The Fair Labor Standards Act (“FLSA”), 29 U.S.C. §§ 201, et seq., and the Pennsylvania Minimum Wage Act (“PMWA”), 43 P.S. §§ 333.101, et seq., generally entitle employees to overtime premium pay calculated at 150% of their regular pay rate. See 29 U.S.C. § 207(a)(1); 43 P.S. § 333.104(c). Here, it is uncontroverted that Defendant did not pay Plaintiff overtime premium compensation because it considered him exempt under the “executive” and “learned professional” exemptions to the FLSA’s and PMWA’s overtime pay mandate. See 29 U.S.C. § 213(b)(1); 43 P.S. §§ 333.105(a)(5); see also Stipulated Facts (Doc. 36) at ¶ 5.
The unresolved issue in this case is whether Defendant properly classified Plaintiff as overtime-exempt. If the Court upholds Defendant’s classification, Plaintiff is entitled to nothing. If the Court rules that Plaintiff was misclassified, Plaintiff is entitled to overtime premium pay.
1. Defendant’s Heavy Burden of Proof.
Plaintiff respectfully submits that, in deciding this case, the Court should be mindful of two overriding principles:
First, overtime exemptions are construed “narrowly against the employer.” Davis v. Mountaire Farms, Inc., 453 F.3d 554, 556 (3d Cir. 2006); accord Madison v. Resources for Human Dev., Inc., 233 F.3d 175, 183 (3d Cir. 2000) (citing Mitchell v. Kentucky Fin. Co., 359 U.S. 290, 295 (1959)). Thus, Defendant bears the burden of proving that Plaintiff is overtime-exempt. See Davis, 453 F.3d at 556 (citing Fredrich v. U.S. Computer Serv., 974 F.2d 409, 412 (3d Cir. 1992).
Second, Defendant’s burden is heavy. In particular, Defendant must prove that Plaintiff “comes ‘plainly and unmistakably’ within the exemption’s terms.” Lawrence v. City of Philadelphia, 527 F.3d 299, 310 (3d Cir. 2008) (quoting Arnold v. Ben Kanowsky, Inc., 361 U.S. 388, 392 (1960)) (emphasis in original); see also Pignataro v. Port Authority of New York and New Jersey, 593 F.3d 265, 268 (3d Cir. 2010); Plaunt v. Dolgencorp, Inc., 2010 U.S. Dist. LEXIS 132135, *19-20 (M.D. Pa. Dec. 14, 2010) (Munley, J.). As the Supreme Court has observed, “[t]o extend an exemption to other than those plainly and unmistakably within its terms and spirit is to abuse the interpretive process and to frustrate the announced will of the people.” A.H. Phillips, Inc. v. Walling, 324 U.S. 490, 493 (1945).
2. Defendant Fails to Meet its Burden of Proving that it Plainly and Unmistakably Satisfies the Salary Basis Requirement of the Applicable Overtime Exemptions.
Under both the FLSA and PMWA, employees must be paid on a “salary basis” in order to be covered by either the executive or the learned professional exemption. See 29 C.F.R. § 541.100(a)(1) (FLSA executive); 29 C.F.R. § 541.300(a)(1) (FLSA learned professional); 34 Pa. Code 231.82(6) (PMWA executive); 34 Pa. Code 231.84(5) (PMWA learned professional).
The pertinent Department of Labor regulations define compensation on a salary basis as follows:
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.
29 C.F.R. §541.602(a) (emphasis supplied).
Next, the regulations specifically list permissible deductions from an exempt employee’s salary. Only one of the enumerated deductions is relevant to the instant lawsuit:
Deductions from pay may be made when an exempt employee is absent from work for one or more full days for personal reasons, other than sickness or disability.
29 C.F.R. §541.602(b)(1) (emphasis supplied).
Federal courts considering the salary basis requirement consistently hold that the overtime exemption is lost where the employer makes improper deductions for absences of less than one day. See, e.g., Auer v. Robbins, 519 U.S. 452 (1997); Bowman v. City of Indianapolis, 133 F.3d 513 (7th Cir. 1998); Kinney v. District of Columbia, 994 F.2d 6 (D.C. Cir. 1993); Brock v. The Claridge Hotel and Casino, 846 F.2d 180 (3d Cir. 1988); see also Ellen C. Kearns, The Fair Labor Standards Act (2d Ed. 2010) at 4-46 (“When an employer deducts from the wages of an employee for partial-day absences taken for personal reasons or illness, the employee cannot be considered exempt.”).
