IntraComm, Inc. v. Bajaj ( 2007 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
INTRACOMM, INCORPORATED; BABACK 
HABIBI,
Plaintiffs-Appellants,
v.
KEN S. BAJAJ; JACK PEARLSTEIN;
STEVEN L. HANAU; DIGITALNET
HOLDINGS, INCORPORATED; BAE
SYSTEMS NORTH AMERICA; BAE
SYSTEMS INFORMATION TECHNOLOGY,
LLC, formerly known as Digitalnet
Government Solutions, LLC; BAE
SYSTEMS IT HOLDINGS,  No. 06-1516
INCORPORATED, formerly known as
Digitalnet Holdings, Incorporated,
Defendants-Appellees,
and
NATIONAL INSTITUTES OF HEALTH,
Party in Interest.
UNITED STATES DEPARTMENT OF
LABOR,
Amicus Curiae.

2 INTRACOMM, INC. v. BAJAJ
INTRACOMM, INCORPORATED; BABACK 
HABIBI,
Plaintiffs-Appellees,
v.
BAE SYSTEMS INFORMATION
TECHNOLOGY, LLC, formerly known
as Digitalnet Government Solutions,
LLC,
Defendant-Appellant,
and
KEN S. BAJAJ; JACK PEARLSTEIN;
STEVEN L. HANAU; DIGITALNET
HOLDINGS, INCORPORATED; BAE  No. 06-1539
SYSTEMS NORTH AMERICA; BAE
SYSTEMS IT HOLDINGS,
INCORPORATED, formerly known as
Digitalnet Holdings, Incorporated,
Defendants,
and
NATIONAL INSTITUTES OF HEALTH,
Party in Interest.
UNITED STATES DEPARTMENT OF
LABOR,
Amicus Curiae.

Appeals from the United States District Court
for the Eastern District of Virginia, at Alexandria.
Claude M. Hilton, Senior District Judge.
(1:05-cv-00955)
Argued: March 13, 2007
Decided: July 5, 2007
INTRACOMM, INC. v. BAJAJ 3
Before SHEDD and DUNCAN, Circuit Judges, and
Samuel G. WILSON, United States District Judge for the
Western District of Virginia, sitting by designation.
Affirmed by published opinion. Judge Duncan wrote the opinion, in
which Judge Shedd and Judge Wilson concurred.
COUNSEL
ARGUED: Brad D. Weiss, CHARAPP & WEISS, L.L.P., McLean,
Virginia, for Appellants/Cross-Appellees. John Francis Scalia,
GREENBERG & TRAURIG, L.L.P., McLean, Virginia, for
Appellees/Cross-Appellant. ON BRIEF: Stephen F. Varholy,
CHARAPP & WEISS, L.L.P., McLean, Virginia, for
Appellants/Cross-Appellees. Kevin B. Bedell, GREENBERG &
TRAURIG, L.L.P., McLean, Virginia, for Appellees/Cross-Appellant.
Jonathan L. Snare, Acting Solicitor of Labor, Steven J. Mandel, Asso-
ciate Solicitor, Paul L. Frieden, Counsel for Appellate Litigation,
Joanna Hull, Attorney, UNITED STATES DEPARTMENT OF
LABOR, Office of the Solicitor, Washington, D.C., for the Secretary
of Labor, Amicus Curiae.
OPINION
DUNCAN, Circuit Judge:
IntraComm, Inc. and Baback Habibi (collectively, "Appellants")
appeal the district court’s grant of summary judgment in favor of Ken
Bajaj, Jack Pearlstein, Steven Hanau, and corporate defendants Digi-
talNet Holdings, Inc., BAE Systems North America, BAE Systems
Information Technology, LLC, and BAE Systems IT Holdings, Inc.
(collectively, "Appellees") on Appellants’ claims for, inter alia,
breach of contract and fraud. Appellees cross-appeal the district
court’s partial grant of summary judgment in favor of Appellants on
Appellants’ claim that Appellees failed to pay Appellant Habibi mini-
4 INTRACOMM, INC. v. BAJAJ
mum wage in violation of the Fair Labor Standards Act ("FLSA"), 29
U.S.C. § 201 et seq. The district court held that Habibi was not
exempt from the FLSA’s minimum-wage requirements under the
FLSA’s "combination exemption," 29 C.F.R. § 541.708 (2006), and
therefore was owed minimum wage for approximately 300 hours he
worked without direct compensation.
