Maryam Balbed v. Eden Park Guest House, LLC ( 2018 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 17-1187
MARYAM BALBED,
Plaintiff - Appellant,
v.
EDEN PARK GUEST HOUSE, LLC; ETTY BELA MUKENDI; BRUNO
MUKENDI; TREZILA MUKENDI,
Defendants - Appellees.
Appeal from the United States District Court for the District of Maryland, at Greenbelt.
Peter J. Messitte, Senior District Judge. (8:16-cv-00193-PJM)
Argued: December 6, 2017 Decided: January 25, 2018
Before MOTZ, AGEE, and FLOYD, Circuit Judges.
Reversed and remanded by published opinion. Judge Motz wrote the opinion, in which
Judge Agee and Judge Floyd joined.
ARGUED: Brian Wolfman, GEORGETOWN LAW APPELLATE COURTS
IMMERSION CLINIC, Washington, D.C., for Appellant. Brian M. Maul, LAW OFFICE
OF BRIAN M. MAUL, LLC, Frederick, Maryland, for Appellees. ON BRIEF: Meghan
E. Breen, Student Counsel, Anna Deffebach, Student Counsel, Hali Kerr, Student
Counsel, Wyatt G. Sassman, GEORGETOWN LAW APPELLATE COURTS
IMMERSION CLINIC, Washington, D.C., for Appellant.
DIANA GRIBBON MOTZ, Circuit Judge:
Maryam Balbed brings this action, contending that her former employer, Eden
Park Guest House, failed to compensate her for all the time that she worked and failed to
pay her overtime wages in violation of the Fair Labor Standards Act (“FLSA”), the
Maryland Wage and Hour Law, and the Montgomery County minimum wage
requirement. Balbed appeals the district court’s grant of summary judgment to Eden
Park. For the reasons that follow, we reverse and remand for further proceedings
consistent with this opinion.
I.
Eden Park Guest House is a small family-owned bed and breakfast located in
Takoma Park, Maryland. In July 2015, Eden Park hired Balbed to serve as its innkeeper.
The parties entered into a written agreement, in which Eden Park paid Balbed
$800/month and provided her with a room in the inn, laundry, utilities, and daily
breakfast. In exchange, Balbed agreed to answer phones, make reservations, reply to
emails, check guests in and out, serve breakfast to guests, clean public areas and guest
rooms, and manage Eden Park’s social media presence.
The agreement set forth a daily schedule that divided Balbed’s time into three
categories: (1) serve breakfast to guests daily (for a total of seven hours per week); (2)
clean the guests rooms and common spaces five days a week (for a total of twenty-two
hours per week); and (3) as necessary, check in guests between 4:00 p.m. to 9:30 p.m.
and close the bed and breakfast at 10:00 p.m. “unless otherwise specified.” Thus, the
2
contract provided Balbed would work 29 hours per week on the first two categories, but
did not specify the amount of time required for the third — checking guests in and out, as
necessary — or for the additional duties listed that did not fall into any of these three
categories: answering phones, making reservations, replying to emails, and managing
Eden Park’s social media presence.
Eden Park contends that the contract required 29 hours of work per week, entitling
Balbed to $1107.80/month. 1 Eden Park maintains that it compensated Balbed with an
amount in excess of this because it paid Balbed $800/month and provided her lodging
that it valued as worth between $850/month and $1800/month. Balbed challenges that
assessment of the lodging’s value and claims that, notwithstanding the contract, she
worked in excess of 100 hours per week nearly every week without a day off.
Eden Park employed Balbed from July 2015 through January 2016. She filed this
suit on January 19, 2016 and quit shortly after.
Balbed moved for partial summary judgment, arguing that Eden Park could not
receive any credit for her room and board, because it did not maintain records of the cost
of room and board. Balbed also contended that Eden Park did not pay her a minimum
wage, because the cash payment did not compensate her for all the hours she worked.
1
This figure represents four weeks at 29 hours each, at the then-prevailing
Montgomery County minimum wage of $9.55.
3
Eden Park cross-moved for summary judgment, maintaining that the parties’
written contract constituted a “reasonable agreement” under 29 C.F.R. § 785.23, and that
this exempted Eden Park from all other FLSA requirements. The district court agreed
with Eden Park, concluding that 29 C.F.R. § 785.23 carved out an exception to the other
FLSA regulatory requirements for recordkeeping and calculation of in-kind wages.
