In re Wal-Mart Stores, Inc.

Citation395 F.3d 1177
Decision Date01 February 2005
Docket NumberNo. 03-1473.,No. 03-1434.,No. 03-1432.,03-1432.,03-1434.,03-1473.
PartiesIn re WAL-MART STORES, INC., FAIR LABOR STANDARDS ACT LITIGATION, MDL 1139, Jerry Archuleta; Billy Presley; Cindy Wacaster; Michael Fiorenzi, for and on behalf of themselves and other employees similarly situated, Plaintiffs-Appellees, v. Wal-Mart Stores, Inc., a Delaware corporation, Defendant-Appellant. Joel D. Yates, II; Jeffrey Goetzinger; Robert Berry; Walter Lane Henkhaus, Jr., for and on behalf of themselves and other employees similarly situated, Plaintiffs-Appellees, v. Wal-Mart Stores, Inc., a Delaware corporation, Defendant-Appellant. Chris Henderson, individually and as representative of all other District and Regional Managers similarly situated, Defendant.
CourtUnited States Courts of Appeals. United States Court of Appeals (10th Circuit)

Steven J. Merker of Dorsey & Whitney LLP, Denver, CO (Gregory S. Tamkin of Dorsey & Whitney LLP, Denver, CO; Robert P. Davis and David M. Gossett of Mayer, Brown, Rowe & Maw LLP, Washington, D.C., with him on the briefs), for Defendant-Appellant.

Gerald L. Bader, Jr. of Bader & Associates, LLC, Aurora, CO (Renee B. Taylor of Bader & Associates, LLC, Aurora, CO; Franklin D. Azar and Jon Neil Barclay of Franklin D. Azar & Associates, Aurora, CO, with him on the brief), for Plaintiffs-Appellees.

Before HARTZ, McKAY, and O'BRIEN, Circuit Judges.

HARTZ, Circuit Judge.

Under the Fair Labor Standards Act of 1938 (FLSA), 29 U.S.C. § 201 et seq., an employer may not employ a person for more than 40 hours per workweek unless the employee receives overtime compensation of at least one-and-a-half times the regular hourly rate for hours exceeding 40. Id. at § 207(a)(2)(c). The FLSA creates an exemption to its overtime requirement, however, for people "employed in a bona fide executive, administrative, or professional capacity." Id. at § 213(a)(1). A Department of Labor (DOL) regulation states that an employee comes within the "professional" exemption when the employee's job functions satisfy a duties test and the employee is paid on a salary basis. See 29 C.F.R. § 541.3 (2003). This consolidated appeal addresses the second part of this two-part test: the salary-basis requirement.

The plaintiffs in the cases before us, who are full-time pharmacists employed by Defendant Wal-Mart, contend that they were not paid on a salary basis because of Wal-Mart's alleged practice of prospectively reducing their salaries when workloads decreased. The district court agreed and granted summary judgment in the plaintiffs' favor. We reverse and remand for further proceedings. An employer's practice of prospectively changing salaries does not convert salaried employees to hourly employees entitled to overtime rates unless the purported "salary" becomes a sham — the functional equivalent of hourly wages. The plaintiffs have not established incontrovertibly that Wal-Mart changed salaries so often that its full-time pharmacists essentially were paid an hourly wage.

I. BACKGROUND

When this litigation commenced, Wal-Mart employed over 6,000 pharmacists in some 2,000 pharmacies. Of these, nearly 4,000, including the plaintiffs, were full-time employees. According to Wal-Mart's Full-Time Pharmacist Compensation Policy statement, "Each full-time pharmacist is paid by salary." Aplt.App. at 1358. Full-time pharmacists were assigned a certain number of base hours, typically 90 hours for two weeks, and were paid a specified minimum salary each pay period. They received certain benefits provided to management, such as bonuses, insurance, and salary continuation if they became unable to work. Also, they were paid for any time worked over base hours. Wal-Mart calculated the hourly rate for such additional time by dividing a pharmacist's minimum salary by his or her base hours. Under the policy statement the full-time employee "should always turn in the minimum of the base salary hours," unless the employee has taken a full day off without pay for personal reasons. Id. In other words, the employee was to report having worked the minimum base-salary hours even if the employee had not done so, except when the employee had taken a full day off without pay.

