which employees may be docked pay even though deductions have not actually been made. Martin, 949 F.2d at 615-17. Given the reliance in Martin upon cases concerning public employees, including Abshire, and the absence of language in Martin distinguishing the treatment under FLSA of private and public employees, I do not view the fact that Martin concerned private employees to make its holding inapplicable here.
Furthermore, I see no basis for distinguishing the proper interpretation of "subject to reduction" under § 541.118(a) depending upon whether a case concerns § 541.118(a)(2)-(3) as in Martin or § 541.118(a)(4)-(5) as in the instant case. Defendants concur on this point. Defs.' Mem. at 21. Notably, precedent exists under § 541.118(a)(5) -- separate from the cases already cited for the Abshire-Martin interpretation of "subject to reduction" -- that whether or not penalties have actually been imposed is immaterial to finding that compensation is "subject to reduction." See Klein, 990 F.2d at 286; Lacey, 810 F. Supp. at 248 n.1; see also Service Employees Int'l Union, 784 F. Supp. at 1511. But see Atlanta Professional Firefighters Union, 920 F.2d at 805 (where no evidence of actual deduction, employee exempt despite ordinance requiring decrease in compensation for arriving late or violating other regulations).
Finally, it should be noted that § 541.5d does not alter the Court's interpretation of "subject to reduction" under § 541.118(a). Although § 541.5d varies the analysis under § 541.118(a) in regard to when public employees' pay may be reduced "for absences for personal reasons or because of illness or injury of less than one work-day" and consequently overrules the holding of Abshire,13 § 541.5d is silent as to the issue of whether "subject to reduction" requires an actual deduction to occur before an employee is no longer considered salaried under § 541.118(a). Accordingly, the Court disagrees with defendants' contention that § 541.5d overrules the interpretation of "subject to reduction" contained in Abshire and Martin.14
In view of the mandate to construe the exemption of § 213(a)(1) strictly, the Court finds that defendants have failed to meet their burden to demonstrate that plaintiffs fall within the exemption. Although § 541.5d prevents plaintiffs from being disqualified from the exemption based upon deductions for absences of less than one day of work, plaintiffs' compensation is "subject to reduction" for penalties not for infractions of safety rules of major significance and for absences caused by attendance as a witness or temporary military leave. Pursuant to § 541.118(a)(4)-(5), these deductions establish that plaintiffs are not paid on a salary basis and therefore are ineligible for the exemption from the overtime compensation provisions of FLSA.
Lastly, defendants assert three additional arguments in defense of plaintiffs' claim under FLSA which I shall briefly review.
Defendants posit that Garcia establishes an "undue burden" test. Pursuant to the test put forth by defendants, lower courts are to issue relief where an undue burden exists as a result of failures by the political process to temper the effect of federal statutes upon state and local governments. Defendants' reading of Garcia is somewhat backward. Although the Court explores defendants' argument, the Court recognizes at the outset that its decision merely follows Garcia's holding that the application of FLSA to state and local governments is constitutional.
In Garcia, the Supreme Court found unworkable and inconsistent with established principles of federalism the traditional/nontraditional test which it had previously established in National League of Cities v. Usery, 426 U.S. 833, 96 S. Ct. 2465, 49 L. Ed. 2d 245 (1976), for determining state immunity under the Commerce Clause. Although the Supreme Court did discuss in Garcia "the built-in restraints that our system provides through state participation in federal governmental action," 469 U.S. at 556, 105 S. Ct. at 1020, it did not fashion an "undue burden" test or any other test. "Although Garcia left open the possibility that some extraordinary defects in the national political process might render congressional regulation of state activities invalid under the Tenth Amendment, the Court in Garcia had no occasion to identify or define the defects that might lead to such invalidation." South Carolina v. Baker, 485 U.S. 505, 512, 108 S. Ct. 1355, 1361, 99 L. Ed. 2d 592 (1988).
I perceive absolutely no basis in this matter for finding "extraordinary defects in the national political process" under Garcia-Baker despite defendants' assertion that "the political process has broken down." Defs.' Mem. at 25; see State of New York v. United States, 942 F.2d 114, 119-21 (2d Cir. 1991), aff'd in part, rev'd in part, 112 S. Ct. 2408 (1992); EEOC v. State of Vermont, 904 F.2d 794, 802 (1990). To the extent that defendants complain about the political process, they focus upon the damages they face in this action -- which they view as an undue burden and a result of failures in the political system -- without pointing to any substantive defect in the political process itself. In other words, defendants emphasize effect and undue burden while turning a blind eye to cause and defects in the political process.
