The opinion of the court was delivered by: Paul A. Crotty, United States District Judge
Plaintiffs*fn1 are a class of current and former "managerial" employees of the New York supermarket chain Gristede's. In their original Complaint, filed April 30, 2004, Plaintiffs alleged that Defendants*fn2 willfully failed to record, credit, and compensate similarly situated employees for hours worked in excess of forty hours per week in violation of the Fair Labor Standards Act ("FLSA"), 29 U.S.C. §§ 201 et seq., and New York Labor Law ("NYLL") §§ 650 et seq. They have subsequently alleged claims for common law fraud and retaliation pursuant to FLSA, 29 U.S.C. § 215(3), and NYLL § 215(2), against Defendant Gristede's only. By Memorandum Decision and Order dated September 29, 2006, the Court approved Plaintiffs' motion to certify a collective action under the FLSA pursuant to 29 U.S.C. § 216(b) and to proceed as a class action on the state law claims under Federal Rules of Civil Procedure 23(a) and 23(b)(3). See Torres v. Gristede's Operating Corp. (Torres I), No. 04 Civ. 3316 (PAC), 2006 WL 2819730 (S.D.N.Y. Sept. 29, 2006). Specifically, the Court certified a class of "all persons employed by defendants as Department Managers or Co-Managers who were not paid proper overtime premium compensation for all hours that they worked in excess of forty in a workweek any time between April 30, 1998 and the date of final judgment in this matter." Id. at *11.
Plaintiffs now move for partial summary judgment on nine legal claims for which they assert there are no material factual issues are left to be tried:
1) Defendants' Fifth Affirmative Defense-the "white collar exemption" to the FLSA and NYLL claims;
2) Defendants' liability for the overtime claims of the co-manager Plaintiffs and class members;
3) Plaintiffs' claim that Gristede's policy of deleting "unauthorized overtime" from class members' time records was unlawful and constituted a violation of the FLSA and NYLL;
4) Defendants' Second, Third, and Fourth Affirmative Defenses of laches, unclean hands and improper conduct, and waiver and estoppel, respectively;
5) Plaintiffs' demand for liquidated damages, based on their contention that Defendants cannot prove their allegedly unlawful actions were conducted in "good faith" and upon a "reasonable" belief of lawfulness;
6) Plaintiffs' demand for a three-year statute of limitations, based on allegations of willful misconduct;
7) Plaintiffs' claim that Gristede's failed to keep accurate records of class members' time, which would entitle Plaintiffs to appropriate presumptions, evidentiary rulings, and jury instructions at trial;
8) Defendants' allegedly frivolous counterclaims against Torres and Chewning; and
9) Plaintiffs' claim that Gristede's retaliated against the Individual Plaintiffs by filing the counterclaims.
For the reasons stated below, Plaintiffs' motion is GRANTED, with the exception of their seventh claim which is DENIED.
For the purposes of this opinion, the Court assumes familiarity with Torres I. That opinion provides a comprehensive description of Plaintiffs' FLSA, NYLL, and common law claims and requested relief. See id. at *1. It also contains a thorough statement of the relevant facts, dividing the factual discussion into four categories: payroll practices; analysis of duties; unauthorized overtime; and working past the clock. See id. at **2-5. As the parties conducted no additional discovery subsequent to Torres I, the Court's factual summary was based on substantially the same source material-primarily expert reports, depositions, and affidavits-on which the parties rely for the present motion. In lieu of a duplicative factual statement, the Court relies on Torres I and makes additional references to the record where appropriate for the discussion that follows.
