Opinion
Cause No. IP 02-535-C H/K
March 11, 2003
Plaintiff Eugene T. Champneys is a former employee of Ferguson Enterprises, Inc. He filed this suit on behalf of himself and other similarly situated individuals alleging that Ferguson Enterprises, Inc. failed to pay compensation for overtime as required by the Fair Labor Standards Act ("FLSA"), 29 U.S.C. § 201 et seq. Champneys has also asserted state law claims for damages. Champneys has moved for approval of notification and for production of names and addresses of potential class members. For the reasons explained below, the plaintiff's motion is granted.
I. Factual Background
Plaintiff Champneys was a sale consultant for Thrall Distribution, Inc. ("TDI"). On August 2, 1999, Ferguson Enterprises VII, Inc., a subsidiary of Ferguson Enterprises, Inc. (collectively referred to as "Ferguson"), purchased the assets of TDI. Ferguson Enterprises VII, Inc. later changed its name to Ferguson Thrall Distribution, Inc., which is also a defendant here.
From August 2, 1999 until January 1, 2000, Ferguson leased associates from TDI, including Champneys. At the end of that period of time, Ferguson offered continued employment to approximately five sales associates, including Champneys. Pierce Aff. ¶ 9. On January 1, 2000, Champneys accepted employment with Ferguson as an outside sales representative.
Ferguson advised Champneys that he would continue to receive compensation according to TDI's compensation plan until November 1, 2000, at which time he would be switched to the Ferguson compensation plan. During this transition period, Champneys was paid a monthly base salary of $2,400 and a guaranteed monthly commission of $2,492. Pierce Aff. ¶ 14. On November 8, 2000, Champneys resigned. Champneys was not paid overtime by Ferguson at any time during his employment. Champneys Aff. ¶ 5.
While employed by Ferguson, Champneys sold pipes, valves, pumps, fittings, and other products for Ferguson. Champneys Aff. ¶ 5. He received commissions based on the dollar value of those sales. Champneys Aff. ¶ 5.
Ferguson paid for and maintained a separate dedicated facsimile phone line in Champneys' office in his home. Champneys Aff. ¶ 6. This phone line was used exclusively for selling Ferguson products. Champneys Aff. ¶ 6. Ferguson also provided Champneys with "other office facilities from which to make sales."
Champneys Aff. ¶ 7. Champneys estimates that "[a]pproximately 97 percent of the dollar value of orders for Ferguson products placed by . . . Ferguson customers within [Champneys'] customer base were placed with Ferguson . . . either: (a) by telephone, mail, or facsimile transmission directly either to Ferguson's Indianapolis or Lafayette office; or (b) by telephone to [Champneys'] home office." Champneys Aff. ¶ 8.
II. Preliminary Matters
Before addressing the plaintiff's motions for approval of notification and for production of names and addresses of potential plaintiffs, the court must first address two preliminary matters. Plaintiff has requested that the court strike the affidavit of Sandra D. Pierce, see Def. Br. Ex. 1, and the defendant's surreply. Both motions are denied.
A. Motion to Strike Affidavit
Defendants submitted the affidavit of Sandra D. Pierce to support their arguments against plaintiff's motions. Plaintiff contends the Pierce affidavit should be stricken because she has sought to testify as to matters beyond her personal knowledge, as to legal conclusions, and as to hearsay. The court addresses each in turn. Pierce has been the manager of employment practices at Ferguson since 1994. As a result, she should be familiar with the job descriptions of Ferguson's employees, as well as the policies and practices in place during Ferguson's acquisition of TDI. To the extent that she testifies to what Champneys' job duties were, the court understands that to be a description of what his duties should have been as set out by company policy, and not necessarily how they were actually performed. Thus, Pierce has personal knowledge and is competent to testify.
Plaintiff next argues that Pierce makes improper legal conclusions by classifying Champneys as an "outside salesman." Again, the court understands Pierce to be classifying Champneys based on company classifications and not based on legal definitions. Since she is the manager of employment practices, she is familiar with and entitled to state what Champneys' job title with Ferguson was.
Finally, plaintiff argues that Pierce's affidavit contains inadmissible hearsay. Specifically, Champneys argues that paragraph 17 is hearsay in that it attempts to state what the Department of Labor said. Hearsay is an out of court statement offered for the truth of the matter asserted. Fed.R.Evid. 801(c). Paragraph 17 simply states that in the last eight years, Ferguson has been audited by the Department of Labor on at least six occasions; that the Department of Labor has reviewed and discussed with Pierce Ferguson's exempt and non-exempt classifications; and that the Department of Labor has never questioned those classifications. None of these is an out of court statement offered for the truth of the matter asserted. Rather these are events which may or may not have occurred, though their relevance remains debatable. Therefore, plaintiff's motion to strike the affidavit of Pierce is denied.