Having reviewed profuse submissions relating to revisions of the current law regarding the salary basis test, which involve, inter alia, the DOL, Congress, and state and local governments including defendants, it appears to me that the political process has operated proficiently despite the enduring existence of defendants' exposure to liability under FLSA. Indeed, the existence of § 541.5d and the redemption it affords in this very action to defendants' part-day docking policies provides concrete proof of the vitality of the political process. It remains to be seen whether the efforts of defendants and others in the political system can achieve what cannot be attained in this action -- the erasure of defendants' exposure to overtime compensation liability under FLSA in toto.
2. Administrative Procedure Act
Defendants' argument concerning the Administrative Procedure Act (the "APA"), 5 U.S.C. §§ 551 et seq. (1988), is greatly confused. In short, defendants appear to contend that failure to find plaintiffs to be compensated on a salary basis pursuant to § 541.118(a) violates the APA because of congressional intent that public employees qualify for the exemption under § 213(a)(1). Defendants provide no evidence of Congressional intent.
Defendants also contend that the DOL regulations are arbitrary and capricious in violation of the APA. In sum, defendants' arguments under the APA boil down to a restatement of their contention reviewed above that "subject to reduction" under § 541.118(a) should be interpreted to require actual deductions from employee compensation. Dressed under the APA, defendants' argument still fails.
3. Defendants' Good Faith
Defendants' last defense asserts that they are entitled to a good faith defense under § 10 of the Portal-to-Portal Act (the "Portal Act"), 29 U.S.C. § 259 (1988), which provides that "no employer shall be subject to any liability [under FLSA] if he pleads and proves
that the act or omission complained of was in good faith and in conformity with and in reliance on any written administrative regulation, order, ruling, approval, or interpretation [of the DOL] or any administrative practice or enforcement policy of such agency with respect to the class of employers to which he belonged."
Initially, I note that defendants elaborate upon evaluations of FLSA's overtime compensation provisions made by them in the "Citywide Fair Labor Standards Act Committee" and in consultation with internal and outside counsel. Unless connected to a "written administrative regulation, order, ruling, approval, or interpretation" of the DOL, however, these evaluations are irrelevant under the Portal Act. See 29 C.F.R. § 790.13. Similarly, meetings with the DOL have no bearing upon the defense in the absence of a writing by the DOL. Although I have taken these consultations into account in my examination of the written materials upon which defendants claim reliance, I nevertheless find defendants' assertion of a Portal Act defense to fail.
The 1986 letter ruling is the first written material claimed by defendants to support a Portal Act defense in this action. As already discussed, however, this letter ruling does not sustain defendants' time and leave regulations (1) because it does not disqualify public employees from exemption under § 213(a)(1) where the employer has a policy allowing deductions for unpermitted reasons and (2) because the letter ruling in no manner overrides the plain "subject to reduction" language of § 541.118(a). See Abshire, 908 F.2d at 488; see also Harrison, 1991 U.S. Dist. LEXIS 4992, 1991 WL 104260; Knecht, 683 F. Supp. at 1311. Furthermore, even if the 1986 letter ruling is viewed as requiring actual deductions to occur before exemption is lost, the letter ruling concerns deductions made for absences of less than one day and not deductions for court attendance as a witness, temporary military leave, and penalties not for infractions of safety rules of major significance -- the deductions which create the basis for liability in this case.
Defendants also refer to a 1987 DOL letter ruling which stated a DOL nonenforcement policy in regard to deductions from public employees' compensation made for absences of less than a day for personal reasons or because of illness or accident; this letter ruling reflects part of the genesis of § 541.5d. U.S. Department of Labor, Wage and Hour Division, Letter Ruling of January 9, 1987 (the "1987 letter ruling"). As with the 1986 letter ruling, the 1987 letter ruling does not support a Portal Act defense because it does not speak to the types of deductions at issue in this action.
In his statement before Congress, the Corporation Counsel of the City of New York explicitly recognized that the 1987 letter ruling does not deal with penalties, attendance as a witness, and temporary military leave. Statement at 9. In addition, the 1987 letter ruling expressly states that it does not shield defendants from suits by employees, such as the instant action. See Kinney, 994 F.2d 6, 1993 WL 179501, at *1, *6; see also 57 Fed. Reg. 37668 (noting nonenforcement policy's inapplicability to employees in connection with the Portal Act).
Furthermore, "the Portal Act language, 'in good faith in conformity with,' precisely links the question of good faith to an act in conformity, and if there is no conformity, general good faith in other respects cannot save the day." Home Ins., 672 F.2d at 265. The material parts of defendants' time and leave regulations were in existence prior to the 1986 letter ruling. Defendants took no action "in conformity with" the 1986 letter ruling or the 1987 letter ruling, except for attempts to determine whether actual deductions had been made under their regulations. If defendants viewed the 1986 letter ruling and the 1987 letter ruling to require actual regular and recurring deductions in compensation before exemption would be lost, affirmative conforming action would be expected from defendants, such as the issuance of regulations to restrict actual deductions.
