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Barnes v. Akal Security, Inc.

United States District Court, D. Kansas
Jun 20, 2005
Case No. 04-1350-WEB (D. Kan. Jun. 20, 2005)

Summary

granting summary judgment on retaliation claims where court found issues of fact on breach of confidentiality counterclaims

Summary of this case from Robillard v. Opal Labs, Inc.

Opinion

Case No. 04-1350-WEB.

June 20, 2005


MEMORANDUM AND ORDER


Before the Court is Plaintiffs' Motion for Leave to File Amended Complaint (Doc. 35), seeking to (1) add three opt-in plaintiffs to the caption, (2) add a new Count I for failure to pay overtime in accordance with the Fair Labor Standards Act ("FLSA"), (3) add a new Count IV for retaliation in violation of the FLSA, (4) add new defendants, and (5) delete Count III, which alleges violation of federal and military leave laws. Defendants Akal Security, Inc. and Romero filed responses (Docs. 49 and 51, respectively), challenging amendments (2), (3), and (4) and seeking sanctions pursuant to Fed.R.Civ.P. 11. Plaintiffs filed a reply. (Doc. 55.)

BACKGROUND

Plaintiffs Tony Barnes, Raymond Borggreen, and Roger Riche filed suit for themselves and on behalf of similarly situated employees on November 9, 2004 against their former employer, Akal Security, Inc. ("Akal"), and two Akal employees, Angel Romero and James Kenoyer, who were project managers over Plaintiffs' work region. Plaintiffs alleged that Akal failed to pay Plaintiffs overtime in violation of the Fair Labor Standards Act ("FLSA"), 29 U.S.C. § 201 et seq; retaliated against Plaintiffs for asserting their rights under the FLSA; and retaliated against Borggreen for refusing to provide Defendants with sensitive military information in violation of federal and state law.

Defendant Romero filed a counterclaim for defamation based upon allegedly false statements made by Riche, Barnes, and Borggreen that Romero was investigated for sexual harassment in the military, was engaging in sexual harassment in his position with Akal, changed time and payroll records, and failed to properly perform his job duties. Defendant Akal also filed a counterclaim for fraud, alleging that the false statements made about Romero caused economic harm to Akal.

Defendants challenge proposed amendments (2), (3), and (4) above as futile. The remaining two proposed amendments (to add three plaintiffs and to drop Count III) are unchallenged. Defendants assert that Federal statutes and regulations specifically allow Akal to calculate overtime rates in the manner complained about by Plaintiffs in their proposed Count I. Finally, defendants request sanctions pursuant to Fed.R.Civ.P. 11 for the costs of opposing this motion.

DISCUSSION

A. Motion to Amend

Fed.R.Civ.P. 15(a) provides that leave to amend shall be freely given when justice so requires. In the absence of any apparent or declared reason, such as undue delay, undue prejudice to the opposing party, bad faith or dilatory motive, failure to cure deficiencies by amendments previously allowed, or futility of amendment, leave to amend should, as the rules require, be freely given. Foman v. Davis, 371 U.S. 178, 182, 83 S. Ct. 227, 230, 9 L. Ed. 2d 222 (1962); Frank v. U.S. West, Inc., 3 F.3d 1357, 1365 (10th Cir. 1993).

A district court is justified in denying a motion to amend as futile, however, if the proposed amendment could not withstand a motion to dismiss or otherwise fails to state a claim. Ketchum v. Cruz, 961 F.2d 916, 920 (10th Cir. 1992). A court may not grant dismissal "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Sutton v. Utah State Sch. for Deaf Blind, 173 F.3d 1226, 1236 (10th Cir. 1999) (quoting Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 2 L. Ed. 2d 80 (1957)). For purposes of this motion the Court must accept as true all well-pleaded facts and view those facts in the light most favorable to Plaintiffs. See Jefferson County Sch. Dist. Dist. No. R-1 v. Moody's Investor's Servs. Inc., 175 F.3d 848, 855 (10th Cir. 1999) (interpreting the standard for a motion to dismiss).

The only issue before the Court is whether the challenged proposed amendments are futile. The Court will consider each proposed claim separately. 1. Proposed Count I: Failure to Properly Calculate Overtime Rates

Akal's basis for its opposition to adding defendants is that Plaintiffs' proposed Count I, under which Plaintiffs purport to hold the new defendants liable, is futile. Plaintiffs' proposed amendment to add Akal officers and employees as defendants is dependant upon whether the Court allows Plaintiffs to add the proposed new Count I. Therefore, such amendment to add defendants will be considered with the proposed new Count I. See infra Part A.1.

