Newman v. Advanced Technology Innovation Corp. , 749 F.3d 33 ( 2014 )


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  •           United States Court of Appeals
    For the First Circuit
    No. 13-1132
    ERIC NEWMAN and NESTOR PATAGUE,
    Plaintiffs, Appellants,
    v.
    ADVANCED TECHNOLOGY INNOVATION CORP.,
    Defendant, Appellee.
    APPEAL FROM THE UNITED STATES DISTRICT COURT
    FOR THE DISTRICT OF MASSACHUSETTS
    [Hon. Patti B. Saris, U.S. District Judge]
    Before
    Howard, Selya, and Lipez,
    Circuit Judges.
    Phillip B. Leiser, with whom Shalev I. Ben-Avraham and Leiser,
    Leiser and Hennessy, PLLC were on brief, for appellants.
    Thomas J. Gallitano, with whom Christopher K. Sweeney and Conn
    Kavanaugh Rosenthal Peisch & Ford, LLP were on brief, for appellee.
    April 18, 2014
    LIPEZ, Circuit Judge.        The Fair Labor Standards Act
    requires that non-exempt employees who work more than forty hours
    in a week must be paid overtime at a rate of at least one-and-a-
    half times their "regular rate" of pay.      Plaintiffs in this case
    contend that their employer wrongly labeled part of their regular
    hourly wage a "per diem" and excluded the per diem when calculating
    the rate for overtime, thus depriving them of overtime pay.       The
    proof, plaintiffs claim, is in the numbers.        When they worked a
    full forty-hour week, the per diem and hourly wage added up to $60
    per hour, the regular wage that they claimed they were promised
    when recruited.    When plaintiffs worked less than forty hours in a
    week, the per diem payment was reduced.      Plaintiffs contend that
    this scenario unmasked the scheme:       the reductions show the per
    diem was tied to hours worked in a week and thus, in reality, was
    a shadow wage.
    The district court granted summary judgment in favor of
    the employer after examining the company's formula for calculating
    the per diem.    This disposition was erroneous.   As we explain, the
    company's formula, as guidance from the Department of Labor puts
    it, was impermissibly "based upon and thus varie[d] with the number
    of hours worked" per week.   Wage & Hour Div., Dep't of Labor, Field
    Operations Handbook § 32d05a(c) (1983).     We therefore reverse the
    summary judgment for the employer and remand for entry of partial
    summary judgment in plaintiffs' favor as to liability.
    -2-
    I.
    Plaintiffs Eric Newman and Nestor Patague both found
    engineering jobs in 2010 at a General Dynamics Land Systems plant
    in Woodbridge, Virginia, through Advanced Technology Innovation
    Corporation ("Advanced Technology"), a recruiting firm.         The jobs
    required them to be away from their homes:         Newman lived in West
    Virginia, about 65 miles away, and Patague lived in California.
    Although General Dynamics supervised plaintiffs and set their job
    tasks, they were paid by Advanced Technology.
    Each plaintiff signed a consulting agreement and offer
    letter with Advanced Technology.     Both agreements listed an hourly
    wage, an overtime rate more than one-and-a-half times that hourly
    wage, and a "per diem expense reimbursement" in light of their
    remote work assignments. Newman's agreement set his hourly wage at
    $35.32 per hour, overtime at $60 per hour, and a weekly per diem of
    no more than $987.      Patague's agreement set his hourly wage at
    $42.37, overtime at $63.56, and a weekly per diem of no more than
    $705.
    For the per diem, each plaintiff signed a Consultant Per
    Diem    Certification   that   provided   for   reimbursement   "for   any
    business expenses on a per diem basis" using the relevant Internal
    Revenue Service Federal Travel Reimbursement rate.        This rate was
    -3-
    a maximum of $141 at the time of Newman's agreement.1                  Newman was
    eligible for that per diem figure for "each day actually worked" up
    to seven days, with a per diem paid for Saturdays and Sundays "if
    work is actually performed on those days or performed on the
    immediate preceding client work day."            Patague's agreement set the
    same per diem, but capped it at a weekly maximum of $705 for five
    days if each day was "actually worked."
    Because a per diem either can be excluded from, or
    counted as, a regular wage depending on how it operates, plaintiffs
    assert that here the per diem operated like an hourly wage.                    The
    per diem, if calculated by the hour, was about $24.68 for Newman
    and $17.63 for Patague.                These figures made up the difference
    between the regular rate in each plaintiff's contract and the
    supposedly promised hourly figure of $60 ($35.32 + $24.68 for
    Newman; $42.37 + $17.63 for Patague).             Plaintiffs contend the per
    diem should count as part of the regular wage, and thus they should
    have       been    paid   at   least   one-and-a-half   times   this    wage   for
    overtime, meaning at least $90 per hour.
