Drinkwitz v. Alliant Techsystems, Inc.

Ireland, J.

This is a direct discretionary review of the trial court’s summary judgment ruling. Plaintiffs, on behalf of a currently uncertified class, sued their former employer, Alliant Techsystems, Inc., to recover overtime wages under Washington’s Minimum Wage Act (MWA), chapter 49.46 RCW. On cross-motions for summary judgment involving the issue of liability, plaintiffs argued they were “nonexempt” employees and, thereby, entitled to overtime pay under the MWA. The trial court granted plaintiffs’ motion and denied Alliant’s motion for summary judgment. In so doing, the trial court determined the issue of liability in plaintiffs’ favor, certifying the issue for direct review while leaving the issue of class certification and damages for future determination.

The key issue in this direct review is whether the employer preserved the putative class representatives’ “exempt” status under the MWA. Finding that some of Alliant’s payroll policies and practices destroyed plaintiffs’ “exempt” status because they violated the MWA’s “salary basis” test, we affirm the trial court’s summary judgment order and remand for further proceedings consistent with this opinion.

STANDARD OF REVIEW

When reviewing an order granting summary judgment, an appellate court reviews the matter de novo by engaging in the same inquiry as the trial court. E.g., Marquis v. City of Spokane, 130 Wn.2d 97, 104-05, 922 P.2d 43 (1996). Under this standard, the appellate court determines whether genuine issues of material fact exist and whether the moving party is entitled to judgment as a matter of law. Facts are reviewed in the light most favorable to the nonmoving party. E.g., Marquis, 130 Wn.2d at 105 (citing CR 56(c)). Based on this deferential standard of review, we focus on Alliant’s assertions and admissions of fact.

FACTS

Alliant is a Delaware corporation, primarily engaged in the military defense industry. Alliant’s national operations included its Marine Systems Division headquartered in Mukilteo, Washington. Between March 1, 1993 and March 1, 1996, Alfiant employed approximately 335 individuals in Washington, who were classified as exempt “time-reporting” employees. Clerk’s Eapers (CE) 628, 630. These employees were subject to the various Alfiant policies and practices described below.

Elaintiffs and putative class representatives, Dan Drinkwitz and Kenneth Caproni, are engineers formerly employed by Alfiant’s Marine Systems Division. Alfiant classified both Drinkwitz and Caproni as “exempt” employees.

Alliant’s Acknowledged Payroll Policies and Practices

Alliant acknowledges the following policies and practices applied to plaintiffs, notwithstanding that they were classified as “exempt” and paid on a “salary basis”:

1. A requirement that employees record their time and submit weekly reports.

2. A requirement that employees work the schedules established by their managers.

3. A practice of calculating and recording the monthly salaries of employees into hourly rates of pay.

4. A requirement that employees work a weekly quota of between 40 and 45 hours per week.

5. A requirement that employees “make up” the difference between the time worked and the expected workweek by one of the following:

(a) working longer hours;

(b) applying hourly credits from compensatory (comp) time banks; or

(c) deducting from earned vacation time.

6. Creation of a discipline plan which allowed management to suspend employees for one or two days when hourly quotas were not met.

7. Employee pay deductions for employees who failed to meet their quota requirements of 40-45 hours per week.

Although Alliant acknowledges that “exempt” employees’ pay was improperly deducted for failing to meet workweek hourly quotas, Alliant claims this practice was inadvertent. Specifically, Alliant asserts it first received notice of this practice when Plaintiff Caproni filed an affidavit to support an action under the Fair Labor Standards Act of 1938 (FLSA), 29 U.S.C. §§ 201-219, brought by Alliant employees in a Rhode Island federal court in 1995.¹ Caproni’s affidavit stated he had recently suffered an improper salary deduction. In response, Alliant expressed surprise to learn of Caproni’s improper deduction, and to learn that the Marine System’s payroll clerk who had made the deduction was unaware of the difference between “exempt” and “nonexempt” employees.² Between March, 1, 1993 and March 1,1996, this payroll clerk made 243 improper deductions in 54 “exempt” employees’ pay. After Alliant told the payroll clerk to stop making such deductions, all affected employees were identified and fully reimbursed in the amount of $33,691.43 by October 1996. Alliant also assured all current employees that steps had been taken to avoid similar mistakes.