B. Motion to Strike Surreply Brief
Plaintiff next argues that defendants' surreply brief should be stricken because defendants (1) improperly assert they are entitled to summary judgment; (2) resubmit the affidavit of Pierce; and (3) "fail to alert this Court to deposition testimony adduced by their counsel which eviscerates the sine qua non of the exemption on which they rely, the `outside salesman' exemption" under the FLSA. Pl. Br. to Strike Surreply at 1. Contrary to plaintiff's assertions, defendants have not made a motion for summary judgment. At the notice stage of litigation, regardless of how low the hurdle for plaintiff may be, it is not improper for defendants to question Champneys' ability to act as class representative. See, e.g., Bontempo v. Metro Networks Communications Ltd. Partnership, 2002 WL 1925911, *1 (N.D.Ill. May 3, 2002) (determining that plaintiff was not an outside salesman at notice stage of litigation). Also, because plaintiff submitted additional evidence with his reply brief, defendants were entitled to respond as a matter of elementary fairness. Plaintiff's motion to strike the surreply brief is denied.
III. Motion for Approval of Class Notification
Under the FLSA, an employee may bring an action on his own behalf and on behalf of other similarly situated employees. 29 U.S.C. § 216(b). Thus, the FLSA authorizes representative actions. Woods v. New York Life Ins. Co., 686 F.2d 578, 580 (7th Cir. 1982). Unlike class actions under Rule 23, however, a potential class member must opt in to the class rather than opt out of the class. Id. As a result, Champneys has the right "to notify the people he would like to represent that he has brought a suit." Id.
In his current motion, plaintiff has asked the court for approval of his proposed class notification. If approved, this notice will be sent to all potential class members to notify them of their right to opt in to the class. In opposition, defendants raise two main arguments. First, defendants argue that Champneys was an "outside salesman" while employed at Ferguson and therefore was exempted from the overtime provisions of the FLSA. See 29 U.S.C. § 213(a)(1). Second, defendants argue that Champneys is not similarly situated to the class of persons he claims to represent.
A. Outside Salesman
Under the FLSA, an employer may not employ any employee "for a workweek longer than forty hours unless such employee receives compensation for his employment in excess of the hours above specified at a rate not less than one and one-half times the regular rate at which he is employed." 29 U.S.C. § 207(a)(1). However, the FLSA includes many exemptions, including one for "any employee employed in . . . the capacity of outside salesman." 29 U.S.C. § 213(a)(1). The term "outside salesman" is defined according to the regulations of the Secretary of Labor. Id. "The employer bears the burden of proving the application of an exemption." Klein v. Rush-Presbyterian-St. Luke's Medical Center, 990 F.2d 279, 283 (7th Cir. 1993) (affirming district court's grant of summary judgment under the FLSA in favor of plaintiff; plaintiff was not a "professional employee" subject to exemptions similar to "outside salesman").
If Champneys was an "outside salesmen" as defined by the regulations, then he does not have "a cause of action in his own right," and he may not bring a class action on behalf of others. Vanskike v. Peters, 974 F.2d 806, 813 (7th Cir. 1992), citing Tidwell v. Schweiker, 677 F.2d 560, 566 (7th Cir. 1982).
Under the Department of Labor regulations, an "outside salesman" is defined as any employee "who is employed for the purpose of and who is customarily and regularly engaged away from his employer's place or places of business in . . . [m]aking sales within the meaning of [ 29 U.S.C. § 203(k)], or . . . [o]btaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer." 29 C.F.R. § 541.5(a). In addition, work that does not involve sales may "not exceed 20 percent of the hours worked in the workweek by nonexempt employees of the employer: Provided, That work performed incidental to and in conjunction with the employee's own outside sales or solicitations, including incidental deliveries and collections, shall not be regarded as nonexempt work." 29 C.F.R. § 541.5(b) (emphasis in original).
The term "sales" has been interpreted "to include the transfer of title to tangible property, and in certain cases, of tangible and valuable evidences of intangible property." 29 C.F.R. § 541.501. "Characteristically the outside salesman is one who makes his sales at his customer's place of business. This is the reverse of sales made by mail or telephone (except where the telephone is used merely as an adjunct to personal calls)." 29 C.F.R. § 541.502(b). However, the regulations also make it clear that "any fixed site, whether home or office, used by a salesman as a headquarters or for telephonic solicitation of sales must be construed as one of his employer's places of business, even though the employer is not in any formal sense the owner or tenant of the property." Id. In addition, "promotional work which is incidental to sales made, or to be made, by someone else cannot be considered as exempt work." 29 C.F.R. § 541.504(a).
