Rogers v. City of Troy, N.Y.

• Decision Date: 22 May 1998
• Docket Number: No. 2023,D,2023
• Parties: 135 Lab.Cas. P 33,690, 4 Wage & Hour Cas.2d (BNA) 1089 John F. ROGERS, et al., Plaintiffs-Appellants, v. The CITY OF TROY, NEW YORK; David M. Grandeau, in his official capacity as City Manager of the City of Troy, New York, Defendants-Appellees. ocket 97-7120.
• Court: U.S. Court of Appeals — Second Circuit

Page 52

148 F.3d 52

135 Lab.Cas. P 33,690, 4 Wage & Hour Cas.2d

(BNA) 1089

John F. ROGERS, et al., Plaintiffs-Appellants, v. The CITY OF TROY, NEW YORK; David M. Grandeau, in his

official capacity as City Manager of the City of

Troy, New York, Defendants-Appellees.

No. 2023, Docket 97-7120.

United States Court of Appeals, Second Circuit.

Argued Sept. 26, 1997.

Decided May 22, 1998.

Mark T. Walsh, Gleason, Dunn, Walsh & O'Shea, Albany, NY, for Plaintiffs-Appellants.

Patrick Morphy, Troy, NY (Richard T. Morrisey, Deputy Corp. Counsel for City of Troy, on brief), for Defendant-Appellee.

Before: MESKILL, CALABRESI, Circuit Judges, and KOELTL, District Judge. ^*

CALABRESI, Circuit Judge:

The plaintiffs appeal from a judgment of the United States District Court for the Northern District of New York (Thomas J. McAvoy, Chief Judge ) dismissing their complaint for failure to state a claim under the Fair Labor Standards Act ("FLSA"), 29 U.S.C. § 201, et seq. The issue on this appeal is whether an employer can, without violating the FLSA, pay its employees later than the contractually agreed upon payday, if that late payment is due to the employer's good faith effort to make a permanent change in its pay schedule. We hold that an employer can make such a change without violating the FLSA, but that the plaintiffs' claim should not have been dismissed on the pleadings. Accordingly, we vacate and remand.

I. BACKGROUND

The plaintiffs are police officers and former police officers employed by the City of Troy. They started this action in December 1994, alleging that the City violated the minimum wage provisions of the FLSA when, during the months of October, November, and December 1994, it gradually changed the pay schedule of its employees and implemented a lagged biweekly payroll in place of the weekly one previously used. The City stated that it altered the pay schedule in order to increase the efficiency of its payroll operation.

Under the old pay system, the City's employees had been paid every Friday, but in accordance with two disparate systems of payroll accounting. The pay schedule for "forty hour" civilian employees had been lagged--i.e., on any given Friday, they were paid for work performed in the week prior to the one that was just ending. The pay schedule for police officers (and certain other employees, such as fire fighters) instead was not significantly lagged--i.e., on any given Friday, the officers were paid for the work they had performed in the week that was nearing completion.

The City decided that having two separate pay systems was inefficient. In addition, the City felt that the payroll staff, which had to prepare the paychecks for non-lagged workers well before the relevant pay period was over, spent too much time estimating the number of hours that non-lagged employees would work in the relevant week, and then spent yet more time--during the following week--adjusting the paychecks to reflect the hours that had actually been worked in the earlier week. Finally, the City determined that it would save money by computing and issuing paychecks once every two weeks, rather than once every week. As a result of these administrative concerns, the City claims, it decided to put all employees on a biweekly, lagged payroll.

To implement the lag, the plaintiffs' pay was delayed by one day each week for five weeks. Once the week-long lag had been phased in, the switch to the biweekly pay system was made. The plaintiffs claim that they are entitled to a week's worth of pay in liquidated damages for each of the five weeks in which they were paid one additional day late while the new pay schedule was being phased in.

At approximately the same time that the officers filed this federal lawsuit, their union, the Troy Police Benevolent and Protective Association, filed for arbitration pursuant to the contract between the union and the City. In that proceeding, the union argued that, under their contract, the officers were entitled to be paid certain wages for the period between January 1, 1994, and December 31, 1994, and that, as a result of the new pay schedule, the officers were not paid on time for one week of work performed in 1994. In other words, they alleged that by December 31, 1994, they had actually received only 51/52 of the annual salary provided for in their contract. This, they contended, violated that agreement. The union also asserted that the City had a contractual obligation to pay the officers on a weekly, unlagged schedule. The union acknowledged that the contract was silent both as to the length of the pay period and as to the frequency of paychecks. But it contended that the City's longstanding weekly payment of unlagged paychecks--every Friday over an eighteen year period--constituted a past practice that was strong enough to rise to the status of a contractual right.

