Yourman v. Giuliani

• Decision Date: 01 August 1999
• Docket Number: Docket No. 99-9310
• Citation: 229 F.3d 124
• Parties: (2nd Cir. 2000) HAROLD YOURMAN, RALPH BISHOP, WILLIAM H. DWORKIN, FREDERICK EWALD, JOHN L. HENDRICKSON, RICHARD KREPELA, ROBERT P. McCARTHY, FRANK MEYER, ANTHONY PUNZI, RONALD L. SAVITT, On Behalf of Themselves & All Other Employees Similarly Situated, RONALD A. BROW, Plaintiffs-Appellants, v. RUDOLPH GIULIANI, As Mayor of the City of New York, BOARD OF EDUCATION OF THE CITY SCHOOL DISTRICT OF THE CITY OF NEW YORK, NEW YORK CITY HEALTH & HOSPITALS CORPORATION, Defendants-Appellees
• Court: U.S. Court of Appeals — Second Circuit

Page 124

229 F.3d 124 (2nd Cir. 2000)

HAROLD YOURMAN, RALPH BISHOP, WILLIAM H. DWORKIN, FREDERICK EWALD, JOHN L. HENDRICKSON, RICHARD KREPELA, ROBERT P. McCARTHY, FRANK MEYER, ANTHONY PUNZI, RONALD L. SAVITT, On Behalf of Themselves & All Other Employees Similarly Situated, RONALD A. BROW, Plaintiffs-Appellants, v. RUDOLPH GIULIANI, As Mayor of the City of New York, BOARD OF EDUCATION OF THE CITY SCHOOL DISTRICT OF THE CITY OF NEW YORK, NEW YORK CITY HEALTH & HOSPITALS CORPORATION, Defendants-Appellees.

Docket No. 99-9310

August Term, 1999

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

Argued: May 3, 2000

Decided: October 03, 2000

Employees of the City of New York, the New York Health and Hospitals Corporation, and the Board of Education of the City School District of the City of New York appeal a decision of the United States District Court for the Southern District of New York, Preska, J., granting summary judgment against them on their claims for overtime compensation under the Fair Labor Standards Act.

Vacated and remanded.

[Copyrighted Material Omitted]

JOAN STERN KIOK, New York City (Robert N. Felix, New York City, of counsel), for Appellants.

MARILYN RICHTER, Assistant Corporation Counsel, City of New York, New York City (Michael D. Hess, Corporation Counsel of the City of New York, Leonard Koerner, Assistant Corporation Counsel, City of New York, New York City, of counsel), for Appellees.

Henry L. Solano, Solicitor of Labor, Steven J. Mandel, Associate Solicitor, Paul L. Frieden, Counsel for Appellate Litigation, United States Department of Labor, Washington, D.C., for Amicus Curiae The Secretary of Labor.

Before: MESKILL, CABRANES and KATZMANN, Circuit Judges.

MESKILL, Circuit Judge:

Plaintiffs-appellants represent a class of individuals employed by the City of New York, the New York City Health and Hospitals Corporation (HHC), and the Board of Education of the City School District of the City of New York (BOE). In April 1991 they filed this lawsuit in the United States District Court for the Southern District of New York, Preska, J., against defendants-appellees the Mayor of the City of New York, the HHC and the BOE seeking unpaid overtime compensation under the Fair Labor Standards Act, 29 U.S.C. §201 et seq. (FLSA). On cross-motions for summary judgment, the court held that the plaintiffs were not entitled to overtime, finding that they were "executive, administrative, or professional" employees exempt from the overtime pay requirement under the "salary basis" test promulgated by the Secretary of Labor (Secretary). After hearing oral argument in this case, we requested an amicus brief from the Department of Labor (DOL). Having reviewed the amicus brief and the parties' responses to it, we largely adopt the Secretary's interpretation of the salary basis test, and we vacate the district court's judgment and remand for further proceedings.

BACKGROUND

The facts in this case are presented thoroughly in the district court's opinions. See Yourman v. Dinkins, 826 F.Supp. 736 (S.D.N.Y. 1993) (Yourman I); see also Yourman v. Giuliani, 1999 WL 799803 (S.D.N.Y. Oct. 7, 1999) (Yourman II). We assume familiarity with those opinions and recount the facts here only to the extent necessary to resolve this appeal.

Employees of the City, the HHC and the BOE are subject to written time and leave regulations that govern minimum work weeks, annual leave allowances, sick leave allowances, etc. Various scenarios exist under these regulations permitting pay deductions from employee compensation. For example, employees are subject to pay deductions in instances where they have been absent from work but have exhausted their leave allowances or have not received approval for use of leave allowances. Employees are also subject to discipline, including suspension without pay, for infractions such as insubordination, abuse of sick leave, refusal to report for drug testing, conduct unbecoming, theft of agency property, and misuse of an agency car.

