DiGiore, Dennis v. Ryan, George ( 1999 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 98-1021
Dennis DiGiore, Robert Dufkis, Ken Easterly,
Joe Gabuzzi, William E. Johns, et al.,
Plaintiffs-Appellants,
v.
George H. Ryan, Giacomo A. Pecoraro,
and Tina Prose,
Defendants-Appellees.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 96 C 1785--Ruben Castillo, Judge.
Argued October 1, 1998--Decided March 25, 1999
Before Coffey, Kanne, and Diane P. Wood, Circuit
Judges.
Kanne, Circuit Judge. This case presents the
issue of whether police lieutenants and sergeants
working for the state of Illinois were due
overtime pay under the Fair Labor Standards Act
("FLSA"). The district court found they were not
so entitled because they fall within the
executive exemption of the FLSA. Defendants’
motion for summary judgment was granted. We
affirm.
I. History
The Illinois Secretary of State ("SOS") employs
Plaintiffs as police officers ("Plaintiffs" or
"Officers")./1 They are not covered by a union
contract and are classified as "Merit
Compensation" employees. The Secretary pays them
an annual salary through bi-monthly paychecks.
They do not receive overtime pay for hours worked
beyond their normal shifts.
Defendants are or were officials with SOS
("Defendants" or "SOS officials")./2 George Ryan
served as the Illinois Secretary of State from
January 1991 through December 1998 (he is now
Governor of Illinois). Giacomo Pecoraro was
Director of the Police Department from 1991
through 1995. Tina Prose has served as the
Director of the Department of Personnel since
1991. These individuals oversaw the disciplinary
procedures to which SOS subjects police officers.
Plaintiffs contend that the policies and
practices implemented by these three SOS
officials subjected them to actual and potential
salary deductions. They claim that prior to
December 1993, but within the three year statute
of limitations for willful violations of the
FLSA, the policies and practices found in the
Police Department’s Accident Policy and Physical
Fitness Policy and the SOS’s pre-1993 Progressive
Disciplinary Policy enabled the SOS officials to
suspend Plaintiffs without pay, which to them
constituted a salary deduction. They contend that
these salary deductions negate their status as
salary basis employees and, accordingly, entitles
them to overtime pay. This result flows from the
conclusion that if the officers cannot be
classified as salary basis employees, the SOS
officials cannot claim the officers qualify for
the exemption. If not within the exemption, the
officers should receive overtime pay under the
FLSA.
The three policies and how the SOS officials
enforced them form the core of this case. The
Police Department adopted its Accident Policy
("Accident Policy") in August 1990. This policy
governs the disciplinary procedures regarding
"chargeable accidents" for police officers of all
ranks. Three levels of penalties exist under this
policy. For the first offense within twenty-four
months, an officer may be suspended from one to
three days without pay or required to work one to
three days without compensation. For the second
offense within twenty-four months, an officer may
be suspended without pay for two to five days or
required to work the same number of days without
compensation. For the third offense within
twenty-four months, an officer’s amount of
suspension or uncompensated work time may range
from three to ten days. The penalties are not
mandatory; rather the Accident Review Board
recommends to the Director of Police the
appropriate amount of discipline based, in part,
upon this list of suggested penalties.
The Police Department’s Physical Fitness Policy
("Fitness Policy"), which was in effect from June
1992/3 until October 1996, also permitted the
use of unpaid suspensions as a disciplinary
action. Similarly applicable to all ranks of
police officers, the Fitness Policy provided for
various levels of punishment including verbal
warnings, written warnings, and suspensions.
Unlike the Accident Policy, however, the Fitness
Policy did not specify the type of penalty
warranted for specific violations. It did,
however, specify that suspensions had to be
administered in an incremental process ranging
from two-day to twelve-day periods.
The final policy relevant to this case is the
SOS Progressive Disciplinary Policy
("Disciplinary Policy"). This policy governs
misconduct by all SOS employees, not only police
officers. Under this policy, police officers
could be suspended without pay. In 1993, SOS
amended the Disciplinary Policy to state that
Merit Compensation employees can be suspended
only in five-day or equivalent work week
increments. The Personnel Director, Tina Prose,
testified that SOS made the 1993 amendments to
reflect a practice that had been in place since
1990. The Chief Labor Negotiator, William
Rolando, confirmed Prose’s statement. In
addition, Prose testified that the Disciplinary
Policy trumps all other policies affecting Merit
Compensation employees, including the Accident
Policy and Fitness Policy of the Police
Department. The SOS manual, however, does not
specifically reflect this overarching nature of
the Disciplinary Policy.
