John J. Hilbert, Jr. v. District of Columbia, a Municipal Corporation , 23 F.3d 429 ( 1994 )

Opinion for the Court in part and concurring in the result in part filed by Circuit Judge STEPHEN F. WILLIAMS.

Opinion concurring in part and dissenting in part filed by Circuit Judge KAREN LeCRAFT HENDERSON.

Opinion concurring in the result in part and dissenting in part filed by Chief Judge MIKVA.

STEPHEN F. WILLIAMS, Circuit Judge:

The Fair Labor Standards Act (“FLSA”) requires employers to pay their employees time-and-a-half for overtime. 29 U.S.C. § 207(a). When this statute was originally enacted in 1938, it applied only to the private sector. In 1974, however, Congress extended the FLSA to cover employees of state and municipal governments. Pub.L. No. 93-259, 88 Stat. 55. The Supreme Court held this extension largely unconstitutional in National League of Cities v. Usery, 426 U.S. 833, 96 S.Ct. 2465, 49 L.Ed.2d 245 (1976), but changed its mind in Garcia v. San Antonio Metropolitan Transit Authority, 469 U.S. 528, 105 S.Ct. 1005, 83 L.Ed.2d 1016 (1985). Congress then amended the FLSA to soften its impact on state and local governments, permitting some overtime payments to be made in the form of compensatory time off rather than as cash. Pub.L. No. 99-150, 99 Stat. 787 (1985), codified at 29 U.S.C. § 207(o), (p).

The District of Columbia, however, does not use the FLSA’s formula to compensate police officers at the rank of lieutenant and above for their overtime work. Depending on the circumstances, for each hour of overtime work these officers receive either one hour of compensatory time off or one hour’s pay at their implicit hourly rate (their annual base pay divided by 2,080). See D.C.Code §§ 4-405, 4-1104. Seeking application of the FLSA’s formula instead, police captains and lieutenants filed this suit in federal district court on December 6, 1990. The court rejected the District’s argument that the officers are exempt from the FLSA’s overtime requirements as “executive, administrative, or professional” employees, and so granted summary judgment for the plaintiffs. Because it determined that the applicable statute of limitations was two years, the court awarded them relief for the period from December 6, 1988 to the date of the order. Hilbert v. District of Columbia, 784 F.Supp. 922, motion denied, 788 F.Supp. 597 (D.D.C.1992).

The appeal from this judgment has divided the panel. Chief Judge Mikva would affirm the judgment for essentially the reasons given by the district court. Judge Henderson and I reject those reasons in the portion of this opinion labeled “A”, in which I speak for both of us. But in portion “B”, which reflects only my own views and not those of Judge Henderson, I find an alternative ground on which to affirm the judgment for the period from December 6, 1988 to September 6, 1991. The net result is that the district court’s judgment is affirmed in part and reversed in part.

A

The FLSA’s overtime requirements do not cover people employed in an “executive, administrative, or professional capacity ... as such terms are defined and delimited from time to time by regulations of the Secretary [of Labor]”. 29 U.S.C. § 213(a)(1). The parties agree that this exemption is available to the District only if the officers’ jobs satisfy two requirements: their duties must be of a certain type, and they must be paid “on a salary basis”. See 29 CFR §§ 541.1-541.3. To satisfy the latter requirement, generally, “the 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.” 29 CFR § 541.118(a). This general rule, however, is subject to some exceptions, including one that allows employers to deduct pay “when the employee absents himself from work for a day or more for personal reasons, other than sickness or accident”. Id. § 541.-118(a)(2) (emphasis added).¹

The converse of this exception — that employees are not considered salaried if their pay is subject to reduction for absences of less than a day — is known as the “no-doek-ing” rule, and it has applied ever since the first regulatory definition of payment “on a salary basis”. See 19 Fed.Reg. 4405-06 (July 17, 1954). After Congress extended the FLSA to the public sector, the Department of Labor preserved this definition, which draws no distinction between private and public employment.

Soon after Garcia, however, the Department’s Wage and Hour Division expressed concern about the interaction between this definition and the widespread laws that, in the interest of accountability, forbid payment to public employees for hours not actually worked. Under the conventional no-docking rule, employees subject to these laws could never qualify for the “executive, administrative, or professional” exemption. Worried about this outcome, the Wage and Hour Administrator decided not to enforce the no-docking rule with respect to public employees subject to docking under laws adopted before April 15, 1986. See Letter Ruling, Department of Labor, Wage and Hour Division (Jan. 9, 1987), reprinted in Notice of Final Rule, 57 Fed.Reg. 37666, 37668 (Aug. 19, 1992).

This remedy still left state and local governments exposed to the threat of private lawsuits. Accordingly, on September 6, 1991 the Department issued an “interim final rule” superseding the no-docking rule for most public employees. Citing the need “to stem any accrual of additional liability to State and local governments”, the Department found good cause to issue the rule without prior notice and comment and to make it immediately effective. See 56 Fed.Reg. 45824, 45825 (Sept. 6, 1991). The Department later modified the rule slightly in response to comments. See 57 Fed.Reg. 37666 (Aug. 19, 1992), codified at 29 CFR § 541.5d.

