Tracy Klinedinst v. Swift Investments, Inc.

[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
FILED
________________________ U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
AUGUST 6, 2001
No. 00-13092 THOMAS K. KAHN
________________________ CLERK
D. C. Docket No. 99-08913-CV-SH
TRACY KLINEDINST,
Plaintiff-Appellant,
versus
SWIFT INVESTMENTS, INC.,
a Florida corporation d.b.a.
Fantastic Finishes of Palm Beach, Inc.
Defendant-Appellee.
________________________
Appeal from the United States District Court
for the Southern District of Florida
_________________________
(August 6, 2001)
Before TJOFLAT and WILSON, Circuit Judges, and RESTANI*, Judge.
____________________
* Honorable Jane A. Restani, Judge, U.S. Court of International Trade, sitting by
designation.
WILSON, Circuit Judge:
Tracy Klinedinst appeals from the district court’s grant of summary
judgment in favor of his former employer, Swift Investments. Klinedinst sued
Swift for failure to pay overtime in violation of the Fair Labor Standards Act
(FLSA), 29 U.S.C. §§ 201, et seq. The district court held that Klinedinst’s position
falls within an exemption to the Act for “commission” workers. Because the
district court incorrectly determined that the exemption applies, we vacate its grant
of summary judgment.
I. BACKGROUND
Swift operates an auto repair and body shop. Klinedinst was employed as an
automobile painter for Swift. Klinedinst received a salary from Swift based on the
number of “flag hours” worked in a forty-hour work week.1 Klinedinst sued Swift
for violating the Fair Labor Standards Act (FLSA). He alleges that between
January 1, 1998 and December 31, 1998, he worked approximately two thousand
overtime hours beyond his forty-hour work week and approximately one thousand
additional overtime hours between January 1, 1999 and June 30, 1999. He
1
Although the “Employee New Hire Sheet” (the equivalent to an
employment contract) is not at issue in this dispute, it states that Swift intends for
Klinedinst to work forty-hour weeks.
2
contends that Swift did not compensate him for this overtime pursuant to the
FLSA. Swift stipulated that Klinedinst was not paid overtime.
For each repair job, Klinedinst was compensated according to a repair
estimate. The labor portion of the estimate was calculated by multiplying the
predetermined “flag hours” by the auto shop’s hourly rate. The “flag hours” were
derived from a database utilized by auto repair shops and insurance adjusters.
Thus, they did not necessarily reflect the actual time spent completing a job. If
more than or fewer than the predetermined number of flag hours were required to
complete a job, Swift would nevertheless pay the painter for the predetermined
number of hours even though he did not actually work that many hours.
The hourly rate varied from $12 to $15 depending on the number of hours
worked per week and the number of hours allotted to the paint labor component of
the repair estimate. Klinedinst was compensated for each paint job he performed
based on the following formula: the “flag hours” allotted to the paint labor
component of the repair estimate was multiplied by his hourly rate. Swift did not
maintain records of the actual hours that Klinedinst worked, and Klinedinst was
paid for the maximum amount of flag hours, regardless of the actual hours worked.
Both parties refer to this compensation method as a “flat rate” system. Klinedinst
contends that although Swift applied this flat rate system, it deducted some of his
3
predetermined flag hours and used them to compensate the detailers who worked
on the cars after he painted them.
Both parties filed motions for summary judgment. The district court granted
Swift’s motion for summary judgment and denied Klinedinst’s motion. The
district court concluded that the overtime exception applied because Klinedinst’s
compensation under the flat rate system constituted commissions on services which
were exempt from the FLSA’s requirement of overtime pay and because
Klinedinst’s rate never fell below twelve dollars per hour so he never earned less
than one and a half times the minimum wage of five dollars and fifteen cents per
hour.
II. DISCUSSION
Summary judgment is appropriate when there are no genuine issues of
material fact and the movant is entitled to judgment as a matter of law. See Fed.
R. Civ. P. 56(c). We review the district court’s grant of summary judgment to
Swift de novo. See Strickland v. Water Works & Sewer Bd. of the City of
Birmingham, 239 F.3d 1199, 1203 (11th Cir. 2001) (involving cross-motions for
summary judgment).
Generally, employers are required to pay employees overtime for hours
worked in excess of forty hours per week. The FLSA provides in pertinent part:
4
Except as otherwise provided in this section, no employer shall
employ any of his employees who in any workweek is engaged in
commerce or in the production of goods for commerce, or is
employed in an enterprise engaged in commerce or in the production
of goods for commerce, for a workweek longer than forty hours unless
such employee receives compensation for his employment in excess
of the hours above specified at a rate not less than one and one-half
times the regular rate at which he is employed.