[Case-Specific Factual Arguments Omitted]
First, as a practical matter, there is no meaningful difference between leave bank deductions and monetary deductions. For example, in Klein v. Rush-Presbyterian-St. Luke’s Med. Ctr., 990 F.2d 279 (7th Cir. 1993), the Seventh Circuit saw no distinction between monetary deductions and deductions from a “comp time” bank, observing that “[w]hen [plaintiff] was forced to go into negative comp time, she may not have been actually paid less, but she was going into a form of debt since any later accumulated comp time had to pay off that debt.” Id. at 284. Indeed, Defendant’s own written deduction policy characterized the deduction of leave time as a “charge” against the employee. See Plf. Ex. 12 (“If this becomes abusive, the employee will then be charged for every hour.”).
[Case-Specific Factual Arguments Omitted]
In Oral v. Aydin Corp., 2001 U.S. Dist. LEXIS 20625 (E.D. Pa. Oct. 31, 2001), the Eastern District of Pennsylvania addressed “whether [an employer] is entitled to an exemption from the FLSA for those employees classified as salaried who were not actually docked pay but either (1) made up for partial day absence by working extra hours, or (2) used sick or vacation leave to cover the absence.” Id. at *18. In ruling against the employer, the court reasoned that it was enough that the employees merely “face[d] a threat that their pay would be docked for a partial day absence unless they used sick or vacation leave to cover the absence.” Id. at *22. Moreover, as the district court observed, the policy of making partial-day deduction to leave banks “is inconsistent with the definition of what it means to be a salaried employee,” since truly exempt managers and professionals should not be required to answer for every hour worked within a day. See id. at *22-23 (citing Kinney, 994 F.2d at 11).
Here, as in Oral, Defendant publicized and distributed a deduction policy emphasizing that employees must “use time” for partial-day absences of less than one day. See, e.g., Plf. Ex. 12; see also Sharer v. Tanderberg, Inc., 2007 U.S. Dist. LEXIS 14246, *16-17 (E.D. Va. Feb. 27, 2007) (single written communication sufficient to establish illegal deduction policy). Defendant offers no explanation for why an employee reviewing this policy would assume that he would receive his full pay if he exhausted his leave time. Nor does Defendant explain why (even after the commencement of this lawsuit) it did not provide clear guidance to its employees. See Tr. at 51:20-52:5; 93:6-93-14; 94:8-94:10. Instead, Defendant deliberately took a “keep them guessing” approach that discourages salaried employees from availing themselves of a primary benefit of salaried employment: the ability to take partial day absences without fear of being docked pay.
As the Supreme Court observed in Auer, the onus is on employers to implement “a clear and particularized policy – one which ‘effectively communicates’ that deductions will be made in specified circumstances.” Auer, 519 U.S. at 461. Defendant has failed to meet this standard. As such, Defendant fails to meet its heavy burden of proving that it “plainly and unmistakably” satisfied the salary basis test.
3. Alternatively, Defendant Cannot Satisfy its Burden of Proving that it Plainly and Unmistakably Falls Outside of the Pay Scheme Prohibited By the Third Circuit in Brock v. The Claridge Hotel and Casino, 846 F.2d 180 (3d Cir. 1988).
In addition to guarding against illegal pay deductions, federal courts also refuse to find salaried employees exempt when employers utilize certain pay schemes that combine salaried pay with hourly pay. In this regard, the Court is directed to the Third Circuit’s opinion in Brock v. The Claridge Hotel and Casino, 846 F.2d 180 (3d Cir. 1988).
In Brock, supra, the Third Circuit refused to find casino supervisors to be overtime-exempt where they were paid pursuant to a “Weekly Salary Guarantee” plan under which they were “guaranteed a weekly salary of $250.00 for any week in which [they] perform[ed] any service.” Brock, 846 F.2d at 182. “Wages over the $250 minimum were paid by the hour, according to the number of hours [they] worked.” Id. The supervisors almost always worked sufficient hours to exceed their guaranteed salary. See id. at 182. For this reason, “[t]he district court found the instances when the guaranteed payment applied ‘rare.’” Id.
The Third Circuit rejected the casino’s “Weekly Salary Guarantee” plan:
From the record, it is plain that the district court’s finding that the supervisors’ wages were actually calculated on an hourly basis is not clearly erroneous. That fact is supported by the payroll records, which show that a supervisor’s wage can be calculated by multiplying an hourly wage by the number of hours worked. The underlying issue in this case is whether an otherwise hourly wage can be transformed into payment on a salary basis within the meaning of the regulations by virtue of the guaranteed minimum weekly payment. We hold that, in these circumstances, it cannot.