In applying these policies to specific
employees, SOS adopted a mechanism to ensure it
complies with the FLSA requirements. First, the
Director of Police recommends a course of
discipline. The Personnel Department, then,
approves or denies the recommendation after the
Technical Services Division of SOS’s Personnel
Department reviews personnel actions specifically
for FLSA compliance issues.
These safeguards are not fool-proof, however;
SOS has subjected salary basis officers to
disciplinary procedures that are inconsistent
with the requirements of a salary basis employee.
In 1989, SOS suspended Easterly for eighteen
days--three full work weeks, plus a partial work
week. In 1990, SOS suspended Juliano, a sergeant
at the time, without pay for a five-day period
that spanned two work weeks under the
Disciplinary Policy. SOS has issued no other
split-week suspension since that time. SOS issued
unpaid suspension to four sergeants in 1991 under
the Accident Policy./4 No evidence suggests any
SOS police officer with a rank of sergeant or
higher has been suspended without pay under the
Fitness Policy. As the district court noted,
these five cases (Plaintiffs do not address
Easterly’s 1989 suspension without pay) are the
only instances of unpaid suspensions of police
offices with the rank of sergeant or higher. The
other plaintiffs do not allege to have been
subjected to unpaid suspensions, but rather
allege that potentially being subjected to the
improper salary deductions removes them from the
status of salary basis employees. In November
1997, SOS notified the officers of the improper
disciplinary actions and compensated them for the
suspension or uncompensated work time.
SOS also failed to compensate Sergeant Serafini
for the overtime he worked. Serafini’s situation
differs from that of the other officers, however,
because his claim rests not only upon his status
as a salary basis employee, but also upon his
supervisory role. Since April 1997 as part of a
cooperative venture with the United States Secret
Service, Serafini has been on a temporary
assignment during which he had no supervisory
duties. This assignment, by SOS’s own admission,
enabled Serafini to receive overtime
compensation. It agreed to pay Serafini for any
past or future overtime compensation associated
with that assignment.
Plaintiffs sued SOS under the FLSA alleging
that the Accident, Fitness, and Disciplinary
Policies and SOS’s practices constituted salary
deductions that made it impossible for the SOS
officials to claim the officers were exempt from
the overtime pay requirements because they fell
within the statute’s executive exemption. After
granting Defendants’ motion to dismiss the claims
against the State of Illinois and Ryan and
Pecoraro in their official capacities on Eleventh
Amendment immunity grounds, the district court
dismissed the officers’ claims and granted the
SOS officials’ motion for summary judgment on the
claims raised against them in their individual
capacities. It concluded that the SOS policies
did not satisfy the test set forth in Auer v.
Robbins, ___ U.S. ___, 117 S. Ct. 905 (1997),
regarding whether employees are subject to
impermissible salary deductions that remove them
from any of the FLSA exemptions. Specifically, it
found that the SOS policies failed to create a
"significant likelihood" of improper salary
deductions and that Plaintiffs failed to
demonstrate that SOS engaged in an "actual
practice" of disciplinary deductions under that
test. In addition, the district court concluded
that the SOS officials had complied with the
Department of Labor regulations’ "window of
correction" doctrine.
With regard to Serafini’s claim, the district
court found it moot because SOS had recognized
its improper denial of overtime pay and had
agreed to compensate him. This decision places
Serafini in the position of a non-prevailing
party and makes him potentially liable for
Defendants’ costs. The SOS officials filed a
motion for bill of costs totaling $8,864.20
against all Plaintiffs, but later withdrew it
voluntarily.
Plaintiffs argue on appeal that the district
court should not have granted the SOS officials’
motion for summary judgment because SOS failed to
establish that Plaintiffs meet the duties and
salary tests for the executive exemption under
FLSA. With respect to Serafini specifically,
Plaintiffs claim that the district court should
have granted their motion for summary judgment
because he does not qualify for the exemption, as
SOS has noted by its attempt to compensate him
under the "window of correction." To find
otherwise, the Plaintiffs charge, makes it
impossible for Serafini to seek judicial redress
if SOS fails to live up to its current promise to
pay him the overtime it admits it owes him and
subjects him to the possibility of having to pay
the SOS officials’ attorneys’ fees and costs as
well.
