Louisville v. Fire Service ex rel. Kaelin, No. 2004-SC-0443-DG.

• Decision Date: 22 November 2006
• Docket Number: No. 2004-SC-0443-DG.
• Citation: 212 S.W.3d 89
• Parties: CITY OF LOUISVILLE, DIVISION OF FIRE, Appellant, v. FIRE SERVICE MANAGERS ASSOCIATION By and Through its President, Matthew L. KAELIN, and Matthew L. Kaelin, individually, Appellees.
• Court: United States State Supreme Court — District of Kentucky

212 S.W.3d 89

CITY OF LOUISVILLE, DIVISION OF FIRE, Appellant, v. FIRE SERVICE MANAGERS ASSOCIATION By and Through its President, Matthew L. KAELIN, and Matthew L. Kaelin, individually, Appellees.

No. 2004-SC-0443-DG.

Supreme Court of Kentucky.

November 22, 2006.

Rehearing Denied February 22, 2007.

Edwin S. Hopson, Mitzi D. Wyrick, Lisa Catherine Dejaco, Wyatt, Tarrant & Combs, Citizens Plaza, Louisville, Counsel for Appellant.

Kenneth L. Sales, Paul Jason Kelley, Sales, Tillman, Wallbaum, Catlett & Satterley, Louisville, Counsel for Appellees.

Opinion of the Court by Justice GRAVES.

Matthew L. Kaelin is a District Chief in the Division of Fire for the City of Louisville and the president of the Fire Service Managers Association ("FSMA"). The District Chiefs—an unincorporated association —are members of the FSMA. Kaelin and the FSMA (collectively "FSMA") filed a claim with the Kentucky Labor Cabinet ("Cabinet") against the City of Louisville's Division of Fire for reimbursement of time-and-a-half overtime pay that the District Chiefs allege was unlawfully withheld in contravention of KRS 337.285. On May 4, 2001, the Cabinet made tentative findings of fact which conclude that the District Chiefs were supervisory, salaried personnel who were not illegally denied time-and-a-half overtime pay in contravention of KRS 337.285. The FSMA appealed, but on May 16, 2002, the Cabinet affirmed its tentative findings of fact in a final order.

Pursuant to KRS 13B.140, the FSMA appealed the Cabinet's final order to the Jefferson Circuit Court, but on March 7, 2003, after briefing by both sides, the Jefferson Circuit Court affirmed the Cabinet's actions in all respects. The District Chiefs again appealed, and the Court of Appeals reversed, finding the District Chiefs were entitled to the enhanced overtime pay provided under KRS 337.285. Because we agree with both the Cabinet and the Jefferson Circuit Court that the District Chiefs are supervisory, salaried personnel not entitled to overtime pay under KRS 337.285, we reverse the decision of the Court of Appeals and reinstate the decision of the Jefferson Circuit Court.

I. Facts

The Cabinet's factual findings are entitled to deference absent a showing that they are clearly erroneous. Ky. Unemployment Ins. Comm'n v. Landmark Cmty. Newspapers of Ky., Inc., 91 S.W.3d 575, 578 (Ky.2002). As neither party has presented evidence to compel a conclusion to the contrary, we accept and adopt the Cabinet's factual findings. According to the factual findings made by the Cabinet, the FSMA is comprised of District Chiefs in the fire department. District Chiefs carry the rank of major; and as stipulated by the parties, all constitute supervisory personnel. District Chiefs work one of two schedules, a 40-hour week comprised of five 8-hour shifts or a 56-hour work week comprised of alternating 48 and 72-hour weeks that include either two or three 24-hour shifts. Each District Chief is paid a salary regardless of whether he or she works a 40- or 56-hour schedule. Whenever a District Chief works time in excess of the regularly scheduled hours, compensatory time is awarded on an hour-per-hour basis. However, if overtime is earned while responding to a fire, overtime is paid at a straight rate based on the District Chiefs hourly rate of pay, the calculation of which takes into account the number of hours per week he or she is normally scheduled.

When District Chiefs must miss time from their scheduled work, they are required to obtain approval to use sick leave, annual leave, or compensatory time. Furthermore, District Chiefs are allowed to trade shifts with other District Chiefs. Shift trading must be approved by supervisors. District Chiefs on 40-hour-per-week schedules may trade shifts with those on 56-hour-per-week schedules. A District Chief who fails to report for duty under a shift trade will be considered AWOL.¹ If the regularly assigned District Chief cannot then cover the shift, he may be off payroll,² although use of vacation time may be permitted. (Standard Operating Procedures 103.14) [hereinafter "SOP"].

