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REICH v. MALCOLM PIRNIE

May 21, 1993

ROBERT REICH, Secretary of Labor, United States Department of Labor, Plaintiff,
v.
MALCOLM PIRNIE, INC., Defendant.


GOETTEL


The opinion of the court was delivered by: GERARD L. GOETTEL

GOETTEL, D.J,

 This case concerns the pay practices of defendant Malcolm Pirnie, Inc. ("MP"), an environmental engineering company. In particular, the case involves the question of whether certain professional and managerial employees are entitled to time-and-a-half overtime under the Fair Labor Standards Act ("FLSA") because they are, in effect, hourly not salaried employees. This issue turns on whether they are subject to pay reductions for absences of less than a day's duration.

 In May 1989, the secretary of Labor (then Lynn Martin) filed a complaint against defendant Malcolm Pirnie, Inc. on behalf of the Department of Labor ("DOL") alleging that defendant had violated §§ 7 and 15(a)(2) of the FLSA by failing to pay employees in grades 6 through 9 time-and-a-half for overtime. Employees with these salary grades include engineers, accountants, architects, and various administrators and supervisors who earn between $ 30,000 and $ 70,000 a year. The secretary sought to enjoin defendant from future violations and to restrain the withholding of backwages owed to the affected workers.

 In June 1990, defendant moved for partial summary judgment arguing that it was exempt from the FLSA's overtime provisions from May 1987 to December 1988 because it met the salary test set out in the Act's accompanying regulations and the approximately 400 employees in grades 6 through 9 were in fact met this test during that period. Plaintiff filed a cross-motion for partial summary judgment.

 In its supporting papers, the Secretary withdrew DOL's objections to the exemptions claimed for the employees in grades 6 through 9 based insofar as their duties were concerned. Therefore, the only remaining issue before the court was whether defendant was entitled to an exemption from the FLSA's overtime requirements because the employees in grades 6-9 were compensated on a salary basis for the period between May 1, 1987 and December 8, 1988.

 On March 4, 1991, the court granted defendant's motion on the condition that it agree to abide by the salary test provisions set out in 29 C.F.R. § 541.118(a). Dole v. Malcolm Pirnie, Inc., 758 F. Supp. 899 (S.D.N.Y. 1991). The facts giving rise to this dispute were set forth in our opinion as follows:

 
During the period of May 1, 1987 to December 8, 1988, 24 employees in grades 6 through 9 had their compensation reduced after recording an absence of less than a day in the "absence without pay" column on their time sheet. The total amount of the payroll deductions was $ 3269.78. This money was later reimbursed to the affected employees.
 
On December 8, 1988, MP amended its policy concerning absences of less than a day and specifically instructed its employees in grades 6 through 11 to charge absences of less than a day to a new overhead account called "Paid Absence" and not to their individual leave accounts.
 
In May 1989, the Department of Labor commenced this suit alleging that employees in MP's pay grades 6 through 9 during the period of May 1, 1987 through December 8, 1988 were not exempt from the overtime provisions of the FLSA and were therefore entitled to payment of overtime wages at the rate of time and one half their regular rate of pay. At stake is a sum of roughly $ 500,000 which is the difference between the actual overtime compensated at the MP rates and that time calculated at the statutory time and one half.
 
* * *
 
The material facts here are not in dispute. The parties agree that 24 MP employees in salary grades 6 through 9 were subjected to reductions in compensation as a result of their having recorded their time in the "absence without pay" account on their time sheets. The parties also agree that these parties were reimbursed for the deductions and that MP has promised to comply with Department of Labor regulations in the future. Additionally, there is no question that both the MP Policy Guide and Handbook instructed all employees losing time because of inclement weather, car problems, or medical reasons to make up the time or charge it to accrued time or an "absence without pay" account.

 Id. at 901.

 
* * *
 
MP argues that even if the payroll practices applied to these employees was not structured to satisfy the salary basis test of 29 C.F.R. § 541.118(a), by changing this policy, reimbursing the employees and promising to comply, the exempt status of these employees was preserved by a "window of correction" set forth in 29 C.F.R. § 541.118(a)(6).

 Id. at 902.

 
* * *
 
Here, MP has acknowledged that some barred reductions did occur, albeit in a comparatively small number of cases. Moreover, MP concedes that its method of accounting for employee time prior to December ...

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