The crux of Plaintiffs proposed Count I is that Akal violated the FLSA by failing to include the "health and welfare" wage in their employees' "regular rates" for purposes of calculating overtime. (Doc. 35, Ex. 1 at 8-9.) The health and welfare wage is a sum paid in lieu of providing benefits, such as medical insurance, in accordance with the Service Contract Act ("SCA"). 41 U.S.C. § 351 et seq. The wage is paid directly to the employees in the form of an hourly rate. The health and welfare wage is not paid for hours worked in excess of forty hours per week, and the amount is subject to payroll taxes and other income withholdings. (Doc. 35, Ex. 1 at 4).

Defendants assert that the health and welfare wage is excluded from overtime calculations under the FLSA by the SCA and corresponding interpretive regulations by the Department of Labor. Plaintiffs counter that, although the regulations do provide for the exclusion of such health and welfare wages from overtime calculations, the regulations are contrary to the SCA and FLSA statutes, which provide for the same "regular rate" calculations.

a. The FLSA

The FLSA requires that employers pay employees overtime in the amount of "one and one-half times the regular rate at which [they are] employed" for any hours worked in excess of 40 during a work week. 29 U.S.C. § 207(a). Section 7(e) of the FLSA establishes the method for calculating the "regular rate:"

[T]he "regular rate" at which an employee is employed shall be deemed to include all remuneration for employment paid to, or on behalf of, an employee, but shall not be deemed to include —

. . .

(4) contributions irrevocably made by an employer to a trustee or third person pursuant to a bona fide plan for providing old-age, retirement, life, accident, or health insurance or similar benefits for employees. ["Health Insurance Exception"]
29 U.S.C. § 207(e).

Section 7(e) contains six other categories of payments that are excluded from the "regular rate," including certain bonuses and gifts, premium rates paid for working on weekends or holidays, and payments for time not worked because of illness or vacation, among others. See 29 U.S.C. § 207(e). These exceptions are not applicable in this case.

Exceptions to the regular rate are narrowly construed, Baker v. Barnard Constr. Co., 146 F.3d 1214, 1217 (10th Cir. 1998), and the employer bears the burden of establishing any exception by clear and affirmative evidence. See Renfro v. City of Emporia, Kan., 741 F. Supp. 887, 888 (D. Kan. 1990) (citation omitted) (interpreting an exemption under 29 U.S.C. § 213). Payments under the Health Insurance Exception, § 7(e)(4), must be paid to a third person in order for the plan to be "bona fide." See Local 246 Util. Workers Union v. Southern Cal. Edison Co., 83 F.3d 292, 296 (9th Cir. 1996) (stating that "[s]ection 207(e)(4) deals with contributions by the employer, not payments to the employee); 29 C.F.R. § 778.215(a)(4) (2004) (listing payment to a trustee or third person as a requirement for exclusion from the regular rate under the health insurance exception).

Regulations interpreting the FLSA state that a plan may still be regarded as bona fide even though it providesincidental cash payments to employees for all or part of the amount standing to his credit. 29 C.F.R. § 778.215(a)(5) (2004). Department of Labor opinions established that to be considered "incidental," such cash payments may not exceed twenty percent of the amount standing to the employees credit or, alternatively, the employer must ensure that the payments are required to be used for purposes that are the same or similar to the benefits listed in the Health Insurance Exception. Neither of these limitations on the Health Insurance Exception apply in this case. The health and welfare wage is paid 100 percent to the employees and there is no evidence of any requirements on the use of such wage.

The law is clear on this point: the health and welfare wage paid by Akal direct to its employees, absent some other exception, must be included in the regular rate for overtime calculations under the FLSA. See Local 246, 83 F.3d at 296 (9th Cir. 1996) (holding that cash payments made directly to employees were not excepted from the regular rate under the Health Insurance Exception because such payments were not made to a third party). Akal argues, however, that the SCA exempts Akal from such an overtime calculation.

b. The SCA

The SCA, which provides labor standards for employees of contractors furnishing services for federal agencies ("Government Contractors"), provides that such contractors must provide specified benefits to their employees. 41 U.S.C. § 351(a)(2). The SCA further provides that the duty to provide such benefits "may be discharged by furnishing any equivalent combinations of fringe benefits or by making equivalent or differential payments in cash under rules and regulations established by the Secretary [of Labor]." Id. Akal provides its employees with the health and welfare wage payments in lieu of benefits.

Government Contractors must provide "prevailing" benefits in the locality as determined by the Secretary of Labor. 41 U.S.C. § 351(a)(2).

