The opinion of the court was delivered by: David G. Larimer United States District Judge
Plaintiff, Fredrick Scholtisek, commenced this action against his former employer, Eldre Corporation ("Eldre"), alleging that Eldre has violated the Fair Labor Standards Act ("FLSA"), 29 U.S.C. § 201 et seq., and the New York Labor Law by willfully making impermissible deductions from his pay and that of other employees who are paid on a salary basis. The complaint seeks declaratory relief and money damages, on behalf of Scholtisek and all other similarly situated employees. Plaintiff has demanded a trial by jury.
The Court has previously certified this action as a class action under Rule 23(b)(3) of the Federal Rules of Civil Procedure, and directed that notice of plaintiff's claims be sent to all class members, pursuant to Rule 23 and 29 U.S.C. § 216(b). 229 F.R.D. 381 (W.D.N.Y. 2005). The class consists of all individuals who are or were employed by Eldre on or after December 27, 1997, and who were classified as "exempt" or salaried employees for purposes of overtime pay. To date, forty-four current and former employees of Eldre have submitted consent forms indicating their desire to participate as plaintiffs in this action. Forty-seven putative class members have also opted out of this action.
Both sides have now moved for summary judgment. For the reasons that follow, plaintiffs' motion is granted in part and denied in part, and defendant's motion is granted in part and denied in part.
Under the FLSA, an employee who works more than forty hours per week must be compensated for each hour worked over forty "at a rate not less than one and one-half times the regular rate at which he is employed." 29 U.S.C. § 207(a)(1). "[E]mployee[s] employed in a bona fide executive, administrative, or professional capacity," however, are exempt from the FLSA's overtime requirements. 29 U.S.C. § 213(a)(1). Those three categories of employees are defined in regulations promulgated by the Secretary of Labor. See 29 C.F.R. §§ 541.100, 541.200, 541.300.
In the case at bar, Eldre contends that most of the plaintiffs were properly classified, and treated, as exempt professional employees, and that they are therefore not entitled to payment of overtime. In order to meet the criteria for the "professional" exemption, an employee must satisfy both a "salary basis" test and a "duties test." See 29 C.F.R. §§ 541.2; Auer v. Robbins, 519 U.S. 452, 455 (1997); Coleman-Edwards v. Simpson, 330 Fed.Appx. 218, 219 (2d Cir. 2009). With regard to the former, "[a]n employee will be considered to be paid on a 'salary basis' ... if the employee regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of the employee's compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed." 29 C.F.R. § 541.602.
To meet the "duties test" for a professional employee, the employee must be "someone '[w]hose primary duty consists of the performance of [w]ork requiring knowledge of an advance[d] type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction and study.'" Young v. Cooper Cameron Corp., 586 F.3d 201, 205 (2d Cir. 2009) (quoting 29 C.F.R. § 541.3(a)(1)). "If a job does not require knowledge customarily acquired by an advanced educational degree ... then, regardless of the duties performed, the employee is not an exempt professional under the FLSA." Id. at 206.
"Because the FLSA is a remedial statute, this exemption must be 'narrowly construed.'" Id. at 204 (quoting A.H. Phillips, Inc. v. Walling, 324 U.S. 490, 493 (1945)). The burden is on the employer to prove that the employee clearly falls within the terms of the exemption. See Havey v. Homebound Mortgage, Inc., 547 F.3d 158, 163 (2d Cir. 2008); Kennedy v. Commonwealth Edison Co., 410 F.3d 365, 370 (7th Cir. 2005). See also Davis v. J.P. Morgan Chase & Co., 587 F.3d 529, 531 (2d Cir. 2009) ("Exemptions from the FLSA's requirements 'are to be narrowly construed against the employers seeking to assert them and their application limited to those establishments plainly and unmistakably within their terms and spirit'") (quoting Arnold v. Ben Kanowsky, Inc., 361 U.S. 388, 392 (1960)).
For purposes of the present motions, the chief area of dispute centers around the salary basis test. Plaintiffs contend that although Eldre classified them as exempt, Eldre has engaged in certain practices, and maintained certain policies, that are inconsistent with an intent to pay employees on a salary basis.
"In Auer v. Robbins, the Supreme Court adopted the Secretary of Labor's view that the salary basis test denies 'exempt status when employees are covered by a policy that permits disciplinary or other deductions in pay "as a practical matter." That standard is met ... if there is either an actual practice of making such deductions or an employment policy that creates a "significant likelihood" of such deductions.'" Kelly v. City of Mount Vernon, 162 F.3d 765, 768 (2d Cir. 1998) (quoting Auer, 519 U.S. at 461); accord Coleman-Edwards, 330 Fed.Appx. at 220 (quoting Auer, 519 U.S. at 461). The Court in Auer also concluded that a "one-time deduction ... under unusual circumstances" is not enough to establish a significant likelihood of such deductions. 519 U.S. at 462.
