Opinion
Civil No. A3-96-72. Docket No. 404.
January 11, 2000.
Summary: On cross motions for summary judgment, court held that plaintiffs were not entitled to the federal minimum wage for time spent off-premises on-call. The court ruled as a matter of law that the overtime computation formula described in 29 C.F.R. § 778.1100 was correct. Plaintiffs were designated prevailing parties via the catalyst theory for the voluntary corrections that defendants made to the computation of "regular rate" for overtime computation purposes.
MEMORANDUM AND ORDER
I. INTRODUCTION
This case has a long and somewhat tortured history that is well known to all of the parties. By way of introduction, a thumbnail sketch of the highlights of its history is as follows. In June of 1996 four individuals, Juliana Wisnewski, Jan Sliper, Shelly Reimer and Richard Duysen brought a host of state and federal labor related claims against a local hospital that was owned and operated by the defendants at various points under a variety of arrangements.
In 1992, Champion Healthcare of North Dakota, Inc. (CHC-ND), a wholly owned subsidiary of Champion Healthcare Corporation, purchased Heartland Medical Center, located in Fargo, North Dakota. In November 1994, CHC-ND and Dakota Hospital (a separate hospital owned by defendant Dakota Medical Foundation) formed Dakota/Champion Partnership. In December 1994, Dakota Hospital and Heartland Medical Center joined operations and became known as Dakota Heartland Health Systems (DHHS). Champion Healthcare Corporation (the parent of CHC-ND) operated DHHS. In 1996, Paracelsus Corporation acquired Champion Healthcare Corporation. CHC-ND then changed its name to Paracelsus Healthcare Corporation of North Dakota, Inc. (Paracelsus-ND). In 1998, Paracelsus-ND purchased the Dakota Medical Foundation's other half interest (i.e., the Dakota Hospital interest) in the hospital.
The court conditionally certified the plaintiffs as a Fair Labor Standards Act (FLSA) class on March 24, 1997. The notice process then began. On May 12, 1998, the stay on discovery was partially lifted and limited discovery began. Again, on January 15, 1999, the court allowed additional limited discovery. The class received final certification on November 10, 1999. Also on that day, the court made its final decision declining to exercise supplemental jurisdiction pursuant to 28 U.S.C. § 1367(c)(1) over the plaintiffs' state law claims. From that point on, the case consisted only of two federal FLSA claims: (1) an on-call claim for minimum wage; and (2) an overtime claim.
The case has now reached its climax. Before the court are cross motions for summary judgment. Plaintiffs bring the following three motions for partial summary judgment:
(1) liability for the failure to include on-call pay in the computation of overtime, (doc. #312);
(2) liability for federal minimum wage for on-call time, (doc. #317);
(3) liability for utilizing an incorrect overtime computation, (doc. #320).
Defendant Champion Healthcare Corporation (Champion) moves for summary judgment on the on-call minimum wage claim and the erroneous overtime computation claim, (doc. #326(2)). Defendant Champion objects to granting summary judgment on behalf of the plaintiffs; likewise, the plaintiffs object to granting summary judgment on behalf of Defendant Champion.
Oral argument was heard on this matter on December 3, 1999. The court has given lengthy consideration to the memoranda submitted and arguments presented by the parties. Based upon the memoranda and arguments along with a review of the entire file, the court is ready to rule.
II. DISCUSSION A. Factual Background
The plaintiff class consists of current and former employees, mostly nurses, of a local hospital, Dakota Heartland
Health Systems (DHHS). DHHS, like other hospitals, has call time. Nurses, including plaintiffs, are scheduled and frequently even volunteer for call time. Call time is of two types, either off-premises on-call or on-premises on-call. This case deals with off-premises on-call, hereinafter simply referred to as "on-call." While on-call, plaintiffs were paid less than the federal minimum wage. The plaintiffs claim that all time spent on-call should have been compensated at the applicable federal minimum wage pursuant to 29 U.S.C. § 206(a).
The court uses the term DHHS in a general sense, and only where necessary distinguishes the defendants.
The parties have recognized that plaintiffs' claim only encompasses off-premises on-call since persons providing on-premises on-call have been compensated by at least the federal minimum wage.