Akal's health and welfare wage is $2.36 per hour or $188.80 per two week paycheck, assuming the employee works forty hours or more per week. The parties do not dispute that this is the proper amount of the benefit pursuant to Department of Labor rules and regulations.

The SCA further provides that

[i]n determining any overtime pay to which such service employees are entitled under any Federal law, the regular or basic hourly rate of pay of such an employee shall not include any fringe benefit payments computed hereunder which are excluded from the regular rate under the Fair Labor Standards Act.
41 U.S.C. § 355 (emphasis added).

Both parties cite section 355 for different propositions. Akal argues that "this exclusion of SCA fringe benefit payments from the calculation of the regular rate of pay for purposes of FLSA overtime could hardly be more clear." (Doc. 49 at 6.) Plaintiffs argue that section 355 stands for the proposition that "if fringe benefit payments are excluded from the regular rate under the FLSA, then they are also excluded from the regular rate under the SCA. (Doc. 55 at 4.) The Court finds Plaintiffs' interpretation more persuasive.

The plain language of section 355 suggests that cash payments in lieu of benefits are only excluded from the regular rate insofar as they would be excluded under the FLSA. As previously noted, the FLSA would require such payments to be included in the regular rate when calculating overtime because they are paid directly to employees and not to a third party. If Congress intended for such cash benefits to be excluded from the regular rate for overtime purposes under the SCA, then it could have clearly done so by drafting section 355 to read in either of two ways:

1. "In determining any overtime pay to which such service employees are entitled under any Federal law, the regular or basic hourly rate of pay of such an employee shall not include any fringe benefit payments computed hereunder;" or
2. "In determining any overtime pay to which such service employees are entitled under any Federal law, the regular or basic hourly rate of pay of such an employee shall not include any fringe benefit payments computed hereunder to the extent that the benefits being substituted for by such payments are excluded from the regular rate under the Fair Labor Standards Act."

As Section 355 is written, however, it is difficult to conceive any reasonable interpretation except that benefit payments are excluded under the SCA only insofar as they would be excluded under the FLSA. The legislative history of the SCA is consistent with the Court's interpretation.

[The SCA] simply provides, however, that when overtime is calculated under that statute [Contract Work Hours and Safety Standards Act] for purposes of the employees covered by this bill, then it would omit from the regular rate of pay, the basic hourly wage rate, any of the fringe benefit payments of the types specified in the Fair Labor Standards Act as being omitted from the regular rate of pay for overtime purposes under the Fair Labor Standards Act.
This is for the purpose of underlining and emphasizing the need for consistency in administration and in presentation of overtime under all of these statutes in a standard way, so that it would be easier for employers to understand, and easier for agencies to know about; and easier for the Department of Labor to administer.
Service Contract Act of 1965: Hearing on H.R. 10238 Before the Special Subcomm. on Labor of the House Comm. on Education and Labor, 89th Cong. 8 (Aug. 5, 1965) (statement of Charles Donahue, Solicitor of Labor, Dept. of Labor) (emphasis added).

The Contract Work Hours and Safety Standards Act (CWHSSA), 40 U.S.C. § 327 et seq, was repealed and reenacted in 2002 as 40 U.S.C. §§ 3701- 3702. That act requires government contractors to pay overtime, but does not specify how that overtime should be calculated.

The legislative history of the SCA stresses that it will result in consistent administration and presentation of overtime under all three statutes — FLSA, SCA and CWHSSA. The Court does note, however, that in a case under the Davis-Bacon Act, 40 U.S.C. § 276a and CWHSSA, one court has held that cash fringe benefit payments were to be excluded in calculation of the overtime premium, but such cash payments were required to be made for each hour worked by an employee, including overtime hours. See Holloway Construction v. Wage Appeals Board, 825 F.2d 1072 (6th Cir. 1987). This interpretation is obviously not consistent with the express language of Section 355 or the legislative history of the SCA. The provisions of the Davis-Bacon Act, however, are not the same as Section 355 of the SCA.

Furthermore, the only published case which the Court has found that interprets section 355, albeit in dicta, is also consistent with the Court's reading of the statute. See Masters v. Md. Mgmt. Co., 493 F.2d 1329, 1332 (4th Cir. 1974) ("The Service Contract Act explicitly states that `the regular or basic hourly rate of pay' will include no fringe benefits not includable in the regular rate under the Fair Labor Standards Act."). The court in Masters described section 355 as a "provision restricting fringe benefit computation not allowed by the Fair Labor Standards Act." Id.