In the case at bar, plaintiffs allege that Eldre both engaged in an actual practice of making unlawful deductions, and maintained a policy that created a significant likelihood of such deductions. Specifically, plaintiffs allege that Eldre had a practice of docking its nominally exempt employees in partial day increments, and a practice of instructing exempt employees not to report to work on certain days due to employer-imposed "plant shutdowns," and then reducing those employees' weekly pay accordingly. Plaintiffs also allege that Eldre's policy of not paying employees at all for days when they were absent for more than three hours created a significant likelihood of unlawful pay deductions.
The gist of plaintiffs' claims, then, appears to be not so much that they are exempt, salaried employees who should have been, but were not, paid their full salaries without regard to how many hours they actually worked; rather, they allege that although they were classified as exempt, Eldre in fact treated them like hourly employees, by docking their pay for time when they were absent from work, so that they should have been paid overtime when they worked more than forty hours a week. See Complaint ¶ 30 ("Defendant's policy and practice is not to ensure that it pays overtime according to the law"); see also 29 C.F.R. § 541.603(a) (stating that "[a]n 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," and that "[a]n actual practice of making improper deductions demonstrates that the employer did not intend to pay employees on a salary basis").*fn1
Apparently, more often than not, plaintiffs did work over forty hours per week, since Eldre's handbook for exempt employees states that a "salaried employee is required to work 45 hours per week on the basis of 9 hour minimum work days, Monday through Friday." Dkt. #183 Ex. N at 7; Ex. O at 5.
Eldre contends that even if the Court denies its motion for summary judgment, plaintiffs are not entitled to summary judgment because there are genuine issues of material fact concerning whether and to what extent impermissible deductions were made from their pay. Defendant also contends that even if the proof shows that such deductions were made, Eldre is entitled to summary judgment in its favor because it may avail itself of the "window of correction" afforded by 29 C.F.R. § 541.603(c). That regulation provides that "[i]mproper deductions that are either isolated or inadvertent will not result in loss of the exemption for any employees subject to such improper deductions, if the employer reimburses the employees for such improper deductions."*fn2
Plaintiffs assert that the undisputed evidence establishes that from 1998 up until 2004, Eldre engaged in an actual practice of docking the salaries of exempt employees for partial day absences. In other words, if an ostensibly salaried employee missed part of a day, that employee was not paid for the time that he was absent.
As stated, the regulations provide that "[a]n employee will be considered to be paid on a 'salary basis' ... if the employee regularly receives each pay period ... a predetermined amount constituting all or part of the employee's compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed." 29 C.F.R. § 541.602(a). Docking an employee's pay to reflect a partial day absence is not consistent with an intent to pay the employee on a salary basis under that test. See Renfro v. Indiana Michigan Power Co., 370 F.3d 512, 516 (6th Cir. 2004) ("when an employer actually deducts from an employee's paycheck [because of a partial day absence] the employee is ineligible for the exemption" for salaried employees); accord Cowart v. Ingalls Shipbuilding, Inc., 213 F.3d 261, 265 (5th Cir. 2000); Piscione v. Ernst & Young, L.L.P., 171 F.3d 527, 534 (7th Cir. 1999); Torres v. Gristede's Operating Corp., 628 F.Supp.2d 447, 457 n.6 (S.D.N.Y. 2008); see also Friedman v. South Florida Psychiatric Associates, Inc., 139 Fed.Appx. 183, 185 (11th Cir. 2005) (stating that "[t]he evidence that Friedman's pay was docked for partial days' absences was undisputed," and that therefore "the salary basis of pay was violated, and Friedman was rendered a non-exempt employee and was entitled to overtime").
In response to plaintiffs' motion, Eldre contends, first, that there was no formal policy providing for partial day deductions, second, that if such deductions did occur, it happened very infrequently, and third, that there are genuine issues of fact concerning these matters. Eldre also asserts that even if plaintiffs can show that such deductions occurred, Eldre is entitled to summary judgment by virtue of the "window of correction" defense.
At their depositions in this case, Eldre's Human Resources Manager Debbie Kaufman and her predecessor, Kathleen Davis, both testified about this matter. Kaufman, who began working at Eldre in April 2001, testified that one of her job duties was to process Eldre's payroll. Dkt. #183 Ex. F at 20, 24. She was trained in that job by Davis, whom Kaufman replaced as Human Resources Manager in the fall of 2003. Kaufman stated that at the time of her deposition in February 2005, she "ha[d] a person who [wa]s doing the mechanics of payroll," but that she was "still in charge of payroll." Id. at 27-30.
At her deposition, Kaufman was asked what would happen if a salaried employee wanted to take off part of a day, but had no leave time to use for the time off. She answered that she "would have to pay him for the entire day." Id. at 81. When asked whether there was "ever a point where [she] wouldn't pay him for the entire day," she replied:
A: When I was told not to.
Q: And for what period of time were you told not to?
A: When Kathleen [Davis] was there.
Q: Okay. So through fall of 2003?
Id. at 81. Kaufman also stated that she continued to follow that practice following Davis's departure from Eldre, up until about "[s]ix, nine months" prior to her deposition (i.e., sometime between May and August 2004), when she was told by Eldre's Vice President for Finance Thomas Giuliano "to pay the person" in those circumstances, in order to avoid any "legal problems ... ." Id. at 82.