29 U.S.C. § 207(a)(1). Swift contends that because Klinedinst worked on a
commission basis and it met the overtime exemption requirements, it was not
obligated to pay Klinedinst overtime. The district court agreed. We review to
examine whether Swift met the statutory and regulatory requirements of the
commission exemption.
A. Did the payment system represent a commission?
The issue before us is whether the district court properly concluded that
Swift met the commissioned work exemption to this provision.2 Whether
Klinedinst’s payments constituted commissions is an issue of law. Yet, it is an
issue that finds little illumination from the sparse case law and the vague
2
The commissioned work exemption as written in 29 U.S.C. § 207(i) states:
No employer shall be deemed to have violated [the overtime
provisions of the Act] by employing any employee of a retail or
service establishment for a workweek in excess of [40 hours], if (1)
the regular rate of pay of such employee is in excess of one and one
half times the minimum [wage], and (2) more than half of his
compensation for a representative period (not less than one month)
represents commissions on goods or services.
5
references in statutes and regulations. Nonetheless, it is the duty of the courts to
determine whether wage payment plans are in substantial compliance with FLSA.
We undertake that duty by construing the remedial statutory provisions both
narrowly and sensibly. See Walling v. A.H. Belo Corp., 316 U.S. 624, 634-35
(1942); Brennan v. Valley Towing Co., Inc., 515 F.2d 100, 110 (9th Cir. 1975);
Birdwell v. City of Gadsden, Ala., 970 F.2d 802, 805 (11th Cir. 1992) (holding that
FLSA provisions are interpreted liberally in the employee’s favor and its
exemptions construed narrowly against the employer).
Swift, as the employer, bears the burden of proving the applicability of a
FLSA exception by “‘clear and affirmative evidence.’” Birdwell, 970 F.2d at 805.
Swift avers that the flat rate system it utilized is a form of commission, which is
incentive-based and encourages efficiency and speed. Klinedinst was assigned an
hourly rate (flag rate) for a particular task, but if it took longer than the allotted
time, he would not be paid extra. If he completed the task sooner, however, he
would keep the difference. For example, deposition testimony reveals that whether
a technician took ten or thirty hours to complete a job, he would still be paid the
same. Specifically, Swift determined Klinedinst’s compensation per job by
multiplying the predetermined flag hours by his hourly rate. He was to receive
compensation under this formula regardless of whether he actually worked the
6
predetermined flag hours. The flat rate of pay was not the hours of time it actually
took the worker to complete a job. It is a method of providing employees with an
incentive to “hustle” to finish their jobs in order to obtain a larger number of jobs
for greater compensation.
To bolster the claim that the flat rate system constituted a commission, Swift
cites to the Wage and Hour Division of the Department of Labor’s Field
Operations Handbook:
Some auto service garages and car dealerships compensate mechanics
and painters on the following basis: The painter or mechanic gets so
much a “flat rate” hour for the work he or she performs. A “flat rate”
hour is not an actual clock hour. The painter or mechanic may work
only 7, 8 or 9 hours a day and still receive credit for 10, 11 or 12, etc.,
flat rate hours depending upon how much work he or she has done.
Each job is assigned a certain number of hours for which the customer
is charged, regardless of the actual time it takes to perform the job.
The employee is given a certain proportion of that charge expressed in
terms of so many dollars and cents per “flat rate” hour rather than in
terms of a percentage of the charge to the customer. The dealer does
not change the employee’s share per flat rate hour if the charge to the
customer is changed. In such situations Wage-Hour will not deny that
such payments represent “commissions on goods or services” for
purposes of Sec. 7(i) (see IB 778.117 and 779.413(b)). Such
employment will qualify for exemption under Sec. 7(i) provided all
the other tests of the exemption are met.
Field Operations Handbook, Section 21h04(d). An agency’s internal directives to
its employees, however, are without the force of law. See Brennan v. Ace
Hardware Corp., 495 F.2d 368, 376 (8th Cir. 1974) (the Labor Department’s Field
7
Operations Handbook is without “the force and effect of law.”); Kirkland Masonry,
Inc. v. C.I.R., 614 F.2d 532, 533 (5th Cir. 1980) (“Although federal agencies are
bound by their own regulations, a simple administrative directive to agency
employees does not suffice to create a duty to the public”).
Although the Field Operations Handbook is not entitled to Chevron
deference,3 we find it persuasive. Further support for this interpretation of
commission may be found in 29 C.F.R. § 779.413(b), which states:
Although typically in retail or service establishments commission
payments are keyed to sales, the requirement of the exemption is that
more than half the employee's compensation represent commissions
"on goods or services," which would include all types of commissions
customarily based on the goods or services which the establishment
sells, and not exclusively those measured by "sales" of these goods or
services.