Akal correctly notes that the Department of Labor regulations are contrary to the Court's reading of the SCA, explicitly stating that fringe benefit payments under the SCA are excluded from the regular rate. 29 C.F.R. § 4.177(e) states

Akal does not argue a good faith reliance defense, see 29 U.S.C. § 259, but even if it did, such defense would not prevent all redress. See Reich v. IBP, Inc., 38 F.3d 1123, 1126 (10th Cir. 1994) (stating that "[a]n employer's good faith is not grounds for the denial of a restitutionary injunction since the remedy is not designed to penalize the employer, but rather to compensate the employees for earned wages which have not been paid") (internal quotations omitted). Thus, the good faith reliance defense would not render proposed Count I futile.

If [an employer] furnishes equivalent benefits or makes cash payments, or both, to such an employee as authorized [by the SCA and concomitant regulations], the amounts thereof, which discharge the employer's obligation to furnish such specified fringe benefits, may be excluded pursuant to [the SCA] from the employee's regular or basic rate of pay in computing any overtime pay due the employee under any other Federal law.
See also 29 C.F.R. § 4.182 (2004) (stating that both benefits and cash payments in lieu of benefits under the SCA are excludable from the regular rate for overtime calculations).

While courts normally defer to an agency's interpretive regulations, the Court need only defer to agency regulations if such regulations are a reasonable interpretation of an ambiguous statute. Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-44, 104 S. Ct. 2778, 81 L. Ed. 2d 694 (1984). "The judiciary is the final authority on issues of statutory construction and must reject administrative constructions which are contrary to clear congressional intent." Id. at 843, n. 9. See also United States v. Riverside Bayview Homes, Inc., 474 U.S. 121, 131, 106 S.Ct. 455, 88 L.Ed.2d 419 (1985).

The Supreme Court in Chevron laid out a two-part test for reviewing an agency's statutory construction. Id. at 842. The first question is whether the statute is ambiguous. Id. If it is not, then the Court must give effect to Congress' unambiguous intent. Id. at 842-43. If the statute is ambiguous, then the Court must give effect to the agency's interpretation if it is reasonable, even if it is not the result that the Court would have reached. Id. at 843; Bd. of County Comm'rs v. United States EEOC, 405 F.3d 840, 844 (10th Cir. 2005).

Section 355 of the SCA does not appear on its face to be ambiguous as to whether the standards for inclusion of cash payments in lieu of benefits are the same under the FLSA and the SCA. To determine whether the statute is ambiguous, the Court employs traditional tools of statutory construction, including examination of the statute's text, structure, purpose, history, and relationship to other statutes. Harbert v. Healthcare Servs. Group, Inc., 391 F.3d 1140, 1147 (10th Cir. 2004). When interpreting a statute, the Court starts with the language of the statute itself. Bd. of County Comm'rs v. United States EEOC, Case No. 03-9566, 2005 U.S. App. LEXIS 6345, *8 (10th Cir. Apr. 15, 2005).

Here, the plain language of the section 355 appears to this court to unambiguously manifest Congress' intent that the regular rate be calculated identically under both the FLSA and the SCA. Therefore, the Court cannot say beyond doubt that Plaintiffs' proposed Count I is futile.

The court acknowledges the expertise of the Department of Labor in the area of wage and overtime calculations and has attempted to exhaust all avenues of legal research in order to find some explanation as to why the regulations appear to be diametrically opposed to the clear reading of Section 355. However, neither the legislative history of the statutes nor the paucity of reported decisions by federal courts has provided any such explanation.

Because Plaintiffs' proposed Count I is not futile, their amendment to add defendants based upon the allegations in the proposed Count I is also not futile. See supra n. 1.

2. Proposed Count IV: Retaliatory Counterclaims

Plaintiffs' proposed Count IV asserts that the Counterclaims filed by Defendants Romero and Akal "lack basis in law or fact" and "would not have [been] filed . . . but for the fact Plaintiffs instituted . . . proceedings under and related to the FLSA." (Doc. 35, Ex. 1 at ¶¶ 79-80.) The FLSA makes unlawful retaliation against "any employee because such employee has . . . instituted or caused to be instituted any proceeding under or related to this Act." 29 U.S.C. § 215(a)(3).