Especially in view of the fact that neither letter ruling speaks to pay deductions for penalties, court attendance, or military leave, it is clear that defendants could not have relied upon the letter rulings for the maintenance of the time and leave regulations. See 29 C.F.R. § 790.14(b) (lack of conformity where employer assumes irrelevancy of varied circumstances).
Defendants essentially contend that they should not be found liable because of the flux surrounding FLSA's overtime compensation provisions for public employees after Garcia. The fundamental problem with this argument is that it effectively blocks public employees such as plaintiffs from receiving relief under FLSA until the political process irons out all of the wrinkles caused by the application of FLSA to public employees. Any uncertainty resulting from these political travails cannot form the basis for a portal Act defense.
The defense of good faith is intended to apply only where an employer innocently and to his detriment, followed the law as it was laid down to him by government agencies, without notice that such interpretations were claimed to be erroneous or invalid. It is not intended that this defense shall apply where an employer had knowledge of conflicting rules and chose to act in accordance with the one most favorable to him. Vol. 93, part 4, Cong. Rec. 4390.
Quinn, 621 F. Supp. at 1091 (citing legislative history in connection with 29 C.F.R. § 790.15(a)).
Moreover, the shifting waters regarding FLSA's applicability to public employees post-Garcia have not been unnavigable. The first decision to require actual deductions in compensation for liability under FLSA, of which the Court is aware, was the 1988 decision District of Columbia Nurses' Ass'n; Knecht, issued in 1987, was the first decision, of which the Court is aware, to find that the absence of an actual deduction did not preclude FLSA liability. In view of the fact that defendants' time and leave regulations provided for the imposition of deductions in compensation prior to these decisions, defendants should not have merely stayed their course but should have shifted direction so that actual deductions would not be made until the debate was settled. See Kinney, 994 F.2d 6, 13, 1993 WL 179501, at 6 ("split in judicial decisions" not reasonable basis for defendant's policy); 29 C.F.R. 790.17(h) (regulation, order, ruling, approval, or interpretation relied upon by employee must be valid at time of reliance).
In sum, plaintiffs should not be subject to a cut in pay because of defendants' misgivings about the political process. The Portal Act was not designed to protect defendants under the circumstances before the Court.
Congress did not intend by the Portal Act to change the general rule that the remedial provisions of the Fair Labor Standards Act are to be given a liberal interpretation and exemptions therefrom are to be narrowly construed and limited to those who can meet the burden of showing that they come "plainly and unmistakably within (the) terms and spirit" of such an exemption.
29 C.F.R. § 790.2(a). Defendants' course of relief lies with the political process and/or modification of their time and leave regulations; Plaintiffs' course of relief lies with this action against defendants.
IV. State Claim
As previously stated, plaintiffs' state claim asserts that plaintiffs whose regular work week is thirty-five hours should receive overtime compensation at their regular rate of pay for all hours worked between thirty-five and forty hours each week pursuant to Administrative Code § 12-108.
Plaintiffs, however, point to no "statute, general, special or local" establishing thirty-five hours each week as "the maximum number of hours of employment;" accordingly, plaintiffs' state claim fails. I find plaintiffs' contention that § 12-108 can only reasonably be construed to provide overtime compensation for hours worked beyond an employee's regular workweek to be disingenuous in view of the unambiguous language of the statute. Cf. Corp v. Alexander, 92 A.D.2d 430, 460 N.Y.S.2d 674 (N.Y. App. Div. 1983) (plaintiff not fireman with statutory maximum of hours per year that may be worked).
The Court finds that plaintiffs are entitled to unpaid overtime compensation for all hours worked in excess of forty hours each week under FLSA. The exemption under § 213(a)(1) does not apply to plaintiffs because they are not compensated on a salary basis according to the DOL regulations and controlling caselaw.
This finding emanates from the defendants' time and leave regulations which subject plaintiffs' compensation to reduction for absences caused by attendance as a witness and by temporary military leave and for penalties not for infractions of safety rules of major significance. Plaintiffs' state claim fails because plaintiffs have failed to identify any statute which sets thirty-five hours each week as the maximum number of hours of employment.
Counsel for the parties shall appear at a conference before the Court on August 5, 1993 at 4:30 p.m. in order to address how to proceed in regard to the damage phase of this action.
Dated: New York, New York
July 12, 1993
Loretta A. Preska, U.S.D.J.