours. Employees also received "holiday pay," which was calculated by virtue of the number of holiday hours worked times the "average rate" for that employee. "Average rate," "bonus pay," "downtime pay" and "shift differentials" were not included in the hourly base rate for purposes of calculating overtime pay when employees worked more than forty hours per work week. "Downtime pay" was calculated by multiplying the employees' downtime rate by their hourly downtime hours.

As the district court recognized, FCA did not contest the threshold issue of whether it violated the FLSA by calculating overtime payments using only the employees' base rate. As to this matter, the district court found that FCA violated the FLSA by failing to include the nondiscretionary bonuses, "average rate," and other "shift differentials" as part of the "regular rate." Thus, the district court held that the Secretary was entitled to a judgment as a matter of law on its claim that FCA's calculation of the "regular rate" for overtime purposes was in violation of the...