For the reasons that follow, we affirm both the district court’s grant
of summary judgment to Appellees on the state-law claims and its
grant of summary judgment to Habibi on the FLSA claim.
I.
Habibi is one of the founders of IntraComm, Inc., an information
technology company, and is the creator of a software integration sys-
tem known as "IC-WEL." Appellee BAE Systems Information Tech-
nology, LLC ("BAE IT LLC"), formerly known as DigitalNet
Government Solutions, LLC ("DigitalNet LLC"), is an information
technology service provider. BAE IT LLC is a wholly-owned subsid-
iary of Appellee BAE Systems IT, Inc. ("BAE IT Inc."), formerly
known as DigitalNet, Inc. BAE IT Inc. is a wholly-owned subsidiary
of Appellee BAE Systems IT Holdings, Inc. ("BAE IT Holdings"),
formerly known as DigitalNet Holdings, Inc. ("DigitalNet Holdings").
BAE IT Holdings is a wholly-owned subsidiary of Appellee BAE
Systems, Inc. ("BAE").
Appellees Bajaj and Pearlstein held high-level positions within
DigitalNet LLC and DigitalNet Holdings during periods relevant to
this case. Appellee Hanau was president of DigitalNet LLC.
In spring 2004, Habibi suggested to Bajaj and Pearlstein that
Habibi be allowed to use DigitalNet LLC’s name to market IC-WEL,
the software integration system he created. Thereafter, DigitalNet
LLC and IntraComm entered into an agreement (the "Assignment
Agreement") that provided that DigitalNet LLC would have the
exclusive right to "sell, use and license" IC-WEL for a fifteen-month
period and an option to buy IC-WEL for $1.5 million. J.A. 939-46,
973-74. Additionally, the Assignment Agreement provided for the
employment of certain IntraComm employees—Habibi and three
others—by DigitalNet LLC.
INTRACOMM, INC. v. BAJAJ 5
On the same date, DigitalNet LLC and Habibi entered into an
employment agreement. This agreement provided the terms and con-
ditions of Habibi’s employment with DigitalNet LLC. Appellants
were represented by IntraComm’s outside legal counsel in negotiating
the employment agreement and the Assignment Agreement.
In summer 2004, BAE began confidentially negotiating a purchase
of the outstanding shares of DigitalNet Holdings. Neither IntraComm
nor Habibi were advised of the BAE acquisition before entering into
the Assignment Agreement and the employment agreement. The BAE
acquisition was completed in October 2004, at which time the Digital-
Net firms changed their names to reflect BAE’s purchase. Bajaj and
Pearlstein left newly-named BAE IT LLC, formerly DigitalNet LLC,
after BAE’s acquisition, while Hanau remained with the company.
During Habibi’s employment with BAE IT LLC, he did not sell
any IC-WEL licenses to BAE IT LLC’s customers or potential cus-
tomers. Therefore, Habibi did not receive any sales commissions and
only received a $7.00 per hour salary, as contemplated in the employ-
ment agreement. Habibi, however, maintains that he was instructed
not to report hours he worked in excess of forty hours per week and
that the BAE IT LLC time-reporting system prohibited him from
doing so. Additionally, Habibi claims he received no compensation
for a period of two weeks in May 2004. Indeed, the parties have stipu-
lated that Habibi was not paid for 300 hours he actually worked dur-
ing his employment with BAE IT LLC. These contentions form the
basis of Habibi’s claim that he was not paid minimum wage, in viola-
tion of the FLSA.
In early 2005, Habibi demanded that BAE IT LLC exercise its
option to buy IC-WEL for $1.5 million and threatened to discontinue
his efforts at marketing IC-WEL unless BAE IT LLC agreed to do so.
