Opinion
Civ. Nos. 02-3780 (JNE/JGL), 02-4261 (JNE/JGL).
March 30, 2005
Steven M. Sprenger, Esq., David L. Ramp, Esq., and Michael D. Lieder, Esq., Sprenger Lang, PLLC, appeared for Plaintiffs Gwen D. Carlson, et al.
Seymour J. Mansfield, Esq., and Charles A. Horowitz, Esq., Mansfield, Tanick Cohen, P.A., appeared for Plaintiffs Trever Johnson, et al.
Janet C. Evans, Esq., Thomas Hatch, Esq., and John Morgan, Esq., Robins, Kaplan, Miller Ciresi L.L.P., appeared for Defendant C.H. Robinson Worldwide, Inc.
ORDER
This collective action is the product of the consolidation of two cases, Carlson v. C.H. Robinson Worldwide, Inc., Civ. No. 02-3780 (Carlson Plaintiffs), and Johnson v. C.H. Robinson Worldwide, Inc., Civ. No. 02-4261 (Johnson Plaintiffs). Both the Carlson Plaintiffs and the Johnson Plaintiffs (collectively, Plaintiffs) brought claims against their employer, C.H. Robinson Worldwide, Inc. (CHR), alleging violations under the Federal Labor Standards Act, 29 U.S.C. §§ 201-219 (2000) (FLSA). Specifically, Plaintiffs claim that CHR incorrectly classified them as exempt under the FLSA and that consequently, CHR owes them overtime pay for hours worked in excess of forty per workweek. On May 20, 2003, the Court granted Plaintiffs' motion for leave to send notice to putative collective action members and approximately 700 employees have consented to opt in. The case is before the Court on Plaintiffs' motion for summary judgment as to liability and willfulness, Plaintiffs' motion to strike the expert report and testimony of Timothy Trujillo, CHR's motions for summary judgment as to Tricia Porter and Gwen Carlson, and CHR's motion to strike the expert report and testimony of Victoria Fuehrer. The Court grants and denies the motions for the reasons set forth below.
CHR disputes whether all 700 are eligible to opt in.
I. BACKGROUND
CHR is a transportation logistics company with at least 134 branch offices in 42 states. CHR began operations in 1905 and was employee-owned until its IPO on October 15, 1997. Between 1997 and 2002, CHR expanded from roughly 1900 employees to 3800 employees. CHR's business is divided into six "lines": Produce (buys, sells and transports produce — includes Corporate Procurement Distribution Services (CPDS) which specializes in large national customers' inventory and logistics of their businesses); Transportation (general trucking services); ROSS (transportation and management of time sensitive printed materials); Intermodal (transportation by rail); International Sales (transportation by ocean freight, air freight, rail freight, trucking and rail); and T-Chek (a wholly owned subsidiary that operates credit services for drivers). CHR's headquarters is located in Eden Prairie, Minnesota, and contains the human resource department (HR), payroll department, and in-house legal department.
Since the onset of this litigation, CHR has expanded from 100 branches to at least 134 branches.
CHR's basic business structure grants a large amount of autonomy to each branch. As such, each branch operates based on its formulation of "profit centers." A profit center is an individual group that accounts for its own profits and losses. A branch may incorporate several profit centers, each distinguished by its line (i.e., Produce, Transportation, ROSS, Intermodal, International, or T-Chek), or a branch may operate as one profit center which services a number of lines (e.g., CHR's Irvine Branch operates as one profit center but, after starting exclusively in Transportation, expanded into International and T-Chek lines as well). Typically, if a branch contains more than one profit center, each profit center has its own manager, and the branch has an overall manager.
CHR salaried employees are generally categorized in three job-types: sales, operations, and support. Salaried employees have individualized compensation packages that are reviewed annually and are comprised of four elements: base salary, contractual bonus, growth pool bonus, and stock option grants. The annual compensation review process begins with a meeting between the branch manager and the employee to review and amend each employee's compensation package and contract. This typically includes reviewing the employee's past performance and discussing the employee's future goals.
After the branch manager develops the compensation packages for each of his employees, the branch manager submits the branch's entire compensation package to the CHR compensation managers for review. At that point, the CHR compensation manager and the branch manger discuss and review each employee's compensation package. In a meeting that may last several hours depending on how many employees are in the branch, the branch manager describes the choices and decisions he has made with regard to compensation. At least five minutes are spent discussing each employee.
Branch managers are responsible for determining whether an employee is paid on a salaried or hourly basis and whether employees are classified as exempt under the FLSA. These decisions are made at an employee's initial hiring, as well as on-going reassessments when employees are promoted or transfer positions. An employee's exemption status may be adjusted as a result of the compensation review process. Branch managers are also responsible for setting their branch policy with regard to sick leave and employees' hours.