    Newman worked for Advanced Technology from May 2010 until
    July 2011; Patague worked for the company from November 2010 until
    April 2011.         In January 2012, plaintiffs filed suit in the Eastern
    District of Virginia, alleging that the company violated 29 U.S.C.
    1
    The maximum rate had increased slightly by the time of
    Patague's hiring, but he received the same $141 per diem.
    -4-
    § 207(a)(1)-(2) by failing to pay the required overtime rate.
    After the case was transferred to the District of Massachusetts,
    Advanced Technology moved for summary judgment and plaintiffs moved
    for partial summary judgment as to liability.
    At oral argument and in its opinion, the district court
    focused on Advanced Technology's formula for the per diem payment
    when plaintiffs did not work forty hours in one week.               There were
    eight such weeks for Newman, and three for Patague.                Those weeks
    were particularly important because they could shed light on the
    formula for prorating the per diem and, consequently, on whether
    the per diem varied simply by hours worked.                  An affidavit from
    Anthony Calisi, chairman and treasurer of Advanced Technology,
    described the formula used.2             Citing this affidavit, the district
    court held that Calisi's explanation "disapproves Plaintiffs'
    contention that the per diem was calculated simply by multiplying
    the number of hours worked in a week" by an hourly "per diem"
    supplement.        Further, the court noted that plaintiffs' proposed
    hourly value for the per diem "only arrives at the actual payment
    amount on certain weeks."            The district court thus held that
    Advanced Technology "properly paid Plaintiffs' overtime based upon
    the hourly rates to which they agreed in the contract, and paid per
    diem       rates   provided   in   the    federal   travel   regulations   that
    reasonably approximated work-related expenses."
    2
    We discuss the formula in Section II.B.
    -5-
    On appeal, plaintiffs again press their argument that the
    company tied the per diem to hours worked.             They seek reversal of
    the summary judgment in Advanced Technology's favor and entry in
    their favor on liability, with a remand for proceedings to assess
    damages. They offer two other theories of liability, both of which
    we do not reach because we agree with plaintiffs on their central
    argument.
    II.
    We review the district court's grant of summary judgment
    de novo.    One Nat'l Bank v. Antonellis, 
    80 F.3d 606
    , 608 (1st Cir.
    1996). Summary judgment is appropriate when "the movant shows that
    there is no genuine dispute as to any material fact and the movant
    is entitled to judgment as a matter of law."                 Fed. R. Civ. P.
    56(a).   "A fact is material if it carries with it the potential to
    affect   the     outcome   of   the   suit   under   the   applicable   law."
    
    Antonellis, 80 F.3d at 608
    (internal quotation marks omitted).
    A.   Legal Framework
    1.    Statutes And Regulations
    The Fair Labor Standards Act ("FLSA"), 29 U.S.C. §§ 201-
    219, requires that when non-exempt employees work more than forty
    hours in a work week, they must be paid for overtime hours at a
    rate of at least one-and-a-half times the "regular rate" of pay.
    -6-
    
    Id. § 207(a)(1).3
       The regular rate includes "all remuneration for
    employment paid to, or on behalf of, the employee."    
    Id. § 207(e).
    This general rule has exceptions, see 
    id. § 207(e)(1)-(8),
    which
    "are to be interpreted narrowly against the employer, and the
    employer bears the burden of showing that an exception applies."
    O'Brien v. Town of Agawam, 
    350 F.3d 279
    , 294 (1st Cir. 2003)
    (citation omitted).
    As is relevant here, the regular rate does not include
    "reasonable payments for traveling expenses, or other expenses,
    incurred by an employee in the furtherance of his employer's
    interests and properly reimbursable by the employer; and other
    similar payments to an employee which are not made as compensation
    for his hours of employment."      29 U.S.C. § 207(e)(2) (emphasis
    added). A regulation interpreting Section 207(e) provides examples
    of payments that "will not be regarded as part of the employee's
    regular rate."      29 C.F.R. § 778.217(b).   These include amounts
    "expended by an employee, who is traveling 'over the road' on his
    employer's business, for transportation . . . and living expenses
    away from home," 
    id. § 778.217(b)(3),
    "'[s]upper money' . . . to
    cover the cost of supper when he is requested by his employer to
    continue work during the evening hours," 
    id. § 778.217(b)(4),
    and
    expenses incurred "because the employee, on a particular occasion,
    3
    No party argues that plaintiffs are exempt from the FLSA's
    requirements.
    -7-
    is required to report for work at a place other than his regular
    workplace," 
    id. § 778.217(b)(5).
              By contrast, the employer's
    payments for "expenses normally incurred by the employee for his
    own benefit," such as "buying lunch, paying rent, and the like,"
    are included in the regular rate.         
