Martin v. Malcolm Pirnie, Inc.

• Decision Date: 20 November 1991
• Docket Number: No. 1710,D,1710
• Citation: 949 F.2d 611
• Parties: 30 Wage & Hour Cas. (BNA) 1057, 120 Lab.Cas. P 35,574 Lynn MARTIN, Secretary of Labor, United States Department of Labor, Plaintiff-Appellant, v. MALCOLM PIRNIE, INC., Defendant-Appellee. ocket 91-6138.
• Court: U.S. Court of Appeals — Second Circuit

Page 611

949 F.2d 611

30 Wage & Hour Cas. (BNA) 1057, 120 Lab.Cas.

P 35,574

Lynn MARTIN, Secretary of Labor, United States Department of

Labor, Plaintiff-Appellant, v. MALCOLM PIRNIE, INC., Defendant-Appellee.

No. 1710, Docket 91-6138.

United States Court of Appeals, Second Circuit.

Argued Nov. 1, 1991.

Decided Nov. 20, 1991.

Marva M. Peace-Jackson, Washington, D.C. (David S. Fortney, Deputy Sol. of the U.S. Dept. of Labor, Monica Gallagher, Associate Sol., William J. Stone, Counsel for Appellate Litigation, Washington, D.C., Patricia M. Rodenhausen, Regional Sol., New York City, of counsel), for plaintiff-appellant.

Ronald M. Green, New York City (Gilbert J. Ginsburg, Epstein Becker & Green, P.C., Sandra J. Boyd, Gerard P. Cavaluzzi, Malcolm Pirnie, Inc., Robert L. Jauvtis, Bickel & Brewer, of counsel), for defendant-appellee.

Before OAKES, Chief Judge, FEINBERG and ALTIMARI, Circuit Judges.

ALTIMARI, Circuit Judge:

Plaintiff-appellant Lynn Martin, Secretary of the United States Department of Labor ("Secretary"), appeals from a judgment entered in the United States District Court for the Southern District of New York (Gerard L. Goettel, Judge), conditionally In order to attain "bona fide executive" status, an employee must meet both a salary basis and a duties test. See 29 C.F.R. § 541.1 (1990). On cross-motions for partial summary judgment, the parties submitted to the district court the sole issue of whether the employees in question--who are concededly well-paid and perform professional and managerial functions--met the salary basis requirement. Upon reviewing the applicable regulations, the district court concluded that, although these employees were required to work a certain number of hours each week, they were paid on a salary basis. The district court thus granted MP's motion for partial summary judgment. Because the Secretary withdrew its remaining claims, the district court dismissed the action with prejudice. Consequently, the central issue on this appeal is whether these highly compensated employees, who are normally characterized as professionals, are properly considered hourly, rather than salaried, employees if their compensation is subject to reduction for working less than eight hour days.

                granting defendant-appellee Malcolm Pirnie, Inc.'s ("MP") motion for partial summary judgment and dismissing the action.   The Secretary initiated the underlying action against MP seeking to remedy MP's alleged violation of the Fair Labor Standards Act ("FLSA" or "Act"), 29 U.S.C. § 201 et seq.  (1988).  Essentially, the Secretary contended below, and now argues on appeal, that MP violated the FLSA by failing to provide adequate compensation to a group of employees for overtime hours they worked.   MP, in response, claimed that the employees at issue were "bona fide executive" employees and therefore were not covered by the overtime provisions of the FLSA.   See 29 U.S.C. § 213(a)(1)
                

For the reasons set forth below, we reverse the judgment of the district court.

BACKGROUND

MP is a corporation that specializes in providing environmental engineering, architectural, scientific and planning services to various industrial clients. MP employs approximately 900 individuals in its twenty-four nation-wide offices.

Once an employee joins MP, he or she is assigned a salary grade between 1 and 11. The basic issue in this case concerns MP's compensation scheme for employees in grades 6 through 9. These employees include engineers, accountants, architects, scientists, supervisors and administrators. By ordinary standards, grade 6 through 9 employees are well-paid professionals. Depending on their positions, they earn between $30,000 and $70,000 each year. Although employees in grades 6 through 9 are paid a fixed amount on a bi-weekly basis, they are required to work at least eight hours a day. MP compensates employees in grades 6 through 8 on a time-and-a-quarter basis for overtime hours worked, while it pays grade 9 employees straight time for overtime hours.