B. Procedural History and Counterclaims
On April 30, 2004, Plaintiff Carlos Torres filed an initial class action complaint alleging violations of federal and state wage and hour laws. (See Compl.) On June 29, 2004, Torres amended the complaint to add Named Plaintiffs Mora and Irizarry. (See 1st Am. Compl.) On March 25, 2005, Plaintiffs amended the complaint again, adding Defendants Balseca, Catsimatides, and Manos (the "Individual Defendants"), joining twelve more Named Plaintiffs, including Chewning, and alleging a new cause of action for common law fraud against Gristede's. (See 2d Am. Compl.) On April 22, 2005, Defendants answered Plaintiffs' pleadings for the first time, denying all claims and asserting unspecified counterclaims against Torres and Chewning. (See Answer to 2d Am. Compl.) Plaintiffs considered the counterclaims an impermissible act of retaliation and immediately filed a Motion for an Order to Show Cause on April 26, 2005 seeking injunctive and other relief and sanctions. (See Neilan Decl., Ex. IIII ("Pls.' Mem. of Law in Support of Motion for an Order to Show Cause").) A hearing on the Order to Show Cause went forth on April 27, 2005 before Magistrate Judge Andrew J. Peck, who declined to enter Plaintiffs' proposed order, but noted that the counterclaims appeared to be "somewhat retaliatory on the defendant." (See Neilan Decl., Ex. III ("OSC Tr.") at 16:21.) Plaintiffs then filed a Third Amended Complaint stating FLSA and NYLL retaliation claims on May 3, 2005. (See 3d Am. Compl.)
C. Legal Standard for Summary Judgment
A motion for summary judgment shall be granted if the pleadings demonstrate that "there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). A genuine issue of material fact exists if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). But "[w]here the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no 'genuine issue for trial.'" Matsushita Elec. Indus. Co., Ltd. V. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (citations omitted). The moving party initially bears the burden of demonstrating that no genuine issues of material fact remain. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once this showing is made, the nonmoving party may not rely solely on "[c]onclusory allegations, conjecture, and speculation," Niagara Mohawk Power Corp. v. Jones Chem. Inc., 315 F.3d 171, 175 (2d Cir. 2003) (internal citations and quotation marks omitted), but must present specific evidence in support of its contention that there is a genuine dispute as to the material facts. Fed. R. Civ. P. 56(e). The Court resolves all ambiguities and draws all factual inferences in favor of the non-movant, but "only if there is a 'genuine' dispute as to those facts." Scott v. Harris, 127 S.Ct. 1769, 1776 (2007) (citing Fed. R. Civ. P. 56(c)).
A. The "White Collar" Exemption
As its Fifth Affirmative Defense, Gristede's maintains that it is under no obligation to pay co-managers and department managers overtime wages because they are executive or administrative employees covered by the so-called "white collar exemption" to the FLSA, 29 U.S.C. § 213(a)(1), and corresponding NYLL regulations, 12 N.Y.C.R.R. §§ 142-2.2, 142-2.14. Plaintiffs contend they are entitled to summary judgment on this affirmative defense because Gristede's cannot prove that class members perform work or earn compensation commensurate with executive or administrative employment.
The FLSA requires that all hours worked in excess of forty hours per week be compensated at one and one-half times the minimum wage. 29 U.S.C. § 207(a)(1). The statute exempts from overtime coverage, however, "any employee employed in a bona fide executive, administrative, or professional capacity . . . as such terms are defined and delimited . . . by regulations of the Secretary [of Labor]." Id. § 213(a)(1). The regulations promulgated by the Secretary of Labor (the "Secretary") define an executive, administrative, or professional employee as someone who performs certain duties and is paid on a salary basis at a rate of not less than $455 per week. See 29 C.F.R. §§ 541.100, 541.600.*fn3 The requirements are substantially the same under the NYLL.*fn4 The parties do not dispute that co-managers and department managers receive compensation that meets the minimum amount required.
Courts apply the salary basis test to distinguish bona fide white collar employees from non-exempt, hourly employees, "i.e., employees who may be disciplined 'by piecemeal deductions from . . . pay.'" Yourman v. Giuliani, 229 F.3d 124, 130 (2d Cir. 2000) (quoting Auer v. Robbins, 519 U.S. 452, 456 (1997)). An employee is paid on a salary basis if the employee receives "a predetermined amount" each pay period that is "not subject to reduction because of variations in the quality or quantity of the work performed." 29 C.F.R. § 541.602(a). Absent certain exceptions outlined in the Secretary's regulations, a white collar employee should expect to receive "the full salary for any week in which the employee performs any work without regard to the number of days or hours worked." Id. This is because "[d]eductions from pay in less than one week increments for disciplinary violations are inconsistent with compensation on a salary basis." Yourman, 229 F.3d at 128 (citing Auer, 519 U.S. at 456); see also Martin v. Malcolm Pirnie, Inc., 949 F.2d 611, 615 (2d Cir. 1991) ("[A]n employee who can be docked pay for missing a fraction of a workday must be considered an hourly, rather than a salaried, employee." (citations omitted)).