After negotiations with Habibi failed, BAE IT LLC informed Habibi
that it would not exercise its option to buy IC-WEL. Habibi retained
legal counsel and sent a demand letter to BAE IT LLC. The parties
met but could not resolve the issues between them. BAE IT LLC
decided to terminate Habibi’s employment and did so just after
Habibi filed this lawsuit against Appellees in state court in Fairfax
County, Virginia.
6 INTRACOMM, INC. v. BAJAJ
In the lawsuit, Appellants alleged failure to pay minimum wage in
violation of the FLSA, breach of contract, and various other state-law
claims. Appellees removed the action to federal district court. The
district court exercised supplemental jurisdiction over Appellants’
state-law claims, and granted Appellees’ motion for summary judg-
ment on all claims save Habibi’s FLSA claim. The district court par-
tially granted Habibi’s motion for summary judgment on his FLSA
claim, finding that he was a non-exempt employee but also that BAE
IT LLC’s violation of the FLSA was not willful. The instant cross-
appeals followed.
II.
We first address Appellants’ argument that the district court lacked
subject-matter jurisdiction over this action because the Assignment
Agreement contained a forum-selection clause. We review de novo
the district court’s subject-matter jurisdiction determinations. Lontz v.
Tharp, 413 F.3d 435, 439 (4th Cir. 2005).
Appellants maintain that the forum-selection clause in the Assign-
ment Agreement mandates that all disputes be resolved in Fairfax
County, Virginia in state court. The Assignment Agreement contains
a clause that states, "In the event that such good faith negotiations do
not result in a resolution of a dispute, either party shall be free to pur-
sue its rights at law or equity in a court of competent jurisdiction in
Fairfax County, Virginia." J.A. 944 (emphasis added). Appellees
respond that this clause is permissive, providing merely that either
party may litigate in Fairfax County, Virginia and operating as a con-
sent to personal jurisdiction there by both parties.
A general maxim in interpreting forum-selection clauses is that "an
agreement conferring jurisdiction in one forum will not be interpreted
as excluding jurisdiction elsewhere unless it contains specific lan-
guage of exclusion." John Boutari & Son, Wines & Spirits, S.A. v.
Attiki Imp. and Distrib., Inc., 22 F.3d 51, 53 (2d Cir. 1994) (emphasis
in original) (internal quotations omitted). In spite of this general rule,
Appellants rely on Excell, Inc. v. Sterling Boiler & Mechanical, Inc.,
106 F.3d 318 (10th Cir. 1997), in arguing that the Assignment Agree-
ment requires resolution in Virginia state courts.
INTRACOMM, INC. v. BAJAJ 7
However, the forum-selection clause at issue in Excell stated, "Ju-
risdiction shall be in the state of Colorado." Id. at 320. That forum-
selection clause was mandatory, the court explained, as it contained
clear language stating that jurisdiction was only appropriate in Colo-
rado, the designated forum. Id. at 321. By contrast, the Excell court
cited the following as an example of a permissive forum-selection
clause: "The parties agree that . . . the courts of the State of Michigan
shall have personal jurisdiction . . . ." Id. (internal quotations omitted).
Although both clauses, like the one in the instant case, use the word
"shall," the word’s meaning differs with context.
Considering context here, we believe that the forum-selection
clause in the Assignment Agreement is more like the permissive
clause noted by the Excell court in that it permits jurisdiction in one
court but does not prohibit jurisdiction in another. The phrase "shall
be free to" is scarcely, if any, more restrictive than the word "may."
Because the Assignment Agreement does not preclude federal juris-
diction, the district court had subject-matter jurisdiction over Habibi’s
FLSA claim pursuant to 28 U.S.C. § 1331 and properly exercised sup-
plemental jurisdiction over Appellants’ state law claims pursuant to
28 U.S.C. § 1367. We therefore conclude that the district court prop-
erly exercised subject-matter jurisdiction in this case.1 Having so con-
cluded, we turn next to Appellants’ arguments that the district court
erred in granting summary judgment in favor of Appellees.
III.
We review de novo the district court’s grant of summary judgment.
