Madison v. Resources for Human Development

• Decision Date: 27 December 2000
• Docket Number: No. 99-1821,99-1821
• Citation: 233 F.3d 175
• Parties: (3rd Cir. 2000) DANNETT MADISON, ON BEHALF OF HERSELF AND OTHERS SIMILARLY SITUATED v. RESOURCES FOR HUMAN DEVELOPMENT, INC., APPELLANT
• Court: U.S. Court of Appeals — Third Circuit

Page 175

233 F.3d 175 (3rd Cir. 2000)

DANNETT MADISON, ON BEHALF OF HERSELF AND OTHERS SIMILARLY SITUATED v. RESOURCES FOR HUMAN DEVELOPMENT, INC., APPELLANT

No. 99-1821

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

Argued July 14, 2000

Filed November 15, 2000

As amended December 27, 2000

On Appeal from the United States District Court for the Eastern District of Pennsylvania D.C. Civil Action No. 97-cv-07402 (Honorable Marvin Katz) [Copyrighted Material Omitted]

[Copyrighted Material Omitted]

Glenn A. Weiner, Esquire (argued) Paul G. Nofer, Esquire Klehr, Harrison, Harvey, Branzburg & Ellers 260 South Broad Street, Suite 400 Philadelphia, Pennsylvania 19102 Attorneys for Appellant

Jay H. Dahlke, Esquire (argued) Joshua P. Rubinsky, Esquire Brodie & Rubinsky 924 Cherry Street, Suite 400 Philadelphia, Pennsylvania 19107 Attorneys for Appellee

Before: Scirica and McKEE, Circuit Judges, and Ackerman, District Judge^*

OPINION FOR THE COURT

Scirica, Circuit Judge.

The issue on appeal is whether the Fair Labor Standards Act applies to a non-profit corporation providing residential human services programs for mentally ill and mentally retarded adults. The District Court held the FLSA applied, and granted plaintiffs summary judgment, relying in part on an interpretive guideline of the Department of Labor. We agree the FLSA applies. But in view of the Supreme Court's recent clarification of the amount of deference to be accorded administrative agencies' informal statutory interpretations, we will vacate the judgment and remand for further findings. See Christensen v. Harris County, 529 U.S. 576, 120 S.Ct. 1655, 1662 (2000).

I. Background

Plaintiffs are current and former employees of Defendant Resources for Human Development, Inc. (RHD). RHD is a Pennsylvania non-profit corporation that provides its clients--mentally ill and mentally retarded adults--with human services programs such as community health centers, transportation services, and community living facilities and assistance. RHD employs approximately 2,400 persons. Plaintiffs, residential advisers in RHD's "Mandela" and "Visions" programs, claimed RHD violated the FLSA by underpaying them. Specifically, they claim RHD improperly calculated their regular and overtime pay rates by failing to include in the calculation the value of the RHD employee benefits plan, which has a cash option. RHD denied coverage on the ground that its residential advisors in the Mandela and Visions programs fell within FLSA's "companionship exemption."

A. The RHD Fairshare Employee Benefit Plan

RHD provides its employees with a benefit plan--the "Fairshare Plan"--that allows employees to select benefits from a "menu" of choices including health insurance, medical reimbursement accounts, life insurance, long-term disability insurance, and cash.¹ Each month, RHD contributes to each of its employees' Fairshare accounts an amount comprising $100.00 plus seven percent of the employee's base monthly salary. Employees also may supplement their accounts to buy additional benefits. Employees who want to receive some or all benefits in cash must sign a written waiver of health insurance coverage. RHD then includes the cash amount in the employee's regular paycheck.

When calculating an employee's regular pay rate, RHD does not include its contributions to the employee's Fairshare account. RHD uses an employee's regular pay rate to calculate any overtime pay; overtime pay is equal to 1.5 times an employee's regular pay rate.

B. RHD's Mandela and Visions Programs

RHD's Mandela and Visions programs provide assistance, support, and training to mentally ill and mentally retarded adults. Both programs are "community living arrangements" that help clients make the transition from institutional to independent living. Each client is supported by a team assembled by the county, which includes a county case manager, mental health professionals, family members, and an RHD staff member. The county managers and other county officials monitor RHD's services to ensure they comply with a service plan. The service plan content is set by state and federal regulations. The plan itself is funded with the state and federal money that funded the client's prior institutionalization.

With the help of RHD residential advisors, clients in the Mandela and Visions programs select residences from a list of RHD-approved options. RHD rents the property and subleases it to its clients.² Although utility service is arranged in clients' names, payment is made through RHD. RHD prepares lists of potential roommates from which clients may choose.³ If they wish, clients can change locations or residential advisors. Clients also may discontinue RHD's services, but then they must vacate the RHD-leased property.