Kaufman was also asked if she could estimate "how many times someone who is classified as exempt may not have gotten paid for part of a day that he or she worked" during her entire employment at Eldre. She responded, "It was very little," adding that while she could not give a precise number, "[i]t was very far and few between." Id. at 87.
At her deposition, Kaufman was also shown some Eldre employee time cards and pay records, from which she testified that she would be able to determine whether a given employee had received less than a full week's salary for certain weeks. She indicated that on some occasions, it did appear that certain employees had been paid less than their full weekly salaries when they had missed part of a day. For example, Kaufman testified that the records showed that during one particular week, employee Martin Melich had missed half a day, and that instead of being paid his usual salary of $550 for that week, Melich received ninety percent of that amount, i.e., $495. Id. at 134-36.
Davis was also deposed during this litigation. Like Kaufman, she stated that on occasion, an exempt employee who was at work for only part of a day would not get paid for the time that he missed, though she added that "it was very infrequent" that this would occur. Dkt. #183 Ex. K at 36.
Davis stated, however, that at one point, she "had an employee get angry because their pay was docked" (presumably because of a partial day absence), and so Davis went to see Executive Vice President Arthur Abelson about the matter. Davis testified that she "wanted to get an answer to have something to say to this employee to hopefully make them understand that this was company policy and, you know, that was it." Id. at 45. Davis told "Mr. Abelson that [she did]n't recall seeing a policy like that before [i.e., during her previous employment at other companies] for a salaried employee," id. at 44, and Abelson responded that "the handbook [setting forth the policy] had been gone over by the company attorneys and ... everything in it was legal." Id. at 45.*fn3
Aside from that one employee, Davis testified that she could not recall anyone else complaining about this policy, adding, "if it happened, it happened so rarely." Id. at 51. She did state, however, that Eldre's employees were made aware of the policy. Id. at 52.
In light of this testimony, I am not persuaded by Eldre's contention that there are genuine issues of fact concerning whether there was any policy or practice with respect to partial day deductions, nor do I believe that Eldre should be permitted to avail itself of the "window of correction" defense in this regard. The evidence establishes as a matter of law that there was an actual practice of making such deductions. Plaintiffs are therefore entitled to summary judgment on this claim.
Though Davis and Kaufman stated that partial day deductions were infrequent, there is no indication from their testimony that those deductions were inadvertent. To the contrary, both Davis and Kaufman made it quite clear that, up until some time after the commencement of this lawsuit, such deductions were called for under well known, if unwritten, company policy at Eldre, and that they actually occurred, pursuant to that policy.
That these deductions may have been infrequent does not mean that there was no actual practice in that regard, or that the deductions were the result of some mistake or inadvertence. See, e.g., Martin v. Malcolm Pirnie, Inc., 949 F.2d 611, 617 (2d Cir. 1991) (employer was not entitled to invoke "window of correction," even though only 24 of approximately 400 employees in question actually had amounts deducted from their paychecks for partial day absences, since evidence showed that those deductions were made pursuant to company policy, and were not one-time or inadvertent deductions), cert. denied, 506 U.S. 905 (1992). The purpose of the window of correction is to allow employers to correct, and thereby avoid liability for, violations that are the result of a mistake, not due to company policy. See Yourman v. Giuliani, 229 F.3d 124, 128 (2d Cir. 2000) ("the window of correction is not available if an employer engages in a practice of making impermissible deductions in its employees' pay, or has a policy that effectively communicates to its employees that such deductions will be made") (internal quotation marks omitted), cert. denied, 532 U.S. 923 (2001).
In addition, Davis's statement about "it happen[ing] so rarely" was in response to a question about whether she could "think of any other occasion when an employee complained about getting docked for a partial day [absence]." Id. at 51. Read in context, then, her statement that it "happened ... rarely" referred not to the deductions themselves, but to her fielding complaints about the policy from Eldre employees. The test, however, is not how often employees complained about the deductions, but whether, how often, and why the deductions occurred in the first place. See Kennedy, 410 F.3d at 372 ("If the employees can show that the deductions were not merely happenstance, but a routine practice or company policy, the employer may not rely on the margin of error tolerated by the [window of correction] regulation").
Finally, I am unpersuaded by Eldre's contention that there could be other explanations for some of the time cards reflecting that employees' pay had been docked for half a day.*fn4 Even if not every instance of docking was due to the employee's absence for part of a day, the evidence clearly shows that there was an actual practice in effect at Eldre of docking nominally exempt employees' pay for partial day absences.
The federal regulations provide that "[i]f the facts demonstrate that the employer has an actual practice of making improper deductions, the exemption is lost during the time period in which the improper deductions were made for the employees in the same job classification working for the same managers responsible for the actual improper deductions." 29 C.F.R. § 541.603(b).*fn5 See also De Los Santos v. Just Wood Furniture, Inc., No. 05-cv-9369, 2009 WL 1616497, at *6 (S.D.N.Y. Jan. 14, 2009) ("In general, if ...