    Id. § 778.217(d).
    "[T]he regular rate cannot be stipulated by the parties;
    instead, the rate must be discerned from what actually happens
    under the governing employment contract." 
    O'Brien, 350 F.3d at 294
    (citing Bay Ridge Operating Co. v. Aaron, 
    334 U.S. 446
    , 462-63
    (1948)).     Thus, the regular wage rate here is a fact question.       See
    Bay 
    Ridge, 334 U.S. at 461
    ("'The regular rate by its very nature
    must reflect all payments which the parties have agreed shall be
    received regularly during the workweek, exclusive of overtime
    payments.     It is not an arbitrary label chosen by the parties; it
    is   an   actual   fact.'"   (quoting   Walling   v.    Youngerman-Reynolds
    Hardwood Co., 
    325 U.S. 419
    , 424 (1945))).
    2. Department of Labor Handbook
    The Department of Labor Wage and Hour Division's Field
    Operations Handbook ("Handbook") contains further guidance, which
    we   treat    as   persuasive   authority.        See   Gagnon   v.   United
    Technisource, Inc., 
    607 F.3d 1036
    , 1041 n.6 (5th Cir. 2010)
    ("Although the Handbook does not bind our analysis, we can and do
    consider its persuasive effect." (citing Skidmore v. Swift & Co.,
    -8-
    
    323 U.S. 134
    , 140 (1944))).    Both parties focus their arguments on
    Section 32d05a(c) of the Handbook.     That paragraph states in full:
    If the amount of per diem or other subsistence
    payment is based upon and thus varies with the number of
    hours worked per day or week, such payments are a part of
    the regular rate in their entirely [sic]. However, this
    does not preclude an employer from making proportionate
    payments for that part of a day that the employee is
    required to be away from home on the employer's business.
    For example, if an employee returns to his home or
    employer's place of business at noon, the payment of only
    one-half the established per diem rate for that
    particular day would not thereby be considered as payment
    for hours worked and could thus be excluded from the
    regular rate.
    There is seemingly some tension in the Handbook's guidance. On the
    one hand, the passage notes that it is a permissible result for an
    employer to reduce a day's per diem, such as by paying half of a
    day's worth of per diem where an employee worked for half of the
    day.    Yet it also states that the per diem is part of the regular
    rate of pay if it is based upon, and varies with, hours worked in
    a week or day.    In an eight-hour workday, paying an employee half
    of a day's per diem yields the same result as paying for four
    hours' worth of per diem.
    This coincidence suggests that the Handbook's concern is
    not the result of paying half of a day's per diem, which is by
    itself innocuous.     Instead, the Handbook's teaching is that the
    method of calculating the per diem in that circumstance must use a
    day as its measuring unit, and not an hour.      Breaking a day into
    two segments to reflect the presumably common practice of an early
    -9-
    departure at week's end is not the same as paying only a portion of
    the maximum weekly per diem based precisely on the time worked
    during the week. If the per diem method makes reductions from that
    maximum on an hourly basis — such that it would reduce the total
    per diem by a mere hour's worth — it runs afoul of the Handbook's
    guidance.
    B.   Applicability to the Summary Judgment Record
    The key to this case is the comparison between how
    Advanced Technology says it reduces per diem payments and the
    actual formula it used.     The comparison makes clear that not only
    was summary judgment wrongly entered in the company's favor, but in
    fact plaintiffs must prevail on partial summary judgment as to
    liability.
    Advanced Technology contends that it reduced the per diem
    only when the shortfall below forty hours worked was entirely
    attributable to an early end of the work week.       Anthony Bonanno,
    the company's president, asserted in an affidavit that in "those
    weeks when [plaintiffs] reported that they did not work a full
    week, and worked less than a full day on the last work day . . .
    then . . . Advanced Technology paid the [p]laintiffs a [prorated]
    amount of that day's per diem expense reimbursement."     The company
    further insists that these reductions were not based on hours
    worked.
    -10-
    Despite this claim that it complied with the Handbook,
    the description of the formula from company treasurer Anthony
    Calisi   makes   clear   that    the   only    factor    that   mattered   in
    calculating the weekly per diem was the number of hours worked.
    Recognizing that "a full week traditionally means working a full
    forty (40) hours," Calisi explained that for Newman the company:
    utilized the following formula to [prorate] the per diem
    reimbursement for that week: [(# of hours ÷ 40) × 7] ×
    $141. The result of the bracketed mathematical operation
    yielded the fractional number of days worked.         The
    resulting figure was rounded to the nearest hundredth.
    This figure was entered into our payroll system, which
    then multiplied that figure by the per diem reimbursement
    rate of $141 to yield Mr. Newman's per diem reimbursement
    for that week.