LeBlanc v. Cahill, 153 F.3d 134, 148 (4th Cir. 1998). Summary judg-
ment is appropriate when there is no genuine issue as to any material
1
Appellants argue in their brief that the district court abused its discre-
tion by accepting supplemental jurisdiction over Appellants’ state law
claims pursuant to 28 U.S.C. § 1367. We find this argument to be with-
out merit. The federal and state law claims in Appellants’ complaint arise
out of the same interrelated series of events or transactions and derive
from "a common nucleus of operative fact," White v. County of New-
berry, 985 F.2d 168, 171 (4th Cir. 1993). Additionally, none of Appel-
lant’s claims raise "novel or complex issue[s] of state law," 28 U.S.C.
§ 1367(c).
8 INTRACOMM, INC. v. BAJAJ
fact and the moving party is entitled to judgment as a matter of law.
Fed. R. Civ. P. 56(c). Although in their brief Appellants argue that the
district court’s granting summary judgment in favor of Appellees on
all counts was erroneous, at oral argument Appellants focused on
their breach of contract claim against Appellees.2
Appellants maintain that Appellees breached the Assignment
Agreement by exercising the option to purchase IC-WEL from Appel-
lants but failing to follow through on their obligation to purchase.
Appellants argue that Appellees exercised the option to purchase by
(1) filing a provisional patent application for the IC-WEL software
and (2) exercising dominion and control over IC-WEL by marketing
the software. The Assignment Agreement provides that the option is
exercised "upon payment of the purchase price." J.A. 940. Virginia
law holds that the language of an option determines the method of the
required acceptance. Hart v. Hart, 544 S.E.2d 366, 373 (Va. Ct. App.
2001).
Despite Appellants’ arguments to the contrary, we are unconvinced
that the plain and clear language of the Assignment Agreement
allowed for any other means of acceptance of the option to purchase
IC-WEL than by tendering of the purchase price. It is undisputed that
BAE IT LLC never paid the agreed-upon purchase price of $1.5 mil-
lion for IC-WEL. However, even if BAE IT LLC could have exer-
cised the option by some other method, Appellants identify no facts
from which a reasonable jury could conclude that BAE IT LLC did
so.3
2
Having considered the parties’ arguments regarding the other counts,
we find that the district court’s grant of summary judgment to Appellees
on those counts was proper.
3
Appellants’ arguments that BAE IT LLC exercised the option by fil-
ing a provisional patent application and by marketing IC-WEL are
unavailing. BAE IT LLC filed the provisional patent application to pro-
tect its possible ownership rights in IC-WEL and it is undisputed that
after terminating Habibi, BAE IT LLC sent him all of the application
materials and advised him he was free to pursue a patent on his own.
Additionally, BAE IT LLC marketed IC-WEL pursuant to the express
terms of the Assignment Agreement, without claiming ownership of IC-
WEL and directing all potential licensees to Habibi. Clearly, neither
activity constituted exercise of the purchase option.
INTRACOMM, INC. v. BAJAJ 9
IV.
We now address Appellees’ cross-appeal. Appellees contend that
the district court improperly held that Habibi was a non-exempt
employee under the FLSA and therefore granted partial summary
judgment to Habibi on his FLSA claim. Again, we review de novo the
district court’s summary judgment determinations. LeBlanc, 153 F.3d
at 148.
A.
We begin with an overview of the categories of employees who are
statutorily exempted from the FLSA’s requirements and the regula-
tions defining such categories. The FLSA generally entitles covered
employees to a minimum wage and compensation at one and one-half
times the regular rate of pay for hours worked in excess of forty hours
per week. 29 U.S.C. §§ 206(a), 207(a)(1). Specific categories of
employees are, however, excluded from coverage. Under § 13(a)(1)
of the FLSA, "any employee employed in a bona fide executive,
administrative, or professional capacity . . . or in the capacity of out-
side salesman" is exempt from these minimum-wage and overtime
pay requirements. 29 U.S.C. § 213(a)(1).
