Orton v. Johnny's Lunch Franchise, LLC

• Decision Date: 21 February 2012
• Docket Number: No. 10–2044.,10–2044.
• Parties: John ORTON, Plaintiff–Appellant, v. JOHNNY'S LUNCH FRANCHISE, LLC; Anthony J. Calamunci, Defendants–Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

162 Lab.Cas. P 35,995

18 Wage & Hour Cas.2d (BNA) 1316

668 F.3d 843

John ORTON, Plaintiff–Appellant,

v.JOHNNY'S LUNCH FRANCHISE, LLC; Anthony J. Calamunci, Defendants–Appellees.

No. 10–2044.

United States Court of Appeals, Sixth Circuit.

Argued: Jan. 10, 2012.Decided and Filed: Feb. 21, 2012.

ARGUED: David M. Blanchard, Nacht, Roumel, Salvatore, Blanchard & Walker, P.C., Ann Arbor, Michigan, for Appellant. Anthony J. Calamunci, Roetzel & Andress, LPA, Toledo, Ohio, for Appellees. ON BRIEF: David M. Blanchard, Nacht, Roumel, Salvatore, Blanchard & Walker, P.C., Ann Arbor, Michigan, for Appellant. Anthony J. Calamunci, Roetzel & Andress, LPA, Toledo, Ohio, for Appellees.Before: MERRITT and MOORE, Circuit Judges; MAYS, District Judge. ^*

MOORE, J., delivered the opinion of the court, in which MAYS, D.J., joined. MERRITT, J. (p. 850–51), delivered a separate concurring opinion.

OPINION

KAREN NELSON MOORE, Circuit Judge.

John Orton appeals from the district court's dismissal of his claims against Johnny's Lunch Franchise, LLC, and Anthony Calamunci for unpaid wages and expenses from August 2008 to December 2008. Orton sued under the Fair Labor Standards Act (“FLSA”), 29 U.S.C. §§ 201, et seq., and various state laws. The district court granted the defendants' motion to dismiss the FLSA claim on the ground that Orton was an exempt salaried employee and subsequently dismissed the remaining state-law claims. Because we hold that Orton has adequately pleaded a claim under the FLSA, we REVERSE and REMAND for further proceedings.

I. BACKGROUND

John Orton's complaint alleges that he began working for Johnny's Lunch Franchise (“JLF”) in September 2007 as Vice President of Real Estate and Site Selection. His annual base salary was set at $125,000. From September 2007 until August 2008, JLF paid Orton his wages according to plan, although throughout 2008 Orton alleges JLF had trouble making payroll. In August 2008, Orton alleges that JLF ceased paying him any wages even though he did not cease working. On December 1, 2008, Orton along with the entire executive staff was formally laid off. Orton sued his alleged employers JLF and Anthony Calamunci (“Calamunci”) in April 2010 for damages stemming from the period he claims he worked but was not paid between August and December 2008.

The defendants moved to dismiss on the basis of Federal Rules of Civil Procedure 12(b)(2), (3), and (6). Initially, the defendants sought dismissal of only Calamunci for failure to state a claim under Rule 12(b)(6), arguing that Calamunci was not an “employer” within the meaning of § 203(d) of the FLSA.¹ Calamunci concluded this argument by noting that Orton “admits he was an exempt employee with a [sic] annual salary of $125,000.... Therefore, [Orton] is ‘exempt’ from overtime compensation under the [FLSA].” R. 7 (Defs.' Mot. to Dismiss at 4). Calamunci cited no cases or law to make this argument, nor did he argue that this alone warranted dismissal of the entire FLSA claim. Orton, however, responded as if the defendants had moved jointly under Rule 12(b)(6) and addressed both the argument that Calamunci was not an employer and the suggestion that Orton was exempt. Orton explained how Calamunci qualifies as an employer under § 203(d) when one applies the law of this Circuit ² and argued that the defendants failed to meet their burden of establishing that Orton was exempt during the period they denied him his wages. In their reply, the defendants focused almost entirely on the argument that Orton was an exempt salaried employee under the FLSA and that the complaint could therefore be dismissed in its entirety against both defendants. They argued “[i]n the alternative” that Calamunci was not an employer. Prior to a ruling, Orton sought leave to file a second amended complaint to add further allegations that would more clearly refute the affirmative defense of exemption and establish Calamunci's status as an employer.

