Reich v. Waldbaum, Inc.

• Decision Date: 12 April 1995
• Docket Number: No. 383,D,383
• Citation: 52 F.3d 35
• Parties: , 130 Lab.Cas. P 33,226, 2 Wage & Hour Cas.2d (BNA) 1121 Robert B. REICH, Secretary of Labor, United States Department of Labor, Plaintiff-Appellant, v. WALDBAUM, INC., Defendant-Appellee. ocket 94-6055.
• Court: U.S. Court of Appeals — Second Circuit

Page 35

52 F.3d 35

63 USLW 2720, 130 Lab.Cas. P 33,226,

2 Wage & Hour Cas.2d (BNA) 1121

Robert B. REICH, Secretary of Labor, United States Department of Labor, Plaintiff-Appellant, v. WALDBAUM, INC., Defendant-Appellee.

No. 383, Docket 94-6055.

United States Court of Appeals Second Circuit.

Argued Oct. 6, 1994.

Decided April 12, 1995.

Ellen R. Edmond, U.S. Dept. of Labor, Washington, DC (Thomas S. Williamson, Jr., Sol. of Labor, Monica Gallagher, Associate Sol. of Labor, Paul L. Frieden, Acting Counsel for Appellate Litigation, Patricia M. Rodenhausen, Regional Sol., U.S. Dept. of Labor, of counsel), for plaintiff-appellant.

Lawrence A. Silverman, New York City (Dean R. Nicyper, William F. Dahill, Cahill Gordon & Reindel, New York, New York, Douglas P. Catalano, Neil G. Sparber, Catalano & Sparber, of counsel), for defendant-appellee.

Before: LUMBARD, FEINBERG and MAHONEY, Circuit Judges.

MAHONEY, Circuit Judge:

Plaintiff-appellant Robert B. Reich, Secretary of Labor, United States Department of Labor (the "Secretary") appeals from a judgment entered December 29, 1993 in the United States District Court for the Southern District of New York, Charles H. Tenney, Judge. The district court enjoined defendant-appellee Waldbaum, Inc. ("Waldbaum") from future violations of sections 7 and 11(c) of the Fair Labor Standards Act of 1938, as amended (the "FLSA"), 29 U.S.C. Secs. 207, ¹ 211(c), ² the overtime pay and record keeping provisions of the FLSA; and directed Waldbaum to pay $915,576.30 in overtime compensation to certain of its employees and an equal amount in liquidated damages pursuant to 29 U.S.C. Sec. 216(c). ³ The district court determined, however, that Waldbaum's violations of Sec. 207 were not willful, and accordingly that Waldbaum was liable only for two years, rather than three years, of compensatory and liquidated damages. ⁴ See Reich v Waldbaum, Inc., 833 F.Supp. 1037 (S.D.N.Y.1993) (opinion supporting judgment).

The Secretary appealed from the judgment of the district court, and Waldbaum cross-appealed. Waldbaum's cross-appeal was subsequently withdrawn, however, pursuant to a stipulation that settled all issues except the Secretary's contention that the district court erred on the issue of willfulness under Sec. 255(a), see supra note 4, which accordingly is the only issue presented on this appeal.

Agreeing with the Secretary that the district court decided the issue of willfulness incorrectly, we reverse the judgment of the district court in part and remand for a redetermination of damages.

Background

The facts of this case are extensively outlined in the opinion of the district court, familiarity with which is assumed. In 1987, the Secretary commenced an investigation of Waldbaum's compliance with the record keeping and overtime pay provisions of the FLSA at twenty stores in Bronx, Westchester, Putnam, and Rockland counties in New York State. Violations were found to have occurred with respect to 262 employees (the "Employees"). The investigation resulted in this lawsuit, in which the Secretary charged Waldbaum with violations of the overtime pay and record keeping provisions of the FLSA from "at least May 15, 1986" to June 2, 1989.

The Employees included forty-seven night clerks who stocked shelves, occasionally ran a cash register, and had no supervisory or managerial duties. The remaining 215 Employees were department heads who supervised their departments and the clerks employed there, night crew managers who supervised the night clerks, and assistant store managers who assisted the store managers and were responsible for the entire store in a manager's absence.

All of the Employees were subject to a collective bargaining agreement between Waldbaum and Local 338 of the Retail, Wholesale and Chain Store Food Employees Union, AFL-CIO (the "Agreement"). Article VI(a) of the Agreement provides that:

Any work in excess of 8 hours in any day, or 40 hours in any week, and any work on Sunday or on any day of rest or on any holiday as herein provided, is and shall be considered overtime work. Overtime work shall be compensated at the rate of one and one-half times the regular hourly wage. On the holidays provided hereunder, such overtime pay shall be in additional [sic] to the pay herein provided for such holidays. Sunday work shall be compensated at twice the regular hourly rate for all present regular full time and part time employees. Part time employees hired on or after January 1, 1987, shall receive one and one-half (1 1/2) times their regular rate of pay for work performed on Sundays. All regular part time employees shall be given a reasonable opportunity to work on Sundays on a rotating basis.