II. Analysis

The statutes at issue in this case are contained in KRS Chapter 337, Kentucky's analogue to the Fair Labor Standards Act, 29 U.S.C. §§ 201-219. Under KRS 337.285, an "employee" must be paid at a rate of time-and-a-half for any hour worked over forty during a workweek. FSMA contends that the District Chiefs are "employees" under this statute, and thus, are entitled to the time-and-a-half overtime pay set forth therein.

"Employee" as used in KRS 337.285 is defined as follows:

(a) "Employee" is any person employed by or suffered or permitted to work for an employer, but shall not include:

....

2. Any individual employed in a bona fide executive, administrative, supervisory, or professional capacity ... as the terms are defined by administrative regulations of the executive director ....

KRS 337.010(2) (emphasis added). 803 KAR 1:070 is the administrative regulation of the executive director which defines the terms set forth above, and in 2002³ it stated as follows:

Section 4. The term "individual employed in a bona fide supervisory capacity" [as used in KRS 337.010(2)(a)(2)] shall mean any employee:

(1) Who customarily and regularly directs the work of two (2) or more employees where he is employed;

(2) Who does not devote more than twenty (20) percent of his hours of work in the workweek to activities of the same nature as the employees under his supervision; and (3) Who is compensated for his services on a salary basis at a rate of not less than $155 per week, exclusive of board, lodging, or other facilities; provided, that an employee who is compensated on a salary basis at a rate of not less than $250 per week, exclusive of board, lodging, or other facilities, and whose primary duty consists of customarily and regularly directing the work of two (2) or more other employees, shall be deemed to meet all of the requirements of this section.

....

(Emphasis added).

The parties concede that if the District Chiefs satisfy the three requirements of Section 4 set forth above, they cannot be classified as "employees" pursuant to KRS 337.285 and thus, are not entitled to the time-and-a-half overtime pay set forth therein. It is further conceded that the District Chiefs are supervisory to the extent that they satisfy the first two requirements of that regulation. See Kaelin v. City of Louisville, No.2003-CA-000740-MR, 2004 WL 1046372, slip op. at 4 (May 7, 2004). Thus, the determinative issue for our consideration is whether the District Chiefs satisfy the third and final requirement of 803 KAR 1:070(4) (2002).

The third and final requirement of 803 KAR 1:070(4) (2002) is whether the District Chiefs are compensated "on a salary basis." The term "on a salary basis" is defined within the administrative regulations as follows:

Section 7. Salary Basis. (1) An employee will be considered to be paid "on a salary basis" within the meaning of this administrative regulation 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 work week in which he performs no work.

(a) An employee will not be considered to be "on a salary basis" if deductions from his predetermined compensation are made for absences occasioned by the employer or by the operating requirements of the business. Accordingly, if the employee is ready, willing and able to work, deductions may not be made for time when work is not available.

(b) Deductions may be made, however, when the employee absents himself from work for a day or more for personal reasons, other than sickness or accident. Thus, if an employee is absent for a day or longer to handle personal affairs, his salaried status will not be affected if deductions are made from his salary for such absences.

(c) Deductions may also be made for absences of a day or more occasioned by sickness or disability, if the deduction is made in accordance with a bona fide plan, policy or practice of providing compensation for loss of salary occasioned by both sickness and disability....

803 KAR 1:070(7) (2002) (emphasis added). For the reasons set forth herein, our interpretation of this regulation leads us to conclude that the District Chiefs are paid "on a salary basis" and thus cannot be classified as "employees" pursuant to KRS 337.285. Accordingly, we reverse the Court of Appeals and reinstate the ruling of the Jefferson Circuit Court.

A. Burden of Proof.

Initially, we must address a dispute between the parties concerning who bears the burden of establishing whether the District Chiefs are entitled to time-and-a-half overtime pay pursuant to KRS 337.285. As this case involves the review of an administrative decision, we look to KRS 13B.090(7), which reads in part as follows:

In all administrative hearings, unless otherwise provided by statute or federal law, the party proposing the agency take action or grant a benefit has the burden to show the propriety of the agency action or entitlement to the benefit sought. The agency has the burden to show the propriety of a penalty imposed or the removal of a benefit previously granted. The party asserting an affirmative defense has the burden to establish that defense. The party with the burden of proof on any issue has the burden of going forward and the ultimate burden of persuasion as to that issue. The ultimate burden of persuasion in all administrative hearings is met by a preponderance of evidence...