Seventh Circuit Court of Appeals Commentary : In Their Opinion : Lawyer & Attorney Michael E. Rigney : Kelley Drye & Warren Law Firm

KELLAR v. SUMMIT SEATING INC. (December 14, 2011)

Susan Kellar was promoted to a sewing manager at Summit Seating, a small vehicle-seat manufacturer, in 2004. She remained an hourly employee. Keller managed about eight employees and was responsible for making sure they had their equipment and instructions and that their work was completed on time. Shortly after she voluntarily resigned in 2009, she brought a Fair Labor Standards Act claim. She alleged that she regularly arrived at work 15-45 minutes early and that she used much of the time working (checking schedules, handing out materials, checking patterns, etc.). Her sister, another Summit employee who was frequently with her during those times, claims that Kellar did not work before her shift began. Keller admits that she never told Summit's owners that she was working prior to the beginning of her shift and that Summit had a written policy requiring preapproval for overtime. Magistrate Judge Nuechterlein (N.D. Ind.) granted summary judgment to Summit. Keller appeals.

In their opinion, Seventh Circuit Judges Evans (who, as a result of his death, took no part in the decision) and Williams and District Judge Conley affirmed, although on different grounds. Although the FLSA requires an employer to pay overtime when an employee works over 40 hours, the Portal-To-Portal Act exempts certain preliminary activities. The magistrate judge concluded that the exemption applied, but in doing so ignored Kellar’s own affidavit. He erred in doing so. Although she offered no additional evidence, her affidavit was sufficient to create an issue of fact with respect to the preliminary activities exemption. The Court also concluded that Kellar's work did not fit within the de minimis doctrine, which allows an employer to ignore otherwise compensable work if it only amounts to a few minutes. Keller asserts that she worked anywhere from 10-40 minutes a day before her actual shift began. That does not qualify as to minimus. In order to qualify for overtime, however, Keller must demonstrate that her employer had actual or constructive knowledge of her effort. The FLSA does require an employer to be reasonably diligent and oversee the work of its employees. Here, Summit had no reason to believe that Kellar was working overtime and is not liable for overtime payments under the FLSA.

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HICKS v. AVERY DREI, LLC (August 17, 2011)

Chance Felling owned and operated Avery Drei, LLC, a hotel management company. In 2006, Avery Drei was constructing a hotel near Indianapolis, Indiana. Lisa Hicks began working as a security guard at the hotel construction site in July of 2006. The hotel opened in October and she became a front desk clerk. During her stint as a security guard, Felling paid her in cash. Once she became a desk clerk, she received her regular wages by check. After Hicks' employment was terminated, she brought suit against Avery and Felling. She sought overtime wages and accrued vacation pay. The case languished for several years until February of 2010, when the district court set a June 2010 trial date. In February, Hicks asked Felling and Avery to supplement certain discovery responses. The defendants failed to respond until ordered to do so by the court in May. Then, they supplemented their answers to the requests identified by Hicks and also supplemented their response to an interrogatory that asked them to identify all cash payments to Hicks. Their original response identified seven cash payments, all while Hicks was working as a security guard. Their supplemental response added six additional payments, all while Hicks was working as a desk clerk. Hicks moved to bar any evidence of the additional payments, claiming the late notice was “trial by ambush.” The district court denied the request. At trial, Judge Magnus-Stinson (S.D. Ind.) granted a directed verdict on the vacation pay claims and on the security guard part of her overtime claim. The jury returned a verdict against Hicks on the desk clerk part of her overtime claim. At Hicks' request, the court waived transcription fees relating to the overtime claim but refused to waive with respect to that portion of the record relating to the vacation pay claim. Hicks appeals.

In their opinion, Seventh Circuit Judges Cudahy (concurring in part and concurring in the judgment), Flaum, and Kanne affirmed. On appeal, Hicks challenges the directed verdict on the vacation pay claim, challenges the partial directed verdict on the security guard overtime claim, and challenges the district court's refusal to exclude the evidence of additional cash payments. The Court concluded that the vacation pay claim was frivolous. Hicks admitted that she and Felling had an agreement that she would earn vacation time only after she had worked for a year. Her contention that Indiana law requires pro-rata vacation pay from day one in the absence of a written company policy to the contrary is simply wrong. Any agreement to the contrary, which is admittedly present here, is sufficient. The Court turned to the cash payment evidence. It noted that it would normally review such a ruling for abuse of discretion. Here, however, Hicks did not provide transcripts of the argument or ruling on the motion in limine. Without a meaningful basis on which to review the ruling, the Court concluded that Hicks forfeited her challenge. It also chose not to conduct a full plain error review, since it could identify no prejudice -- no extraordinary circumstances -- no miscarriage of justice. The Court turned to the security guard overtime claim. In order to prevail, Hicks had to prove that her employer was covered by the Fair Labor Standards Act. The district court concluded that she was "engaged in commerce" while a desk clerk, and therefore covered by the Act, but was not while working as a security guard. Hicks argued that she was covered because Felling's operation of several businesses made him an "enterprise engaged in commerce" under the Act. The test for enterprise coverage is that the businesses must be engaged in related activities, under a unified operation, have a common business purpose, and engage in $500,000 of business annually. The district court found that Hicks’ proffered common business purpose -- a profit motive -- did not satisfy the Act's requirements. The Court noted that Hicks advanced a different theory on appeal. It found that argument forfeited. With respect to the profit motive argument, the Court agreed with the district court that it was not enough to amount to enterprise coverage. Finally, the Court rejected the argument that the jury should have been allowed to decide whether Felling Hotels had earnings above the $500,000 threshold because Felling testified that it was possible. Felling Hotels was not a defendant, Felling Hotels was not her employer, and Hicks presented no affirmative evidence of its gross revenue.

