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Henry Mclean and Edwin Rivera v. Garage Management Corp.

April 19, 2012

HENRY MCLEAN AND EDWIN RIVERA, PLAINTIFFS,
v.
GARAGE MANAGEMENT CORP., ET AL., DEFENDANTS.
LUIS RAMIREZ, PLAINTIFF,
v.
GARAGE MANAGEMENT COMPANY LLC AND
RICHARD M. CHAPMAN, JOINTLY AND SEVERALLY, DEFENDANTS.



The opinion of the court was delivered by: Denise Cote, District Judge:

OPINION & ORDER

The plaintiffs, current and former Garage Managers employed by the defendants (collectively "GMC") at New York area parking garages, have brought claims against GMC alleging violations of the Fair Labor Standards Act ("FLSA"), 29 U.S.C. § 201 et seq., and the New York Labor Law ("NYLL"), N.Y.C.R.R. § 142-2.2, for failure to pay overtime. In an August 29, 2011 Opinion ("the Summary Judgment Opinion"), the Court granted summary judgment to the plaintiffs on, inter alia, the following two issues: (1) GMC compensated Garage Managers on an hourly, not a salary basis, and therefore Garage Managers are not subject to the FLSA's "bona fide executive exemption", see 29 U.S.C. § 213(a)(1); and (2) the "EC bonus" payments GMC made to Garage Managers cannot qualify as overtime payments and cannot be excluded from the calculation of Garage Managers' regular pay. See generally McLean v. Garage Management Corp., 819 F.Supp.2d 332 (S.D.N.Y. 2011). Familiarity with the Summary Judgment Opinion will be assumed. This Opinion constitutes the Court's findings of fact and conclusions of law on whether GMC acted in good faith, whether its violation of the labor laws was willful, and the proper calculation of damages.

PROCEDURAL HISTORY

Plaintiffs Henry McLean ("McLean") and Edwin Rivera filed their complaint in this action ("the McLean Action") on May 12, 2010. On August 11, 2010, the Court authorized notice of a collective FLSA action. Up to 45 current and former Garage Managers consented to join and are part of the FLSA action. The Court denied GMC's motion to dismiss and to compel arbitration on March 29, 2011. Following the August 29 Summary Judgment Opinion, the Court granted the plaintiffs' motion for Rule 23, Fed. R. Civ. P., class certification of their NYLL claims. As set forth in an October 21 Order, the class period runs from May 10, 2004 to April 18, 2010. On March 15, 2012, all opt-out requests postmarked after January 18 were ordered stricken. The NYLL class consists of as many as 93 current and former Garage Managers.*fn1 All Garage Managers in the NYLL class are also members of the FLSA collective action.

Plaintiff Luis Ramirez ("Ramirez"), a former Garage Manager, separately brought suit against GMC ("the Ramirez Action") on November 9, 2009. After being reassigned to this Court on May 12, 2010, the Ramirez Action was stayed on July 14, 2010. The stay was lifted on October 17, 2011. The McLean Action and the Ramirez Action were consolidated for trial on March 28, 2012.

The parties have consented to try all remaining issues without a jury. Pursuant to this Court's procedures for non-jury trials, and without objection by the parties, the parties submitted the direct testimony of witnesses by affidavit and their documentary evidence with the pretrial order filed on April 2, 2012. GMC submitted direct testimony by affidavit for witness Douglas Kamm ("Kamm"), GMC's Director of Personnel from 1986 to 2000 and currently its human resources and administrative supervisor. The plaintiffs have submitted as exhibits the depositions of Richard Chapman ("Chapman"), an attorney and GMC's President; and Bernard Weinstein ("Weinstein"), a GMC executive. Both parties have also submitted the deposition of Louis Vanegas ("Vanegas"), a former investigator with the United States Department of Labor ("DOL").

The Summary Judgment Opinion established that GMC is liable to the plaintiffs for violations of the FLSA's overtime provisions as a matter of law. The parties dispute, however, whether GMC acted in "good faith" and with "reasonable grounds" to believe that its failure to pay Garage Managers overtime did not violate the FLSA, in which case the Court would have discretion not to award the plaintiffs liquidated damages. The parties also dispute whether GMC's failure to pay overtime in violation of the FLSA was "willful," in which case the plaintiffs' FLSA claims would be subject to a three-year, as opposed to a two-year, statute of limitations.

It is undisputed that GMC changed its system for paying overtime to Garage Managers on approximately April 18, 2010. Therefore, the plaintiffs' claims are for the period prior to that date. The following constitutes the Court's findings of fact and conclusions of law.