See also Mechmet v. Four Seasons Hotel, Ltd., 825 F.2d 1173, 1175 (7th Cir. 1987)
(“persons not engaged in the sale of goods – receivers, trustees, bailees, and others
– are sometimes compensated in the form of what are commonly called
commissions, and . . . [may be considered] ‘commissions’ within the meaning of
29 U.S.C. § 207(i) if the other requirements of the section are satisfied”); Black’s
3
See Chevron, U.S.A., Inc. v. Natl. Resources Defense Council, Inc., 467
U.S. 837, 844-45 (1984). Chevron held that if a statute was ambiguous, the courts
would defer to an agency’s reasonable interpretation of that statute. Id.; Bank of
America, N.A. v. FDIC, 244 F.3d 1309, 1314 (11th Cir. 2001).
8
Law Dictionary 264 (7th ed. 1999) (“Commission: . . . 5. A fee paid to an agent or
employee for a particular transaction, usu. As a percentage of the money received
from the transaction”); Merriam-Webster’s Collegiate Dictionary 231 (10th ed.
1996) (same).
The cumulative effect of these citations is persuasive because they support
the basic conception of a commission without undermining the purpose or logic
behind overtime.4 The flat rate at issue (1) provides workers with an incentive to
work quickly, while (2) paying them at a rate that exceeds minimum wage. The
function of a commission exemption as embodied by section 7(i) is to ensure that
workers who are paid on a commission basis are guaranteed to receive at least the
legislated minimum wage without requiring them to work overtime for it. See 29
U.S.C. § 207(i). Payments of between $12 and $15 per flagged hour provide
incentives for employees to work efficiently and effectively to the benefit of the
employer, who may then take on more customers at a greater profit margin, and the
employee, who reaps the benefits of increased flag hours regardless of the actual
4
The purpose of the FLSA-required overtime is two-fold: (1) to spread out
employment by placing financial pressure on the employer to hire additional
workers rather than employ the same number of workers for longer hours; and (2)
to compensate employees who for a variety of reasons worked overtime. See H.R.
Rep. No. 1452, 75th Cong., 1st Sess. (1937); S.Rep. No. 884, 75th Cong., 1st Sess.
(1937); Donovan v. Brown Equipment and Service Tools, Inc., 666 F.2d 148, 152
(5th Cir. 1982); Mechmet, 825 F.2d at 1175-76.
9
amount of hours worked. With this in mind, we conclude that Klinedinst’s flat rate
wages constitute a “commission” but are only exempt from overtime pay if Swift
can establish that it has qualified for the overtime exemption provided in section
7(i). See Field Operations Handbook, Section 21h04(d).
Section 7(i) states:
No employer shall be deemed to have violated [the overtime
provisions of the Act] by employing any employee of a retail or
service5 establishment for a workweek in excess of [40 hours], if (1)
the regular rate of pay of such employee is in excess of one and one
half times the minimum [wage], and (2) more than half of his
compensation for a representative period (not less than one month)
represents commissions on goods or services.
29 U.S.C. § 207(i). As it is undisputed that all of Klinedinst’s wages were derived
from the flat rate system and we have determined that the aforementioned system
constitutes a commission, the second component of section 7(i) is fulfilled.
B. What was the regular rate of pay?
We next review whether Swift satisfied the first component of the
exemption, which is the regular rate of pay. The “regular rate of pay” is the
“hourly rate actually paid the employee for the normal, nonovertime workweek for
which he is employed” and “by its very nature must reflect all payments which the
5
Automobile repair shops have been explicitly recognized as retail
establishments. See 29 C.F.R. § 779.320.
10
parties had agreed shall be received regularly during the workweek, exclusive of
overtime payments.” 29 C.F.R. §779.419(b) (quoting Walling v. Youngerman-
Reynolds Hardwood Co., 325 U.S. 419 (1945)). The regular rate is determined by
dividing the employer’s total compensation during the workweek by the number of
hours worked. See 29 C.F.R. §779.419(b) (citing Overnight Motor Co. v. Missel,
316 U.S. 572 (1942)).
Swift states that Klinedinst’s regular rate of pay was between $12 and $15
per hour. Assuming Klinedinst worked only forty hours per week, this represents
at least double the then minimum wage of $5.15 per hour. See 29 U.S.C. §
206(a)(1).6 However, both parties offer contradictory statements as to the number
of hours Klinedinst actually worked and both at some point during the summary
judgment proceedings admit that this disagreement forms the basis of an active
factual dispute. Nonetheless, neither party kept records of the number of hours
Klinedinst worked. Thus, neither we nor the district court can ascertain from the
record developed to date Klinedinst’s “regular rate” to compute his overtime
compensation. Swift was obligated to “maintain and preserve” records of the
“regular hourly rate of pay for any workweek in which overtime compensation is
6
This reflects the minimum wage for the period of January 1998 to June
1999.