Judge Cudahy thought that Felling’s admission against interest that Felling Hotel could have had revenue exceeding $500,000 should have been enough to avoid the directed verdict. But since Hicks never explained how Felling Hotels being subject to the FLSA related to the defendants’ liability, he concurred in the result.

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JOHNSON v. HIX WRECKER SERVICE (July 1, 2011)

Bobby Johnson worked twelve-hour shifts as a tow truck driver for Hix Wrecker Service in 2006. He later sued the company, claiming that he had not been paid for overtime in violation of the Fair Labor Standards Act. Hix Wrecker claimed that Johnson was not subject to the FLSA but, rather, was exempt under its motor carrier exemption. Judge Lawrence (S.D. Ind.) granted summary judgment to Hix. Johnson appeals.

In their opinion, Chief Judge Easterbrook, Circuit Judge Williams, and District Judge Pallmeyer reversed and remanded. The Court recognized that not all employees of a motor carrier are governed by the FLSA. If the employee engages only in intrastate commerce, the FLSA governs. If the employee is wholly engaged in interstate commerce, the employee is exempt from the FLSA and comes under the jurisdiction of the Secretary of Transportation. Many motor carriers and their employees engage in both in intrastate and interstate commerce -- but they cannot be subject to both statutory schemes. Under a Department of Transportation interpretation, an employee is exempt from the FLSA if the employer presents "concrete evidence" that the employee is "engaged in interstate commerce within a reasonable period of time" before the time period in question. A driver who has not engaged in interstate commerce can still be exempt if the carrier has been engaged in interstate commerce and the employee could be expected to engage in the commerce. The interpretation also adopted four months as a "reasonable period of time." In support of its motion for summary judgment, Hix did not assert that Johnson actually engaged in interstate commerce. Instead, it submitted an affidavit that asserted that Hix "routinely" provides interstate services and that Johnson could have been assigned an interstate wrecker run at any time during his employment. The Court concluded that Hicks did not carry its burden of proving the exemption. The affidavit's use of the term "routinely" was too vague to meet the four-months reasonable time threshold. In the Court's view, "routinely" could mean, for example, once every six months or once a year.

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VERKUILEN v. MEDIABANK (May 27, 2011)

MediaBank provides complex software programs to advertising agencies. The software integrates a number of different functions and is custom-designed to meet the varying needs of its purchasers. MediaBank employs Penny Verkuilen as an account manager. In that position, she acted as a liaison between the company’s software engineers and its customers. She had to make sure she understood the customers' needs, communicated those needs to the engineers, and trained the customers on the finished product. Verkuilen brought suit against MediaBank under the Fair Labor Standards Act, alleging that she was denied overtime. Judge Grady (N.D. Ill.) granted summary judgment against her on the ground that she fit within the administrative exception to the overtime requirement. Verkuilen appeals.

In their opinion, Chief Judge Easterbrook and Judges Cudahy and Posner affirmed. The Court started with the "pretty vague" Department of Labor regulation describing the administrative exception. It provides that the employee’s "primary duty" must include the exercise of discretion and independent judgment and must include non-manual work directly related to general business operations of the employer or its customers. The Court concluded that Verkuilen’s primary duty was directly related to the business operations of her employer and its customers. She was directly responsible for understanding each customer's needs, translating those needs into specifications that could be understood by the software engineers, and assisting the customers in implementing the solution. In fact, the Court believed that Verkuilen was a "picture-perfect example" of someone to whom the overtime requirement should not apply.