This amount has increased over time and differs between various departments, some paying more or less. It is sufficient to recognize, however, that the rate for on-call time performed by the plaintiffs has always been less than the federal minimum wage.
When the plaintiffs were on-call, they were not required to stay at the hospital nor were they required to sit at home by the phone. They were required, however, to be reachable whether by beeper, cellular phone, or leaving a number where they could be contacted. DHHS did not restrict the activities that the plaintiffs could engage in while on-call except in one respect. Persons on-call were prohibited from consuming alcohol or taking mind altering drugs/medications. A general response time of twenty minutes to a call-in was expected by DHHS.
Upon being called in, the call pay ceased and the person began earning his/her hourly rate or overtime if warranted. Typically, persons were not called in more than one time per call shift. In fact, of the 136 plaintiffs with on-call claims, 36 were called to work more than one time on a call shift from January 1, 1995 to April 1998. Of those 36 plaintiffs, 21 were called in more than once on one occasion, and 4 were called in more than once on two occasions.
Plaintiffs' second claim is that DHHS failed to utilize the proper formula for computing overtime wages and that DHHS failed to include all of the plaintiffs' remuneration when calculating overtime in violation of 29 U.S.C. § 207(a).
Non-exempt employees of DHHS are of two types, either forty hour a week employees or eight and eighty (8/80) employees. Forty hour a week employees are ones who receive overtime for all hours over forty worked in one week. Eight and eighty employees are ones who receive overtime for working more than eight hours a day, eighty hours in two weeks.
The typical forty hour a week employee is generally referred to herein as the principle for overtime compensation remains the same.
DHHS has paid its employees shift differentials or incentives for working certain shifts within the hospital. For example, employees working night shifts have been paid $1.00 per hour in addition to their normal hourly rate. Weekend shifts and holiday shifts have received similar treatment. Certain employees have also been eligible for incentive pay. As an example, persons qualified for a professional/technical incentive pay have been paid an additional $5.00 per hour above their normal hourly rate. Those qualified for clerical/service incentive pay, professional/technical lead pay, and service/clerical lead pay have been paid similarly. Additionally, as previously mentioned, on-call employees received an hourly rate.
From December 21, 1994 to September 12, 1997, DHHS' calculation of the "regular rate" for overtime did not include incentive pay, premium pay, on-call pay, or transcription pay. All parties recognize that the failure to include these payments was in violation of the FLSA requirements. DHHS corrected its computer system to include these payments in calculating overtime compensation and subsequently paid all present and former employees who had been underpaid during that time. In 1998, DHHS converted to a different time keeping system. Again errors were noted, in that transport pay and transcription pay were erroneously not included in the overtime compensation calculation. Employees had been underpaid. This problem was corrected in April of 1999 and DHHS is currently in the process of repaying the underpayments. DHHS is presently including all of the remuneration as required by the FLSA in its calculation of the regular rate for overtime purposes.
The court notes that the issue of whether DHHS properly includes all of the required remuneration into the regular rate is moot, since DHHS currently includes the required remuneration and is compensating all affected employees. Plaintiffs agree. Therefore, the issue becomes whether plaintiffs are a prevailing party regarding this claim. This issue is further addressed infra at section E.
The three issues before the court are squarely framed. Additional facts are brought out, as needed, in the individual analyses.
B. Summary Judgment Standard
Summary judgment is appropriate only when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). A fact is "material" if it might affect the outcome of a case, and a factual dispute is "genuine" if the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Churchill Bus. Credit, Inc. v. Pacific Mut. Door Co., 49 F.3d 1334, 1336 (8th Cir. 1995).
The "basic inquiry" for purposes of summary judgment is "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one sided that one party must prevail as a matter of law." Quick v. Donaldson Co., Inc., 90 F.3d 1372, 1376 (8th Cir. 1996) (citing Anderson, 477 U.S. at 251-52). In making this inquiry, however, this court will not "weigh the evidence, make credibility determinations, or attempt to determine the truth of the matter." Id. (citing Anderson, 477 U.S. at 249). Rather, this court's function is to determine only whether a dispute is genuine, and "[i]f reasonable minds could differ as to the import of the evidence," summary judgment is inappropriate. Id. at 1377 (citing Anderson, 477 U.S. at 250). This determination is made by reading the record in the light most favorable to the nonmoving party and drawing all "justifiable inferences" in the nonmovant's favor. Id. (citing Anderson, 477 U.S. at 255); Churchill, 49 F.3d at 1336 (citing Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986)).
