Defendants argue that the portion of the salary basis test applicable to partial day docking has been modified by 29 C.F.R. § 541.5d and, therefore, that section should be applied to Plaintiffs. Moreover, Defendants argue that all sections of the salary basis test, as it existed prior to the 1992 DOL amendment, are invalid as applied to public employees because the DOL contemplated application of the provision to the private sector only.
I must first decide which articulation of the docking for partial-day absences provision of the salary basis test applies. Where, as here, Congress specifically delegated responsibility to define key terms in a statutory scheme to an administrative agency, I review such agency's action to determine if it comports with clear congressional intent. Chevron, U.S.A. v. Natural Resources Defense Council, 467 U.S. 837, 842-43, 81 L. Ed. 2d 694, 104 S. Ct. 2778 (1984). However, if the congressional intent is not clear, I can only determine "whether the agency's action is rationally related to the objectives of the statute containing the delegation." Mueller, 54 F.3d at 442. The objective of the FLSA has been stated as being "to promote economic justice and security for the lowest paid of our wage earners, to create conditions of employment stability, and to eliminate unfair labor practices in industry." S. Rep. No. 640, 81st Cong., 1st Sess. (1949), reprinted in 1949 U.S.C.C.A.N. 2241.
The legislative history and the DOL interpretations cited above provide persuasive evidence that Congress never intended the extension of the FLSA to prevent State and local governments from asserting the "bona fide executive" exemption, requiring them to pay overtime to clearly supervisory, salaried employees. Congress simply failed to recognize, or concluded that the DOL would quickly address, the fact that the public accountability principles under which State and local governments must operate require public employers to deduct from public employees' salaries for partial-day absences from work. I hold that the partial-day docking portion of the salary basis test articulated in Section 541.118 as applied to public employees prior to the 1992 DOL amendment is invalid as contrary to congressional intent. Chevron, 467 U.S. at 843 and n.9. Although the Second Circuit has not reached a decision on this issue, other courts have reached similar conclusions. See SEIU, 60 F.3d at 1353 (9th Cir. 1995); McCloskey v. TBTA, F.3d , 903 F. Supp. 558, 1995 WL 631718 at *7, (S.D.N.Y. 1995) (Chin, J.); Quirk v. Baltimore County, Maryland, 895 F. Supp. 773, 780 (D. Md. 1995); Jackson v. Commonwealth of Kentucky, 892 F. Supp. 923, 929 (E.D. Ky. 1995); McGrath v. City of Philadelphia, 864 F. Supp. 466, 486 (E.D. Pa. 1994).
Section 541.5d conforms with the congressional intent of the proper application of the FLSA and the "bona fide executive" exemption. The new regulation is rationally related to the purposes of the FLSA, and nowhere is the DOL prescribed from making reasonable distinctions between public and private employees. Mueller, 54 F.3d at 438. This part of the regulation is, therefore, valid and should be applied to public employees in the future to determine their exempt status as "bona fide executive" employees.
Since I hold that the docking for partial-day absences portion of the salary basis test as applied to Plaintiffs prior to the 1992 amendments was invalid, I do have to not consider whether § 541.5d should be applied retroactively. Plaintiffs cannot recover for the overtime allegedly lost prior the 1992 regulations based on the fact that the DOC maintained a partial-day docking policy.
As already stated, § 541.5d allows the DOC to exercise the "bona fide executive" exemption even though these Plaintiffs' possibly could be docked for partial-day absences. This rule, however, does not apply to the other DOC policies whose enforcement under the traditional salary basis test would preclude Defendants from exercising the exemption. In particular, the regulation does not address the question of salary deductions for serving on jury duty, appearing as a witness in a court proceeding, taking temporary military leave, and disciplinary violations.
c. Absences for jury duty, attendance as a witness or temporary military leave
Plaintiffs also argue that other DOC policies remove them from the status of salaried employees. Plaintiffs claim that they must use leave allowances, be docked pay, or take leave without pay, for personal court appearances and military leave for periods of more than 30 calendar days in any year.
The salary basis test provides that deductions from an employee's pay for these situations removes an employee from "salaried status." 29 C.F.R. § 541.118(a)(4).
When the DOL amended the partial-day docking provision of the salary basis test, they considered the regulation in its entirety and determined that no other portion of the provision required amending. 57 Fed. Reg. 37666, 37673. However, the same principles of public accountability which require a public employer to dock an employee for personal partial-day absences, prevent a State or local employer from paying employees for personal court appearances and military duty exceeding 30 days. An employee's appearance at a court proceeding for reasons unrelated to his duties as a public employee clearly should not be subsidized by public funds.