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URNIKIS-NEGRO v. AMERICAN FAMILY PROPERTY SERVICES (August 4, 2010)

Todd Lash owned American Family Property Services, a real estate appraisal firm. Although Lash was the only certified appraiser at the firm, he worked with associate appraisers, both independent and employed by the firm. In mid-2004, Lash hired Brenda Urnikis-Negro to help him review appraisal reports. Urnikis-Negro was hired at an annual salary of $52,000 with an understanding that her hours would probably fluctuate and not be limited to a 40-hour week. Urnikis-Negro's work at the firm turned out to be fundamentally clerical in nature and did not involve the exercise of judgment or discretion. Although no one kept track of her actual hours, the firm was very busy in 2004 and 2005 and Urnikis-Negro worked in excess of 40 hours per week. By the end of 2005, business was off and Urnikis-Negro was fired. She filed suit against the firm seeking overtime compensation pursuant to the Fair Labor Standards Act ("FLSA") and the Illinois Minimum Wage Law. After a bench trial, Judge Kennelly (N.D. Ill.) found that Urnikis-Negro's position was not exempt as an "administrative" position and that she was therefore entitled to overtime compensation. He also made a finding of willfulness which allowed Urnikis-Negro to recover overtime for the entire period of her employment. In calculating the amount of her overtime compensation, however, the district court rejected Urnikis-Negro's position that she should be treated as earning $1000 per 40-hour week. Instead, the court made its calculations based on an assumption that her fixed $1000 per week salary was her regular hourly rate compensation for every hour worked in each week. The court also made findings with respect to the totals hours worked during four different time periods of her employment. For each hour of overtime during her employment, the court awarded half of her hourly rate that applied during that period. Her total overtime compensation came to just over $12,000. The court awarded liquidated damages in an equal amount as well as attorney's fees. Urnikis-Negro appeals the calculation.

In their opinion, Judges Bauer, Rovner, and Williams affirmed. The Court first took exception to the district court's application of the fluctuating workweek ("FWW") method of calculating Urnikis-Negro's rate of pay. The FWW method is set forth in a rule promulgated by the Department of Labor. Under that method, an employee's rate of pay is derived by dividing the weekly wage by the total number of hours worked. If an employee works more than 40 hours per week, the method results in a lower hourly wage rate for the employee. Several aspects of the application of the FWW bothered the Court. First, the rule is a forward looking rule that provides a methodology for an employer to comply with the overtime obligations imposed by statute. Second, it is not remedial in nature. Third, it requires an understanding between the employer and employee that the fixed weekly wage is meant to cover regular pay for all hours worked. The Court noted a difference of opinion among the courts in the propriety of using the FWW method in calculating a remedy in an overtime case. The Court found the reasoning of the courts that have rejected the rule to be more persuasive. Having rejected the application of the Department of Labor rule adopting the FWW method, the Court nevertheless approved of the application of the same method based on the Supreme Court's decision in Missel. In Missel, the Supreme Court addressed the situation in which an employee was paid a fixed sum for any and all hours worked, worked substantial overtime, and was not compensated for that overtime. The correct approach in that situation is to calculate a rate of pay by dividing the weekly wage by the hours worked. The employee is entitled to an overtime premium for overtime hours of one half the hourly rate. The result is thus the same as the application of the FWW.

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ALVAREZ v. CITY OF CHICAGO (May 21, 2010)

A group of Chicago Fire Department paramedics brought a collective action under the Fair Labor Standards (FLSA) against the City of Chicago. The complaint alleged that this City violated the FLSA by not properly calculating overtime payments. The plaintiffs identified ten different ways the City allegedly miscalculated overtime pay, not all of which applied to each paramedic's situation. Over three hundred paramedics eventually opted into the collective action. When several were dismissed for failure to opt in in time, they filed their own individual suit with the same allegations. The two cases were consolidated. Judge Hibbler (N.D. Ill.) granted summary judgment to the City as against all plaintiffs. He concluded that the fact that each plaintiff would use a different combination of the various alleged miscalculations prevented them from being similarly situated. He also directed the plaintiffs to arbitrate their complaints, even though he recognized that arbitration under the collective bargaining agreement was not mandatory. The plaintiffs appeal.

In their opinion, Judges Cudahy, Flaum, and Evans reversed and remanded. The Fair Labor Standards Act allows employees to bring complaints as collective actions, on behalf of themselves and others similarly situated. Although a district court is given substantial discretion to manage collective actions, the Court concluded that the district court had misinterpreted a prior case. In Jonites, the Court had found a collective action inappropriate in a situation requiring significant individual fact-finding. Here, although different plaintiffs would be affected by different sub claims, very little individual fact-finding will be required. In addition, the Court concluded that the district court erred in comparing the efficiency of the collective action to arbitration. If the plaintiffs are willing to proceed individually, the proper comparison is between those individual actions and a collective action. Finally, even if a collective action is unwarranted, the proper remedy is not to dismiss the action but to convert it to individual actions.

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