The moving party has the initial burden of demonstrating to the court that there is no genuine issue of fact. Webb v. Lawrence County, 144 F.3d 1131, 1134 (8th Cir. 1998) (citing Celotex Corp., 477 U.S. at 323). Once the moving party has met this burden, however, the non-moving party cannot simply rest on the mere denials or allegations in the pleadings; rather, the non-movant must set forth specific facts showing that there is a general issue for trial. Id. (citing Fed.R.Civ.P. 56(e)).
C. On-Call Claim
Plaintiffs claim that they are entitled to the federal minimum wage for all of the off-premises on-call shifts that they "worked." Champion counters that the plaintiffs were not "working" while on-call therefore they are not entitled to minimum wages for the on-call shifts. Champion is correct.
The Fair Labor Standards Act of 1938 (FLSA) establishes minimum standards to protect covered employees. 29 U.S.C. § 201 et. seq. One of these protections guarantees a minimum hourly wage. Id. § 206(a). However, the FLSA does not clearly provide when the covered employee is "working" and entitled to the minimum wage.Henson v. Pulaski County Sheriff Dep't, 6 F.3d 531, 533 (8th Cir. 1993). Thus, the definition of "work" has been fleshed out by the courts and the Department of Labor, the agency charged with implementing the FLSA.
In the years following the enactment of the FLSA, the Supreme Court has addressed the definition of work. In Tennessee Coal, Iron Railroad v. Muscoda Local No. 123, work was defined as "physical or mental exertion (whether burdensome or not) controlled or required by the employer and pursued necessarily and primarily for the benefit of the employer and his business." 321 U.S. 590, 598 (1944). Two companion cases decided that same year add that work is time that is spent "predominantly for the benefit of the employer." See Armour Co. v. Wantock, 323 U.S. 126, 133 (1944); Skidmore v. Swift Co., 323 U.S. 134, 136-37 (1944). See also Henson, 6 F.3d at 534 (adopting the predominantly-for-the-benefit-of-the-employer standard). Significantly for the plaintiffs, time spent waiting for an event to occur can constitute work if the employee is hired for that function. See Armour, 323 U.S. at 133-34; Skidmore, 323 U.S. at 136-37.
In determining whether waiting time, i.e., on-call time, is work under the FLSA, a factfinder must examine agreements between the parties, the nature of the work and its relation to waiting time, and all of the circumstances, Skidmore, 323 U.S. at 136-37, and determine the extent to which restrictions imposed by an employer prevent the employee from using the time for personal pursuits.Cross v. Arkansas Forestry Comm'n, 938 F.2d 912, 916 (8th Cir. 1991).
This court has previously considered whether plaintiffs were "engaged to wait" by DHHS. See Memorandum and Order of March 24, 1997, Part IV. At that time, the court was of the view that plaintiffs had not described restrictions sufficient to characterize their on-call time as predominantly for the benefit of the employer. See id. at 8. The court did not grant summary judgment, however, since one important factor had not yet been established, that being the frequency in which the employees were actually being called in. See id. (citing Henson, 6 F.3d at 537, noting the frequency of emergency calls and percentage of breaks interrupted).
The undisputed facts now establish that of the 136 plaintiffs with call claims, only 36 were called to work more than one time on a shift from January 1, 1995 to April 1998. Of those 36 plaintiffs, 21 were called in more than once on one occasion, and 4 were called in more than once on two occasions. This means that roughly 26% of the plaintiffs have had to come back to work more than one time on one occasion over a span of forty months. Viewing this evidence in the light most favorable to the plaintiffs, the court cannot say that the plaintiffs' on-call time was spent predominantly for the benefit for DHHS.
As additional support for its rationale the court points to 29 C.F.R. § 785.17 which provides that an employee who is not required to remain on the employer's premises, as is the undisputed case here, but is merely required to leave word at his home or with the employer where he may be reached, as is also the case here, is not working while on-call. While statements of general policy or interpretation are not binding on this court, they do "carry persuasiveness." See Hultgren v. County of Lancaster, 913 F.2d 498, 504 (8th Cir. 1990).