It is undisputed that Caproni suffered five improper deductions between March 1, 1993 and March 1, 1996, all of which were reimbursed by October 1996. It is also undisputed that Drinkwitz never suffered an improper deduction between March 1, 1993 and March 1, 1996.

Alliant admits its management adopted a special disciplinary procedure to enforce the 41-45 hour workweek which called for one- or two-day suspensions without pay. It admits that at least one, and perhaps two, employees were subject to this disciplinary procedure. Alliant claims that both employees were reimbursed for the deductions and that a memorandum was distributed to employees advising them to contact their manager if they had experienced such discipline.

Despite these admissions, Alliant asserts that its salaried employees were treated in a manner consistent with their “exempt” status. Plaintiffs disagree. Therefore, the key issue on this direct review of summary judgment is whether, when viewing the facts in the light most favorable to the employer, Alliant preserved the named plaintiffs’ “exempt” status under the MWA as a matter of law.

ANALYSIS

Issue 1: What is the appropriate “salary basis” test under the MWA?

The FLSA deals with overtime and minimum wage requirements for employees. 29 U.S.C. §§ 201-219. The FLSA is intended to be a “floor” below which employers may not drop. It is not a “ceiling” on benefits or terms and conditions of employment. Doctors Hosp., Inc. v. SilvaRecio, 429 F. Supp. 560, 561-62 (D. P.R. 1975), aff’d, 558 F.2d 619 (1st Cir. 1977). Because the MWA is based upon the FLSA, federal authority under the FLSA often provides helpful guidance. However, the MWA and FLSA are not identical and we are not bound by such authority. Chelan County Deputy Sheriffs’ Ass’n v. Chelan County, 109 Wn.2d 282, 291, 745 P.2d 1 (1987); Weeks v. Chief of Wash. State Patrol, 96 Wn.2d 893, 897, 639 P.2d 732 (1982).

The MWA requires, in part, that employers pay their employees at a rate of one and one-half times their regular hourly rate for time worked beyond 40 hours per week, unless an individual is employed in a “bona fide . . . professional capacity.” RCW 49.46.010(5)(c). Pursuant to its authority to “define and delimit” the term “professional capacity,” Washington’s Department of Labor and Industries (DLI) defines “professional” employees as individuals compensated for their services “on a salary or fee basis.” RCW 49.46.010(5)(c); WAC 296-128-530(5). Neither the MWA nor DLI regulations define the term “on a salary or fee basis.”

The only published Washington case discussing the MWA’s “salary basis” requirement is Tift v. Professional Nursing Servs., Inc., 76 Wn. App. 577, 886 P.2d 1158 (1995). Tift held that an employee who qualified as an “exempt” “administrative employee” under the MWA was “in reality an hourly employee” when: (1) the employee was required to keep track of hours worked in excess of 40 hours per week; and (2) the employee was compensated at a straight hourly rate for all work done in excess of 40 hours per week. Tift, 76 Wn. App. at 584-86 (citing Hilbert v. District of Columbia, 23 F.3d 429, 440-41 (D.C. Cir. 1994) (Mikva, C.J., concurring in the result in part, dissenting in part)). Shortly after Tift’s publication, however, the Washington State Legislature added the following language to the MWA:

The payment of compensation or provision of compensatory time off in addition to salary shall not be a factor in determining whether a person is exempt under RCW 49.46.010(5)(c)[.]

Laws of 1995, ch. 5, § 1 (codified at RCW 49.46.130(2)(a)).

Plaintiffs and Alliant debate the effect this statutory amendment has on Tift. Alliant claims the amendment “legislatively overruled” Tift and signaled a legislative intent to rely on federal authority under the FLSA. Plaintiffs, in contrast, argue Tift’s salary basis rationale still applies because the amendment represents only an evidentiary limitation.