If the no-docking rule was valid as applied to the public sector before September 6, 1991, then the District loses with respect to that period. See Kinney v. District of Columbia, 994 F.2d 6,10-11 (D.C.Cir.1993) (analyzing pay system that covers captains and lieutenants in the District’s fire department). On appeal, therefore, the District asserts that the no-docking rule was not valid as applied to the public sector. Because Judge Henderson and I disagree about whether the District preserved this argument for appeal, this opinion defers consideration of that issue. But assuming the validity of the “interim final rule” of September 6, 1991,² the no-docking rule does not stand in the District’s way for the period after that date. Since Judge Henderson and I join in rejecting the district court’s reasoning, we therefore reverse its judgment with respect to this later period and remand' for resolution of such issues as remain in dispute.

The district court based its judgment on the theory that no one who receives hourly overtime is paid “on a salary basis”. This theory has some appeal. Though it has been rejected in the Fourth and Fifth Circuits, see York v. City of Wichita Falls, 944 F.2d 236, 242 (5th Cir.1991); Hartman v. Arlington County, 720 F.Supp. 1227, 1229 (E.D.Va.1989), aff'd, 903 F.2d 290 (4th Cir.1990), dicta in other circuits have endorsed it. See Abshire v. County of Kern, 908 F.2d 483, 486-87 (9th Cir.1990); Brock v. Claridge Hotel & Casino, 846 F.2d 180, 184-85 (3d Cir.1988).³ The underlying logic, as we said in Kinney, is that “[pjayment 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 ... are not answerable merely for the number of hours worked-” Kinney, 994 F.2d at 11.

Even before September 6, 1991, however, there were difficulties with automatic denial of executive status for employees receiving hourly overtime. The Secretary’s regulations focus chiefly on whether an employee’s pay is subject to impermissible deductions, not on how any extra pay is computed. According to the regulations, an employee who receives, every two weeks, a “predetermined amount” (his biweekly base pay) that “consti-tut[es] ... part of his compensation” and is subject only to permissible deductions “mil be considered to be paid ‘on a salary basis’ ”. 29 CFR § 541.118(a) (emphasis added). Indeed, in a subsection headed “Minimum guarantee plus extras”, the regulations specifically note that “additional compensation besides the salary is not inconsistent with the salary basis of payment.” Id. § 541.118(b).

On the other hand, the regulations make clear that “extras” defeat salaried status when employers use them for the purpose of circumventing the regulatory requirements. See id. And two of the three examples of permissible “extras” offered by the regulations involve sales commissions, which are easily distinguishable from hourly overtime.

As Judge Henderson discusses in her separate opinion, the third example is much harder to distinguish. Apparently based on McReynolds v. Pocahontas Corp., 192 F.2d 301 (4th Cir.1951), it declares that an employee will be considered salaried even though he is paid per shift worked as long as he is guaranteed at least the regulatory minimum for any week in which he does any work. Thus an employee who earns $100 per shift and is guaranteed $250 each week is salaried even though he receives extra money on top of his minimum guarantee whenever he works three or more shifts in a week.

Chief Judge Mikva distinguishes this example from hourly overtime on the ground that a shift typically lasts longer than an hour. See Op. of Mikva, C.J., infra at 441; cf. Claridge Hotel & Casino, 846 F.2d at 185. In view of the “interim final rule”, however, we need not address whether this distinction is meaningful in order to reverse the district court’s judgment with respect to the period after September 6, 1991. If it is consistent with salaried status to calculate deductions from employees’ pay on an hourly basis, it is just as consistent with salaried status to calculate additions to their pay on that basis. The payment of hourly overtime certainly does suggest that the employer “expects a certain number of hours from his employee in the first instance”, see Op. of Mikva, C.J., at-, but the same is true of hourly docking: public-sector employees who can lose an hour’s pay for missing an hour of work obviously are expected to work the specified number of hours even if they have nothing to do. The current regulations, then, make clear that this expectation is perfectly consistent with payment “on a salary basis”.⁴

Not only would it be incoherent to pay attention to this expectation only in the context of overtime and not in the context of docking, but it would also be misguided. Even though public accountability principles do not require overtime as they do docking, such a test would simply discourage state and local governments from ameliorating the required docking with offsetting overtime payments — a much more apt and likely form of amelioration than the across-the-board salary increases Chief Judge Mikva suggests.

B

Now speaking only for myself, and not for Judge Henderson, I address the period before September 6, 1991. Though the District argues that the no-docking rule could not validly be applied to the public sector during this period, it failed to challenge the rule’s validity below. Instead, it discussed only how the rule should be interpreted, raising arguments that we have since rejected. See Kinney, 994 F.2d at 10-11; but see McDonnell v. City of Omaha, 999 F.2d 293 (8th Cir.1993). Because the no-docking rule therefore offers a clear ground on which to affirm the district court’s judgment with respect to the earlier period, I need not pass on the validity of the district court’s reasoning for that period.