Plaintiffs themselves have apparently conceded as much. In Plaintiffs' Brief in Opposition to Motion to Dismiss for Spoilation of Evidence dated November 4, 1999, (doc. #342), plaintiffs state:
Plaintiffs have made it long known, however, that as to on-call time, they do not intend to introduce evidence of restrictions as to their activities . . . Because an actual contract existed by which the Champion defendants agreed to pay plaintiffs for waiting on-call, there is no need to introduce evidence as to restrictions as to plaintiffs' activities.
Indeed, plaintiffs have presented no new evidence or rationale on the restrictions of their time in conjunction with these summary judgment motions, but have relied solely on a "contract" theory to establish their claim to minimum wage for the time spent on-call.
Turning to the contract claim, plaintiffs advance the theory that they had a contract of employment with DHHS, the terms of which were unilaterally dictated to plaintiffs through the hospital's human resource policy manual. The plaintiffs argue that the contract term provided that on-call time would be compensated at a rate below the minimum wage in violation of longstanding precedent that FLSA rights cannot be bargained away or waived. See Rudolph v. Metropolitan Airports Comm'n, 103 F.3d 677, 680 (8th Cir. 1996). Champion counters that no employment contracts exist between DHHS and the plaintiffs, and even assuming arguendo that a contract did exist, plaintiffs are still not entitled to minimum wage.
The court does not decide the interesting question of whether employment contracts exist between DHHS and plaintiffs because the answer would not change the result. This court has once before rejected the notion that since the plaintiffs were compensated at all for on-call time they were necessarily "engaged to wait" making the time fully compensable as hours worked. See Memorandum and Order of March 24, 1997, Part IV (noting that the argument was not supported by case law). Nothing that the court has recently seen or heard changes that opinion.
Even if the court assumes, which it does not, that employment contracts existed, the on-call time must still be performed predominately for the benefit of the employer to be considered work. See Henson, 6 F.3d at 535. As discussed above, the plaintiffs have not demonstrated any significant restrictions on their time that justify characterizing the on-call time as hours worked. In this regard the court notes the following undisputed facts:
(1) employees are not required to remain on the employer's premises while on-call;
(2) no excessive geographic limitations are placed on the employees;
(3) the response time to the hospital is twenty minutes;
(4) employees may trade call;
(5) employees use pagers, cell phones or leave numbers where they can be reached;
(6) the employees' only main restriction is that they cannot use alcohol or take mind altering drugs;
(7) the employees are not frequently called in more than once per on-call shift;
(8) employees are not required to perform any affirmative acts while on call;
(9) the longest period of call time is a weekend;
(10) plaintiffs are able to engage in personal pursuits.
This decision is in accord with the majority of courts which have concluded that off-premises on-call time is not hours worked.See, e.g., Gilligan v. City of Emporia, Kansas, 986 F.2d 410 (10th Cir. 1993) (water and sewer employees not entitled to compensation when required to carry pagers and respond to pages within thirty minutes when they were free to do whatever they wanted while on-call); Martin v. Ohio Turnpike Comm., 968 F.2d 606 (6th Cir. 1992) (highway maintenance workers not entitled to compensation when pagers available, employees free to use time as their own and they were not required to respond within a certain time); Bright v. Houston Northwest Medical Center, 934 F.2d 67 (5th Cir. 1991) (hospital biotech who carried pager not entitled to compensation when required to respond within twenty minutes after page and was free to shop, go out to dinner, or engage in other personal activities while on-call); Halferty v. Pulse Drug Co., 864 F.2d 1185 (5th Cir. 1989) (ambulance service telephone dispatcher who was required to stay at home but who was free to visit friends, entertain, watch TV, sleep and do laundry not entitled to compensation); Kelly v. Hines-Rinaldi Funeral Home, 847 F.2d 147 (4th Cir. 1988) (funeral home employee required to stay on premises was not entitled to compensation for on-call time when free to sleep or use time as his own).