II. Analysis
This case raises two issues. First, whether the
Eleventh Amendment bars the officers’ claims
against the SOS officials. Second, whether the
officers come within one of the statutory
exemptions of the FLSA. Because we find that
Plaintiffs come within the executive exemption of
the FLSA and, thus, the SOS officials are not
liable, we need not reach the Eleventh Amendment
issue raised by the officers. Cf. Illinois Health
Care Ass’n v. Illinois Dept. of Pub. Health, 879
F.2d 286, 291 n.9 (7th Cir. 1989) (concluding
that a court may refrain from reaching issues of
standing and sovereign immunity because
plaintiffs failed to state a claim under a Rule
12(b)(6) motion). Therefore, we will consider
only the FLSA claims in light of the district
court’s decision to grant the SOS officials’
motion for summary judgment.
A. Standard of Review
We review a district court’s grant of summary
judgment de novo. See Tesch v. County of Green
Lake, 157 F.3d 465, 471 (7th Cir. 1998). Summary
judgment is proper when "the pleadings,
deposition, answers to interrogatories, and
admissions on file, together with the affidavits,
if any, show that there is no genuine issue as to
any material fact and that the moving party is
entitled to a judgment as a matter of law." Fed.
R. Civ. P. 56(c); see also Celotex Corp. v.
Catrett, 477 U.S. 317, 322-23 (1986). In
determining whether a genuine issue of material
fact exists, we construe all facts in the light
most favorable to the nonmoving party and draw
all reasonable and justifiable inferences in that
party’s favor. See Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 255 (1986). However, neither
"the mere existence of some alleged factual
dispute between the parties," Anderson, 477 U.S.
at 247, nor the existence of "some metaphysical
doubt as to the material facts," Matsusita Elec.
Indus. Co. v. Zenith Radio Corp., 475 U.S. 574,
586 (1986), is sufficient to defeat such a
motion.
B. The Officers’ FLSA Claims
All Plaintiffs (except Serafini) share similar
claims against the SOS officials. They argue that
the SOS officials cannot avoid their FLSA duty to
pay them overtime because they are not salaried
employees. In a related claim against the SOS
officials, Serafini alleges not only that he too
is not a salaried employee, but also that he
cannot fall within the executive exemption
because his duties since April 1997 do not come
within the supervisory requirement of that
exemption. Because of this difference we, like
the district court, will consider his claims
independently.
1. The Officers Come within the
Executive Exemption
State and municipal employers must abide by the
FLSA, 29 U.S.C. sec. 201 et seq., just as private
employers do. See Garcia v. San Antonio Metro.
Transit Auth., 469 U.S. 528 (1985). Under the
FLSA, employers must pay their employees at least
one and a half times their regular wage for the
number of hours worked that exceed forty in a
given week. 29 U.S.C. sec. 207(a)(1). However,
the statute exempts employees whose duties fit
within one of the three statutory exemptions--
executive, administrative, or professional--from
this requirement.
The Secretary of Labor has the authority to
define the scope of this section and the
exemptions. See 29 U.S.C. sec. 213(a)(1). Thus,
the Secretary’s regulations have "the force and
effect of law." Cf. Batterton v. Francis, 432
U.S. 416, 425 n.9 (1977). The Secretary has
defined a long test and a short test to determine
whether an employee falls within each exemption.
See, e.g., 29 U.S.C. secs. 541.1(a)-(e) & .119
(providing long and short test for executive
exemption). Under these tests, the employer bears
the burden of establishing whether an employee
fits within an exemption. See Corning Glass Works
v. Brennan, 417 U.S. 188, 196-97 (1974). The
short test may be used only if the employee is
"compensated on a salary or fee basis at a rate
of not less than $250 per week exclusive [of]
board, lodging, or other facilities." 29 C.F.R.
sec. 541.119, .214, & .315.
The SOS officials claim that the police
officers are not entitled to overtime pay because
they qualify for the executive exemption. Neither
party disputes that the officers’ yearly salaries
meet the requirements for the short test, so we
focus our attention accordingly. In order to
demonstrate that an employee comes within the
short test of the executive exemption, the
employer must show that: (1) the employee is
compensated on a salary basis; (2) the employee’s
primary duty consists of management
responsibilities; and (3) the employee
customarily and regularly supervises two or more
other employees./5 29 C.F.R. sec. 541.119(a);
see also Murray v. Stuckey’s, Inc., 939 F.2d 614,
617 (8th Cir. 1991).
We can dispense with two of the three factors
with brief discussion. The officers do not
contest that they supervised two or more
employees during the relevant time-frame and,
therefore, meet the supervisory aspect of the
short test. On appeal, they raise for the first
time an issue regarding whether their duties are
managerial in nature. "The well-established rule
in this Circuit is that a plaintiff waives the
right to argue an issue on appeal if she fails to
raise the issue before a lower court." Robyns v.