Defendants argue that the filing of a counterclaim can not be actionable retaliation unless Plaintiffs establish (1) retaliatory motive and (2) lack of a reasonable basis for the claims. See Bill Johnson's Restaurants, Inc. v. NLRB, 461 U.S. 731, 748-49, 103 S. Ct. 2161, 76 L. Ed. 2d 277 (1983) (considering retaliation under the National Labor Relations Act); Martinez v. Deaf Smith County Grain Processors, Inc., 583 F. Supp. 1200, 1210 (D. Tex. 1984) (considering retaliation under the FLSA and citing Bill Johnson's Restaurants ). Defendants assert that Plaintiffs pleadings do not sufficiently establish retaliatory motive, arguing that mere temporal proximity between the filing of Plaintiffs' lawsuit and the allegedly retaliatory act, i.e., filing the counterclaims, is not sufficient to establish retaliatory motive. See Whitesell v. Lincoln Bumper, Inc., Case No. 4:02-CV-3136 (D. Neb. Aug. 11, 2003) ("Temporal proximity cannot be enough to provide the requisite causal connect[ion] when the retaliatory conduct is a counterclaim."). Defendants further assert that their counterclaims have a "reasonable basis."

The Court agrees with Defendants' analysis of the law, but disagrees about its application to this case. While the Court acknowledges that the ultimate standard for determining whether a counterclaim has a "reasonable basis" is whether there is a genuine issue of material fact, at this point, the proposed amendment, to avoid being futile, need only be able to survive a motion to dismiss. Under a motion to dismiss standard, the Court is obligated to accept as true all well-pleaded facts in the Complaint.

Plaintiffs have pleaded both a retaliatory motive and a lack of reasonable basis. The fact that these pleadings lack detailed factual specificity is not fatal. See Boyle v. Elite Computer Consultants, Inc., Case No. 01-2130, 2001 WL 1644693, at *1 (D. Kan. Sept. 24, 2001) ("The Supreme Court has explained that the Federal Rules `do not require a claimant to set out in detail the facts upon which he bases his claim.'") (citations omitted). Notice pleading only requires a short and plain statement of the claim alleging only such facts as are necessary to place Defendants on notice as to the type of claim alleged and the grounds upon which it rests. Id.

Plaintiffs' allegation that the counterclaims would not have been filed but for Plaintiffs' filing of this lawsuit to enforce their FLSA rights, (Doc. 35, Ex. 1 at ¶ 79), is a sufficient pleading of retaliatory motive. This allegation is not simply related to the timing of the filing of the counterclaim, but rather whether Akal and Romero would have filed such a claim at all if Plaintiffs did not pursue an FLSA case. Plaintiffs allegation that the counterclaims are without basis in law or fact, (Doc. 35, Ex. 1 at ¶ 80), in combination with Plaintiffs' Answer and Defenses to Counterclaims, (Doc. 16), is sufficient to place Defendants on notice as to Plaintiffs' grounds for alleging that Defendants' counterclaims are baseless.

Accordingly, the Court finds that proposed Count IV is not futile.

B. Rule 11 Sanctions

Akal requests Rule 11 sanctions based upon its contention that Plaintiff's proposed Count I is completely baseless because Department of Labor regulations specifically permit Akal to exclude the "health and welfare" wage from overtime calculations. The Court has found that Plaintiffs' proposed Count I is not futile. See supra Part A.1. This finding undercuts any substantive basis for imposition of Rule 11 sanctions and therefore, the motion is denied.

Furthermore, the Court would note that the motion would have been denied in any event on procedural grounds. Fed.R.Civ.P. 11(c)(1)(A) requires that the movant make any motion for sanctions separately from other motions or requests, and that such motion not be filed with the Court until twenty-one days after service upon opposing counsel, and only if opposing counsel does not withdraw the offending motion within the twenty-one day safe harbor. Defendant's failure to comply with the requirements of Rule 11 would also support denial of the request for sanctions.

CONCLUSION

For the reasons set out above, Plaintiffs' Motion for Leave to File Amended Complaint is GRANTED, and Defendant's request for Rule 11 sanctions is DENIED. Plaintiff is directed to file the Amended Complaint in the form attached to the motion within ten (10) days of the date of this Memorandum and Order.

IT IS SO ORDERED.


Summaries of

Barnes v. Akal Security, Inc.

United States District Court, D. Kansas
Jun 20, 2005
Case No. 04-1350-WEB (D. Kan. Jun. 20, 2005)

granting summary judgment on retaliation claims where court found issues of fact on breach of confidentiality counterclaims

Summary of this case from Robillard v. Opal Labs, Inc.
Case details for

Barnes v. Akal Security, Inc.

Case Details

Full title:TONY R. BARNES, et al., Plaintiffs, v. AKAL SECURITY, INC., et al.…

Court:United States District Court, D. Kansas

Date published: Jun 20, 2005

Citations

Case No. 04-1350-WEB (D. Kan. Jun. 20, 2005)

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