In light of the foregoing, regarding the plaintiffs' claim to entitlement of minimum wage for time spent on-call, summary judgment is appropriately granted in favor of Champion and denied as to the plaintiffs.
D. Overtime Calculation Claim
The overtime calculation issue requires the court to determine whether Champion has complied with the FLSA's directive regarding overtime. Subject to some exceptions, not relevant here, the FLSA provides that "no employer shall employ any of his employees . . . 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) (emphasis added). The "regular rate" is defined as "all remuneration for employment." Id. § 207(e).
There are exclusions to what is included in the "regular rate." These include payments such as: sums paid as gifts, rewards, or discretionary payments, among others. See 29 U.S.C. § 207(e)(1)-(7). The exclusions are not applicable here.
There are two steps in computing the overtime obligation: first, the regular rate must be determined; and second, the regular rate must be used to calculate overtime. See id. § 207(a)(1). Both plaintiffs and Champion essentially agree up to this point. The dispute arises over how the regular rate is used in computing overtime.
The court is not yet addressing the issue of what "ingredients" go into the mix of "regular rate." Instead, this section examines the mathematical formula utilized in calculating overtime compensation.
The issue of correctly calculating overtime compensation is a question of law for the court to decide. See Reich v. Stewart, 121 F.3d 400, 404 (8th Cir. 1997) (citing Spinden v. GS Roofing Products Co., 94 F.3d 421 (8th Cir. 1996)). The crux of the dispute between the parties is plaintiffs' claim that 29 C.F.R. § 778.110 is a clearly erroneous explanation of the law regarding the overtime compensation calculation. Champion maintains that the C.F.R. example is correct.
The Department of Labor has adopted both regulations and interpretative bulletins to guide compliance with the FLSA. Part 778 of Title 29 of the Code of Federal Regulations constitutes an interpretative bulletin and not a regulation. See Monahan v. County of Chesterfield, Virginia, 95 F.3d 1263, 1272-73 n. 10 (4th Cir. 1996) (citing Sherwood v. Washington Post, 871 F. Supp. 1471, 1480-81 (D.D.C. 1994) (noting that many courts erroneously use these terms [regulations and interpretations] interchangeably most likely because both are collectively contained in the Code of Federal Regulations)). See also Brooks v. Village of Ridgefield Park, 185 F.3d 130, 135 (3rd Cir. 1999) (noting that 29 C.F.R. § 778.106 is an interpretative bulletin although mistakenly characterized as a regulation by the district court); Mayhew v. Wells, 125 F.3d 216, 218 (4th Cir. 1997) (noting that part 778 of Title 29 of the Code of Federal Regulations constitutes an official interpretation). Nevertheless, interpretative bulletins constitute a "body of experience and informed judgment to which courts and litigants may properly resort for guidance." Skidmore v. Swift Co., 323 U.S. 134, 140 (1944).
Section 778.110 provides "[i]f the employee is employed solely on the basis of a single hourly rate, the hourly rate is his `regular rate.'" 29 C.F.R. § 778.110(a). If, however, as the case is here, an employee earns an hourly rate plus some type of bonus pay, e.g., shift differential, incentive pay, on-call pay, that bonus pay must be factored into the regular rate for overtime purposes.See id. See also 29 U.S.C. § 207(e). The interpretative bulletin provides an example of an employee whose hourly rate is $6.00 an hour who works 6 hours of overtime:
If the employee receives, in addition to his earnings at the hourly rate, a production bonus of $9.20, the regular hourly rate of pay is $6.20 an hour (46 hours at $6 yields $276; the addition of the $9.20 bonus makes a total of $285.20; this total divided by 46 hours yields a rate of $6.20). The employee is then entitled to be paid a total wage of $303.80 for 46 hours (46 hours at $6.20 plus 6 hours at $3.10, or 40 hours at $6.20 plus 6 hours at $9.30).