Regardless of the statutory amendment’s effect on Tift’s holding, the parties’ debate is of little consequence because the Legislature, by failing to define “salary basis” in the MWA, has provided no specific guidance for the issue at hand. In contrast, the federal Department of Labor’s (DOL) regulations promulgated under the FLSA’s authority have generally defined “payment on a salary basis” as follows:

An employee will be considered to be paid “on a salary basis” ... if ... he regularly receives each pay period ... 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. . . . [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. This policy is also subject to the general rule that an employee need not be paid for any workweek in which he performs no work.

29 C.F.R. § 541.118(a).

While the Legislature did not adopt the DOL’s definition of “salary basis,” narrowly applying this definition to the facts of this case would render a result consistent with Washington’s long and proud history of being a pioneer in the protection of employee rights. Numerous statutory provisions exemplify this long and proud history. For example, 25 years before Congress passed the federal minimum wage law in 1938, the people of Washington enacted the following:

It shall be unlawful to employ any person in any industry or occupation within the state of Washington under conditions of labor detrimental to their health; and it shall be unlawful to employ workers in any industry within the state of Washington at wages which are not adequate for their maintenance.

Laws of 1913, ch. 174, § 2, amended by Laws of 1973, 2d Ex. Sess., ch. 16, § 3 (codified at RCW 49.12.020). Washington has also had a law requiring an eight-hour workday since 1899. Chapter 49.28 RCW More recently, in response to social realities such as dual-career couples and single working parents, the Legislature enacted a family leave law in 1989. Laws of 1989, 1st Ex. Sess., ch. 11 (codified at chapter 49.78 RCW). Furthermore, Washington law provides for double damages and attorney fees to enforce the payment of wages. Chapters 49.48, 49.52 RCW

In light of the Legislature’s concern for the health and welfare of Washington’s workforce, we rely on the DOL’s general “salary basis” test and utilize this definition to examine the seven factors below which are dispositive in determining whether Alliant preserved the putative class representatives “exempt” status under the MWA. Nevertheless, except as specifically referenced below, we do not adopt all DOL regulations promulgated under the authority of the FLSA or under federal case law relating to this issue.

Issue 2: Based on the undisputed facts of this case, did the employer preserve the putative class representatives’ “exempt” status under the MWA?

Subject to certain exemptions, the MWA’s general rule requires an employer to pay its employees for time worked in excess of 40 hours per week at a rate of one and one-half times their hourly rate of pay. Chapter 49.46 RCW Although an employer can assert its employees quálify under an exemption from this general rule, the employer bears the burden of proving this “exempt” status. Banks v. City of N. Little Rock, 708 F. Supp. 1023, 1024 (E.D. Ark. 1988) (citing Knecht v. City of Redwood City, 683 F. Supp. 1307, 1310 (N.D. Cal. 1987)). Exemptions from remedial legislation, such as the MWA and FLSA, are narrowly construed and applied only to situations which are plainly and unmistakably consistent with the terms and spirit of the legislation. Knecht, 683 F. Supp. at 1310.

With this standard in mind, we review seven of Alhant’s admitted policies and practices to determine whether the MWA’s “salary basis” test was met.

1. Time Recording Requirements.

Requiring employees to record hours worked serves many valuable functions in the workplace, without causing harm to the fundamental principle of salaried employment. We therefore hold that time recording requirements do not violate the MWA’s “salary basis” test. Alliant did not violate the MWA by requiring this practice.

2. Set Workday Schedule Requirements.

There are many legitimate reasons why a business or professional organization would want its salaried employees to be present during its business hours, including the desire to have those employees available to customers, management, and co-workers. Nonetheless, requiring work by salaried employees during certain hours of operation, which conveniently adds up to 40 hours, could simply be a subterfuge for hourly employment. We therefore hold that requiring salaried employees to work set schedules established by management does not per se violate the MWA’s “salary basis” test, but may be considered as a factor in determining the true nature of the employment arrangement, whether salaried or hourly. Alliant did not violate the MWA by requiring management-approved schedules. However, when this factor is viewed in connection with Alliant’s other policies and practices, this court is persuaded that the actual employee arrangement was hourly.