Reliance Standard Life Ins. Co., 130 F.3d 1231,
1238 (7th Cir. 1997); see also Huntzinger v.
Hastings Mutual Ins. Co., 143 F.3d 302, 307 (7th
Cir. 1998) ("[I]t is axiomatic that an issue not
first presented to the district court may not be
raised before the appellate court as a ground for
reversal." (quoting Christmas v. Sanders, 759
F.2d 1284, 1291 (7th Cir. 1985)). A party
opposing a motion for summary judgment must raise
any genuine material factual disputes to the
district court or risk losing. See Vance v.
Peters, 97 F.3d 987, 991 (7th Cir. 1996);
Waldridge v. American Hoechst Corp., 24 F.3d 918,
920 (7th Cir. 1994); Fed. R. Civ. P. 56(e).
While it is true that the employer bears the
burden of establishing that an employee meets
each requirement of the exemption, this burden
does not relieve the officers from their
responsibility of raising the fact that the SOS
officials failed to establish their burden before
the district court. Before the district court,
Plaintiffs did not dispute Defendants’ statements
in Defendants’ Motion for Summary Judgment or
those in Defendants’ Reply Memorandum in Support
of Motion for Summary Judgment that the police
officers supervised two to twenty-three
subordinates and were responsible for "making
assignment[s], determining how assignments will
be carried out, setting work schedules, reporting
directly to the next superior officers, attending
management meetings, etc." Because Plaintiffs
failed to contest these statements of fact in a
timely manner before the district court, they
waived their right to raise this issue before us.
The remaining thrust of Plaintiffs’ appeal is
aimed at the district court’s determination that
the officers were salaried employees under the
executive exemption short test despite the
Accident, Fitness, and Disciplinary Policies.
Plaintiffs claim that the Accident, Fitness, and
Disciplinary Policies created a significant
likelihood that they would be subject to
impermissible deductions in pay. They also argue
that the five instances in which SOS improperly
subjected employees to deductions in their pay as
part of disciplinary actions demonstrate that SOS
actually made impermissible deductions. Thus,
they believe the district court incorrectly
granted the motion for summary judgment.
The regulations explain that an employee is
deemed to be on a salary basis:
if under his employment agreement he regularly
receives each pay period on a weekly, or less
frequent basis, a predetermined amount
constituting all or part of his compensation,
which amount is not subject to reduction because
of variations in the quality or quantity of the
work performed.
29 C.F.R. sec. 541.118(a). This requirement,
commonly referred to as the "no-docking rule,"
prohibits employers from deducting an employee’s
pay based on partial day absences, violations of
rules, and other indicators of the quantity or
quality of an employee’s work. See Bankston v.
Illinois, 60 F.3d 1249, 1253 (7th Cir. 1995).
However, "[p]enalties imposed in good faith for
infractions of safety rules of major significance
will not affect the employee’s salaried status."
29 C.F.R. sec. 541.118(a)(5). The officers in
this case contend that the SOS officials
subjected them to improper pay deductions based
on the policies and practices found in the
Accident, Fitness, and Disciplinary Policies.
In Auer v. Robbins, the Supreme Court settled
the conflict growing between the circuits
regarding the legal standard by which courts
should determine whether an employee is subject
to impermissible pay deductions. 117 S. Ct. at
910-11. In deferring to the Secretary’s
interpretation of the salary basis test presented
in the Secretary’s amicus brief, the Court held
that an employer cannot claim exempt status for
an employee and find shelter from liability under
the FLSA, if its "employees are covered by a
policy that permits disciplinary or other
deductions in pay ’as a practical matter.’" 117
S. Ct. at 911 (summarizing the Secretary’s
interpretation of the regulations). The Court
also relied upon the Secretary’s amicus brief to
explain this standard further:
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. The Secretary’s
approach rejects a wooden requirement of actual
deductions, but in their absence it requires a
clear and particularized policy--one which
"effectively communicates" that deductions will
be made in specified circumstances. This avoids
the imposition of massive and unanticipated
overtime liability . . . in situations in which
a vague or broadly worded policy is nominally
applicable to a wide range of personnel but is
not "significantly likely" to be invoked against
salaried employees.
Id.