Because the court found the parties’ contract constituted a reasonable agreement within
the meaning of § 785.23, it granted summary judgment to Eden Park.
We review a grant of summary judgment de novo, viewing all facts and inferences
in the light most favorable to the nonmoving party. Libertarian Party of Va. v. Judd, 718
F.3d 308, 312 (4th Cir. 2013). Summary judgment is appropriate if “there is no genuine
issue as to any material fact and the movant is entitled to judgment as a matter of law.”
Fed. R. Civ. P. 56(a).
II.
A.
This case involves the interaction of several regulations promulgated by the
Department of Labor pursuant to its authority under the FLSA. That statute requires
employers to pay their employees an hourly minimum wage, 29 U.S.C. § 206(a), at either
the federal wage rate or the applicable state or local rate, whichever is higher, id.§ 218(a). The statute entitles employees to overtime pay for all hours worked over forty
per week at one and one-half times their ordinary rate of pay. Id. § 207(a)(1).
4
Section 203(m) of the statute provides that “wages” include cash and, under
certain circumstances, “the reasonable cost . . . to the employer of furnishing [the]
employee with board, lodging, or other facilities.” 2 29 U.S.C. § 203. The Department of
Labor regulations, promulgated pursuant to § 203(m), provide that to claim the credit for
lodging as wages, an employer must ensure that:
1. The lodging is regularly provided by the employer or similar
employers, 29 C.F.R. § 531.31;
2. The employee voluntarily accepts the lodging, 29 C.F.R. § 531.30;
3. The lodging is furnished in compliance with applicable federal, state,
or local law, 29 C.F.R. § 531.31;
4. The lodging is provided primarily for the benefit of the employee
rather than the employer, 29 C.F.R. § 531.3(d)(1); and
5. The employer maintains accurate records of the costs incurred in
furnishing the lodging, 29 C.F.R. § 516.27(a).
U.S. Dep’t. of Labor, Wage and Hour Div., Field Assistance Bulletin No. 2015-1 (Dec.
17, 2015); see also U.S. Dep’t. of Labor, Credit Towards Wages Under Section 3(m),
https://www.dol.gov/whd/homecare/credit_wages_faq.htm (last visited Jan. 10, 2018)
[hereinafter DOL § 203(m) Manual].
Section 207(a)(1) of the statute provides for the calculation of overtime hours. 29
U.S.C. § 207(a)(1). A Department of Labor regulation promulgated pursuant to
2
Under 29 C.F.R. § 531.32, “other facilities” may include meals, utilities, and
additional in-kind items. To the extent that Eden Park intends to claim a wage credit for
these “other facilities” furnished to Balbed, it must comply with the same requirements
laid out here with respect to lodging.
5
§ 207(a)(1) sets forth rules regarding the calculation of hours worked where an employee
lives on the employer’s premises:
An employee who resides on his employer’s premises on a permanent basis
or for extended periods of time is not considered as working all the time he
is on the premises. Ordinarily, he may engage in normal private pursuits
and thus have enough time for eating, sleeping, entertaining, and other
periods of complete freedom from all duties when he may leave the
premises for purposes of his own. It is, of course, difficult to determine the
exact hours worked under these circumstances and any reasonable
agreement of the parties which takes into consideration all of the pertinent
facts will be accepted. . . .
29 C.F.R. § 785.23 (2004) (emphasis added).
B.
Eden Park contends that the FLSA regulations that govern the § 203(m) lodging
credit do not apply here. Relying on our unpublished opinion in Myers v. Baltimore
County, 50 F. App’x 583 (4th Cir. 2002), Eden Park argues that the value of room and
board need not conform to § 203(m)’s requirements (contained in 29 C.F.R. § 531 and 29
C.F.R. § 516) if an employer and employee reach a “reasonable” agreement under 29
C.F.R. § 785.23.
Eden Park misreads Myers. There, we held that the district court did not err in
finding that an agreement between Baltimore County and caretakers for the county parks,
which provided for on-site accommodation in exchange for a caretaker’s continuous
presence in the park and the performance of other duties, was reasonable under § 785.23.