Congress has granted the Secretary of Labor ("Secretary") "broad
authority to define and delimit" the scope of these exemptions. Auer
v. Robbins, 519 U.S. 452, 456 (1997). Pursuant to her authority, the
Secretary has promulgated regulations defining and delimiting the
exemptions for executive, administrative, professional, outside sales,
and computer employees. 29 C.F.R. Part 541. Each individual exemp-
tion is defined in part by the nature of the employee’s primary duty.
An employee’s "primary duty" is "the principal, main, major or most
important duty that the employee performs." 29 C.F.R. § 541.700.
Thus, for example, to meet the primary duty test of the outside sales
exemption, the employee must be "customarily and regularly engaged
away from the employer’s place or places of business in performing"
sales. 29 C.F.R. § 541.500(a)(2).
Some of the individual exemptions have other requirements as
well. The most common additional requirement, relevant here, is a
salary test. To qualify as exempt under the executive, administrative,
10 INTRACOMM, INC. v. BAJAJ
or professional exemptions, employees generally must, in addition to
meeting the primary duty tests, be paid on a salary or fee basis and
receive compensation of at least $455 per week. 29 C.F.R.
§§ 541.100, 541.200, 541.300. The outside sales exemption, however,
does not contain a salary test. See 29 C.F.R. § 541.500(c).
In addition to the individual exemptions just described, the Secre-
tary has also crafted a hybrid exemption. This so-called "combination
exemption" provides:
Employees who perform a combination of exempt duties as
set forth in the regulations in this part for executive, admin-
istrative, professional, outside sales and computer employ-
ees may qualify for exemption. Thus, for example, an
employee whose primary duty involves a combination of
exempt administrative work and exempt executive work may
qualify for exemption. In other words, work that is exempt
under one section of this part will not defeat the exemption
under any other section.
29 C.F.R. § 541.708 (emphasis added). It is the interrelationship of
the individual exemptions and the combination exemption that con-
cerns us here.
It is undisputed that Habibi is not exempt under the independent
tests of the individual exemptions. He does not meet the salary
requirement of the administrative exemption, the one that most
closely approximates his job duties, because he was paid an hourly
wage and never made $455 or more per week. Nor does he appear to
qualify for the outside sales exemption. Appellees do not challenge
the district court’s finding that Habibi did not customarily and regu-
larly sell outside its place of business; indeed, the record reflects that
he only went on four sales calls during his ten months of employment,
and primarily worked at BAE IT LLC’s headquarters.4
4
For that matter, Appellees have not argued at any stage of the litiga-
tion that Habibi is FLSA-exempt under any individual exemption other
than the combination exemption. Nor did they request, should we not
accept their interpretation of the combination exemption, that we remand
for consideration of another exemption in the alternative.
INTRACOMM, INC. v. BAJAJ 11
The question then arises as to whether Habibi can qualify for the
combination exemption, having failed to fully satisfy the require-
ments of the individual exemptions. The district court held that he
could not. It concluded that because Habibi did not qualify for either
the administrative or the outside-sales exemptions as defined by the
regulations, he could not qualify for the combination exemption,
either; Appellees’ failure to pay Habibi a minimum wage was there-
fore a violation of the FLSA. Appellees challenge this conclusion on
appeal, arguing that the combination exemption does not require that
Habibi meet the administrative exemption’s salary test. To aid in the
decisional process, this court requested that the Secretary of Labor
file an amicus brief explaining her interpretation of the combination-
exemption regulation.5
Because the Secretary has proffered her interpretation of the
combination-exemption regulation, we do not analyze it de novo.
Rather, the Secretary’s interpretation of her own combination-
exemption regulation in opinion letters and in her amicus brief to this
court is entitled to deference and is "controlling unless plainly errone-
ous or inconsistent with the regulation." Auer, 519 U.S. at 461 (inter-
nal quotations omitted) (deferring to the Secretary of Labor’s
interpretation of the combination-exemption regulation in amicus
brief); see also Acs v. Detroit Edison Co., 444 F.3d 763, 769-70 (6th
Cir. 2006) (opinion letter interpreting Secretary of Labor’s regulation
entitled to controlling deference).6 We now turn to an analysis of the
regulation in light of the Secretary’s interpretation.