Origination of EC Bonus System

Chapman created the compensation system for Garage Managers, including the use of the EC bonus, prior to 1970. He wanted a simple procedure for the payment of overtime, and therefore created a system that would allow GMC to pay overtime once a month rather than on a weekly basis. In his view, this had the added advantage of creating an "annual package reflecting the importance of the manager." As Chapman regularly explained to Garage Managers, they were getting base pay for forty-hour work weeks and an additional payment once a month for overtime hours and to compensate the Garage Managers for their role in ensuring the profitability of their garages.

Chapman had studied labor law in law school, and was "cognizant of the need for payment of time and a half for overtime." While Chapman "presumed" that Garage Managers would not be considered hourly employees under the FLSA, he designed a system of Garage Manager compensation that reflected a separate payment for any overtime work as a belt and suspenders system to "cover" himself.

The compensation of Garage Managers was calculated as follows: They were given an amount of weekly pay based on an hourly rate, a monthly payment called Extra Compensation or the EC bonus, and additional compensation for overseeing special events and for unused vacation or benefit days. The weekly base pay was adjusted to reflect hours worked during a pay period, and regularly fluctuated because of that calculation. The EC bonus was a pre-determined amount for an employee that did not vary from month to month or due to the number of hours worked. The amount of an individual's EC bonus was determined from a number of factors including garage assignment, merit increases, garage transfers, promotions and seniority. A Garage Manager's annual earnings always exceeded the agreed upon annual salaries. GMC paid its Garage Managers generously by industry standards.

Garage Managers were regularly scheduled to work five days a week for more than 40 hours per week. Most Garage Managers were regularly scheduled to work about 50 hours per week.

Government Investigations of GMC Parking Attendants: 1987 to 1993

Garage Managers supervise a number of Parking Attendants at each GMC garage. Starting in 1987, the DOL conducted investigations of GMC's overtime pay practices for its Parking Attendants. The investigations found violations of the overtime pay regulations, and in response to a 1993 DOL investigation GMC agreed to pay back wages to 95 Parking Attendants.

The DOL investigations concluded that because GMC's Parking Attendants were hourly employees, they were entitled to time and a half overtime pay, and that GMC's policy of paying a lump sum periodic bonus to Parking Attendants did not suffice. This lump sum bonus was functionally identical to the EC bonus for the Garage Managers in that it did not vary from period to period or based upon the number of hours worked beyond 40 per week.

Moreover, the DOL investigations concluded that the lump sum bonuses awarded to Parking Attendants constituted part of their regular rate of pay, and that GMC's failure to factor the bonuses into a computation of the Parking Attendants' regular rate of pay violated the FLSA. Thus, GMC was required to recalculate the hourly wage by incorporating the bonus payments, and to pay overtime to Parking Attendants on the basis of that recalculated hourly wage.

Vanegas was the first DOL investigator to conduct an investigation of GMC's overtime pay practices for Parking Attendants. At the time, Vanegas was 22 years old and a recent college graduate. Vanegas' supervisor was Paul Scensny ("Scensny"), the DOL's Assistant District Director.

There were three more investigations and audits of GMC's payment practices for Parking Attendants. In addition to Vanegas' investigation, the DOL conducted an audit in 1993. The New York State Department of Labor ("NYDOL") conducted two audits, one in 1990 and another in 1997. The DOL's 1993 audit discovered additional overtime pay violations in connection with GMC's compensation of Parking Attendants. The two NYDOL audits also uncovered NYLL violations in connection with Parking Attendant compensation.

Although Vanegas' investigation focused on Parking Attendants, he did conduct an inquiry into GMC's practices in paying Garage Managers. Vanegas reviewed their time records and payroll records, visited several of the garages and spoke with some of the Garage Managers. Vanegas concluded that GMC was violating the wage and hour laws in its failure to pay Parking Attendants overtime, but determined that GMC could properly treat Garage Managers as salaried employees. In his internal report of the investigation, Vanegas wrote:

Blanket overtime exemption given to managers of all parking garages on the basis that they were paid a guaranteed salary regardless of hours worked and their primary duty was management of the garage in which they worked. Review of mgr's payroll rec'ds indicated that they were paid for at least 40 hrs even when they worked less than 40 hrs, the mgrs supervised at least 2 FT [full time] employees.

When Vanegas met with Kamm, then GMC's Director of Personnel, on April 26, 1988, he communicated that Garage Managers were subject to a blanket overtime exemption under the FLSA. Vanegas also provided Kamm with copies of relevant DOL regulations, including the DOL regulation pertaining to the "salary basis test" which must be met for an employee to qualify for FLSA's "bona fide executive" exemption.

As it had with Vanegas, in each of the audits of GMC payroll practices for Parking Attendants, GMC provided government auditors with access to Garage Manager payroll records. According to Kamm, the NYDOL also informed GMC in both 1990 and 1997 that Garage Managers were exempt employees under the NYLL, and a DOL ...


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