3. Calculating “Exempt” Employees’ Pay by Hourly Rates.

Having personnel records that translate monthly salaries into hourly rates of pay may be a useful tool for employers for many legitimate reasons, including client billing, financial information analysis, and fringe benefit calculations. As a result, the MWA is not violated by calculating “exempt” employees’ compensation using an hourly rate and including this hourly rate in personnel records. In this case, Alliant did not violate the MWA by calculating and recording hourly rates.

4. Weekly Hourly Quotas.

Requiring employees to work a weekly quota of 40 or more hours is generally inconsistent with salaried employment. “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. . . . [T]he salaried employee decides for himself how much a particular task is worth, measured in the number of hours he devotes to it.” Brock v. Claridge Hotel & Casino, 846 F.2d 180, 184 (3d Cir. 1988); see also Thomas v. County of Fairfax, 758 F. Supp. 353 (E.D. Va. 1991). While it is reasonable for an employer to expect that a full-time salaried employee’s work-related responsibilities will occupy a normal workweek, employers should not be permitted to impose a rigid workweek hour requirement with pay deductions as a consequence for failure to meet such a quota. Because we find below that Alliant engaged in such a practice, Alliant’s rigid requirement of hourly quotas, together with its disciplinary “docking” practices, violated the MWA.

5. Requiring Employees to “Make Up” for Deficiencies in Hourly Quotas.

Requiring employees to “make up” the difference between the time worked and the expected workweek is inconsistent with salaried employment. Whether this factor contributes to the loss of “exempt” status depends, in part, on the method of “make up”: (1) whether additional hours of work are required; (2) whether time is deducted from comp time accounts; or (3) whether time is deducted from accrued vacation time accounts. For example,

1. “Make up” through working additional hours may be repugnant to salaried employment, depending on the expectations of the employer. This practice should be looked at in the context of the entire employment arrangement.

2. Allowing salaried employees to accrue comp time for hours worked in excess of an expected workweek is purely a voluntary practice by the employer under the MWA. Under the 1995 amendment to the MWA, paid overtime or comp time for work in excess of forty hours per week cannot be considered as a factor in determining whether an employee is “exempt.” Since the employer is not obligated to provide comp time when workweek expectations are exceeded, logic would suggest that the employer may deduct from accrued comp time when its workweek expectations are not met.

3. “Make up” from vacation time is inconsistent with salaried employment and is the most akin to “docking” of any of the “make up” practices. In Abshire v. County of Kern, 908 F.2d 483, 487 n.3 (9th Cir. 1990), the court said “a strong argument can be made that even if deductions were required only from fringe benefits such as leave time, and not from base pay, the affected employees would still not qualify [as exempt employees].”

We hold that requiring “make up” from comp time does not violate the MWA. We further hold that while requiring “make up,” absent “docking,” does not per se violate the “salary basis” test under the MWA, it may be considered in the context of the entire employment relationship to determine whether the employment is salaried or hourly. We find that Alliant’s practices exceeded the permissible boundaries for “make up” and violated the MWA.

6. Discipline Plan Calling for Less Than a Full-Week Suspension.

Regardless of the number of days or hours worked, any discipline plan which sanctions an employee with an unpaid suspension of less than a week violates the “salary basis” test, defined by 29 C.F.R. § 541.118(a), because a salaried employee must be paid his full salary “for any week in which he performs any work.” Therefore, Alliant’s discipline sanction plan is among the form of plans that violates the MWA

7. Pay Deductions in Less Than Full-Day Increments for Partial Day Absences.

Making deductions in pay when employees fail to meet a weekly hours quota is inconsistent with salaried employment. Federal law under the FLSA clearly prohibits this practice. 29 C.F.R. § 541.118(a). We therefore hold that it is improper under the MWA to “dock” employees’ pay when they fail to meet the weekly hours quota requirements.

To make an overtime claim for improper “docking” under the FLSA, an employee’s salary must be “subject to” improper deductions. This requirement flows from the prohibition in the FLSA “salary basis” test which states that an “exempt” employee’s pay shall “not [be] subject to reductions because of variations in the quality or quantity of the work performed.” 29 C.F.R. § 541.118(a) (emphasis added). An employee’s salary is “subject to” reduction when there is (1) an employment policy that creates a “significant likelihood” of making partial day deductions, or (2) an “actual practice” of making deductions. Auer v. Robbins, 519 U.S. 452, 461, 117 S. Ct. 905, 137 L. Ed. 2d 79 (1997).