5
The precise questions we posed to the Secretary were:
Can an employee qualify for the combination exemption without
independently qualifying for any other exemption? If so, what
standards guide the determination of whether the requirements of
such an exemption are met? For example, if the administrative
or executive employee exemptions are at issue, must an
employee satisfy the salary test to qualify for a combination
exemption when the characteristics of other exemptions (e.g., the
outside sales exemption) are considered?
6
The fact that the Secretary’s interpretation is presented to us in a legal
brief does not, in these circumstances, diminish the deference we must
accord it. The Supreme Court addressed this very issue in Auer when it
12 INTRACOMM, INC. v. BAJAJ
B.
We begin our consideration of the scope of the combination
exemption with the language of the regulation itself. We bear in mind,
as we must, the Supreme Court’s guidance that the exemptions are to
be "construed narrowly against the employer seeking to assert them,"
Arnold v. Ben Kanowsky, Inc., 361 U.S. 388, 392 (1960), and that the
employer bears the burden of proving that employees are exempt,
Idaho Sheet Metal Works, Inc. v. Wirtz, 383 U.S. 190, 206 (1966).
By its terms, the combination-exemption regulation focuses solely
on the employee’s job duties. That is, it is the "combination of exempt
duties" that "may qualify [an employee] for exemption." 29 C.F.R.
§ 541.708. The example provided by the regulation highlights this
singular focus: "an employee whose primary duty involves a combi-
nation of exempt administrative work and exempt executive work
may qualify for the exemption." Id. The combination-exemption regu-
lation does not expressly include or exclude any of the other require-
ments, such as salary tests, of the individual exemptions.
The silence of the regulation regarding the other requirements of
the individual exemptions yields two possible interpretations. The
first, as suggested by Appellants, reads the combination-exemption
regulation to provide an alternative method for satisfying the primary-
duty test, without abrogating the other requirements needed for the
exemption to attach. This interpretation gives full effect to the textual
focus of the regulation on job duties only and also comports with the
maxim that exemptions are to be "construed narrowly against the
employer seeking to assert them." Arnold, 361 U.S. at 392. The other
deferred to an amicus brief it requested of the Secretary of Labor. See
519 U.S. at 462. Here, as in Auer, "[t]he Secretary’s position is in no
sense a ‘post-hoc rationalization’ advanced by an agency seeking to
defend past agency action" but rather "reflect[s] the agency’s fair and
considered judgment on the matter in question," id. See also Long Island
Care at Home, Ltd. v. Coke, 127 S. Ct. ___, slip op. at 11 (2007) (citing
Auer approvingly in a unanimous decision deferring to an agency inter-
pretation of its regulation in an internal memorandum where the memo-
randum represents the agency’s "considered views").
INTRACOMM, INC. v. BAJAJ 13
interpretation, proffered by Appellees, is that the combination exemp-
tion creates a new and independent exemption for any employee
whose job duties represent a hybrid of the individual exemptions,
regardless of whether the other requirements of those individual
exemptions are satisfied.
In her amicus brief, the Secretary asserts her longstanding support
of the first interpretation. According to the Secretary, the combination
exemption addresses the situation that exists when an employee does
not meet the primary-duty requirement of any individual exemption.
In such cases, an employee may nonetheless be exempt from the
FLSA’s minimum-wage requirements pursuant to the combination
exemption, which permits considering different exempt duties
together for purposes of meeting the primary-duty test. Thus, an
employee performing duties that fall under more than one individual
exemption, none of which separately represents her primary duty,
may be exempt under the combination exemption if those duties,
when combined, constitute her primary duty. Amicus Br. at 4-5; see
also Wage and Hour Opinion Letter Wage and Hour Opinion Letter
(Aug. 11, 1943), at 2 ("[I]n proper cases a combination exemption
under two or more sections of Regulations, Part 541, may operate to
exempt an employee performing some duties falling with more than
one of these sections."). In other words, the combination exemption
provides a mechanism for cobbling together different exempt duties
for purposes of meeting the primary-duty test. See 29 C.F.R.
§ 541.708; see also Auer, 65 F.3d at 722; Wage and Hour Opinion
Letter (Aug. 11, 1943), at 2.