11
due under [§ 207(a)] . . . . ” 29 C.F.R. § 516.2(a)(6)(i). It was also obligated to
maintain records of the “[h]ours worked each workday and total hours worked each
workweek.” 29 C.F.R. § 516.2(a)(7). Swift failed to do so. The number of hours
worked per week is a genuine issue of material fact for the factfinder. Cf. Valley
Towing Co., 515 F.2d at 111-112 (appellee failed to record applicable hourly rates
or maintain records of both straight overtime hours worked and hours spent
working on commission; on remand, the district judge was to order appellees to
comply with the applicable record keeping requirements and determine overtime
pay award since record was sufficient for this determination). As Klinedinst
maintained that he worked at least 3000 hours more than the regular forty-hour
week during his period of employment, this is still very much a live issue.
Therefore, the district court incorrectly concluded that Klinedinst’s regular
rate of pay never fell below twelve dollars per hour. In making this determination,
the court improperly assumed that Klinedinst never worked more hours than the
number of hours paid under the flat rate system. As both parties acknowledge, the
number of hours Klinedinst actually worked did not necessarily equal the number
of hours for which he was paid under the flat rate system and, in any given week,
the number of hours actually worked could have been greater than or less than the
number of flag rate hours for which Klinedinst was paid. See 29 C.F.R. § 778.11712
(“Commissions (whether based on a percentage of total sales or of sales in excess
of a specified amount, or on some other formula) are payments for hours worked
and must be included in the regular rate. This is true regardless of whether the
commission is the sole source of the employee's compensation or is paid in
addition to a guaranteed salary or hourly rate, or on some other basis . . .”). As a
result, the assumption of a static forty-hour work week was error. Without
knowing the regular rate of pay, we cannot determine whether it is greater than one
and one half times the minimum wage. Hence, remaining factual inquiries
preclude the legal determination of whether the section 207(i)(1) element of the
overtime payment exception is satisfied.
III. CONCLUSION
Swift’s flat rate system constitutes a form of commission payment.
Klinedinst, however, is still entitled to overtime compensation pursuant to the
FLSA unless Swift meets the exemption requirements of section 7(i) of the FLSA.
Because there is not enough evidence in the record to determine whether Swift met
the first component of the exemption requirement – the regular rate of pay – we
find that the district court erred in granting summary judgment to Swift.
Accordingly, the district court’s order is VACATED and REMANDED for further
proceedings consistent with this opinion.
13
RESTANI, Judge, concurring in part, dissenting in part:
I concur in the majority’s decision to vacate the district court’s order and to
remand for a determination of Klinedinst’s regular rate of pay. I disagree,
however, with the majority’s conclusion that Swift’s flat rate pay system results in
“commissions” within the meaning of 29 U.S.C. § 207(i) (1994), so that the
questions to be determined on remand are whether Klinedinst had any employment
in excess of 40 hours per week and whether such work was compensated at one
and one-half times the minimum wage.
The majority acknowledges that the FLSA is a remedial statute which is to
be construed against the employer, so that the employer must prove its entitlement
to an FLSA exception by “clear and affirmative evidence.” Birdwell v. City of
Gadsden, 970 F.2d 802, 805 (11th Cir. 1992) (quoting Donovan v. United Video,
Inc., 725 F.2d 577, 581 (10th Cir. 1984)). The majority, however, applies an
expansive definition of “commissions” in order to bring the method of pay at issue
here within the exception set forth in § 207(i). It seems to accord any payment that
is based on a percentage of the payment to the employer status as a “commission”
payment. By any ordinary understanding of the meaning of commissions, the
payments to Klinedinst are not commissions. Klinedinst does not generate sales or
14
jobs for his employer. Rather, he is an ordinary wage-earning employee
performing service work in an automobile garage.
Not every method of payment which might encourage efficiency is a
commission method. For example, piecework pay is not a commission. See 29
C.F.R. § 778.111(a) (2000) (overtime compensated at one and one-half piece
rates).1 Further, work in excess of forty hours per week is entitled to extra half-
time pay if the worker is compensated by the day or by the job. 29 C.F.R. §
778.112.