In the present case, Alliant’s policies and practices were well known. Even employees who were not “docked” took special care to avoid sanctions arising from these policies and practices. For example, in August of 1994, Plaintiff Drinkwitz wrote a letter to Alliant’s management complaining that he was being treated as an hourly employee because of the weekly hours quota. In the letter he stated, “These policies treat me as an hourly employee with an assigned workweek of 45 hours instead of the exempt, salaried position in which I am classified.” CP at 743. We therefore conclude that because Alliant engaged in a widespread practice of improper “docking” extending over several years, the group of employees of which plaintiffs were a part were “subject to” this practice.

In sum, we find that when Alliant’s policies and practices regarding plaintiffs are viewed in their totality, plaintiffs were not treated as “salaried” employees under the MWA. Window of Correction

Despite Alliant’s admissions, including its admitted practice of making 243 improper deductions from 54 of its Washington employees’ pay during the relevant time period, Alliant claims it nevertheless preserved the “exempt” status of its employees. Alliant’s position is that it properly took advantage of the available “window of correction” exception when it fully reimbursed those employees who suffered improper deductions. Based on Alliant’s assertions, we address whether the “window of correction” principle recognized under the federal regulations is available under the MWA.

The FLSA regulations provide a “window of correction” exception under which a deduction not permitted by the FLSA’s regulations may be corrected without loss of “exempt” status. Under the FLSA,

where a deduction not permitted by these interpretations 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); see also Auer, 519 U.S. at 463-64.

Federal case law, however, on the “window of correction” exception is convoluted and complicated. See, e.g., Belcher v. Shoney’s, Inc., 30 F. Supp. 2d 1010 (M.D. Tenn. 1998) (federal courts split on whether window of correction available to employers with actual practice of making deductions pursuant to established policy) (citing cases). Part of the debate centers around whether the language of the regulation should be read as conjunctive or disjunctive.

Alliant urges this court to adopt Davis v. City of Hollywood, 120 F.3d 1178 (11th Cir. 1997), cert. denied, 523 U.S. 1133 (1998), and Arrington v. City of Macon, 973 F. Supp. 1467 (M.D. Ga. 1997), which allowed deductions for multiple employees under circumstances where the improper deductions were not inadvertent. Under these cases, any deductions made “for reasons other than lack of work” are allowed, whether inadvertent or not. See Davis, 120 F.3d at 1180-81; Arrington, 973 F. Supp. at 1474-75. To read “inadvertent” and “made for reasons other than a lack of work” as distinct, optional reasons to justify use of the “window of correction” exception, however, allows the exception to swallow the rule. This is illogical.

The MWA fails to provide a “window of correction” exception and no such exception has been recognized by prior Washington case law. Without clear federal guidance or guidance from our own Legislature, and in the exercise of judicial restraint, we find it appropriate to allow the Legislature to decide whether to adopt a “window of correction” exception. If the Legislature chooses to do so, it will have the opportunity to clearly detail the requirements necessary to qualify for that exception.

CONCLUSION

Using federal authority for general guidance to interpret the MWA’s “salary basis” test, and when viewing the facts in the light most favorable to the nonmoving party, Alliant failed to satisfy its burden of preserving the putative class representatives’ “exempt” status under the MWA. The case is remanded for further proceedings consistent herewith.

Based on our holding, plaintiffs are entitled to reasonable attorney fees in an amount to be determined by the Clerk of this court, pursuant to RCW 49.48.030 and RAP 18.1.

Guy, C.J., and Madsen, Talmadge, and Bridge, JJ., concur.

1 Plaintiffs’ motion to strike Alliant’s collateral estoppel argument regarding the Rhode Island federal court’s decision, which was raised for the first time in Alliant’s reply brief, is addressed in a separate order.

2 This claim of inadvertence is disputed since the practices of the payroll clerk were the same as her predecessor who was employed in this position for 14 years, until April of 1995. However, for our purposes, we take the facts as alleged by Alliant.