The following illustration demonstrates the mathematical process:
Hourly rate: $6.00 Total hours worked: 46 (40 regular hours/6 OT hours) Production Bonus: $9.20
(1) 46 x $6.00 = $276.00 + 9.20 production bonus _______ $285.20
(2) $285.20 ÷ 46 = $6.20 "regular rate"
(3) then, either of two methods can be used to achieve the same result within a mathematical certainty:
(a) 40 x $6.20 = $248.00 (regular rate for non-OT hours) 6 x $9.30 = $ 55.80 (1+ "regular rate" for OT) ________ Added = $303.80 (total pay)
OR
(b) 46 x $6.20 = $285.20 (regular rate for all hours) 6 x $3.10 = $ 18.60 (1+ "regular rate" for OT) ________ Added = $303.80 (total pay)
Plaintiffs argue that this method will always "short" the employee and argue that the following formula should be used:
40 x $6.00 = $240.00 (non-OT hours x hourly rate) 6 x $6.20 = 37.20 (OT hours x regular rate) 6 x $3.10 = 18.60 (OT hours x 1/2 regular rate) _________ $295.80 + 9.20 (production bonus) _________ $305.00
OR
40 x $6.00 = $240.00 (non-OT hours x hourly rate) 6 x $9.30 = 55.80 (OT hours x + regular rate) $295.80 + 9.20 (production bonus) _________ $305.00
Thus, plaintiffs claim, the employee is always shorted $1.20 under the C.F.R. method. Upon initial review, the plaintiffs' calculations appear correct. A closer review, however, reveals the fallacy. Plaintiffs use the production bonus once to determine the regular rate and then add the full weight of the production bonus back into the calculation at the end. This is incorrect as it results in over-counting the production bonus.
The court notes that if plaintiffs wish to add the full value of the production bonus back into the overtime formula, the calculation must be made as follows:
46 hours x $6.00 = $276.00 (total hours x straight rate) Production bonus = + 9.20 ________ Regular pay = $285.20 6 OT hours x $3.10 = + 18.60 (OT hours x + regular rate) ________ Total pay = $303.80
Indeed, this type of calculation has been specifically rejected by other courts. See American Federation of Government Employees, Local 3721, v. District of Columbia, 732 F. Supp. 1, 4 (D.D.C. 1989) (finding this method plain error as "it inexplicably abandons the previously calculated regular rate in favor of addends which go into the weighted average used to determine the regular rate"). Like the court in American Federation, this court holds that the example provided in section 778.110 of Title 29 of the Code of Federal Regulations is the correct formulation of an overtime calculation.
The court has been assured that this is the method currently followed by Champion in calculating overtime compensation for its employees. An examination of one plaintiff's overtime claim demonstrates that indeed Champion is calculating overtime correctly. In one week, plaintiff Marlene Freeman worked 41.25 hours. She had a contract base hourly rate of $22.42. During that week, she earned shift differential, weekend differential, incentive pay and on-call pay totaling $56.75. Following the C.F.R. example above, Freeman's overtime calculation is as follows:
(1) 41.25 hours x $22.42 = $924.825 (total hours x base rate) + 56.75 (amount of "bonus pay") _________ $981.575
(2) $981.575 ÷ 41.25 = $23.796 "regular rate"
(3) $23.796 x 1 1/2 = $35.694 "overtime rate"
(4) 40 x $23.796 = $951.84 (non-OT hours x regular rate) 1.25 x $35.694 = $ 44.62 (OT hours x 1+ regular rate) _______ $996.46
OR
41.25 x $23.796 = $981.585 (total hours x regular rate) 1.25 x $11.90 = $ 14.875 (OT hours x + regular rate) ________ $996.460
Following the court's third example illustrated at footnote 11 above, the optional calculation is:
41.25 x $22.42 = $924.825 (total hours x straight rate) Bonus pay = + 56.75 _________ Regular pay = $981.575 1.25 x $11.90 = + 14.875 (OT hours x + regular rate) _________ Total pay = $996.45
This is exactly the pay that Freeman received for the week in question.
Freeman actually received $996.45 pay for the week in question, the penny difference appears to be a rounding issue. As the court's calculation demonstrates Champion appears to be following the correct overtime calculation formula. If, however, there are plaintiffs that have not been paid according to the formula found here to be correct, then those claims should be presented to the court and the court will do the appropriate calculation. It is stressed that the Code of Federal Regulations overtime calculation formula described in section 778.110 of Title 29 is correct; the court will not entertain further arguments claiming that that formula is incorrect or erroneous.