Claridge claims that this minimum was a salary under 541.118(b), and that all wages above that level were “additional compensation.” The concept is fundamentally incoherent. Salary is a mark of executive status because the salaried employee must decide for himself the number of hours to devote to a particular task. In other words, the salaried employee decides for himself how much a particular task is worth, measured in the number of hours he devotes to it. With regards to hourly employees, it is the employer who decides the worth of a particular task, when he determines the amount to pay the employee performing it. Paying an employee by the hour affords that employee little of the latitude the salary requirement recognizes. Thus, a basic tension exists between the purpose behind a salary requirement and any form of hourly compensation.
Brock, 846 F.2d at 184; accord Kinney, 994 F.2d at 9 (“Payment on salary basis is thought to identify executive, administrative, and professional personnel precisely because it indicates employees who are given discretion in managing their time and their activities and who are not answerable merely for the number of hours worked or number of tasks accomplished.”).
Furthermore, the Third Circuit explained why the casino’s “Weekly Salary Guarantee” conflicted with the very nature of overtime-exempt employment:
The “additional” compensation claimed by Claridge . . . varies with the number of hours worked. If an incentive at all, it does not encourage the supervisor to make better use of his time, but only to work more hours. Such encouragement is inconsistent both with salary payment and executive employment. Where, as here, the employee’s usual weekly income far exceeds the “salary” guarantee, the guarantee can have no impact on the employee’s performance or his status.
Id. at 185; accord Kinney, 994 F.2d at 11. Based on these considerations, the Third Circuit held that the casino supervisors were entitled to overtime premium pay under the FLSA. See Brock, 846 F.2d at 186-87.
[Case-Specific Factual Arguments Omitted]
4. Because Defendant Has Failed to Plainly and Unmistakably Prove that Plaintiff is Overtime-Exempt, Plaintiff is Entitled to Unpaid Overtime Wages of $32,373.00.
The parties have stipulated that Plaintiff, who routinely worked overtime hours, see Stipulated Facts (Doc. 36) at ¶ 6, is entitled to unpaid overtime wages totaling either $22,038.32 or $32,373.00, depending on whether the Court utilizes a two-year or three-year limitations period, see Post-Trial Stipulation (Doc. 40).
Under the FLSA, non-willful violations are governed by a two-year limitations period, while willful violations are governed by a three-year period. See 29 U.S.C. § 255(a). In this lawsuit, however, Plaintiff also asserts claims under the PMWA, which carries a three-year limitations period for all violations, regardless of willfulness. See Gonzalez v. Bustleton Services, Inc., 2010 U.S. Dist. LEXIS 23158, *15-21 (E.D. Pa. Mar. 5, 2010). Thus, applying the stipulated damages amounts, the Court should award Plaintiff $32,373.00 in unpaid overtime wages.
5. The Court Should Award Plaintiff an Additional $32,373.00 in Liquidated Damages.
Unlike punitive damages in other civil lawsuits, “liquidated damages [under the FLSA] are the norm and denial of liquidated damages is the exception.” Schneider & Stine, Wage and Hour Law §21.03 (citing cases); accord Reich v. Southern New England Telecommunications Corp., 121 F.3d 58, 71-72 (2d Cir. 1997); Williams v. Tri-County Growers, Inc., 747 F.2d 121, 129-30 (3d Cir. 1984). However, a “district court in its sound discretion can withhold or reduce the amount of liquidated damages ‘if the employer shows . . . that the act or omission giving rise to such action was in good faith and that he had reasonable grounds for believing that his act or omission was not a violation of the [FLSA].’” Brooks v. Village of Ridgefield Park, 185 F.3d 130, 137 (3d Cir. 1999) (quoting 29 U.S.C. §260).
The employer (not the employee) bears the “‘plain and substantial’ burden of proving he is entitled to discretionary relief from the FLSA’s mandatory liquidated damages provision.” See Martin v. Cooper Elec. Supply Co., 940 F.2d 896, 908 (3d Cir. 1991); see also Stillman v. Staples, Inc., 2009 U.S. Dist. LEXIS 42247, *78 (D.N.J. May 11, 2009). In order to meet this burden, the defendant must show that [it] took affirmative steps to ascertain the Act’s requirements but nonetheless violated its provisions. The conduct is judged under an objective standard and thus the absence of affirmative evidence that the employer willfully intended to avoid compliance with the FLSA does not meet the objective component of the good faith requirement. In short, good faith means that the employer attempted to comply and due to mistake or inadvertence failed to do so.
Stillman, 2009 U.S. Dist. LEXIS 42247, at *82-83 (internal quotations omitted); see also Martin, 940 F.2d at 908 (“A defendant employer’s burden of proof [to avoid liquidated damages] is ‘a difficult one to meet’”).
[Case-Specific Factual Arguments Omitted]