The fact that an employer has made an actual deduction is insufficient by itself, however, to find an employee non-exempt. See Yourman, 229 F.3d at 130. Rather, the relevant inquiry is whether the employer engages in an actual practice of making impermissible deductions such that the employer "necessarily has no intention of paying its employees on a 'salary basis.'" Id. (quoting Klem v. County of Santa Clara, 208 F.3d 1085, 1091 (9th Cir. 2000)); 29 C.F.R. § 541.603(a) ("An employer who makes improper deductions from salary shall lose the exemption if the facts demonstrate that the employer did not intend to pay employees on a salary basis."). The question of the employer's intent "cannot be answered by simply dividing the number of impermissible pay deductions by the number of managerial employees." Yourman, 229 F.3d at 130. Instead, assessing this "objective intention" entails a more nuanced consideration of: the number of improper deductions, particularly as compared to the number of employee infractions warranting discipline; the time period during which the employer made improper deductions; the number and geographic location of employees whose salary was improperly reduced; the number and geographic location of managers responsible for taking the improper deductions; and whether the employer has a clearly communicated policy permitting or prohibiting improper deductions.
29 C.F.R. § 541.603(a). Accordingly, the Court weighs these factors to determine whether Plaintiffs are entitled to summary judgment.*fn5
In Torres I, after reviewing Plaintiffs' evidence for the purposes of certifying a collective action, the Court determined that "Gristede's clearly sought to treat workers as 'hourly' for some purposes (i.e., docking them for hours not worked during the workweek), but 'salaried' for other purposes (i.e., not paying them overtime for hours worked in excess of the workweek)." 2006 WL 2819730, at *10. Now, faced with substantially the same evidence, the Court discerns no legitimate justification for reaching any other conclusion. The Court reaches this conclusion mindful that the burden of proving the exemption at trial ultimately falls upon Gristede's, the employer claiming the exemption. See Martin, 949 F.2d at 614. Moreover, as with all exemptions to FLSA overtime coverage, the Court must construe the white collar exemption narrowly against the employer seeking to assert it and ensure that it applies only to those employees plainly and unmistakably within the exemption. Auer, 519 U.S. at 463; Martin, 949 F.2d at 614. Here, the overwhelming weight of the evidence suggests just the opposite, i.e. that the class members were not salaried executives or administrators within the contemplation of the FLSA. Instead, as discussed below, Gristede's co-managers and department managers received a regular paycheck that was tied automatically to the amount of hours they worked during the pay period.
1. The Number of Deductions
Gristede's payroll records demonstrate that there was no intention to pay class members a fixed, regular compensation "without regard to the number of days or hours worked." 29 C.F.R. § 541.602(a). An employee paid on a salary basis should expect to receive regular paychecks with the same number listed in the gross pay column. Though the Secretary's regulations allow for some lawful variations in gross pay,*fn6 regular receipt of payment in a predetermined amount is the hallmark of salaried compensation. See id. Here, however, class members frequently received paychecks with a gross pay notation that ranged either above or below the expected compensation for the hours scheduled. That figure was tied directly to the number of hours actually worked.*fn7
At oral argument, Plaintiffs' counsel set aside the findings of his own statistical expert, Dr. Stephen Schneider, regarding under- and over-payments of class members and relied instead on the report prepared by Gristede's expert, Dr. Mark Berkman. The Court does the same. Dr. Berkman's report demonstrates that class members' gross payments vary from week to week with considerable frequency. Dr. Berkman analyzed 42,074 weeks of payroll data for all co-managers and department managers other than the named plaintiffs and determined that they were paid less than a full week's salary 4,249 times, or slightly more than 10% of the total workweeks.*fn8 (Neilan Decl. Ex. UU, Expert Report of Mark Berkman, Ph.D. ("Berkman Report") Tbl. 4, cols. 1, 2.) He then subtracted from this total the weeks in which the underages were in multiples of a single work day-which, at least in many instances, indicate permissible pre-approved days-off without pay.*fn9 Id. Tbl. 4, col. 4; see also 29 C.F.R. § 541.602(b)(1) (allowing that "[d]eductions from pay may be made when an exempt employee is absent from work for one or more full days for personal reasons, other than sickness or disability"). This left 3,131 employee workweeks-roughly 7.5% of the total workweeks-in which Gristede's made partial-day deductions from class members' purported salaries. (Berkman Report, Tbl. 4, col. 4.)*fn10
As noted above, assessing the employer's intent is more than an arithmetic exercise- there is no magic number of deductions that suffice to vitiate the exemption. See Yourman, 229 F.3d at 130 (noting the absence of a "bright-line test"). Plaintiffs cite a number of circuit court opinions, however, in which employers failed the salary basis test based on considerably fewer impermissible deductions. See, e.g., Block v. City of Los Angeles, 253 F.3d 410, 419 (9th Cir. 2001) (thirteen impermissible deductions); Takas v. Hahn Auto. Corp., 246 F.3d 776, 781 (6th Cir. 2001) (seven); Klem v. County of Santa Clara, 208 F.3d 1085, 1095 (9th Cir. 2000) (fifty-three).