Further, the court instructs that plaintiffs may be entitled to additional overtime compensation in this action if the related state court action on the meal break claim proves to be successful.
E. Prevailing Parties
In determining an employee's "regular rate" for purposes of overtime compensation, all remuneration for employment paid to the employee must be included. 29 U.S.C. § 207(e). Champion does not dispute that it erroneously failed to include some required types of remuneration into the calculation of the "regular rate" from December 21, 1994, to September 12, 1997, and again from July 26, 1998, to April 29, 1999. Champion has corrected the errors in its computer system, and has made, or is in the process of making, repayments to all affected employees and former employees. Plaintiffs do not dispute that Champion currently calculates the "regular rate" correctly. Thus, there is no material dispute of fact regarding the types of remuneration to be included within the "regular rate" calculation. Hence, summary judgment is appropriate on this claim.
Some payments, like gifts and discretionary payments, are excluded from the calculation of the "regular rate"; however, those exclusions are not relevant here. See 29 U.S.C. § 207(e)(1)-(7).
This question, thus, arises: who is entitled to be awarded summary judgment; or put another way, who is a prevailing party on this issue.
The question of "prevailing party" becomes an issue as it relates to the mandatory fee shifting provision of the FLSA. While the FLSA does not expressly use the term "prevailing party," it certainly contemplates fee shifting in a successful minimum wage or overtime claim. The FLSA provides that "the court in such action shall, in addition to any judgment awarded to the plaintiff or plaintiffs, allow a reasonable attorney's fee to be paid by the defendant, and costs of the action." 29 U.S.C. § 216(b).
Whether a litigant is a "prevailing party" is a legal question.Warner v. Independent School Dist. No. 625, 134 F.3d 1333, 1336 (8th Cir. 1998); Jenkins v. State of Missouri, 127 F.3d 709, 714 (8th Cir. 1997) (en banc). "Decisions construing this term in the civil rights fee-award statute, 42 U.S.C. § 1988, `are generally applicable in all cases in which Congress has authorized an award of fees to a "prevailing party."'" Warner, 134 F.3d at 1336 (quoting Hensley v. Eckerart, 461 U.S. 424, 433 n. 7 (1983)).
Noting the confusion surrounding awarding attorney's fees and "prevailing party," the Eighth Circuit in Tyler v. Corner Constr. Corp., 167 F.3d 1202 (8th Cir. 1999) has issued clearer guidelines. The first step is determining whether the plaintiff is a "prevailing party." Id. at 1204. "`[A] plaintiff "prevails" when actual relief on the merits of his claim materially alters the legal relationship between the parties by modifying the defendant's behavior in a way that directly benefits the plaintiff.'" Id. (quoting Farrar v. Hobby, 506 U.S. 103, 111-12 (1992)). This relief may come in the form of an enforceable judgment, a consent decree, or a settlement. Id.
Where, however, a defendant has voluntarily changed its behavior before trial, rendering the lawsuit moot, a plaintiff is a "prevailing party" if the suit was "a catalyst for the defendant's voluntary compliance and the defendant's compliance was not gratuitous, meaning that the plaintiff's suit was neither `frivolous, unreasonable nor groundless.'" Id. at 1205. The catalyst theory is an alternative to the Farrar approach; it extends prevailing party status to plaintiffs who have not received actual relief on the merits of their claim. Id.
Turning to the facts of this case, plaintiffs must establish their "prevailing party" status via the catalyst theory since they have not received actual relief on the merits of their claim through a judgment, consent decree, or settlement. The first step is to consider whether plaintiffs' suit was "frivolous, unreasonable or groundless."
Champion admittedly was incorrectly calculating the "regular rate" used in paying overtime compensation by leaving out remuneration such as on-call pay and certain types of premium pay. This exclusion amounted to a violation of section 207(a)(1), providing for overtime compensation, of the FLSA. Champion was legally obligated to make the correction, and did not do so "gratuitously." Therefore, plaintiffs' suit was neither "frivolous, unreasonable nor groundless."
The more pressing question is whether plaintiffs' suit was a catalyst for Champion's voluntary compliance with the FLSA. Champion asserts that it discovered the errors in calculating the regular rate during union negotiations at DHHS in late 1996 and early 1997. Champion states that it knew of the problems by February of 1997; however, repayments were not made and the system was not changed until September 12, 1997. Giving the benefit of doubt to Champion, this is roughly a difference of six months.
