Jackson v. Com. of Ky.

• Decision Date: 21 June 1995
• Docket Number: Civ. A. No. 93-65,95-18 and 95-39.,94-38
• Citation: 892 F. Supp. 923
• Parties: Lee A. JACKSON, et al., Plaintiffs, v. COMMONWEALTH OF KENTUCKY, Defendant.
• Court: U.S. District Court — Eastern District of Kentucky

892 F. Supp. 923

Lee A. JACKSON, et al., Plaintiffs, v. COMMONWEALTH OF KENTUCKY, Defendant.

Civ. A. Nos. 93-65, 94-38, 95-18 and 95-39.

United States District Court, E.D. Kentucky, at Frankfort.

June 21, 1995.

COPYRIGHT MATERIAL OMITTED

C. David Emerson, Emerson & Bayer, Lexington, KY, for plaintiffs.

James R. Adams, William W. Ford, III, Frost & Jacobs, Cincinnati, OH, Thomas J. Hellmann, Office of Atty. Gen., Frankfort, KY, for defendant.

MEMORANDUM OPINION

WEHRMAN, United States Magistrate Judge.

I. INTRODUCTION

The individual plaintiffs in this consolidated case are employees of the Commonwealth of Kentucky. The plaintiffs allege that the Commonwealth misclassified them as "exempt" employees under the Fair Labor Standards Act ("FLSA") and claim that the Commonwealth owes them overtime pay for hours they worked in excess of 40 per week during the three year period preceding the filing of their complaints. Under the FLSA, non-exempt employees must be paid a minimum wage as well as "overtime" at a rate of one and one-half times their regular wage for hours in excess of 40 per week. Exempt employees are not required to be paid overtime.¹

The FLSA contains exemptions for "executive, administrative, or professional" employees but does not define those terms. Instead, Congress delegated the authority to define those terms through rulemaking to the Department of Labor ("DOL"). The DOL has defined the relevant terms in part through the creation of a rule which is called the salary test. Currently pending before the court are the parties' cross-motions for partial summary judgment concerning the issue of whether the salary test set forth in 29 C.F.R. § 541.118 should be applied to public employers like the Commonwealth.

DOL regulations have required since 1954 that employees who fall under what is commonly known as the white collar exemption to the FLSA be paid "on a salary or fee basis." 29 C.F.R. § 541.118 states that an employee will be considered to be paid "on a salary basis" if he or she is paid the same predetermined amount each pay period which "is not subject to reduction because of variations in the quality or quantity of the work performed" subject to limited exceptions.

The parties agree that none of the limited exceptions to the salary test permit deductions to a worker's pay for minor disciplinary infractions.² However, deductions may be made for whole days or weeks pursuant to vacation and sick leave policies. See § 541.118(a). Until 1991, if an employer made deductions to an employee's pay for partial-day absences, the employee was considered to be non-exempt.

Since 1960 the Commonwealth like many states has had in place statutory provisions providing that its employees may, as a means of discipline, be "dismissed, demoted, suspended, or otherwise penalized." Kentucky's regulatory scheme permits deductions to an employee's pay as a method of discipline for infractions which are clearly not major safety violations, and likewise permits deductions for partial-day absences. Kentucky's statutes and corresponding regulations do not distinguish between exempt and nonexempt employees. See KRS § 18A.095, 18A.075, 18A.0751; 101 KAR 1:345. Thus, if the salary test applies to the Commonwealth as a public employer, it has arguably violated the FLSA by classifying as "exempt" employees whose pay is subject to deductions for disciplinary infractions which are not infractions of safety rules of major significance.³ In addition, the Commonwealth has classified as "exempt" employees whose pay is subject to partial-day absences, which violated the salary test prior to its 1991 amendment.

To avoid this result, Kentucky advances two arguments: 1) the salary test is inapplicable to state and local government employees because it is contrary to the intent of Congress; and 2) the failure of the DOL to amend the test to eliminate the application of the disciplinary prong to public employers is arbitrary and capricious.

II. HISTORICAL BACKGROUND

The FLSA's application to public employers has had a checkered history. In 1960 when Kentucky's disciplinary provisions were promulgated, the FLSA did not apply to the public sector. Congress initially extended coverage to public employees in 1974, but in 1976, the Supreme Court held in National League of Cities v. Usery 426 U.S. 833, 96 S.Ct. 2465, 49 L.Ed.2d 245 (1976) that Congress could not apply the FLSA to public sector employees. The Supreme Court subsequently overruled Usery in Garcia v. San Antonio Metro. Trans. Authority, 469 U.S. 528, 105 S.Ct. 1005, 83 L.Ed.2d 1016 (1985). In Garcia, the Supreme Court specifically held that treating public employers the same as private employers did not violate the Tenth Amendment. In response to Garcia, Congress amended the FLSA later in 1985 to provide some relief to public employers during a temporary adjustment period.