Our previous opinion in Bankston comports with
the interpretation in Auer that the no-docking
rule "does not require proof that a deduction
actually has been made from an employee’s
salary," 60 F.3d at 1253, but the Court in Auer
established a higher bar than we had. We had
previously concluded that "it is enough that [a
deduction] could have been made for this
regulation to remove an employee from exempt
status." Id. (emphasis added). We reasoned that
employees who were subject to policies that
created a theoretical possibility of improper
disciplinary deductions from the exemptions did
not qualify as salary basis employees. In Auer,
the Supreme Court clarified that a theoretical
possibility of an impermissible pay deduction is
not enough to demonstrate that an employee does
not qualify under the salary basis prong of the
exemption. 117 S. Ct. at 911. Rather, absent an
actual practice, the employer must subject
employees to a policy that creates the
"significant likelihood" of impermissible pay
deductions in order to remove the employee from
salary basis status. Id. A policy that falls
within the scope of this category is "one which
’effectively communicates’ that deductions will
be made in specified circumstances." Id. Thus,
under Auer, an employer whose policy creates a
significant likelihood of impermissible
deductions or who actually engages in practices
of making impermissible deductions is considered
to be impermissibly docking an employee’s pay.
a. The SOS Officials Did Not Create
a Significant Likelihood
of Improper Salary Deductions
We agree with the district court’s conclusion
that Plaintiffs did not face a significant
likelihood of pay deductions. The officers
present a factual situation similar to that posed
in Auer, in which the Supreme Court addressed the
issue of whether St. Louis police sergeants and
a police lieutenant were subject to disciplinary
deductions so as to disqualify them from the
executive exemption. Id. at 910. The Court
concluded that the policy upon which the officers
relied to establish their claims did not create
a significant likelihood that they would be
subject to impermissible deductions even though
the policy, as described in the Police Manual,
listed various rule violations and specified the
range of penalties for each. Id. at 911. It found
that the manual did not effectively communicate
that the officers would be subject to
impermissible pay deductions because the manual
applied to employees paid on a salary basis, as
well as those who were not. Id. The Court stated:
[T]he manual does not "effectively communicate"
that pay deductions are an anticipated form of
punishment for employees in petitioners’
category, since it is perfectly possible to give
full effect to every aspect of the manual without
drawing any inference of that sort. If the
statement of available penalties applied solely
to petitioners, matters would be different; but
since it applies both to petitioners and to
employees who are unquestionably not paid on a
salary basis, the expressed availability of
disciplinary deductions may have reference only
to the latter. No clear inference can be drawn as
to the likelihood of a sanction’s being applied
to employees such as petitioners.
Id. at 911-12; see also Balgowan v. New Jersey,
115 F.3d 214, 219 (3d Cir. 1997) (finding that
the State’s "broad-based policy fails to
’effectively communicate’ that pay deductions are
an anticipated form of punishment" for the
employees because it applied to all employees,
not just those who maintained the status of
salary basis.); Carpenter v. City & County of
Denver, 115 F.3d 765, 767 (10th Cir. 1997)
(finding that "the City Charter applies to all
members of the classified service, and, thus,
does not ’effectively communicate’ that the
statement of available penalties applies only to
plaintiffs.").
The policies upon which the officers rely
similarly apply to salary basis and non-salary
basis employees of the police department, in the
case of the Accident and Fitness Policies, and of
the SOS, in the case of the Disciplinary Policy.
The officers do not demonstrate that SOS
communicated through these policies, its
employment manuals, or other forums that it would
subject salary basis employees, such as the
officers, to the relevant deductions in these
policies. Thus, unlike the employees in Ahern v.
County of Nassau, 118 F.3d 118, 121-22 (2d Cir.
1997), who established that the employment manual
stated that salary basis employees were subject
to the deductions, but who failed to demonstrate
that the deductions would be made in specific
instances, the officers in the case before us did
not show that the broad-based policies subjected
them, along with the non-salary basis employees,
to deductions that would be impermissible under
the FLSA.
The manner in which SOS applied the policies
also makes it significantly unlikely that salary
basis employees would be subject to impermissible
deductions. In addition to its broad application
of the policy to all employees regardless of
their salary status, SOS implemented a review
practice to ensure that the policies would not
impact salary basis employees in a way that would
violate the FLSA. We agree with the Ninth
Circuit’s conclusion that a similar review
process conducted by city managers in which all
disciplinary suspensions were examined to ensure
compliance with applicable laws, including the
FLSA, see Stanley v. City of Tracy, 120 F.3d 179,
184 (9th Cir. 1997), makes it improbable that the
policies create a significant likelihood of
impermissible deductions. Because the officers
failed to demonstrate that the Accident, Fitness,
and Disciplinary Policies effectively
communicated that they would be subject to
deductions in specified circumstances, we
conclude that the policies did not create a
significant likelihood that the officers would be
subject to improper deductions.