50 F. App’x at 585–86, 589. The parties in Myers, however, did not dispute the value of
the on-site accommodation. See id. at 589. Thus, Myers provides no support for Eden
Park’s contention that 29 C.F.R. § 785.23, governing hours worked by an employee who
6
lives in lodging provided by his employer, eliminates the need to comply with the
§ 203(m)’s requirements, governing the wages earned for the hours worked. Nor does
any other case or regulation support such a result.
In fact, 29 C.F.R. § 785.23 simply provides a limited exception to the general
requirement that an employee must be compensated for all hours actually spent at work.
Thus, that regulation allows employers and employees to reach a “reasonable agreement”
regarding the number of hours presumptively worked when an employee resides on the
employer’s premises. This narrow exception to determining hours worked has no bearing
on an employer’s obligations under § 203(m) when supplementing cash wages with in-
kind compensation like board or lodging.
The employment agreement between Eden Park and Balbed had to comply with
the requirements that govern not just 29 C.F.R. § 785.23, but also § 203(m). The district
court failed to make a finding as to whether Eden Park’s in-kind compensation
conformed to the requirements under § 203(m) and its implementing regulations. Nor did
the court assess all the “pertinent facts” in determining the reasonableness of the
employment agreement under 29 C.F.R. § 785.23. We address these issues in turn.
III.
Eden Park estimates that the lodging it provided to Balbed as in-kind
compensation had a value between $850/month and $1800/month. The $850 estimate
relies on the asserted knowledge of the local rental market by the inn’s General Manager.
The $1,800 estimate rests on the price Eden Park charged guests to stay in an upstairs
7
guestroom. Thus, according to Eden Park, even if its agreement with Balbed required her
to work not just 29 but 40 hours per week, the value of the lodging ($850–$1800 a
month), combined with the $800 monthly cash wages and other in-kind benefits (utilities
and breakfast), exceeded the minimum wage. But in calculating the value of the lodging
and other in-kind items, Eden Park relies on their purported market value, which includes
profit. Department of Labor regulations promulgated pursuant to Section 203(m) prohibit
this type of alteration. See 29 C.F.R. § 531.3(b).
The regulations provide only two ways to calculate the value of in-kind
compensation — reasonable cost or fair value — and an employer must use whichever is
less. 29 C.F.R. § 531.3(c). The reasonable cost of housing “does not include a profit to
the employer.” 29 C.F.R. § 531.3(b). As for fair value, the regulations make clear that
an employer may only use the fair value of housing as the amount credited toward wages
if the fair value is equal to or lower than the amount the employer actually pays for the
housing. 29 C.F.R. § 531.3(c). The regulations direct employers to calculate the actual
cost of providing lodging to an employee by apportioning the monthly mortgage, rental
payments, and utility payments. See 29 C.F.R. § 531.4; see also DOL § 203(m) Manual.
Eden Park has not attempted to meet these requirements. Moreover, Balbed
maintains that Eden Park cannot do so now because the inn failed to keep
contemporaneous records. See 29 C.F.R. § 516.27(a) (“[A]n employer who makes
deductions from wages of employees for ‘board, lodging, or other facilities’ . . . shall
maintain and preserve records.”). DOL regulations require an employer claiming the
§ 203(m) wage credit for lodging to keep two kinds of records: (1) records regarding the
8
cost to the employer of providing the housing and (2) records regarding wage
calculations taking lodging into account. 3 See 29 C.F.R. §§ 516.27(a)(1), (b). Since
Eden Park did not produce such records, Balbed contends that Eden Park is now
precluded from using the value of the lodging as in-kind compensation.
In support of this contention, Balbed relies primarily on Donovan v. New
Floridian Hotel, Inc., 676 F.2d 468 (11th Cir. 1982). There the Eleventh Circuit rejected
the employers’ effort to deduct the cost of meals and lodging in a case in which they
assertedly had not kept the records required by the regulations. However, the Donovan
holding rested on the fact that the employers “failed to sustain their burden of proving
‘reasonable costs’ of the meals and lodging.” Id. at 473. The court specifically did not
address the validity of the argument that the employers’ failure “to maintain records”
deprived them of the ability to deduct the cost of meals and lodging. Id.We believe that if Eden Park can provide a reconstruction of records that the
district court deems reasonable, those reconstructed records can be used to assess
Balbed’s appropriate wages. See 29 C.F.R. § 516.27(a)(2) (“No particular degree of
itemization is prescribed. However the amount of detail shown . . . should be sufficient
to enable . . . [an] authorized representative to verify the nature of the expenditure and
3
Records regarding the cost to the employer of providing the housing
should “include itemized accounts showing the nature and amount of any expenditures
entering into the computation of the reasonable cost.” 29 C.F.R. § 516.27(a)(1).