Although sales commissions are the most common form of commissions,
there is no doubt that some other forms of payment representing a percentage of
the value of goods or services are easily recognized as commissions. Indeed, in
finding that banquet waiters earned “commissions” under § 207(i), the Seventh
Circuit notes that some persons paid on a percentage basis, such as receivers,
trustees, and bailees, are not engaged in generating sales and their compensation is
commonly called “commissions.” Mechmet v. Four Seasons Hotels, Ltd., 825 F.2d
1173, 1175 (7th Cir. 1987). Nonetheless, because the meaning of “commissions” in
§ 207(i) is unclear and because it recognized that a simple dictionary definition
1
A flat fee for cleaning used cars was found to be piece work. See Op. Ltr.
FLSA-1042 (Dep’t of Labor October 14, 1982).
15
could result in unintended loopholes, the Seventh Circuit carefully examined the
purposes of the FLSA and the particular context of the banquet waiters’
employment before recognizing an expansion of the usual categories of
commission earners. Id. at 1175-77.
An examination of the purposes of the FLSA indicates that Klinedinst’s
employment does not fit the exception. One purpose of the FLSA’s time and a half
provisions was to prevent workers from working abnormally long hours and
thereby taking jobs away from workers who preferred more normal hours.
Another purpose was to spread work to reduce unemployment. A third purpose
was to protect workers from impairing their health or incurring more accidents
from tiredness. See H.R. Rep. No. 75-1452, at 8-9 (1937); S. Rep. No. 75-884, at
3-5 (1937); Mechmet, 825 F.2d at 1175-76. Unlike the banquet workers in
Mechmet, who worked irregular and nonhazardous jobs, where accidents due to
tiredness may not be a large concern, automobile repair, including painting, can be
hazardous, and there is nothing to suggest that this work does not result in regular
employment. Further, banquets were found to be large ticket items, and the
business was described as “feast or famine.” Mechmet, 825 F.2d at 1177.
Reliable, long range estimation of the need for workers and the length of their
hours was not possible. See id. This does not describe the case at hand. Swift has
16
not shown that Klinedinst’s type of employment is not exactly the type of
employment that Congress intended be covered by the FLSA.
Further, the majority, while recognizing that the Labor Department’s Field
Operations Handbook is not entitled to Chevron deference, nonetheless relies on it.
The Labor Department appears somewhat at sea on the issue of commissions.2 In
an opinion letter regarding dancers who were compensated principally from a
mandatory $5.00 charge per dance collected by the dancers for the club, the Labor
Department stated that the charge was a flat fee not based on the value of the
service and was therefore not a commission.3 Op. Ltr. FLSA-1332 (Dep’t of Labor
Nov. 19, 1996). The Department also stated:
[29 U.S.C. § 207(i)] is designed to exempt those employees who can
increase their productivity, and hence, their earning, by applying their
ingenuity, skill and experience to tasks which will vary in difficulty
from job to job. These types of employees perform a service that has
an identifiable monetary value to the customer, but the amount of time
and effort required to complete the service and the complexity of the
task performed may often vary from job to job.
Id.2
While 29 C.F.R. § 779.413(b), also relied upon by the majority, is entitled
to deference, it does not define “commissions”; it merely recognizes that
commissions may be based on either sales or services, as we acknowledge.
3
The letter is also entitled to deference only to the extent it has power to
persuade. See Christensen v. Harris County, 529 U.S. 576, 587 (2000).
17
Putting aside the fact that the dancers could actually generate profits for the
employer by selling more dances, and consequently look more like commission
earners than banquet waiters, there was no reliance in either the Field Operations
Handbook or in this case on increase in productivity based on ingenuity, skill and
experience. Labor’s opinion letter seems to represent a narrow view of what
constitutes a § 207(i) commission, perhaps based on its unwillingness to accord
any value to the particular service at issue. On the other hand, the portions of Field
Operations Handbook applicable to garage workers relied on by the majority
presents an expansive view. Neither expression of Labor’s position reflects
persuasive reasoning.4
The FLSA accepts that the willingness of workers to contract for a particular
method of payment is not controlling. Whatever one’s view of the current efficacy
of this 1937 remedial legislation, it is not our place or the Labor Department’s to
circumvent it by adopting a definition of commission not clearly intended by
Congress. Because there is considerable doubt as to whether Congress intended a
payment plan such as Swift’s to qualify as a commission plan under § 207(i), I
4
See Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944) (“The weight of [an
agency’s] judgment will depend upon the thoroughness evident in its
consideration, the validity of its reasoning, its consistency with earlier and later
pronouncements, and all the factors which give it power to persuade, if lacking
power to control.”).
18
would hold that Swift has failed in its burden to demonstrate that it satisfies the
exception to FLSA’s time-and-a-half provisions.
19