b. The SOS Officials Did Not
Engage in the Actual Practice of
Improper Salary Deductions
Plaintiffs’ alternative charge that the SOS
officials engaged in the actual practice of
improper pay deductions with respect to some of
the officers also falls short of the mark. They
contend that the SOS issued five suspensions that
were impermissible under the FLSA. The SOS does
not deny that it issued the suspensions, but it
also points out that it notified the officers of
the improper disciplinary actions and told them
that they would be compensated for the
deductions. While it is true that the practice of
actually suspending sergeants and lieutenants
without pay for less than one week would raise an
issue that could defeat a motion for summary
judgment, see Auer, 117 S. Ct. at 911, the
district court found that these five isolated
incidents did not amount to an actual practice
and that even if they did rise to that level, the
defendants had preserved the officers’ status as
exempt employees by compensating the officers for
the improper deduction in accordance with the
FLSA’s "window of correction."
Plaintiffs argue that the undisputed actual
incidents in which the SOS officials improperly
deducted the pay of some sergeants and
lieutenants as part of disciplinary actions
demonstrate that the SOS officials engaged in the
actual practice of making impermissible
deductions. Like the district court, we find
Plaintiffs’ argument unpersuasive. In Auer, the
Supreme Court concluded that a one-time deduction
under unusual circumstances did not remove an
employee from exempt status. Id. Similarly, the
Tenth Circuit concluded that two cases of
improper deductions under unusual circumstances
also did not remove an employee from exempt
status. See Carpenter, 115 F.3d at 767. The
Eleventh Circuit has found that six disciplinary
suspensions would not prevent an employer from
availing itself of the window of correction. See
Davis v. City of Hollywood, 120 F.3d 1178, 1180
(11th Cir. 1997)./7 Plaintiffs base their claims
that the five suspensions constitute an actual
practice based on a record that persuades us to
conclude otherwise. The general practice of SOS
is to limit officer suspensions to full week
periods, which are permissible forms of
disciplinary actions for salary basis employees.
No split week suspensions have been issued since
1990. SOS updated the Disciplinary Policy manual
to reflect this practice as well in 1993.
Individual examination of the five suspensions
demonstrates that they occurred under unusual
circumstances. Juliano’s suspension occurred
before any of the defendants took office. Those
suspensions that occurred in 1991 were also
unusual in that Pecoraro, one of the individuals
who must approve suspensions, was absent. These
instances simply do not demonstrate that improper
deductions occurred with some frequency or under
circumstances that were anything but unusual.
Even if these five incidents rose to the level
of frequent and, thus, constituted an actual
practice by the SOS officials, the officers would
still be exempt from the FLSA because the SOS
officials availed themselves of the regulatory
"window of correction." The Secretary provided
employers with a window of correction to permit
them to retain the exempt status of their
employees if they inadvertently made deductions
inconsistent with the salary basis test. The
regulations provide that when "a deduction not
permitted by these interpretations is
inadvertent, or is made for reasons other than
lack of work, the exemption will not be
considered to have been lost if the employer
reimburses the employee for such deductions and
promises to comply in the future." 29 C.F.R. sec.
541.118(a)(6); see also Auer, 117 S. Ct. at 912.
The employer does not have to reimburse the
employee immediately, so long as it conveys its
genuine intent to compensate the employee for the
improper deduction. See 29 C.F.R. sec.
541.118(a)(6). In November 1997, Prose sent the
officers who had been suspended improperly a
letter notifying them of the impermissible
disciplinary action and stating that SOS would
reimburse them for the improper deductions.
Plaintiffs have not cast doubt upon the sincerity
of SOS’s attempts to redress its previous wrongs.
Thus, the SOS officials fall within the
protection offered by the window of correction,
and the employees cannot discard their exempt
status based on these isolated incidents.
Because the Accident, Fitness, and Disciplinary
Policies do not create the significant likelihood
that Plaintiffs would be subject to impermissible
deductions and because SOS did not engage in the
actual practice of imposing improper deductions,
the SOS officials met their burden of
establishing that Plaintiffs are employed on a
salaried basis. And, because Plaintiffs concede
they engaged in supervisory duties and waived
their right to dispute whether their duties are
managerial in nature, we conclude that the SOS
officials established that Plaintiffs come within
the executive exemption and, therefore, are
exempt from compensating them on an overtime
basis.
2. Sergeant Serafini’s Claim Is Moot
SOS admits that Serafini does not come within
the executive exemption of the FLSA because
during his temporary assignment to work with the
Secret Service, he did not supervise other
employees. See 29 C.F.R. sec. 541.119. Defendants
agreed to pay Serafini for past, present, and
future hours of overtime worked as part of this
assignment. The district court concluded that
this agreement rendered Serafini’s claim against
the SOS officials moot and granted the SOS
officials’ motion for summary judgment on this
ground.