The arbitrator accepted the union's arguments and concluded that the implementation of the lagged biweekly pay schedule had violated the labor contract. The arbitrator therefore ordered the City to reimburse the officers for one week's lagged wages and to return to the prior weekly unlagged pay schedule. The arbitrator's order was subsequently affirmed by the state courts. See In re Arbitration between Troy Police Benevolent & Protective Ass'n, Inc., 223 A.D.2d 995, 996, 636 N.Y.S.2d 499, 501 (1996).

In December 1996, the district court, pursuant to Federal Rule of Civil Procedure 12(b)(6), dismissed the plaintiffs' FLSA complaint for failure to state a claim. See Rogers v. City of Troy, 949 F.Supp. 118, 126 (N.D.N.Y.1996). The court held that the employer's failure to pay its employees promptly on their regular payday did not in this case violate the FLSA since the late payment occurred as a result of the employer's change of the regular payday, which was intended to be permanent and was not designed to evade the substantive wage and hour requirements of the Act. The officers appealed.

II. DISCUSSION

The FLSA provides that "[e]very employer shall pay to each of his employees ... who in any workweek is engaged in commerce or in the production of goods for commerce ... not less than the minimum wage." 29 U.S.C. § 206(b). The Act does not specify when this wage must be paid. The officers contend that it must be paid on the contractual pay date. The City, while acknowledging that wages must be paid in a timely fashion, argues that the FLSA is not violated when the pay date is permanently changed for legitimate business reasons.

We agree with the district court, and hold that, although the FLSA does include a prompt payment requirement, that requirement is not violated when an employer changes its pay schedule so long as this change: (a) is made for a legitimate business purpose; (b) does not result in an unreasonably long delay in payment; (c) is intended to be permanent; and (d) does not result in violation of the substantive minimum wage or overtime provisions of the FLSA. But since the plaintiffs' complaint alleges facts that, if proven true, would show that the City of Troy's actions did not satisfy this test, we hold that the complaint should not have been dismissed pursuant to Rule 12(b)(6).

A. Prior Cases

Although the FLSA does not explicitly require that wages be paid on time, the courts have long interpreted the statute to include a prompt payment requirement. See, e.g., United States v. Klinghoffer Bros. Realty Corp., 285 F.2d 487, 491 (2d Cir.1960) ("While the FLSA does not expressly set forth a requirement of prompt payment, such a requirement is clearly established by the authorities...."). More than fifty years ago, the Supreme Court explained that the Act's liquidated damages provision

constitutes a Congressional recognition that failure to pay the statutory minimum on time may be so detrimental to maintenance of the minimum standard of living 'necessary for health, efficiency and general well-being of workers' and to the free flow of commerce, that double payment must be made in the event of delay in order to insure restoration of the worker to that minimum standard of well-being.

Brooklyn Sav. Bank v. O'Neil, 324 U.S. 697, 707, 65 S.Ct. 895, 89 L.Ed. 1296 (1945) (footnote omitted). ¹ Brooklyn Savings Bank concerned a night watchman, Mr. O'Neil, who was employed by Brooklyn Savings Bank from November 1938 until August 1940. During that time, O'Neil frequently worked overtime, but was never paid an overtime wage as required by the FLSA. In November 1942--more than two years after O'Neil had left the Bank's service--the Bank computed the overtime wage that he was due and offered him a check for that amount in exchange for his signing a release of his rights under the FLSA. See id. at 700, 65 S.Ct. 895. Under the Act, he would have been entitled to liquidated damages in addition to the overdue wages. ² O'Neil accepted the check and signed the waiver; later, however, he sued and the Bank raised the waiver as a defense. See id.

The Court held that the waiver was invalid, concluding that "the same policy considerations which forbid waiver of basic minimum and overtime wages under the Act also prohibit waiver of the employee's right to liquidated damages." Id. at 707, 65 S.Ct. 895. Accordingly, the Court held that O'Neil was entitled to statutory damages despite the fact that he had been paid his full wages prior to instituting his lawsuit.

Subsequent courts have interpreted Brooklyn Savings Bank to mean that "the FLSA requires the employer to pay on time. " Calderon v. Witvoet, 999 F.2d 1101, 1107 (7th Cir.1993). In Calderon, the defendants operated a farm and employed seasonal farmhands. These farmhands received less than the minimum wage in each pay check. Those who stayed until the end of the season were paid a "bonus" to bring their total wages up to the minimum hourly rate specified by the FLSA. The plaintiffs in Calderon alleged that workers who left before the season was over did not receive...