Judge Henderson is not quite correct to suggest that in its cross-motion for summary judgment below, “the District contested the applicability of the no-docking rule to public sector employees”. Op. of Henderson, J., at 434. What the District contested was the rule’s applicability to the particular public-sector employees in question. And the reason the rule was inapplicable, according to the District, was not that it was invalid as applied to the public sector, but rather that it meant something different in the public than in the private sector. The District suggested that in the public sector, the no-docking rule applied only when an employee’s pay actually was docked because of an absence of less than a day — not for the entire period in which his pay was subject to such docking. See Amended Memorandum of Points and Authorities in Support of Defendant District of Columbia’s Cross-Motion for Summary Judgment (Nov. 7, 1991) 9-11; Defendant’s Statement of Additional Material Facts as to Which There Is No Genuine Issue (Nov. 26, 1991) 4-7; Transcript of Motion for Summary Judgment (Feb. 7, 1992) 8-9. As the District explained below, “The way that we are arguing that [the rule] should be interpreted is that an employee would only [fail the salary-basis test] during the period in which his pay was docked for taking leave.” Transcript of Motion for Summary Judgment (Dec. 11, 1991) 13. The District never even hinted that a contrary interpretation of the rule would render it invalid as applied to the public sector.

The passage that Judge Henderson quotes from the District’s brief, see Op. of Henderson, J., at 434, is not to the contrary. Under the District’s pay system, actual docking is quite rare, for it is required only when the officer in question has already exhausted all his available leave time. The passage that Judge Henderson quotes simply contends that the mere existence of such a pay system (as opposed to evidence of actual docking) does not defeat the FLSA’s exemption for anyone. Thus, in the phrase that Judge Henderson elides out of the passage, the District urged the lower court to interpret the no-docking rule “in accordance with” the three decisions that had understood the rule to apply only when actual docking occurred. See Atlanta Professional Firefighters Union v. Atlanta, 920 F.2d 800, 805 (11th Cir.1991); Harris v. District of Columbia, 709 F.Supp. 238, 241-42 & n. 10 (D.D.C.1989); D.C. Nurses Ass’n v. District of Columbia, 29 Wage & Hour Cases (BNA) 868, 868-69, 1988 WL 156191 (D.D.C. Jan. 28, 1988).

It may well be that the District picked up the invalidity argument from the Department of Labor, which — after final judgment in the district court — said for the first time that the no-docking rule, as applied to the public sector before September 6, 1991, was contrary to Congress’s intent in extending the FLSA’s “executive, administrative, or professional” exemption to the public sector. See 57 Fed. Reg. at 37671/3 (Aug. 19,1992). The District then raised the claim on appeal in Kinney, but because of its failure to raise it below we declined to entertain the question. See Kinney, 994 F.2d at 9-10. This case presents precisely the same situation.

* * * * * *

Judge Henderson and I unite in reversing the district court’s judgment with respect to the period beginning September 6, 1991. But Chief Judge Mikva and I agree (albeit for different reasons) that the district court’s judgment should be affirmed "with respect to the period between December 6, 1988 and September 6,1991. Accordingly, the district court’s judgment is affirmed in part and reversed in part. We remand the case for disposition of any remaining issues, such as plaintiffs’ claim that the nature of their work is inconsistent with the FLSA’s “executive, administrative, or professional” exemption.

So ordered.

1 . Deductions for absences of a day or more are permissible even in the case of sickness or accident when made "in accordance with a bona fide plan, policy or practice of providing compensation for loss of salary occasioned by both sickness and disability". Id. § 541.118(a)(3).

2 . Though the plaintiffs did challenge this rule, that challenge is not currently before us.

3 . District courts also have split on the issue. Compare, e.g., Pautlitz v. City of Naperville, 781 F.Supp. 1368, 1371 (N.D.Ill.1992) (treating overtime pay as a "bonus scheme” that does not defeat salaried status), with, e.g., Banks v. City of North Little Rock, 708 F.Supp. 1023, 1024 (E.D.Ark.1988) ("Payment of a fixed amount plus additional hourly wages for extra hours worked is not consistent with salaried status.”).

4 . Chief Judge Mikva advances some evidence that the Department of Labor did not think that its relaxation of the no-docking rule in the public sector altered the regulatory treatment of hourly overtime. Op. of Mikva, C.J., at 441. To the extent that is true, it is at least as consistent with Judge Henderson’s view' — that hourly overtime, in and of itself, never defeated salaried status — as with Chief Judge Mikva's assumption to the contrary. The Department's action is, in any event, completely inconsistent with Chief Judge Mikva's view that the key inquiry is whether employees are paid “for putting in a certain amount of time on the job”, id. at 438-39.