A case is moot if no controversy exists between
the parties. See Jordan v. Indiana High Sch.
Athletic Ass’n, Inc., 16 F.3d 785, 787 (7th Cir.
1994); cf. United Airlines, Inc. v. McDonald, 432
U.S. 385, 400 (1977) (Powell, J., dissenting)
("The settlement of an individual claim typically
moots any issues associated with it."). For
example, a case will be judged to be moot when
"there is no reasonable expectation that the
wrong will be repeated." See Winokur v. Bell Fed.
Savings & Loan Assoc., 560 F.2d 271, 274 (7th
Cir. 1977) (quoting United States v. Aluminum Co.
of Am., 148 F.2d 416, 488 (2d Cir. 1945)). No
actual controversy between Serafini and the SOS
officials existed by the time the case reached
the district court level. While "voluntary
cessation of allegedly illegal conduct does not
deprive the tribunal of power to hear and
determine the case, i.e., does not make the case
moot," the case "may nevertheless be moot if the
defendant can demonstrate that ’there is no
reasonable expectation that the wrong will be repeated.’"
United States v. W.T. Grant Co., 345 U.S. 629,
632-33 (1953).
We believe the SOS officials sufficiently
demonstrated that Serafini’s claim is moot.
First, it has promised to pay Serafini for past,
present, and future overtime hours worked in this
temporary position. Second, the failure to comply
with the FLSA arose under the unusual
circumstances of an employee who in his normal
job assignment is an exempt employee, but because
of a special temporary assignment no longer
qualifies for the exempt status. Third, the SOS
officials, as we concluded with regard to the
other Plaintiffs’ claims, do not engage in the
actual practice or adhere to policies that create
a significant likelihood that employees will be
improperly classified as exempt employees.
Serafini’s case is an isolated incident that,
when recognized by SOS, was corrected by
compensating him in accordance with the FLSA.
Therefore, we agree with the district court that
Serafini’s claims are moot.
Serafini argues that we should reverse the
district court’s decision because it would bar
Serafini from future relief if SOS failed to live
up to its promise under the doctrine of res
judicata. We find no reason to conclude that a
decision based upon the conclusion that a claim
is moot creates a barrier for future litigation
of the sort Serafini contemplates. A final
judgment on the merits has the effect of
precluding future relitigation of the same issues
through the doctrine of res judicata. See United
States v. Munsingwear, Inc., 340 U.S. 36, 38
(1950); see also Gilbert v. Braniff Int’l Corp.,
579 F.2d 411, 413 (7th Cir. 1978). Courts
consider an order final "if it terminates the
litigation between the parties to the suit, and
finally determines, fixes, and disposes of their
rights as to the issues made by the suit."
Gilbert, 579 F.2d at 413. For example, we
recognize that if a case on appeal becomes moot
and the appellate court loses jurisdiction, the
appellate court should protect the appellant from
the effects of res judicata by ordering any
previous orders in the case dismissed
simultaneously with the dismissal on appeal. See
Smith v. State Farm Mutual Auto. Ins. Co., 964
F.2d 636, 637 (7th Cir. 1992). This rule is
consistent with the notion that when a court
decides an issue based on justiciability, it does
not determine the rights of the parties as to
that particular case. Similarly, we have held
that "a ruling is not res judicata when made in
a case subsequently dismissed for want of
jurisdiction." Sach v. Ohio Nat’l Life Ins. Co.,
148 F.2d 128, 132 (7th Cir. 1945). Following this
line of cases to its logical conclusion results
in the determination that dismissals based on
justiciability issues should preclude only
relitigation of the same justiciability issue,
but not future suits based on the merits of the
same claim. See McCarney v. Ford Motor Co., 657
F.2d 230, 233 (8th Cir. 1981) (holding that a
dismissal based on justiciability grounds does
not have a res judicata effect on claims on the
merits); Payne v. Panama Canal Co., 607 F.2d 155,
158 (5th Cir. 1979) (same). Thus, Serafini’s
concerns about the effects of res judicata are
unwarranted.
Finally, in reaching its conclusion with regard
to Serafini, the district court did not address
the effect of this decision on Defendants’
abilities to recoup costs from Plaintiffs. Under
the Federal Rules of Civil Procedure, the
prevailing party has the right to recover costs.