Dr. Berkman also reports a significant number of overages-weeks in which co-managers or department managers were paid for more than a full week's work (i.e., more than fifty hours for co-managers and more than forty hours for department managers). (Berkman Report, Tbl. 4, col. 7.) While overages are nowhere near as probative as underages, they are still relevant for two related reasons. First, they add context to the compensation practices at Gristede's. Even if class members were not underpaid, they still received a fluctuating weekly paycheck contingent on the amount of hours worked per week. This is inconsistent with executive compensation. Second, the fact that additional compensation was provided belies Gristede's claim that it paid its employees on a salary basis. The white collar exemption exists precisely because executive or administrative employees "are given discretion in managing their time and their activities and . . . are not answerable merely for the number of hours worked or number of tasks accomplished." Kinney v. District of Columbia, 994 F.2d 6, 11 (D.C. Cir. 1993).
This discretion makes premium overtime unnecessary. If class members, as purportedly executive or administrative employees, felt it necessary to work extra hours to accomplish that week's essential tasks, they should not have been entitled to additional compensation.
Defendants fail to submit any credible evidence to counter the logical conclusion to be drawn from the statistical data of its own expert-that Gristede's made a significant number of impermissible changes to the weekly compensation of allegedly salaried class members. There is no showing, for instance, that any of the partial-day deductions identified above were permissible per the Secretary's guidelines. Even more critically, Defendants do not identify even one instance where a class member worked fewer than the scheduled hours but still received a full salary. Thus, based largely on the data compiled by Defendants' expert, the Court must conclude that this factor tips decidedly against a finding that Gristede's intended to pay class members on a salary basis.
2. The Breadth of Deductions
Plaintiffs offer the expert report of Dr. Stephen Schneider to demonstrate just how widespread the deductions were. He analyzed 12,717 paychecks of 129 co-managers and determined that 2,693 co-manager paychecks were for less than 50 compensable hours. (Neilan Decl. Ex. TT, Dr. Stephen Schneider's Expert Report in Support of Class Certification for Plaintiffs ("Schneider Report") ¶ 22.) He found that the co-manager paychecks for less than 50 compensable hours were issued to 110 (85%) of the 129 co-managers, at 48 (96%) of the 50 stores, and in 297 (97%) of the 306 workweeks. (Id.) The numbers drop only slightly when the analysis is focused on impermissible partial-day absences. Dr. Schneider found deductions for partial-day absences for 71% of all co-managers at 90% of the stores and in 92% of workweeks. (Id. ¶ 24.)
Dr. Schneider performed a similar analysis for department managers. He analyzed 31,117 paychecks of 188 department managers and found that 1,724 department manager paychecks were for less than 40 compensable hours. (Id. ¶ 27.) Paychecks of less than 40 compensable hours were issued to 158 (84%) of 188 department managers, at 48 (96%) of 50 stores, and in 296 (97%) of 306 workweeks. (Id.) Partial-day absences ...