Plaintiffs assert that the pressure of this class action lawsuit moved Champion to correct its errors in calculating the regular rate for overtime compensation. Plaintiffs point to these undisputed facts in support of their assertion:
(1) on June 13, 1996, this suit was begun with the plaintiffs alleging inter alia that DHHS "failed to pay overtime wages for hours worked in excess of 40 hours per week at a rate not less than one and one-half (1+) times an employee's regular rate;"
(2) On February 2, 1997, plaintiffs filed a brief with the court in which they state in a footnote that "In the instant case, the defendant hospital does not include call pay in an employee's rate of pay for determining overtime compensation. Even under the Champion defendants' reading of the law, this hospital is in violation of the FLSA, and must pay overtime at a rate that includes call pay as part of the employee's regular rate of pay" (emphasis in original);
(3) On February 27, 1997, DHHS ran through its computer center a series of four examples of wage computations, which confirmed for them that certain types of pay were being excluded from the computation of the "regular rate;"
(4) An internal memo at DHHS is circulated on March 11, 1997 discussing the overtime calculation problem;
(5) The court approves a notice to potential class action plaintiffs, which is directed in part to current and former "employees who did not have their `on call pay' included in the Hospital's computation of such employees' rate of pay for overtime calculations." This notice was mailed to potential class action plaintiffs, and was published in the Forum [the local newspaper] on June 4, June 11, and June 18 of 1997;
(6) On September 9, 1997, DHHS notifies its employees of errors in the system which overpaid and underpaid some employees, and notifies the employees that it will make adjustments for the underpayment.
Plaintiffs in this action undisputably sought relief in the form of correct overtime compensation payments, among other relief. Without a doubt, plaintiffs have asserted various claims over the four and one half years this litigation has been proceeding; nonetheless, Champion was aware from the beginning that plaintiffs were challenging their overtime compensation. It is apparent that just as the claims began to clearly crystallize, Champion voluntarily corrected the errors. The reason, Champion claims, that these errors were discovered and changes were made was due to union negotiations.
This is a conclusion the court cannot accept. Even by Champion's own assertions, there was at least a six month intervening period between the time the errors were discovered and the changes were made. During this intervening period, notices were sent out to potential party plaintiffs and a notice was published three times in the local newspaper. Certainly, the chronology of events is not dispositive of the issue; however, it is a proper variable for the district court to weigh. Sablan v. Department of Fin. of Commonwealth of N. Mariana Islands, 856 F.2d 1317, 1326 (9th Cir. 1988). It is more than coincidental that three months after the noticing period, Champion was finally able to correct problems that they assert were known of at least three months prior to notices being sent and published. In examining this evidence, the court is left with the firm conclusion that through this suit, plaintiffs created the pressure needed to spur Champion to correct the errors. Thus, plaintiffs qualify as a catalyst, and are therefore entitled to prevailing party status on the issue of including the correct remuneration into the calculation of the regular rate for overtime compensation.
The court does not determine whether liquidated damages, pursuant to 29 U.S.C. § 216(b), are appropriate on this issue as it has neither been addressed nor briefed by the parties. This issue along with a determination of reasonable attorneys fees and costs of the action may be addressed upon final resolution of the entire case.
III. CONCLUSION
In light of the foregoing, the court hereby summarizes its order:
(1) Plaintiffs' motion for partial summary judgment regarding liability for the failure to include on-call pay in computation of overtime, (doc. #312), is GRANTED;
(2) Plaintiffs' motion for partial summary judgment regarding liability for the federal wage claim for on-call time, (doc. #317), is DENIED;
(3) Plaintiffs' motion for partial summary judgment regarding liability for utilizing an incorrect overtime computation, (doc. #320), is DENIED;
(4) Defendant Champion's motion for summary judgment on the on-call claim, (doc. #326(2)), is GRANTED;
(5) Defendant Champion's motion for summary judgment on the erroneous overtime computation claim, (doc. #326(2)), is GRANTED as explained above.IT IS SO ORDERED.