Although the combination exemption permits the blending of
exempt duties for purposes of defining an employee’s primary duty,
it does not, according to the Secretary, relieve employers of their bur-
den to independently establish the other requirements of each exemp-
tion whose duties are combined. Amicus Br. at 4-6. In the Secretary’s
view, then, the combination exemption cannot apply to an employee
with administrative job functions constituting part of her "primary
duty" unless the employee also meets the administrative exemption’s
salary requirement. Since Habibi does not meet the salary require-
ment, he would not, under the Secretary’s approach, qualify for
exemption under the FLSA.
14 INTRACOMM, INC. v. BAJAJ
As noted above, the Secretary’s interpretation of her own regula-
tion is "controlling unless plainly erroneous or inconsistent with the
regulation." Auer, 519 U.S. at 461 (internal quotations omitted). Def-
erence to the Secretary is particularly appropriate when the regulation
itself is ambiguous. See Christensen v. Harris County, 529 U.S. 576,
588 (2000); Humanoids Group v. Rogan, 375 F.3d 301, 306 (4th Cir.
2004).
Appellees argue that the Secretary’s interpretation is inconsistent
with the plain meaning of the regulation and is therefore entitled to
no deference. That is, Appellees contend that the regulation unam-
biguously classifies as exempt any employee whose various job func-
tions might be considered jointly to meet the primary-duty test of the
combination exemption, even if no other requirements of the individ-
ual exemptions are satisfied. Appellees point to the regulation’s
silence regarding these other requirements of the individual excep-
tions as evidence that they were not intended to be incorporated into
the combination exemption. Appellees further contend that to require
employers to prove that an employee independently meets the
requirements of each individual exemption sought to be combined
would render the combination exemption superfluous.7
We are not unsympathetic to Appellees’ views, nor can we say that
their interpretation of the regulation is an unreasonable one. We are
7
To bolster their textual argument, Appellees highlight a change made
to the combination-exemption regulation in the 2004 revisions to the Part
541 exemptions. The prior combination-exemption regulation stated that
the stricter of the salary requirements of the individual exemptions being
combined must be met in order to qualify for the combination exemption.
29 C.F.R. § 541.600 (2003). That is, the regulation itself referred to the
salary tests. The new regulation, applicable here, does not. Appellees
contend that we should infer that the revisions were intended to eliminate
the requirement of a salary test for an employee such as Habibi. We need
not guess as to the Secretary’s intent in updating the regulation, however,
because the Secretary’s brief makes clear her interpretation of the present
iteration of it. This interpretation is strengthened by the fact that the pre-
amble to the proposed amended regulations state that the changes were
made "to simplify and update the current regulations," 68 Fed. Reg.
15,560, 15,573 (Mar. 31, 2003), not to effect a major alteration in how
exemptions are construed.
INTRACOMM, INC. v. BAJAJ 15
unable to conclude, however, that the language of the regulation com-
pels this reading. In fact, rather than the Secretary’s interpretation ren-
dering the combination exemption superfluous, it can be equally
strongly argued that Appellees’ interpretation has the potential to ren-
der the individual exemptions superfluous. Under Appellee’s reading,
an employee who performs mostly administrative work but was not
exempt because he fails the salary test could nevertheless be consid-
ered exempt because he performs some proportion, however small, of
outside-sales work as well. Under such scenario, an employer could
remove an employee under the salary floor from the protections of the
FLSA by simply combining his exempt administrative work with
other exempt duties. Read in this way, the combination exemption
potentially dramatically expands, rather than contracts, the universe of
statutory exemptions—an interpretation the Supreme Court cautions
against. See Arnold, 361 U.S. at 392.
In any case, the existence of two arguably plausible but conflicting
interpretations convinces us that the combination-exemption regula-
tion is at best ambiguous. Despite Appellees’ arguments to the con-
trary, the regulation’s silence regarding the additional requirements of
the individual exemptions could equally well support the Secretary’s
position that the combination exemption combines job functions into
a primary duty, rather than creating a new, independent test for
exempt status. Because of this ambiguity, and because the Secretary’s
interpretation is consistent with the plain meaning of the regulation,
we are bound to defer to it. Auer, 519 U.S. at 461.