The 1985 amendments did not address the DOL's salary test, but in 1987 the DOL issued an "Enforcement Policy" noting the difficulty which state and local governmental employers had experienced with the aspect of the salary test which prohibited any deduction from pay for absences on an hourly basis. The DOL noted that virtually all public employers had policies which prevented the expenditure of public funds for time not actually worked by employees and not covered by annual, sick, or other paid leave — in other words, for leave without pay. The policy stated that DOL would not preclude public employers from making such deductions from otherwise "exempt" employees while revisions to the regulations for public employers were being considered. In addition to the proposed revisions to the salary test, the policy noted that a commenter had proposed eliminating the salary test entirely for public employers.

In response to concerns by state and local public employers that their liabilities would be devastating to otherwise exempt employees who had rarely or never had any deductions made to their salaries, DOL ultimately amended a portion of the salary test for public employers. As of September 6, 1991,⁴ 29 C.F.R. § 541.5d specifically provided that public employees would not be disqualified from being categorized under the white collar exemption if their pay was subject to deductions "pursuant to principles of public accountability" which required deductions for leave time taken after accrued paid leave was exhausted.

III. APPLICATION OF THE SALARY TEST TO PUBLIC EMPLOYERS

Kentucky argues in this case that the same principles of public accountability which require public employers to make partial-day deductions under long-established pay-leave systems also require public employers to make disciplinary-related deductions under long-established disciplinary systems. Although the promulgation of § 541.5d amended the salary test to permit public employers to make partial-day deductions, Kentucky argues that the DOL's failure to make a similar amendment to permit public employers to make disciplinary deductions is arbitrary and capricious. Because it asserts that the disciplinary prong of the salary test cannot be applied to public employers in a way consistent with the intent of Congress, Kentucky concludes that no portion of the salary test can be applied to public employers, even after the promulgation of § 541.5d.

In essence, Kentucky complains not about the action of the DOL in promulgating the salary basis regulations, but about the inaction of the DOL in failing to amend the regulations to limit the application of the test to private employers. The standard for determining whether the DOL's inaction was arbitrary and capricious was set forth in Chevron, U.S.A. v. Natural Resources Defense Council, 467 U.S. 837, 842-43, 104 S.Ct. 2778, 2781-82, 81 L.Ed.2d 694 (1984). In Chevron, the Supreme Court held that if the intent of Congress is clearly expressed, a court must give effect to it. However, if the statute is silent or ambiguous on the issue presented, "the question of the court is whether the agency's answer is based on a permissible construction of the statute."

Judges are not experts in the field, and are not part of either political branch of the Government. Courts must, in some cases, reconcile competing political interests, but not on the basis of the judges' personal policy preferences. In contrast, an agency to which Congress has delegated policy-making responsibilities may, within the limits of that delegation, properly rely upon the incumbent administration's view of wise policy to inform its judgments. While agencies are not directly accountable to the people, the Chief Executive is, and it is entirely appropriate for this political branch of the Government to make such policy choices — resolving the competing interests which Congress itself either inadvertently did not resolve, or intentionally left to be resolved by the agency charged with the administration of the statute in light of everyday realities.

When a challenge to an agency construction of a statutory provision, fairly conceptualized, really centers on the wisdom of the agency's policy, rather than whether it is a reasonable choice within a gap left open by Congress, the challenge must fail. In such a case, federal judges — who have no constituency — have a duty to respect legitimate policy choices by those who do.

Id. at 865-866, 104 S.Ct. at 2792-2793. The Sixth Circuit has interpreted Chevron as requiring adherence to the agency's interpretation "absent a finding that the agency's interpretation is untenable." Gould v. Shalala, 30 F.3d 714, 719 (6th Cir.1994).

In this case, I agree with the defendant that the application of the salary test to public employers as it existed prior to the 1991 promulgation of § 541.5d is contrary to the intent of Congress and arbitrary and capricious. However, Kentucky's current challenge to the salary test focuses on the wisdom of DOL's policy in failing to eliminate the salary test...