The question of military leave is less obvious. It can be argued that a public employee serving military duty is performing public duties only in a different capacity, and therefore, should receive his regular salary as opposed to the salary he or she receives while serving in the military, without offending principles of public accountability. However, the duties an employee has in his or her capacity as a public servant and in his or her capacity as a member of the military could be quite different and, therefore, justify differences in pay. See McCloskey, 1995 WL 631718 at * 7.
Public accountability principles impact the military leave and witness provision in the same way as the docking for partial-day absences provision, in that the State and local government can pay employees only for time spent working on the duties involved with their specific governmental body. State and local governments would fail the traditional salary basis test, and, therefore, would have to pay overtime to supervisory personnel, simply because they cannot pay their employees for hours spent not working.
The jury duty, witness and military leave provision is fundamentally flawed as applied to public employees and is against Congress's intent to provide an exemption to FLSA coverage for "bona fide executives." I hold that § 541.118(a)(4) as it currently exists is invalid as it conflicts with congressional intent. See Chevron, 467 U.S. at 843 and n.9; McCloskey, c1995 WL 631718 at *7 Plaintiffs are not entitled to overtime under the FLSA because of the fact that they must use leave time, be docked pay, or take leave without pay for personal court appearances and military leave exceeding 30 calendar days.
d. Disciplinary actions for violations of rules other than safety rules of major significance
Plaintiffs also allege that they are not properly classified as salaried employees because Defendants maintain disciplinary policies which could result in suspensions without pay, fines or deductions from leave balances, as a penalty for infractions of rules other than safety rules of major significance. The principles of public accountability upon which I relied to strike down the partial-day docking and jury duty, witness and temporary military leave provisions in the traditional salary basis test, do not apply to the disciplinary actions provision, which remains in question. This provision states:
penalties imposed in good faith for infractions of safety rules of major significance will not effect the employee's salaried status. Safety rules of major significance include only those relating to the prevention of serious danger to the plant, or other employees, such as rules prohibiting smoking in explosive plants, oil refineries, and coal mines. 29 C.F.R. § 541.118(a)(5).
Therefore, employees who are subject to docking for violations of disciplinary rules other than safety rules of major significance lose their exempt status.
In SEIU, the Ninth Circuit held the entire salary basis test as articulated in 29 C.F.R. § 541.118 invalid because it was contrary to the FLSA and against congressional intent. SEIU, 60 F.3d at 1353. However, other courts considering the issue have determined the validity of the different parts of the test individually, and refused to hold the test invalid in its entirety. See Mueller, 54 F.3d at 443; Quirk, 895 F. Supp. at 780; McCloskey, 1995 WL 631718 at *8. I agree with the decisions in these latter cases that the entire salary basis test should not be declared invalid summarily. Indeed, the DOL's consideration of the entire test in 1992 and its failure to amend the disciplinary provision provides persuasive authority that the disciplinary provisions contained in the original salary basis test can be appropriately applied to public employees. 57 Fed. Reg. 37673 (1992); see Jackson, 892 F. Supp. at 927.
The reason for declaring the partial-day docking and jury duty, witness appearance and temporary military provisions invalid as applied to public employees was because these provisions do not adequately take into consideration the fact that State and local governments cannot pay their employees for hours not worked due to principles of public accountability. No issue of public accountability is involved where the question is fines or the forced suspension without pay of an otherwise exempt public employee for what the employer deems sanctionable infractions, because this does not involve the direct expenditure of public funds. Mueller, 54 F.3d at 442-43; McCloskey, 1995 WL 631718 at *8. There is no reason why a public employer in general could not fashion its disciplinary penalties for supervisory personnel to comply with the FLSA, which would require that supervisory personnel not be suspended for less than a week for rules other than for safety rules of major significance. Mueller, 54 F.3d at 443.
Therefore, I must proceed with the application of this portion of the salary basis test to these Plaintiffs to determine whether the DOC's disciplinary policies remove these Plaintiffs from exempt status.
The DOC is a paramilitary organization operating under unique circumstances, which require strict adherence to all rules and policies. Every policy promulgated by the DOC has a potential impact on the safety of prisoners and the correction officers themselves. In my estimation, a violation of any rule, no matter how insignificant to a lay person, has the potential of causing a breach in the integrity of the safety of correctional institutions.
However, I am restrained from ruling that the unique circumstances of correctional institutions elevate every disciplinary rule to one of major safety significance by the admissions made by Corporation Counsel. It should be clear that my conclusion that the DOC disciplinary rules, whereby corrections officers maintain the order and safety of correctional institutions, are not safety rules of major significance results solely from the admissions made by Corporation Counsel.
