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Ninth Circuit:
Nurses May Be Entitled to Overtime Despite Yearly Salary
MajoritySays Summary Judgment in Favor of Employer Is Improper Because Factual DisputesExist: Bea Says in Partial Dissent That Facts Show Plaintiffs Are Paid by theHour and Are Therefore Entitled to Time-and-a Half Pay
Bya MetNews Staff Writer
A city employer is not entitled to summary judgment in classactions brought by staff nurses asserting that they are hourly employeesimproperly denied overtime pay—despite the existence of annual compensationfigures in employment agreements and salary ordinances—because factual disputesexist as to how and why some plaintiffs are paid less than their promised full-timewages, the Ninth U.S. Circuit Court of Appeals held yesterday.
The holding drew a partial dissent.
At issue are provisions of the Fair Labor Standards Act(“FLSA”) which provide that employees should generally receive time-and-a-halfpay for working overtime unless an employee is a salaried professional.
Under 29 C.F.R. §541.602 (“§602”), an employee, subject tocertain exceptions, “will be considered to be paid on a ‘salary basis’…if theemployee regularly receives each pay period on a weekly, or less frequentbasis, a predetermined amount constituting all or part of the employee’scompensation, which amount is not subject to reduction because of variations inthe quality or quantity of the work performed.”
The dispute arose due to a practice by the city’s payrolldepartment of translating each nurse’s annual salary, as set forth in thegoverning documents, into an hourly rate by dividing the yearly sum by thenumber of hours a full-time health worker would expect to work in a year. Anurse working 40 hours per week will receive the full published salary but onewho chooses to work fewer hours will be paid less on a proportionate basis.
Nurses can also opt to earn additional pay by working nightshifts or per diem shifts, which pay a premium on top of the contracted wage.
The court said that a factfinder must look beyond conclusorycontractual language to analyze how employees are actually paid.
Two Class Actions
Two class actions were filed in federal court based on thefailure of San Francisco to pay staff nurses overtime wages—one filed byplaintiff Tatyana Litvinova in 2018 and the other brought by Kirsten Silloway,Christa Duran, and Brigetta van Ewijk in 2020. Given the factual similaritybetween the two cases, Chief District Court Judge Richard Seeborg for theNorthern District of California treated them as related actions.
On cross-motions for summary judgment, Seeborg ruled in favorof the city, concluding that the nurses are paid on a salary basis and areexempt from the FLSA overtime requirements based on the “dispositive evidence”of the published salary ordinance. The cases were consolidated on appeal.
Senior Circuit Judge David F. Hamilton of the Seventh U.S.Circuit Court of Appeals, sitting by designation, wrote the opinion reversingthe judgment. He said:
“The City’s compensation system does not necessarily flunkthe salary basis test, but material factual questions remain in disputeregarding whether the City satisfied the test as a matter ofpractice….[P]laintiffs offered evidence showing that the City did not recordthem as working hours consistent with their full-time equivalencies in asignificant number of pay periods. Those discrepancies raise material factualquestions as to whether the staff nurses received their predetermined amountsof compensation in those pay periods. We reverse and remand this case for thosefactual issues to be resolved.”
Circuit Judge Morgan Christen joined in the opinion. SeniorCircuit Judge Carlos T. Bea wrote separately, concurring in the reversal butarguing that summary judgment should be granted in favor of the plaintiffs asthe record established that they were hourly employees.
Salary Basis Test
An employer may compensate employees “on an hourly, a dailyor a shift basis” without jeopardizing the salary designation, under 29 C.F.R.§541.604(b) (“§604(b)”), if the arrangement includes “a guarantee of at leastthe minimum weekly required amount paid on a salary basis regardless of thenumber of hours, days or shifts worked” and there is a “reasonablerelationship” between the employee’s salary and the money actually earned.
Hamilton explained that private employers are prohibited frommaking partial-day deductions for their salaried employees but public employeesare permitted to do so by 29 C.F.R. §541.710 (“§710”) out of a concern forproper stewardship of taxpayer monies. The jurist remarked that “section 710does not, however, give public employers free rein to make pay deductions” andnoted:
“[A] public employer must give its employees the opportunityto earn predetermined amounts on a weekly or less frequent basis, a prospectthat will be fulfilled so long as employees do not miss work for unexcusedreasons. In both situations, neither private nor public employers can causeemployees to receive less than the predetermined amounts of compensation. Anydeduction must be due to an employee’s own actions.”
The judge pointed out that an expert report submitted by thecity revealed at least 72 employee pay periods in which staff nurses workedfewer hours than their full-time shifts, resulting in lower pay, and reasoned:
“Perhaps there are permissible reasons for each discrepancy,but the City has not provided evidence proving them. Without such evidence,factual questions remain as to whether the staff nurses were provided theopportunity to work their full-time equivalencies in these pay periods and,consequently, whether the staff nurses were paid their predetermined amounts ofcompensation. Those factual questions lie at the heart of the salary basis testand preclude summary judgment in favor of the City.”
The defendant argues that even if a few errant deductionswere made, the plaintiffs have not established that it maintains an actualpractice of paying staff nurses less than their promised salary. Unpersuaded,Hamilton wrote:
“Such a high number of improper deductions could support afinding that the City maintains an actual practice of making improperdeductions. Plaintiffs identified evidence showing that the City made improperdeductions in about 3.2% of employee pay periods. That rate is higher than inother cases where isolated errors did not indicate an actual practice.”
Bea’s View
Bea wrote:
“The district court’s grant of summary judgment in favor ofthe City and County of San Francisco (City) should be reversed. On that, themajority and I agree. But…I would hold that there is no genuine dispute offact….The Nurses are not salaried…because the City does not pay the Nurses apredetermined amount of compensation each week that is independent of thenumber of hours they work.”
He reasoned:
“[T]he majority relies on § 602(a)’s neighbor many doorsdown—§ 710—a lesser known, rarely litigated regulation ….Because § 710 appliessolely to public employers, and because it allows them to make partial-daydeductions for hours not worked, the majority reasons that public employers maycalculate an employee’s pay at an hourly rate without converting him into anon-salaried employee, while private employers cannot.”
The jurist continued:
“What is left of § 602(a)’s text in future cases such as thisone, where an employer…reduces its workers’ compensation to an hourly- ordaily-rate under § 710 or § 602(b)? Not much it seems. ‘Every part’ of § 602(a)that describes when an employee can be considered salaried works ‘hand in hand’with § 602(a)’s predetermined-amount requirement….”
He declared:
“The City is free to pay the Nurses solely by the hour, butthat does not satisfy the salary-basis test….Until the City guarantees them afixed amount of pay that does not depend on the days or hours they work, theNurses are not salaried under the FLSA, and the City must pay them overtimeunder that statute. For these reasons, the district court entered summaryjudgment for the wrong party. I would reverse and remand with instructions togrant summary judgment in favor of the Nurses on their claim for overtimecompensation under the FLSA.”
The case is Sillowayv. City and County of San Francisco,22-16079.
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