Moreover, if — because of a § 203(m) credit — an employee receives less in cash wages
than the minimum wage for each hour worked in the workweek, “the employer shall
maintain records showing on a workweek basis those additions to or deductions from
wages.” 29 C.F.R. § 516.27(b).
9
the amount by reference to the basic records.”). Courts have accepted reasonable
reconstructions of records in a variety of contexts. See In re French, 499 F.3d 345, 355
(4th Cir. 2007) (explaining that a debtor need not maintain perfect records, but must
preserve sufficient records to enable the court to reasonably reconstruct an accurate
picture of debtor’s finances); Cebollero v. C.I.R., 967 F.2d 986, 989 (4th Cir. 1992)
(clarifying that “[w]here the taxpayer fails to keep or produce adequate records from
which his income can be determined,” the IRS may “resort to the best procedure
available under the circumstances” to reconstruct the records (internal quotation marks
and citation omitted)); Archie v. Grand Cent. P’ship, Inc., 86 F. Supp. 2d 262, 266
(S.D.N.Y. 2000) (“[T]hat defendants did not maintain records showing deductions from
wages on a workweek basis, as required under 29 C.F.R. § 516.27(b) for employers who
provide benefits as wages, does not mandate denial of deductions now.”). It seems
appropriate to permit an attempt at such a reconstruction here.
On remand, after Eden Park offers the evidence required by § 203(m), the district
court should make a finding as to the reasonable cost of the lodging and other in-kind
benefits that Eden Park provided to Balbed. 4
4
Balbed also maintains that Eden Park failed to satisfy the third requirement
necessary to claim the § 203(m) credit: that the lodging must be furnished in compliance
with applicable federal, state, or local law. 29 C.F.R. § 531.31. Balbed argues that Eden
Park did not obtain a permit to use a cellar for sleeping as required by Montgomery
County Code § 26-5(e)–(f). Eden Park maintains that the room it provided is not in a
cellar, but a basement, for which no permit is required. The district court did not address
whether the lodging complied with Montgomery County Code § 26-5(e)–(f). On remand,
it should do so.
10
IV.
Finally, we consider the hours required by the agreement under the 29 C.F.R.
§ 785.23 analysis. That regulation reflects a recognition that in employment relationships
where employees reside on the employer’s premises, it may be difficult to determine the
exact number of hours worked. For this reason, 29 C.F.R. § 785.23 provides that “any
reasonable agreement of the parties which takes into consideration all of the pertinent
facts will be accepted.” 29 C.F.R. § 785.23 (emphasis added).
The regulation necessarily governs a range of employment relationships and
circumstances. Thus, there is no single generic test for “reasonableness” under 29 C.F.R.
§ 785.23. Courts have found that an agreement reached pursuant to this regulation “is
binding if it is reasonable in light of ‘all of the pertinent facts’ of the employment
relationship.” See Garofolo v. Donald B. Heslep Assocs., 405 F.3d 194, 199 (4th Cir.
2005) (quoting 29 C.F.R. § 785.23); accord Leever v. Carson City, 360 F.3d 1014, 1018
(9th Cir. 2004); Brock v. City of Cincinnati, 236 F.3d 793, 806 (6th Cir. 2001)
(explaining that an agreement is reasonable under 29 C.F.R. § 785.23 if it “falls within a
broad zone of reasonableness, considering its terms and all of the facts and circumstances
of the parties’ relationship”).
Balbed argues that, notwithstanding the value of the in-kind benefits, the contract
was not a “reasonable agreement” under 29 C.F.R. § 785.23. The contract between Eden
Park and Balbed may or may not fall within the “broad zone of reasonableness” accorded
to 29 C.F.R. § 785.23 agreements. See Brock, 236 F.3d at 806. On remand, the district
11
court can assess this by examining “all of the pertinent facts” in the employment
relationship. 29 C.F.R. § 785.23; Garofolo, 405 F.3d at 199–201.