Until December 8, 1988, MP employment manuals provided that an employee in any pay grade who missed a fraction of a workday would have a pro rata amount deducted from his or her pay, unless he or she made up the lost time or charged it to his or her vacation or sick leave. From May 1, 1987 to December 8, 1988, MP deducted a total of $3,269.78 from twenty-four different grade 6 through 9 employees' salaries for fractions of days that these employees missed and did not make up or charge to accrued leave time. On December 8, 1988, MP changed its policy regarding absences of less than a day. Under MP's new rules, grade 6 through 9 employees could charge part-day absences to an overhead account rather than to their individual accounts. Moreover, MP ensured that these employees' wages would not be reduced if they worked less than an eight hour day. After initiating this new policy, MP reimbursed the twenty-four employees and former employees for all salary deductions MP had made as a result of their part-day absences.

Shortly after MP made these policy revisions, the Secretary initiated the underlying action in the United States District Court for the Southern District of New York, alleging that MP had violated the In its answer, MP claimed that the employees in question were "bona fide executives" and therefore were not covered by the FLSA's overtime pay provision. See 29 U.S.C. § 213(a)(1) (exempting, inter alia, executives, managers and professionals from overtime pay requirements). In order to be considered a "bona fide executive," an employee must be paid on a salary basis. See 29 C.F.R. § 541.1. The primary dispute between the parties below was whether MP, by subjecting grade 6 through 9 employees to pay reductions as a result of part-day absences, had converted these employees from salary based to hourly employees. If so, MP could not claim that the employees were exempt under the "bona fide executive" exception to the FLSA. The parties each moved for summary judgment on this issue.

                FLSA by compensating employees in grades 6 through 9 at less than a rate of time-and-a-half for overtime hours worked.   See 29 U.S.C. § 207(a)(1) (requiring employers to compensate employees on a time-and-a-half basis for each hour they work in excess of the usual forty hour workweek).   Accordingly, the Secretary sought to permanently enjoin MP from violating the overtime pay provisions of the FLSA and from withholding unpaid overtime compensation due MP employees.   Additionally, the Secretary sought prejudgment interest on amounts unlawfully withheld, as well as costs
                

The district court concluded that even though the deductions for absences of less than a day may have been technically impermissible under the salary basis test, see 29 C.F.R. § 541.118(a), they were made inadvertently. See Dole v. Malcolm Pirnie, Inc., 758 F.Supp. 899, 907-08 (S.D.N.Y.1991). Because the regulations permit an employer to correct an impermissible, but inadvertent, pay reduction, and, in so doing, preserve the affected employee's salaried status, see 29 C.F.R. § 541.118(a)(6), the district court concluded that MP's deductions for partial day absences did not, by themselves, render all grade 6 through 9 employees non-salaried. Accordingly, the district court granted MP's motion for partial summary judgment. However, the court conditioned the judgment on MP's promise to clarify its policy regarding partial day absences and to comply strictly with § 541.118(a). Because the Secretary had withdrawn all of its other claims, the district court entered judgment dismissing the action with prejudice. This appeal followed.

DISCUSSION

It is well-settled that a district court may grant a party's motion for summary judgment if the party can establish that "there is no genuine issue as to any material fact" and that, based on the facts presented, "[it] is entitled to judgment as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986). Here, the parties do not dispute the material facts at issue. Therefore, our only task is to determine whether the district court erred in concluding that, as a matter of law, MP's grade 6 through 9 employees met the salary basis test and thus were eligible for "bona fide executive" status. We review de novo the district court's judgment. See Stroup v. GCS Service, Inc., 938 F.2d 20, 22 (2d Cir.1991); Prunier v. City of Watertown, 936 F.2d 677, 679 (2d Cir.1991).

Initially, we note that because the FLSA is a remedial act, its exemptions, such as the "bona fide executive" exemption claimed in this case, are to be narrowly construed. See Arnold v. Ben Kanowsky, Inc., 361 U.S. 388, 392, 80 S.Ct. 453, 456, 4 L.Ed.2d 393 (1960); Mitchell v. Lublin, McGaughty & Assoc., 358 U.S. 207, 211, 79 S.Ct. 260, 263, 3 L.Ed.2d 243 (1959). Indeed, an employer bears the burden of proving that its employees fall within an exempted category of the Act. See Corning Glass Works v. Brennan, 417 U.S. 188, 196-97, 94 S.Ct. 2223, 2229, 41 L.Ed.2d 1 (1974); Arnold, 361 U.S. at 392, 80 S.Ct. at 452; Donovan v. Carls Drug Co., Inc., 703 F.2d 650, 652 (2d Cir.1983). Consequently, MP must overcome the presumption that the "bona fide executive" exemption does not apply to its grade 6 through 9 employees. More specifically, MP must first According to Department of Labor regulations accompanying the FLSA,

prove that these employees were paid on a salary basis.

[a]n 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...