At this stage in the litigation, Champneys "need only make a modest factual showing that [he] was an inside sales representative for the purposes of the opt-in provision of the FLSA." Bontempo v. Metro Networks Communications Ltd. Partnership, 2002 WL 1925911, *1 (N.D.Ill. May 3, 2002) (granting plaintiff's motion for approval of opt-in notice to potential class members). Champneys has met this burden.
Champneys testified that he did not personally place any customer's orders. Champneys Dep. 75-76, 81. Rather, he testified that his duties included talking to the customers, albeit often face to face, and promoting Ferguson products by preparing surveys and assisting the clients in problem-solving. Champneys Aff. ¶¶ 9, 10; Champneys Dep. 31. Depending on how the facts surrounding Champneys' employment with Ferguson develop, his employment could fall into the category of promotional work, with the sales being consummated by someone else. See, e.g., Ackerman v. Coca-Cola Enterprises, Inc., 179 F.3d 1260, 1265-66 (10th Cir. 1999) ("if the employee in question does not actually consummate the sale at the location in question, then his other activities, even if closely related to sales, are not `incidental to and in conjunction with' those sales under the regulations"; plaintiffs were "outside salesmen" because they "consummated sales of Coca-Cola products at the stores they visited"). Thus, for the purposes of deciding whether to authorize notice, plaintiff has put forth some evidence tending to show that he was not an "outside salesman." This question remains open for further consideration, of course, on a more complete record.
B. Similarly Situated
Under the FLSA, an employee may bring an action only on behalf of other employees who are similarly situated. 29 U.S.C. § 216(b). As a result, Champneys must make a threshold showing that he is similarly situated to the employees on whose behalf he is seeking to pursue this claim. See Severtson v. Phillips Beverage Co., 137 F.R.D. 264, 267 (D.Minn. 1991) ("To obtain court authorization to send the proposed notice, plaintiffs must submit evidence establishing at least a colorable basis for their claim that a class of `similarly situated' plaintiffs exist."); Camper v. Home Quality Management Inc., 200 F.R.D. 516, 519 (D.Md. 2000) ("plaintiff should be required `to make a preliminary factual showing that a similarly situated group of potential plaintiffs exists'") (citations omitted); see also Bontempo v. Metro Networks Communications Ltd. Partnership, 2002 WL 1925911, *1 (N.D.Ill. May 3, 2002) ("plaintiff need only make a modest factual showing sufficient to demonstrate that plaintiff and potential plaintiffs together were victims of a common policy or plan that allegedly violated the FLSA" in order to get opt-in notice approval); Krieg v. Pell's, Inc., 2001 WL 548394, *1 (S.D.Ind. March 29, 2001) (modest showing that "at least some employee-managers exist who are similarly situated to" plaintiff was sufficient to allow notice). Before notice is authorized, the court is not required to come to a "final determination" that the similarly-situated requirement has been met. Severtson, 137 F.R.D. at 267. To require otherwise "would indeed place an [FLSA] class action in the `chicken and egg limbo.'" Id.
Champneys has defined his potential class as:
employees of Ferguson/Thrall who a) were engaged in sales activities from their homes or from Ferguson/Thrall-provided office space; b) were compensated on either or both a salary or commission basis; c) worked more than forty (40) hours per week in any given workweek from March 13, 1999 to the present (an "Overtime Workweek"); and d) were not paid overtime compensation for one or more Overtime Workweeks.
Pl. Motion for Approval of Notification Ex. A. Champneys has submitted the affidavits of two other Ferguson employees indicating that they were paid on a similar basis and had similar job descriptions. See Jones Aff. ¶¶ 4-7; Duckworth Aff. ¶¶ 4-8. Those employees were not former employees of TDI prior to its acquisition. See Jones Aff. ¶ 4; Duckworth Aff. ¶ 4. Ferguson also admits that it "employs both `inside' and `outside' sales representatives throughout the United States, the total number of which is in the thousands." Pierce Aff. ¶ 16. It is undisputed that Ferguson does not pay overtime to the employees it has classified as "outside" sales representatives. See id.
Ferguson argues that there is no evidence that Champneys is similarly situated to any potential class members because he has produced no evidence that the potential class members he has identified were compensated on a similar basis. This argument is not persuasive.