Thus, on remand, the court should consider how many hours Balbed
presumptively worked each day by examining whether Balbed was “engaged to wait” or
“wait[ing] to be engaged” during the “check-in” hours specified in the contract. See
Skidmore v. Swift & Co., 323 U.S. 134, 136–137 (1944). The face of the contract
suggests that Balbed was required to work 29 hours at a minimum, 5 and dictates periods
of time where Balbed would be essentially “on-call” (4:00 p.m. to 9:30 p.m. each night).
Under the FLSA, hours worked include all time spent performing tasks for the benefit of
the employer or waiting to perform such tasks (i.e. being “engaged to wait”). See IBP,
Inc. v. Alvarez, 546 U.S. 21, 25–26 (2005); Skidmore, 323 U.S. at 137. The Supreme
Court has explained that whether waiting time is work time under the FLSA raises “a
question of fact to be resolved by appropriate findings of the trial court . . . . Facts may
show that the employee was engaged to wait, or they may show that he waited to be
engaged.” Skidmore, 323 U.S. at 136–37. Whether Balbed was “engaged to wait” or
“wait[ing] to be engaged” during the “check-in and closing time” therefore constitutes a
question of fact to be resolved by the district court. Id.5
The district court’s summary judgment order rested on the fact that “the parties
don’t dispute that at least nominally the contract appears to require 29 hours of service.”
Joint Appendix 909 (emphasis added). Eden Park argues that Balbed has conceded that
the employment agreement required only 29 hours per week and, therefore, is precluded
from arguing that it required her to work for more than 29 hours per week. We disagree
with Eden Park. As the district court recognized in its oral ruling, Balbed conceded only
that the agreement required her to work for at least 29 hours.
12
For example, in Kelly v. Hines-Rinaldi Funeral Home, Inc., 847 F.2d 147, 148
(4th Cir. 1988), the plaintiff sought “overtime pay under the theory that he was
employed . . . to work from 9:00 p.m. until 8:30 a.m. the next morning, six days a week.”
The district court used the Skidmore test to address whether the plaintiff was “engaged to
wait” or “wait[ing] to be engaged” between midnight and 6:30 a.m. Id. at 148–49 (citing
Skidmore, 323 U.S. at 136–137). The district court concluded that those hours could not
be considered working time because most of the night hours were available for the
plaintiff’s uninterrupted use at his own on-site residence. Id. at 148. This court affirmed.
Id. at 149. If the district court in the case at hand similarly concludes that Balbed “waited
to be engaged,” then those hours should not be considered working time. But if the court
concludes that Balbed was “engaged to wait” during the “check-in” hours, Eden Park is
obligated to compensate her for those hours.
On remand, the district court should also address Balbed’s contention that the
agreement “provide[s] an unreasonably short amount of time to perform the assigned
tasks.” Garofolo, 405 F.3d at 201 (internal quotation marks and citation omitted). Eden
Park maintains that the contract only requires 29 hours of work per week. The face of the
contract indicates that serving breakfast and cleaning guest rooms and common areas
requires 29 hours. But the contract also provides that Balbed will answer phones, make
reservations, reply to emails, and manage Eden Park’s social media presence. Therefore,
the district court should make a finding as to whether it was reasonable for Eden Park to
require Balbed to complete these additional tasks within the 29-hour time frame. Given
the individual circumstances of this case, this may (or may not) have been reasonable.
13
See Leever, 360 F.3d at 1021 (explaining that an employer is obligated to make an
investigation as to the number of hours employees were required to work and to take a
reasonable estimate of such hours into account). 6
V.
For the foregoing reasons, we reverse the judgment of the district court and
remand for further proceedings consistent with this opinion.
REVERSED AND REMANDED
6
The district court disposed of the state and local law claims by concluding that
Eden Park complied with the FLSA. Balbed argues that even if Eden Park prevails under
the FLSA, her state law claims remain. Eden Park contends that those claims are
preempted. Since § 785.23 allows the parties to enter into a “reasonable agreement”
when it is difficult to ascertain the number of hours “worked” by a live-in employee,
Eden Park maintains that allowing the state law claims to proceed would hinder the
federal objective and render § 785.23 meaningless. See Int’l Paper Co. v. Ouellette, 479
U.S. 481, 494 (1987) (explaining that a state law is preempted “if it interferes with the
methods by which the federal statute was designed to reach [that] goal”). We express no
opinion on this matter, but remand for initial consideration by the district court.
14