Fed. R. Civ. P. 54(d). By granting the SOS
officials’ motion for summary judgment, the
district court placed the SOS officials in the
position of the prevailing party. Defendants
filed a motion for bill of costs, but voluntarily
withdrew it. Even so, we want to make clear that
Serafini should not be held responsible for the
costs incurred by Defendants during this trial.
Defendants should not be able to alleviate both
the claim and the costs they incurred as a result
of it by admitting their wrongdoing and
compensating Serafini retroactively. Thus, we
affirm the district court’s decision to grant
summary judgment on behalf of the SOS officials
and clarify that Serafini is not liable for the
costs incurred by the SOS officials as they
relate to this specific lawsuit.
III. Conclusion
In summary, with respect to the officers other
than Sergeant Serafini, the SOS officials through
its policies and practices did not subject the
officers to impermissible pay deductions as part
of the SOS disciplinary actions in a manner that
would remove the officers’ exempt status under
the FLSA. First, the policies did not create a
substantial likelihood that the officers would be
subject to impermissible deductions. Second, even
though five officers did receive suspensions that
led to improper deductions, the SOS, upon
realization of its mistake, rectified the
situation by promising to compensate the specific
employees, thus, availing themselves of the
regulatory window of correction. These isolated
incidents do not rise to the level of an actual
practice. With respect to Serafini, the SOS
acknowledged its mistake in failing to provide
him with overtime compensation and promised to
compensate him accordingly, thus, making his
claim moot. Therefore, we AFFIRM the district
court’s decision granting the SOS officials’
motion for summary judgment; further Serafini is
not liable under Rule 54(d) for costs incurred by
the SOS officials.
FOOTNOTES
/1 Plaintiffs are: Sergeant Dennis DiGiore, Sergeant
Robert Dufkis, Lieutenant Ken Easterly, Sergeant
Joe Gabuzzi, Lieutenant William Johns, Sergeant
Michael Juliano, Sergeant James Kazimour,
Sergeant Dennis Serafini, Sergeant Marian Vrtik,
and Lieutenant Bradley Warren.
/2 George Ryan and Giacomo Pecoraro were named in
both their official and individual capacities.
Plaintiffs later added Tina Prose in her
individual capacity only.
/3 Other versions of this policy appear to have been
in effect as early as 1989.
/4 SOS gave Sergeants DiGiore, Johns, and Kenton
Manning (who is not a plaintiff in this case) the
option of a one-day suspension or working an
uncompensated shift because of a chargeable
traffic accident in which they were involved.
They chose to work an uncompensated shift. SOS
issued an unpaid suspension for Lieutenant
Raymond Wood (who is also not a plaintiff in this
case) as well, but he retired before the
suspension took effect.
/5 The regulations specifically provide that an
employee who meets the criteria for the short
test:
is deemed to meet all the requirements [of the
long test] if the employee’s primary duty
consists of the management of the enterprise in
which employed or of a customarily recognized
department or subdivision thereof and includes
the customary and regular direction of the work
of two or more other employees therein.
29 C.F.R. sec. 541.119(a).
/6 Before the Supreme Court’s decision in Auer, at
least two circuits required that actual
deductions had to occur to remove employees from
their status as a salary basis employee. See
McDonnell v. City of Omaha, 999 F.2d 293, 296-97
(8th Cir. 1993); Atlanta Prof’l Firefighters
Union, Local 134 v. City of Atlanta, 920 F.2d
800, 805 (11th Cir. 1991). Other circuits,
including this circuit, disagreed with this
strict requirement. See Yourman v. Dinkins, 84
F.3d 655, 656 (2d Cir.1996); Bankston, 60 F.3d at
1253; Kinney v. District of Columbia, 994 F.2d 6,
11 (D.C. Cir. 1993); Abshire v. County of Kern,
908 F.2d 483, 487 (9th Cir. 1990).
/7 These cases are additionally persuasive because
they adhere to the Secretary’s interpretation of
the actual practice prong of this analysis. In
the Secretary’s amicus brief to the Supreme Court
in Auer, which the Court heavily relied upon in
reaching its conclusions in that case, the
Secretary stated:
[w]hen there is evidence that improper deductions
have been taken with some frequency for
violations of a work rule by employees having a
particular rank, it is fair to conclude that all
employees in that rank are "subject to" such
deductions. On the other hand, when such
deductions have not occurred or have only
occurred in idiosyncratic or unusual
circumstances, that conclusion generally would
not be warranted.
DiGiore v. Ryan, No. 96 C 1785, slip op. at 17-18
(N.D. Ill. Dec. 4, 1997) (quoting Amicus Brief
for the U.S. Department of Labor at 22, Auer v.
Robbins, 117 S. Ct. 905 (1997)).