In Yourman I, the district court granted summary judgment to the employees, appellants here, finding that they were not exempt under the FLSA because they were not compensated on a salary basis. See Yourman I, 826 F.Supp. at 740-44. In particular, the district court found that the time and leave regulations were inconsistent with the DOL regulation defining "salary basis," because (1)the employees were subject to disciplinary deductions for infractions of safety rules not of major significance, see id. at 741 (citing 29 C.F.R. §541.118(a)(5)), and (2)the employees might have had to take leave without pay to testify in court or to satisfy military service obligations, seeid. at 742 (citing 29 C.F.R. §541.118(a)(4)). The court concluded that the employees were not exempt from FLSA coverage whether or not they had suffered any actual deductions from pay. See id. at 742-44 (relying in part on Martin v. Malcolm Pirnie, Inc., 949 F.2d 611, 615-17 (2d Cir. 1991)). In a separate opinion, the court held that the employees were entitled to liquidated damages and back overtime pay, see Yourman v. Dinkins, 865 F.Supp. 154 (S.D.N.Y. 1994), and judgment was entered accordingly.

The defendants appealed, and we affirmed. See Yourman v. Dinkins, 84 F.3d 655 (2d Cir. 1996) (per curiam). Although we recognized a division of authority as to whether actual deductions from pay were required in order to find that the salary basis test was not met, we "agree[d] with the conclusions reached by Judge Preska in her comprehensive opinions, and [we left] the ultimate resolution of the statutory dispute to the Supreme Court or the Congress." Id. at 656.

The Supreme Court granted certiorari and vacated and remanded in light of Auer v. Robbins, 519 U.S. 452 (1997). In Auer, the Court held that the salary basis test is not satisfied only "if there is either an actual practice of making [pay] deductions or an employment policy that creates a significant likelihood of [pay] deductions," id. at 461 (internal quotation marks omitted), adopting the interpretation espoused by the Secretary of Labor as amicuscuriae in that action. We then remanded the case to the district court.

On remand, the district court denied the employees' motion to reinstate the judgment. Instead, the court granted summary judgment to the employers, i.e., the City, the BOE and the HHC. See Yourman II, 1999 WL 799803, at *18. The employees appealed, and, after oral argument, we requested an amicus brief from the DOL. Having received the DOL's comprehensive response and the parties' letter briefs in reply, we vacate the district court's judgment and remand for further proceedings.

DISCUSSION

The Fair Labor Standards Act entitles employees to time-and-a-half overtime for hours worked in excess of forty hours per week, see 29 U.S.C. §207(a)(1), except for those employees "employed in a bona fide executive, administrative, or professional capacity," see id. §213(a)(1). The Secretary of Labor has "broad authority to `defin[e] and delimi[t]' the scope of the exemption for executive, administrative, and professional employees." See Auer, 519 U.S. at 456 (alterations in original) (quoting 29 U.S.C. §213(a)(1)).

Regulations promulgated by the Secretary provide that an employee is employed in a "bona fide executive, administrative, or professional" capacity only if he or she is compensated on a "salary basis."¹ See id. at 455 (citing 29 C.F.R. §§541.1(f), 541.2(e), 541.3(e)). "An employee will be considered to be paid `on a salary basis'... 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." 29 C.F.R. §541.118(a). Deductions from pay in less than one week increments for disciplinary violations are inconsistent with compensation on a salary basis. See Auer, 519 U.S. at 456; see also 29 C.F.R. §541.118(a) ("[T]he employee must receive his full salary for any week in which he performs any work without regard to the number of days or hours worked."). "The Secretary is of the view that employees whose pay is adjusted for disciplinary reasons do not deserve exempt status because... true `executive, administrative, or professional' employees are not `disciplined' by piecemeal deductions from their pay." See Auer, 519 U.S. at 456.

The regulation allows for a "window of correction," see Martin, 949 F.2d at 616, so that when "a deduction not permitted by [the regulation] is inadvertent, or is made for reasons other than lack of work, the exemption will not be considered to have been lost if the employer reimburses the employee for such deductions and promises to comply in the future." 29 C.F.R. §541.118(a)(6). However, the window of correction is not available if an employer "engages in a practice of making impermissible deductions in its employees' pay, or has a policy that effectively communicates to its employees that such deductions will be made." Klem v. County of Santa Clara, 208 F.3d 1085, 1091 (9th Cir. 2000) (internal quotation marks omitted) (detailing Secretary's interpretation of the window of correction rule); see also Martin, 949 F.2d at 616-17 (denying "window of correction" where employer had policy of docking pay for missing work).

To interpret the rule otherwise would allow an employer to treat its employees as exempt for overtime purposes while, at the same time, intentionally failing to comply with the "salary basis" rule. In the event that its employees sued for overtime pay, such an employer simply could use the window of correction to comply retroactively with the salaried-basis requirements. According to the Secretary, such a result would render the "salary basis" rule "essentially meaningless" and run counter to the rule that FLSA exemptions are to be construed narrowly.

Klem...