On July 20, 2010, the district court issued its opinion granting the defendants' motion to dismiss. Orton v. Johnny's Lunch Franchise, LLC, No. 10–11013, 2010 WL 2854303 (E.D.Mich. July 20, 2010). The district court treated the Rule 12(b)(6) motion as jointly sought by the defendants and held that Orton had failed to state a claim against either defendant under the FLSA because “[b]y his own admission, [Orton] is exempt from protection under FLSA.” Id. at *4. Focusing on the plaintiff's admission that he was owed an annual base salary, the district court concluded: “Nothing in the record indicates that this base salary was subject to reduction because of variations in the quality or quantity of the work performed. Rather, Mr. Orton's allegations suggest only that Defendants stopped paying him this promised salary because of cash flow issues.” Id. at *5. The withholding of compensation for several months, if true, would be insufficient according to the district court to convert a position from salary to hourly. Id. The district court did not mention who had the burden of establishing Orton's status as exempt.

Having concluded that the FLSA claim was not viable, the district court did not address the arguments with respect to Calamunci's status as an employer and dismissed the state-law claims without prejudice because it decided it “lack [ed] a basis to exercise subject matter jurisdiction” over the state-law claims. Id. at *6. The district court denied Orton's motion for leave to file a second amended complaint as moot. Id. Orton timely appealed the district court's judgment.

II. FLSA CLAIM

We review de novo a district court's decision to dismiss a complaint for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). Hensley Mfg., Inc. v. ProPride, Inc., 579 F.3d 603, 608–09 (6th Cir.2009). In reviewing a motion to dismiss, we must accept non-conclusory allegations of fact in the complaint as true and determine if the plaintiff has stated a plausible claim for relief. Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949–50, 173 L.Ed.2d 868 (2009).

A. Overview of FLSA Exemptions

The FLSA requires employers to pay minimum wages to certain employees. 29 U.S.C. § 206. Employers must also pay overtime to employees who work more than forty hours a week. 29 U.S.C. § 207. Some employees, however, are “exempt” from these requirements under 29 U.S.C. § 213. Relevant to this case, § 213(a)(1) exempts workers employed in a “bona fide executive, administrative, or professional capacity,” as defined by the Secretary of Labor. For each of these three functions, the Secretary of Labor has promulgated rules regarding when an employee qualifies as exempt. See 29 C.F.R. § 541.100 (executive employees); 29 C.F.R. § 541.200 (administrative employees); 29 C.F.R. § 541.300 (professional employees). Each rule requires the defendant to satisfy three “tests” to qualify: (1) a duties test; (2) a salary-level test; and (3) a salary-basis test. See 29 C.F.R. § 541.700 (duties test); 29 C.F.R. § 541.600 (salary-level test); 29 C.F.R. § 541.602 (salary-basis test); see also Baden–Winterwood v. Life Time Fitness, Inc., 566 F.3d 618, 626–27 (6th Cir.2009).

An employer may raise a plaintiff's status as an exempt employee as an affirmative defense to claims brought under the FLSA. Thomas v. Speedway SuperAmerica, LLC, 506 F.3d 496, 501 (6th Cir.2007). Exemptions, however, “ ‘are to be narrowly construed against the employers seeking to assert them.’ ” Id. (quoting Arnold v. Ben Kanowsky, Inc., 361 U.S. 388, 392, 80 S.Ct. 453, 4 L.Ed.2d 393 (1960)). The employer bears the burden of establishing the affirmative defense by a preponderance of the evidence, and the employer satisfies this burden only by providing “clear and affirmative evidence that the employee meets every requirement of an exemption.” Id. (internal quotation marks omitted).

The district court determined that “the parties appear to concede that Mr. Orton's job is administrative in nature,” Orton, 2010 WL 2854303, at *4, ³ and then concluded that Orton was an exempt salaried employee under all three tests based on the allegations in his complaint. The district court granted the defendants' motion to dismiss, holding that exempt salaried employees have no claim under the FLSA for back wages. Because Orton does not challenge the district court's holdings with respect to the salary-level test or the duties test, we review only the district court's conclusions on the salary-basis test.

B. Salary–Basis Test

The relevant regulation defining the salary-basis test was updated in 2004 and now states the following:

General Rule. An employee will be considered to be paid on a “salary basis” within the meaning of these regulations if the employee regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of the employee's 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 in paragraph (b) of this section, an exempt employee must receive the full salary for any week in which the employee performs any work without regard to the number of days or hours worked. Exempt employees need not be paid for any workweek in which they perform no work. An employee is not paid on a salary basis if deductions from the employee's predetermined compensation are made for absences occasioned by the employer or by the operating requirements of the business. If the employee is ready, willing and able to work, deductions may not be made for time when work is not available.

29 C.F.R. § 541.602(a) (2004). The old version stated, in relevant part: “An 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....” 29 C.F.R. § 541.118(a) (1973) (emphasis added).

We addressed at length the impact of the 2004 changes on the salary-basis...