In their responses to requests for admissions, Corporation Counsel has stated that Plaintiffs could receive disciplinary penalties, "including suspensions without pay of one or more days and deductions from leave or compensatory time balances", for a variety of infractions including, "insubordination, abuse of sick leave, refusal to report for drug testing, conduct unbecoming, theft of agency property, and misuse of a police vehicle." (Resp. to Req. 3; Pl.'s Statement of Material Facts, Exh. A). Corporation Counsel also has admitted that Corrections Captains could receive "disciplinary penalties for a variety of infractions . . . other than [infractions of] safety rules of major significance. ( Resp. to Req. No. 6 P 2; Pl.'s Statement of Material Facts, Exh. A). Such concessions decide this issue. See Hurley v. Oregon, 27 F.3d 392, 394 (9th Cir. 1994); Klein v. Rush-Presbyterian-St. Luke's Medical Ctr., 990 F.2d 279 (7th Cir. 1993); Shockley v. City of Newport News, 997 F.2d 18 (4th Cir. 1993).
The violations for which Corporation Counsel has admitted such pay reductions are available are the exact infractions which proved fatal for the Defendants in Yourman. 826 F. Supp. at 739. In Yourman, Judge Preska reached the conclusion that the penalties in place for violations of the rules listed above meant that "plaintiffs are subject to penalties for infractions of safety rules not of major significance. A more direct variance by defendants from the DOL regulations defining "salary basis" is difficult to fathom." Yourman, 826 F. Supp. at 741. The fact that Defendants have admitted that Corrections Captains are subject to suspensions without pay for violating the precise rules which Judge Preska ruled were not safety rules of major significance prevents a contrary conclusion.
Attempting to avoid these admissions, Defendants argue that application of the disciplinary provision as stated in the salary basis test would create "an undue burden on defendants by imposing a test for disciplinary penalties, which is wholly irrelevant to, and indeed inconsistent with plaintiffs' duties and responsibilities, and in particular with their duties and responsibilities in the area of constitutional rights." (Def. Mem. at 41). However, the Supreme Court has held that application of the FLSA to public employees does not place an undue burden on State and local governments, and therefore, does not violate the Tenth Amendment. Garcia, 469 U.S. 528, 83 L. Ed. 2d 1016, 105 S. Ct. 1005. Moreover, as stated above, principles of public accountability do not apply to the disciplinary provision of the salary basis test so as to prevent the employer from asserting the "bona fide executive" exemption. Defendants' assertions to the contrary are without merit. (Def. Mem. at 41).
In an effort to further avoid their admissions, Defendants have represented that the violations which may normally result in penalties, fines or suspensions without pay are all discretionary penalties which may be imposed by the Corrections Commissioner pursuant to the DOC Rules and Regulations if the case involves formal disciplinary charges. (Yates Dec. P 22). Such penalties appear to be applicable only to the more serious offenses, which the DOC would classify as safety rules of major significance.
Discretion in imposing penalties also rests with the Captain's Commanding Officer if the case involves Command Discipline, which is a procedure for dispensing relatively small penalties. (Yates Dec. P 22). The penalties for which an employee may be disciplined under command discipline do not include loss of salary, but forfeiture of vacation days, revocation of permission to engage in outside employment, and change of assignment or schedule. (Yates Dec. P 22). Which penalties to impose for particular offenses remains in the discretion of the commanding officers. The decision to be subject to command discipline remains with the employee.
Pre-hearing suspension without pay is not mandated for any type of offense, rather it is an option for serious offenses and may be imposed only by designated high-level officials. The specific offenses for which an employee may be suspended without pay prior to a disciplinary hearing include refusing to perform assigned duties; refusing an order of a supervisor to answer questions directly related to the performance of official duties; exhibiting conduct of such a nature so as to threaten the good order or security of a command or division; being absent without leave for five consecutive days. The last provision allowing for pre-hearing suspension without pay is completely discretionary to the Commissioner. (DOC Directive 9/19/88, Art. II, section B, pp. 2-3; Yates Decl. Exh. 6).
Defendants argue at length that the discretionary nature of these penalties leads to the conclusion that the DOC does not have an express policy whereby otherwise exempt employees are docked pay or suspended without pay for violations of rules other than safety rules of major significance. (Def. Mem. at 29-35). Defendants argue that since no express policy exists whereby Plaintiffs could be subject to pay reductions for violating disciplinary rules other than safety rules of major significance, they cannot be found to have violated the salary basis test.
