Lopez v. Art Kraft Containers, Corp., Civ. A. No. 86-3862.

• Decision Date: 20 May 1987
• Docket Number: Civ. A. No. 86-3862.
• Citation: 660 F. Supp. 404
• Parties: Baltazor LOPEZ, et al. v. ART KRAFT CONTAINERS, CORP., et al.
• Court: U.S. District Court — Eastern District of Pennsylvania

660 F. Supp. 404

Baltazor LOPEZ, et al. v. ART KRAFT CONTAINERS, CORP., et al.

Civ. A. No. 86-3862.

United States District Court, E.D. Pennsylvania.

May 20, 1987.

Margaret A. Browning, Spear, Wilderman, Sigmond, Borish Endy & Silverstein, Philadelphia, Pa.,for plaintiffs.

Michael L. Banks, Morgan, Lewis & Bockius, Philadelphia, Pa., for defendants.

MEMORANDUM AND OPINION

KATZ, District Judge.

In this case of first impression, I determine that "up front" bonus payments under collective bargaining agreements are part of the base to calculate overtime even though the union and the employers agreed that there would be no "roll up" of the lump sum payments. The issue is whether the Fair Labor Standards Act, 29 U.S.C. § 201 et seq. (the FLSA) obligates defendant employers to include lump sum payments in the regular hourly rate of compensation for the purpose of calculating overtime pay. The FLSA requires that an employee who works more than forty hours per week be paid an overtime rate of "one and one-half times the regular rate at which he is employed." 29 U.S.C. § 207(a)(2). The "regular rate" at which an employee is paid is defined as "all remuneration for employment paid to, or on behalf of, the employee." 29 U.S.C. § 207(e). The statute specifically excludes from the "regular rate":

payments made for occassional periods when no work is performed due to vacation, holiday, illness, failure of the employer to provide sufficient work, or other similar cause; reasonable payments for traveling expenses, or other expenses, incurred by an employee in furtherance of his employer's interest and properly reimbursable by the employer; and other similar payments to an employee which are not made as compensation for his hours of employment. 29 U.S.C. § 207(e)(2). Defendants contend the lump sum payment is included within this statutory exception; plaintiffs contend that it is not.

Further issues to be resolved, if liability is established, are the method by which damages are to be calculated, and whether liquidated damages are to be awarded to plaintiffs under 29 U.S.C. §§ 216 and 260.

FINDINGS OF FACT

1. The United Paper Workers International Union Local 375 (the "Union") represents each of the plaintiffs in this action in collective bargaining. Each of the defendants maintains a collective bargaining agreement with the Union which covers employees engaged in the production of corrugated paper products.

2. Defendants Chesapeake Corrugated Container Company, Ownes-Illinois, Inc., Stone Container Corporation (East Plant) and Willamette Industries negotiated collectively as members of the Philadelphia Container Association (the "Container Association"). From May 1984 through July 13, 1984, the Container Association negotiated with the Union.

3. Stone Container Corporation (West Plant) is essentially the same corporate entity as Stone Container Corporation (East Plant). Stone West was acquired from another company in 1983, however, and was covered by a different collective bargaining agreement. Stone West negotiated a new agreement with the Union in August, 1984 which incorporated the same economic terms as were in the Container Association contract. Two of the principal negotiators for Stone West had been principal negotiators in the Container Association negotiations.

4. Defendant Art Kraft, prior to 1981, was a member of the Container Association. Art Kraft's 1981-1984 collective bargaining agreement expired before that of the Container Association; a new agreement was negotiated effective April 1, 1984.

5. Prior to 1984, the negotiated contracts had provided for annual increases in hourly wages and in other benefits paid to or on behalf of employees. In the 1984 negotiations the Defendant employers sought new contracts with no increases in the base hourly wage rates and decreased medical benefits.¹ These changes were designed to make employers more competitive with other corrugating companies which were paying lower wage rates.

6. The collective bargaining agreement negotiated between the Container Association and Local 375 called for, at Article 5, a first year bonus of $750.00 payable as of July 1, 1984, and a second year bonus of $500.00 payable as of July 1, 1985. (Joint Exhibit 1). To receive the first year bonus, employees of the Container Association employers had to have been active employees for three months prior to the date of the bonus; to receive the second year bonus, they had to have been active employees for six months prior to the date of the bonus. If Container Association employees who were on lay-off or long term disability returned to active employment within twelve months following the payment of the bonus, they could receive a pro rata share of the two bonuses.