    As Calisi's explanation indicates, the "fractional number of days
    worked" is the measure of how many days' worth of per diem the
    plaintiff should receive.       This measure is determined by the only
    variable in the formula, the total number of hours worked in the
    week.    All other numbers are fixed:         forty hours in a work week,
    five available days of per diem for Patague or seven for Newman,
    and $141 for the value of the per diem.                 In this formula of
    straightforward division and multiplication, a reduction to the per
    diem is necessarily hours-based.
    Indeed, in the most glaring example, the company reduced
    Newman's per diem for one week to reflect that he would receive
    only 38.5-hours' worth of per diem. Further, because the company's
    formula uses hours, not days, as its frame of reference, an
    -11-
    employee who worked for seven hours in a day, in a five-day work
    week, could accrue less than the $141 daily per diem through the
    formula, while an employee who worked for 12 hours in a day could
    accrue   more   than   the   $141   daily   per    diem.   Yet   in   both
    circumstances the employees must receive no less, and no more, than
    the day's $141 per diem if the reimbursement formula is based on
    days and not hours.     For these reasons, even in those instances
    where Advanced Technology reduced the per diem only for an early
    end to the week, the reductions remain precisely tied to the total
    hours worked in the week.4
    In rejecting plaintiffs' claim that the per diem was
    hourly, the district court noted that plaintiffs' proposed "hourly
    per diem" figures did not yield results that quite matched the
    weekly pay statements in the record.              That is true, but only
    because the company's formula rounded at an intermediate step of
    the calculations, thereby slightly altering the final number.
    Plaintiffs furthered the confusion by offering rounded figures at
    times for the proposed hourly per diem rates — $24.68 for Newman
    and $17.63 — rather than the precise figures of $24.675 and $17.625
    respectively.   If neither plaintiffs' hourly figures nor Advanced
    4
    The district court should not have found that Advanced
    Technology's "last day worked" theory actually explained when the
    shortfall in hours occurred. The pay statements in evidence show
    only the weekly total of hours worked. The formula itself paid no
    attention to when the missing hours occurred.         It was thus
    plausible that missing hours came from earlier in the week, and not
    from an early weekend.
    -12-
    Technology's "fractional number of days worked" were rounded, both
    formulas yield the same per diem results for all the weeks where
    plaintiffs were paid less than the full per diem.5             In short, each
    side's rounding made the calculations harder to recreate. But once
    these rounding steps are identified, it becomes clear that Advanced
    Technology's formula neatly falls within the Handbook's concern:
    it is "based upon and thus varies with the number of hours worked
    per day or week," Handbook § 32d05a(c).
    III.
    The animating concern of the FLSA statutes, regulations,
    and DOL Handbook is to examine the substance of a purported per
    diem payment and to ensure that it is actually used to offset
    expenses   an   employee   incurs   due    to   time   spent    away   on   the
    employer's business. The goal is to pierce the labels that parties
    affix to the payments and instead look to the realities of the
    method of payment.    Here, even if Advanced Technology reduced the
    per diem only for an early end to the work week, it still based
    those reductions on the exact number of hours worked in the week.
    The reduction of one-and-a-half hours of per diem for one week for
    5
    As one example, for one week Newman worked 36.5 hours.
    Multiplied by plaintiffs' precise hourly per diem figure of
    $24.675, the resulting per diem is $900.6375.       The company's
    formula first calculates the "fractional number of days worked":
    ((36.5 ÷ 40) × 7) = 6.3875. The last step is to multiply by $141.
    If the company left 6.3875 unrounded, the total would also be
    $900.6375. Because the company rounded 6.3875 to 6.39, the total
    was slightly different:    $900.99, the amount of per diem that
    Newman received for that 36.5-hour week.
    -13-
    Newman, described above, illustrates this approach.   Although the
    Handbook provision allows a discount in the per diem for partial
    days, it does not permit an employer to set this discount as a
    reduction of a fixed amount for each missing hour in the weekly
    total.   We see no material dispute of fact once the formula is
    examined, and thus the correct outcome is partial summary judgment
    in plaintiffs' favor as to liability.6
    Specifically, we reverse the district court's decision to
    grant summary judgment for Advanced Technology and remand for the
    court to enter partial summary judgment in plaintiffs' favor as to
    liability, and then to conduct further proceedings as to damages.
    So ordered.
    6
    Plaintiffs made two other arguments: (1) that the Handbook
    Section 32d05 creates two categories of employees, those on day (or
    short) trips for an employer and those on a longer remote
    assignment, and prorating a per diem is only permissible for the
    day trippers; and (2) that as to Newman specifically, defendants
    knew he was actually commuting from his home in West Virginia, and
    thus his per diem did not reasonably approximate his expenses.
    Because we decide this case on plaintiffs' central argument, we do
    not reach these remaining issues.
    -14-