However, under the case law established in this circuit, "an employer that maintains the discretion to reduce an employee's compensation as a result of the employee's hours or the quality of the employee's work, may not consider the employee to be paid on a salary basis." Martin v. Malcolm Pirnie, Inc., 949 F.2d at 615; see also, Whitmore v. Port Authority of New York & New Jersey, 907 F.2d 20, 21 (2d Cir. 1990); Donovan v. Carls Drug Co., 703 F.2d 650, 652 (2d Cir. 1983); McCloskey, 1995 WL 631718 at *11. I am aware that the Malcolm Pirnie decision relied on Abshire v. County of Kern, 908 F.2d 483 (9th Cir. 1990), cert. denied, 498 U.S. 1068, 112 L. Ed. 2d 848, 111 S. Ct. 785 (1991), a Ninth Circuit decision, whose conclusions on this point and others have been called into question by the DOL. (Def. Mem. at 28). I am also familiar with the line of cases in other circuits which require a showing that actual deductions were made from the employees' salary. See e.g., Barner v. City of Novato, 17 F.3d 1256, 1262 (9th Cir. 1994); McDonnell v. City of Omaha, 999 F.2d 293 (8th Cir. 1993), cert. denied, 127 L. Ed. 2d 538, 114 S. Ct. 1188; Atlanta Professional Firefighters Union, Local 134 v. City of Atlanta, 920 F.2d 800 (11th Cir. 1991); McGrath v. City of Philadelphia, 864 F. Supp. 466 (E.D. Pa. 1994). However, neither the Malcolm Pirnie decision nor the Abshire decision have been reversed by their respective circuits. Consequently, in this circuit, the test remains whether employees are "subject to" reductions in their salary, and employees are "subject to" reductions if their employer has the discretion to reduce their salaries for violations of disciplinary rules other than safety rules of major significance. Malcolm Pirnie, 949 F.2d at 615; Yourman, 826 F. Supp. at 743-44.
Based on the admissions of Corporation Counsel, I must conclude that Corrections Captains may be subject to suspensions without pay for violations of disciplinary rules other than safety rules of major significance, and, therefore, fail the disciplinary penalties provision of the salary basis test.
IV. Portal-to-Portal Act Defense
Defendants also assert that their continued treatment of Corrections Captains as salaried employees for overtime purposes, after the FLSA was held to apply to public employees in 1985, is entitled to a good faith defense under § 10 of the Portal-to-Portal Act (the "Portal Act"), which provides that
no employer shall be subject to any liability [under the 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 practice or enforcement policy of such agency with respect to the class of employers to which he belonged. 29 U.S.C. § 259 (1988).
The Portal Act defense requires the employer to establish three elements: (1) that its action was taken in reliance on a ruling of the DOL; (2) that it was in conformity with the ruling; (3) that it was done in good faith. Yourman, 826 F. Supp. at 746.
The City argues that the evaluation of the FLSA overtime provisions made by them in the "Citywide Fair Labor Standards Act Committee," which included consultation with counsel and meetings with DOL officials, is sufficient under the Portal Act to show their good faith reliance on DOL rulings. (Def. Mem. at 44-46). Under the Portal Act, however, such rulings are irrelevant unless connected to a written DOL regulation, order, ruling, approval or interpretation. Id.; see also 29 C.F.R. § 790.13. Therefore, opinions of counsel or even meetings with the DOL, without a written opinion letter, do not provide the basis for a Portal Act defense.
Moreover, the January 15, 1986 and the January 7, 1987 DOL Letter Rulings, upon which the City relied in assessing their decision to continue treating Corrections Captains as exempt employees, applied only to the docking for partial-day absences provision of the salary basis test. (Green Decl. PP 9-13). Had I found that Defendants policy of subjecting Corrections Captains to possible salary reduction for partial-day absences failed the salary basis test and precluded them from treating Plaintiffs as salaried employees, Defendants may have had a viable Portal Act defense. However, since these letter rulings do not deal with the disciplinary penalties provision, Defendants cannot invoke them for protection from potential liability under that provision pursuant to the Portal Act.
The City's efforts, therefore, to determine if actual deductions had been made for partial-day absences and to determine the effect of their partial-day absences policy on their ability to treat Corrections Captains as exempt from the FLSA, have no bearing as to whether they conformed in good faith with DOL rulings regarding the disciplinary penalty provision of the salary basis test. For this reason, their Portal-to-Portal Act defense fails, as applied to the particular provision for which they still violate the overtime provision of the FLSA.
Based solely on the admissions made by Corporation Counsel, I must find that the Defendants fail the "salary basis test" because Correction Captains are subject to disciplinary penalties, including suspensions without pay, for violations of rules other than safety rules of major significance. Plaintiffs' Motion for Partial Summary Judgment on the issue of liability, therefore, is granted.
DATED: New York, New York
November 27, 1995
KEVIN THOMAS DUFFY, U.S.D.J.