Clients pay up to 72 percent of their monthly Social Security Disability payments to cover rent and other ordinary living expenses. RHD maintains a custodial account for clients' Social Security benefits; RHD is the payee of some benefit checks. For some clients who receive spending money, RHD holds and distributes the money.

Mandela clients' subleases with RHD include "house rules." House rules state: (1) no drugs, alcohol, or loud music; (2) residents be dressed if outside their bedrooms between 8:30 a.m. and 10:00 p.m.; and (3) residents keep the staff informed of their whereabouts at all times. Visions clients' subleases have no house rules.

Clients in both programs must maintain and keep up their residences; they also may choose their home furnishings. They must choose, purchase, and prepare food for their own meals. They must maintain personal hygiene, and select and wash their own clothes. But if a client is physically or mentally unable to cook, clean, or maintain the residence, RHD employees will do so.

RHD retains keys to clients' residences. On-duty RHD employees may use the keys to enter clients' residents, but must knock before entering. Clients deemed capable keep their own keys. In the Mandela program, only six of eleven clients have keys to their own residences; only three are allowed to leave their residences unattended.

II. Proceedings

Dannett Madison, an RHD resident advisor , filed this class action in the United States District Court for the Eastern District of Pennsylvania on December 5, 1997. Madison claimed RHD improperly calculated overtime pay by excluding from the regular pay rate calculation: (1) Fairshare benefits payments; (2) bonuses; and (3) the 15-minute periods by which plaintiffs came to work early each day. Twenty-two additional plaintiffs opted into the class action; fourteen before the District Court issued its summary judgment decision and eight after, in accord with the FLSA's opt-in provisions.⁴ See 29 U.S.C. S 216(b).

RHD moved for summary judgment on three grounds. First, RHD claimed the FLSA wage and hours rules did not apply to plaintiffs because they fell within the "companionship exemption." That provision excludes from FLSA coverage "domestic service" employees who provide companionship services to "individuals who (because of age or infirmity) are unable to car e for themselves." 29 U.S.C. S 213(a)(15). Second, RHD contended its benefit plan was a bona fide health and welfare benefits plan, and thus its payments properly were excluded from the regular pay rate calculation. See 29 U.S.C. S 207(e)(4).⁵ Third, RHD argued bonuses need not be included in the calculation of the regular rate of pay. See 29 U.S.C.S 207(e)(3). Plaintiffs opposed the motion, but did not file their own cross-motion for summary judgment.

On January 8, 1999, the District Court granted in part and denied in part RHD's motion for summary judgment. The court found there were no material factual disputes on the application of the FLSA and of S 213(a)(15) and S 207(e)(4). See Madison v. Resources for Human Development, Inc., Civ. No. 97-7402, 39 F.Supp.2d 542,546 at n.4 (E.D. Pa. Jan. 8, 1999). The court also held as a matter of law RHD could not claim the companionship exemption and the bona fide plan exclusion. See id. at 18. The parties settled the 15 minutes issue and stipulated to the amount of damages and prospective relief on the benefits issue.⁶

In June 1999, on RHD's motion, the District Court closed the class, and in September 1999 entered judgment in favor of 17 plaintiffs. RHD appealed.

We have jurisdiction under 28 U.S.C. S 1291. Our review of summary judgment is plenary. We view all evidence and draw all inferences in the light most favorable to the non-movant, affirming if no reasonable jury could find for the non-movant. See Whiteland Woods, L.P . v. Township of West Whiteland, 193 F.3d 177, 180 (3d Cir . 1999). Our review of the district court's interpretation of the FLSA is plenary. See, e.g., Stephens v. Kerrigan, 122 F .3d 171, 176 (3d Cir. 1997).

III. Discussion

A. The District Court Complied With Fed. R. Civ. P. 56

A threshold issue is whether the District Court complied with Federal Rule of Civil Procedure 56 in deciding RHD's summary judgment motion. The District Court concluded plaintiffs "are not employees exempted from FLSA coverage by the companion exemption, so RHD's overtime payment must comply with FLSA's rules." Madison, Civ. No. 97-7402, 39 F.Supp.2d at 553. RHD asserts the decision constituted a sua sponte summary judgment in Madison's favor, without the notice required by Rule 56. ⁷ RHD is correct that "a district court may not grant summary judgment sua sponte unless the court gives notice and an opportunity to oppose summary judgment." Otis Elevator Co. v. George Washington Hotel Corp., 27 F.3d 903, 910 (3d Cir. 1994). But that did not happen here.

Faced with RHD's motion for summary judgment, the District Court decided whether RHD was entitled to judgment as a matter of law under 29 U.S.C. S 213(a)(15). In addressing the motion, the court found no dispute of material fact with respect to whether FLSA and its companionship exemption...