Wal-Mart pharmacists filed two actions against Wal-Mart on July 7, 1995. One group filed Presley v. Wal-Mart Stores, Inc., in the United States District Court for the District of Colorado, seeking relief for similarly situated pharmacists nationwide. Others filed Fiorenzi v. Wal-Mart Stores, Inc., in state court, seeking relief on behalf of similarly situated pharmacists in Colorado. Wal-Mart removed Fiorenzi to federal court, where the two cases were consolidated. (We shall refer to the consolidated case as Presley.) The district court conditionally certified the case as an opt-in collective action under 29 U.S.C. § 216(b). Later, some pharmacists who had not opted into Presley filed Yates v. Wal-Mart Stores, Inc., in Colorado federal district court.

The plaintiffs do not contest that under Wal-Mart's written compensation policy, full-time pharmacists were to be paid on a salary basis. Instead, they assert that Wal-Mart's actual policy involved prospectively reducing full-time pharmacists' base hours with a commensurate reduction in salary in response to sales declines, a policy that they contend is inconsistent with the DOL's definition of salary. They point to several affidavits by pharmacists who asserted that their salaries (and base hours) were reduced in response to seasonal drops in business.

The district court granted the Presley plaintiffs' motion for summary judgment after determining that Wal-Mart "engaged in a practice or policy of reducing base hours and base pay for the company's own interest." In re Wal-Mart Stores, Inc., 58 F.Supp.2d 1219, 1222 (D.Colo.1999). The district court then held that summary judgment should also be granted to the Yates plaintiffs based on collateral estoppel (issue preclusion). Wal-Mart appealed both judgments, and Presley and Yates were consolidated for this appeal.

On appeal Wal-Mart contends that (1) summary judgment was improper in Presley and (2) even if that summary judgment was proper, it should have had no preclusive effect in Yates, so the Yates summary judgment was improper. In its opening brief on appeal Wal-Mart also seeks summary judgment in its favor; but at oral argument counsel clarified that what it seeks is dismissal of the Presley plaintiffs' complaint for failure to state a claim. Taking jurisdiction under 28 U.S.C. § 1291, we hold that the Presley complaint states a proper claim, but we set aside the summary judgments in both Presley and Yates and remand for further proceedings. Viewing the record in the light most favorable to Wal-Mart, we cannot conclude that Wal-Mart altered the salaries of full-time pharmacists with such frequency that the purported salary amounted to an hourly wage. We therefore remand for further factual determinations.

II. DISCUSSION
A. Professional Exemption

The FLSA does not define professional; rather, it delegates to the DOL the responsibility of "defin[ing] and delimit[ing]" the term through regulations. 29 U.S.C. § 213(a)(1)1; see Spradling v. City of Tulsa, 95 F.3d 1492, 1495 (10th Cir.1996). Under the DOL regulation an employee must satisfy two requirements to be an "employee employed in a bona fide professional capacity." 29 C.F.R. § 541.3 (2003).2 First, the employee must have certain duties. Id. It is undisputed that the plaintiffs satisfied this requirement. Second, the employee must be

compensated for services on a salary or fee basis at a rate of not less than $170 per week ... exclusive of board, lodging, or other facilities: Provided, That this paragraph shall not apply in the case of an employee who is the holder of a valid license or certificate permitting the practice of law or medicine or any of their branches and who is actually engaged in the practice thereof....

29 C.F.R. § 541.3(e) (2003). The regulation makes clear that pharmacists are not covered by the exception for employees who are the holders of licenses in the medical field or its branches. See 29 C.F.R. § 541.314(c) (2003) ("In the case of medical occupations, the exception [subsection (e)] from the salary or fee requirement does not apply to pharmacists...."). Thus, a pharmacist must be paid on a salary basis under § 541.3(e) to meet the requirements of a "professional" exempt from the FLSA's maximum-hour and overtime requirements.

The first part of the regulation's definition of salary states:

An employee will be considered to be paid "on a salary basis" within the meaning of the regulations if under his employment agreement he regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of his compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed. Subject to the exceptions provided below, the employee must receive his full salary for any week in which he performs any work without regard to the number of days or hours worked. This policy is also subject to the general rule that an employee need not be paid for any workweek in which he performs no work.

29 C.F.R. § 541.118(a) (2003). The last sentence — which permits withholding salary from an employee who misses an entire week of work — is the initial indication that the regulation does not conform to the common understanding of the term salary.

Further contrary to the common understanding, the regulation permits payments in addition to salary, such as the amounts received by Wal-Mart pharmacists for time worked beyond base hours. The regulation states:

Minimum guarantee plus extras. It should be noted that the salary may consist of a predetermined amount constituting all or part of the employee's compensation. In other words, additional compensation besides the salary is not inconsistent with the...

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