The Seventh Circuit has not specifically addressed the standard to be used in determining whether potential plaintiffs are similarly situated. However, in Moss v. Crawford Co., a district court rejected a similar argument. 201 F.R.D. 398 (W.D.Pa. 2000). In Moss, the named plaintiff had filed a motion with the court to certify a potential class that included both permanent and temporary employees. Id. at 401. The defendant's primary business involved "insurance adjustment and risk management." Id. at 400. The class members all worked as adjusters on either the Ashland or the Exxon Valdez oil spill projects. Id. at 401. As a result, some workers were located in Pennsylvania and others were located in Alaska. Id. In addition, the clients in Alaska and Pennsylvania were billed at different rates. Id. However, the plaintiff-employees received a flat 50% of whatever was billed to the client. Id.
In granting class certification, the court noted: "Although the FLSA does not define the term `similarly situated', courts generally do not require prospective class members to be identical." Id. at 409. The court then applied a two-step analysis established in Lusardi v. Xerox Corp., 118 F.R.D. 351 (D.N.J. 1987). "During the first or `notice stage', the court examines pleadings and affidavits in the record to determine whether notice should be given to potential class members." Moss, 201 F.R.D. at 409 (citations omitted). "`Because the court has minimal evidence, this determination is made using a fairly lenient standard, and typically results in `conditional certification' of a representative class.'" Id., citing Mooney v. Aramco Services Co., 54 F.3d 1207, 1214 (5th Cir. 1995). The court went on to state that once "discovery is complete and more factual information is available to the court, the defendant may file a motion to decertify the class." Moss, 201 F.R.D. at 409. At that point, "the court uses a higher standard to analyze the similarly situated issue." Id.
Furthermore, the court in Moss did not even consider the three main factors (which are currently being disputed in this case) to determine whether class certification was appropriate until after discovery and the defendant had petitioned to decertify the class. See id. Those three factors were: "(1) the disparate factual and employment settings of the individual plaintiffs; (2) the various defenses available to [the] defendant which appear to be individual to each plaintiff; and (3) fairness and procedural considerations." Id., citing Thiessen v. General Electric Capital Corp., 996 F. Supp. 1071, 1080 (D.Kan. 1998). In analyzing those factors, the court concluded that the "variations in the plaintiffs' duties, job locations and hourly billing rates [did] not differentiate the collective basis of the class to the extent that it defeat[ed] the primary objectives of a § 216(b) action." Moss, 201 F.R.D. at 410.
The same reasoning applies to this case. At the "notice stage," the plaintiff's burden is not to prove his entire case. Champneys has defined the class such that it will encompass Ferguson employees who performed similar functions and who were compensated in a similar manner. Pl. Motion for Approval of Notification Ex. A. The class definition is also designed to encompass the employees who were formerly with TDI and were then employed by Ferguson. The fact that the pay provisions were not identical is not sufficient to defeat the requested notification. Further, Ferguson has not attempted to explain just how its compensation plan differed from that of TDI. See Pierce Aff. ¶ 11. At this stage of the litigation, there is a sufficient showing that "at least some" sales representatives are similarly situated to Champneys. See Krieg, 2001 WL 548394, at *1.
Ferguson also argues that the time period of the class should be changed since Champneys did not begin working for Ferguson until after its acquisition of TDI in August 1999. However, Champneys' claim is that he was denied overtime pay in violation of the FLSA. That claim and any potential defenses would not change if the time period were to cover from August 1999 until the present only. As a result, at least for purposes of notification, the class definition will remain the same.
IV. Motion to Compel Production of Names and Addresses
Since the motion for approval of notification is granted, plaintiff's motion for disclosure of names and addresses of potential plaintiffs is also granted. See Severtson v. Phillips Beverage Co., 137 F.R.D. 264, 267 (D.Minn. 1991) (remanding for reconsideration under different standard magistrate's approval of notification; noting that if notice is warranted, discovery of names and addresses of potential plaintiffs should be allowed). Defendants shall produce to plaintiff no later than April 15, 2003 a list of all current or former employees (and last known addresses) who engaged in sales activities for defendants at any time from March 13, 1999 to the present, either from their homes or from office space provided by defendants, and who were not paid overtime compensation.
V. Notice to the Potential Class
The court approves plaintiff's proposed form of notice, except that it shall provide that opt-in forms be returned to plaintiff's counsel, not to the court. Plaintiff shall mail the notice to members of the potential class within 30 days of receipt of the list from defendants. The form of notice shall require opt-in forms to be returned to plaintiff's counsel postmarked no later than 45 days after the date the notice is sent. The form shall have a specific month and day inserted to inform recipients of the deadline.
Conclusion For the reasons stated above, the plaintiff's motions for approval of class notification and for production of names and addresses of potential class members are granted.
So ordered.