7. The 1984 labor agreement negotiated between Stone West and Local 375 contained bonus and bonus eligibility provisions substantially identical to those of the Container Association contract. (Joint Exhibit 2). The bonus amounts were identical, and the eligibility language, found in the memorandum of agreement, (Joint Exhibit 5) tracks the Container Association language; all parties have interpreted the language as embodying the same eligibility requirements.

8. The remaining defendant, Art Kraft, negotiated with Local 375 for the payment of a first year $500.00 bonus payable to all employees active on the date of the bonus payment, and payable on a pro rata basis to employees on lay-off or long term disability who returned within one year of the date the bonus was paid. (Joint Exhibit 6, Article 5).

9. The lump sum bonuses were negotiated in lieu of first and second year wage increases. Both employer and Union representatives, during the negotiations, discussed the bonuses and recorded such discussions under the subject of wages. Bonuses are also treated under the subject of wages in the contracts themselves, the memoranda of understanding, and the employer negotiating notes. Changes in bonus amounts during the course of negotiations were made in response to, or in conjunction with, proposals relating to cents-per-hour increases. In discussions between parties across the table, bonus amounts were translated into cents-per-hour; the employer's negotiating notes show the same calculations made in employer caucuses and minutes.

10. The lump sum payments were also inducements by the employer to secure the employees' ratification of the contract in the face of minimal wage increases and reductions in medical benefits. Every aspect of a labor agreement is intended to induce ratification and achieve labor peace. To state the obvious — ratification is desirable to create the conditions under which employees will work and defendants can manufacture. Thus, an inducement to ratify is an inducement for future services.

11. The parties agreed during the Union negotiations that there was to be no "roll-up" effect of the lump-sum payments, i.e., there was to be no effect on the base hourly rate in calculating holiday pay, worker's compensation premiums, FICA, FUTA, and overtime. The union negotiators did not consider the implications of the FLSA for the treatment of the lump-sum payments for calculating of overtime. The FLSA issue was never discussed or considered in the negotiations.

CONCLUSIONS OF LAW

Jurisdiction over claims to recover unpaid overtime payments pursuant to the Fair Labor Standards Act, 29 U.S.C. § 207(a), is found under 29 U.S.C. § 216(b), which provides a private right of action to employees to recover unpaid overtime compensation, along with liquidated damages and attorneys' fees.

I. Liability

Under the FLSA, employees are entitled to overtime compensation, at the rate of one and one-half times the regular rate, for time worked in excess of forty hours per week. Section 207(e) of the FLSA requires inclusion of all remuneration for employment paid to, or on behalf of, the employee, in the regular rate, with the exception of seven listed types of payment.

FLSA rights may not be bargained away by union representatives. Walling v. Harnischfeger Corp., 325 U.S. 427, 432, 65 S.Ct. 1246, 1249, 89 L.Ed. 1711 (1945) (negotiated bonus that is includable pursuant to the FLSA must "automatically enter into computation of the regular rate for the purposes of § 7(a) regardless of any contract provision to the contrary"). Additionally, exceptions from the FLSA are to be narrowly construed against the employer. Mitchell v. Kentucky Finance Co., 359 U.S. 290, 79 S.Ct. 756, 3 L.Ed.2d 815 (1959); Guthrie v. Lady Jane Collieries, Inc., 722 F.2d 1141, 1143 (3d Cir.1983). The burden of proof is on the employer to establish an exemption. See Idaho Sheet Metal Works, Inc. v. Wirtz, 383 U.S. 190, 86 S.Ct. 737, 15 L.Ed.2d 694, reh'g denied, 383 U.S. 963, 86 S.Ct. 1219, 16 L.Ed.2d 305 (1966); Guthrie, supra at 1143.

The employers in this action rely on 29 U.S.C. § 207(e)(2), which permits the exclusion from the regular rate for:

payments made for occassional periods when no work is performed due to vacation, holiday, illness, failure of the employer to provide sufficient work, or other similar cause; reasonable payments for traveling expenses, or other expenses, incurred by an employee in the furtherance of his employer's interests and properly reimbursable by the employer; and other similar payments to an employee which are not made as compensation for his hours of employment. (emphasis added).

The question of whether lump sum payments are to be exempt from inclusion in the regular rate of pay for overtime purposes is one of first impression; thus, the answer will depend primarily on statutory construction.²

Plaintiffs and defendants both focus their arguments on the italicized "other similar payments ... not made as compensation for hours of employment." Plaintiffs contend the lump sum bonuses are compensation for hours of employment; defendants contend they are not. Based on the statute, two questions must be addressed: are...