Appendix A to the Agreement specifies the "minimum weekly wage for a 40 hour, 5 day work week" for various categories of employees, including assistant managers and department heads, and the "[m]inimum weekly wage for full time clerks," together with scheduled increases. Appendix A also contains a provision (the "Grandfather Clause") which states that:

Assistant managers and grocery, produce dairy-frozen food, appetizing-delicatessen department heads so employed prior to October 1, 1971 or January 2, 1972 (whichever is appropriate) shall each be guaranteed their overtime worked prior to October 1, 1971 or January 2, 1972 (whichever is appropriate) during the 5-day work week, but only up to 12 hours during such 5 day work week.

All of the Employees were required to punch a time clock, and received weekly compensation which varied according to the number of hours recorded. The "vast majority" of the Secretary's thirty-seven Employee witnesses testified, however, that they had worked hours, and particularly overtime hours, for which they had not been paid, Reich, 833 F.Supp. at 1041-42, and the district court credited that testimony. Id. at 1043. In addition, the district court found that Employees often worked after they punched out to accommodate management and sometimes did not punch out because it did not affect the amount they were paid. Id. at 1042-43. Consequently, the district court decided that Waldbaum had violated the overtime and record keeping requirements of the FLSA by not recording or properly paying all of the overtime hours worked by the Employees. Id. at 1041-45.

Waldbaum initially asserted an affirmative defense that the Employees were "bona fide executives" within the meaning of 29 U.S.C. Sec. 213(a)(1) ⁵ and the Secretary's implementing regulations, ⁶ and accordingly were exempt from the overtime pay provisions of Sec. 207. See Reich, 833 F.Supp. at 1046-47. Waldbaum subsequently withdrew this affirmative defense in light of this court's opinions in Martin v. Malcolm Pirnie, Inc., 949 F.2d 611 (2d Cir.1991), cert. denied, --- U.S. ----, 113 S.Ct. 298, 121 L.Ed.2d 222 (1992), and Whitmore v. Port Authority, 907 F.2d 20 (2d Cir.1990). See Reich, 833 F.Supp. at 1047.

The district court decided that Waldbaum's contention that the Employees were exempt from the overtime and record keeping provisions as "bona fide executives" was unreasonable, and accordingly imposed liquidated damages pursuant to 29 U.S.C. Sec. 216(c), supra note 3. See Reich, 833 F.Supp. at 1051. The district court also determined, however, that the law was sufficiently unclear prior to 1990 that Waldbaum's violations were not reckless and thus not willful, see id. at 1045-48, resulting in the recovery of compensatory and liquidated damages for two, rather than three, years in accordance with Sec. 255(a), supra note 4.

As previously indicated, this appeal followed, presenting only the issue whether the district court correctly determined that Waldbaum's violations of Sec. 207(a)(1), supra note 1, were not "willful" within the meaning of Sec. 255(a), supra note 4.

Discussion

A. The Standards of Liability and Review.

It is now settled that to prove a willful violation of the FLSA within the meaning of Sec. 255(a), it must be established "that the employer either knew or showed reckless disregard for the matter of whether its conduct was prohibited by the statute." McLaughlin v. Richland Shoe Co., 486 U.S. 128, 133, 108 S.Ct. 1677, 1681, 100 L.Ed.2d 115 (1988); see also Frasier v. General Elec. Co., 930 F.2d 1004, 1008 (2d Cir.1991). It follows that "[i]f an employer acts unreasonably, but not recklessly, in determining its legal obligation, ... its action ... should not be ... considered [willful]." McLaughlin, 486 U.S. at 135 n. 13, 108 S.Ct. at 1682 n. 13.

Waldbaum made four arguments to the district court concerning why its conduct was not willful. Each was rejected except Waldbaum's contention that it believed in good faith that all of the Employees were "bona fide executives" within the meaning of 29 U.S.C. Sec. 213(a)(1) and the regulations promulgated thereunder, see supra notes 5 and 6, and only this argument is presented for our consideration on appeal. The district court found that Waldbaum's belief was unreasonable but not reckless under case authority existing at the time of the violations. See Reich, 833 F.Supp. at 1046-48.

Invoking Martin v. Selker Brothers, Inc., 949 F.2d 1286, 1292 (3d Cir.1991), the Secretary contends that "[w]hether [Waldbaum's] knowledge or intent constitutes willfulness is a question of law subject to plenary review." Waldbaum responds by citing a number of cases, including our decisions in Benjamin v. United Merchants & Manufacturers, Inc., 873 F.2d 41, 44 (2d Cir.1989), and Russo v. Trifari, Krussman & Fishel, Inc., 837 F.2d 40, 43 (2d Cir.1988), for a "clearly erroneous" standard of review. See Fed.R.Civ.P. 52(a). The difference in this case is more apparent than real, because the underlying facts are not in serious dispute, and the question presented is essentially the evaluation to be made of those facts. Cf. Reich v. New York, 3 F.3d 581, 587 (2d Cir.1993), cert. denied, --- U.S. ----, 114 S.Ct. 1187, 127 L.Ed.2d 537 (1994); Malcolm Pirnie, 949 F.2d...