Our deference to the Secretary’s interpretation is all the more war-
ranted because the Department of Labor ("DOL") has long interpreted
the combination-exemption regulation in a manner consistent with
that presented in the Secretary’s brief. For example, opinion letters
from the DOL’s Wage and Hour Division accord with the Secretary’s
interpretation. See Wage and Hour Opinion Letter No. 298, 61-66
CCH-WH ¶30,901 (Sept. 25, 1964) (employee performing executive
and outside-sales duties must meet the salary test for executive
employees in order to be exempt as a combination executive/outside-
sales employee under the Part 541 regulations); Wage and Hour Opin-
ion Letter (July 31, 1951), at 2 (employee must meet the salary
requirements of the executive exemption to be exempt under a combi-
nation executive/outside-sales exemption).
16 INTRACOMM, INC. v. BAJAJ
We also note that other courts have interpreted the regulation in
harmony with the Secretary’s view. See Shockley v. City of Newport
News, 997 F.2d 18, 25-26 (4th Cir. 1993) (requiring city to prove, for
application of the combination executive/administrative exemption,
that police officers met the salary test and that each officer’s primary
duty was a combination of both management and administration);
Condren v. Sovereign Chemical Co., No. 97-3091, 1998 WL 165148,
at *2, *6 (6th Cir. Apr. 3, 1998) (unpublished) (employee must meet
each requirement of exemption, including salary test, "either outright,
or through the combination exemption").8 Similarly, courts have rec-
ognized that the salary test that applies to the executive, administra-
tive, and professional exemptions also applies to the combination
exemption when employers seek to combine duties from those
exemptions with the duties from the outside-sales exemption, which
does not contain a salary test. See Condren, 1998 WL 165148, at *2,
*6; Ballou v. DET Distrib. Co., No. 3-03:1055, 2006 WL 2035729,
at *17 (M.D. Tenn. July 17, 2006) (employees not paid on a salary
basis cannot qualify for a combination executive/outside-sales exemp-
tion). As noted above, such decisions are consistent with the Secre-
tary’s longstanding interpretation as expressed in the DOL’s own
opinion letters. See Wage and Hour Opinion Letter No. 298, 61-66
CCH-WH ¶30,901 (Sept. 25, 1964); Wage and Hour Opinion Letter
(July 31, 1951), at 2.
In light of the convention requiring narrow construction of exemp-
tions and the reasonableness and consistency of the Secretary’s inter-
pretation of the combination-exemption regulation, we conclude that
Appellees have not carried their burden of proving that Habibi is
exempt from the minimum-wage and overtime-pay requirements of
the FLSA. Therefore, we affirm the district court’s granting of sum-
mary judgment to Habibi on the issue of his status under the FLSA.9
8
The Sixth Circuit permits citation of its unpublished opinions without
limitation. See 6th Cir. R. 28(g); cf. Fed. R. App. P. 32.1(a).
9
Appellants’ complaint alleged that Appellees "knowingly and inten-
tionally failed to pay" Habibi minimum wage and compensation due.
J.A. 40. The district court concluded that "[t]he undisputed evidence is
BAE IT LLC’s classification of Habibi as an exempt employee under the
combination exemption[, although incorrect,] was done in good faith."
IntraComm, Inc. v. Bajaj, No. 05-0955, 2006 U.S. Dist. LEXIS 96177,
at *10 (E.D. Va. Apr. 19, 2006). Given the ambiguity as to the regula-
tion’s application, we agree.
INTRACOMM, INC. v. BAJAJ 17
V.
For the foregoing reasons, we affirm the district court’s granting of
summary judgment to Appellees on Appellants’ state-law claims. We
also affirm the district court’s grant of partial summary judgment to
Appellant Habibi on his FLSA claim, finding that he was a non-
exempt employee entitled to minimum wage under the FLSA but that
Appellees’ violation of the FLSA was not willful.
The judgment of the district court is accordingly
AFFIRMED.