Gwen Carlson was hired on September 1, 1996, by CHR as an operations employee in the Minneapolis International branch. In November 1998, Carlson moved into a sales position that did not suit her well. In February 2001, after interviewing for several other positions, Carlson accepted a newly developed position known as the Domestic Drayage Coordinator, which she currently holds. Domestic drayage refers to shipping international freight containers from ports to a customer's destination. CHR created the position to promote uniformity in the coordination of domestic drayage. Carlson has always been compensated as a salaried employee. In 2000 Carlson's base salary and contractual bonus totaled $52,709, in 2002 they totaled $57,981, and in 2003 they totaled $60,239.
Tricia Porter began her employment with CHR as a sales employee at the Chicago North branch in March 1997. In April 2000, Porter transferred to the Los Angeles branch and remains employed there. Porter's career in both CHR locations has been as a full-time transportation sales position. Porter has also always been compensated as a salaried employee. Porter's base salary and contractual bonus totaled approximately $49,000, $57,000, and $69,400, in 2001, 2002 and 2003, respectively.
II. DISCUSSION
A. Motions to strike expert testimony and reports
Before reaching the parties' motions for summary judgment, the Court first turns to their motions to strike each other's expert report and testimony. Both expert reports address the ultimate question of whether CHR's salaried employees qualify under the FLSA's administrative exemption. First, CHR moves to strike the expert report and testimony of Victoria Fuehrer. According to CHR, Ms. Fuehrer's report and testimony is not admissible under Federal Rule of Evidence 702 because she puts forth only "irrelevant and unreliable opinions." CHR argues that Ms. Fuehrer's analysis is not based on first-hand observations, she fails to use reliable methodology, and she employs an incorrect legal standard. Second, Plaintiffs move to strike the expert report and testimony of Timothy Trujillo. According to Plaintiffs, his testimony and expert report is inadmissible under Rule 702 because Mr. Trujillo is not qualified as an expert in the FLSA, his testimony would not be helpful to the trier of fact, and he makes impermissible legal conclusions that go to the ultimate issue in the case.
The admissibility of expert testimony is governed by Rule 702, which states:
If scientific, technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact issue, a witness qualified as an expert by knowledge, skill, experience, training, or education, may testify thereto in the form of an opinion or otherwise, if (1) the testimony is based upon sufficient facts or data, (2) the testimony is the product of reliable principles and methods, and (3) the witness has applied the principles and methods reliably to the facts of the case.
Fed.R.Evid. 702. When evaluating the admissibility of expert testimony under Rule 702, a district court must determine whether the testimony is reliable and relevant. Kumho Tire Co. v. Carmichael, 526 U.S. 137, 149 (1999); see Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579, 597 (1993) (describing the trial court's function as a gatekeeper in screening such testimony for relevance and reliability). "It is the responsibility of the trial judge to determine whether a particular expert has sufficient specialized knowledge to assist jurors in deciding the specific issues in the case." Wheeling Pittsburgh Steel Corp. v. Beelman River Terminals, Inc., 254 F.3d 706, 715 (8th Cir. 2001) (citing Kumho Tire, 526 U.S. at 156).
With regard to whether Ms. Fuehrer and Mr. Trujillo qualify as experts, the Court's review of the record reveals that both have relevant on-the-job experience in creating job descriptions and in evaluating employee exemption status for purposes of the FLSA. However, two unique aspects of CHR's business are at issue; namely the highly specialized transportation logistics field in which CHR operates, and its uncommonly decentralized configuration. Although not necessarily a requirement for qualification as an expert, the Court notes that neither Ms. Fuehrer nor Mr. Trujillo is knowledgeable about the transportation logistics industry or has expertise in dealing with companies that are similarly decentralized. Accordingly, the Court turns to whether their reports would "assist the trier of fact to understand the evidence or to determine a fact issue." Fed.R.Evid. 702.
With respect to Ms. Fuehrer's report, the Court concludes that her report is not based on sufficient facts nor is it the result of reliable methodology. First, Ms. Fuehrer bases her expert report on a limited selection of deposition testimony and documentary evidence. Indeed, she initially qualifies her report by stating that she did not collect specific information about the work of CHR's salaried employees nor did she conduct detailed job analyses. (Fuehrer Rep. at 22.) As discussed below in the Court's analysis of the parties' summary judgment motions, the examination of the specific job duties of an employee is the cornerstone of an FLSA exemption analysis. Second, based on this narrow factual basis, Ms. Fuehrer creates a generic list of "essential job functions." She hypothesizes that all transportation and produce employees engage in these "essential job functions" to some degree. Ms. Fuehrer further extrapolates that CHR employees who engage in these "essential job functions" are not exempt under the FLSA. In reaching her conclusion, Ms. Fuehrer employs the wrong FLSA test. It is undisputed that the FLSA "short test" applies to the CHR employees at issue in this case, yet Ms. Fuehrer uses the more demanding "long test." Compare 29 C.F.R. §§ 541.2(e)(1), 541.214(a) with 29 C.F.R. § 541.2(a)-(d); see also Dymond v. United States Postal Serv., 670 F.2d 93, 95 (8th Cir. 1982). For example, Ms. Fuehrer opines that CHR employees are not exempt because instead of "customarily and regularly" exercising discretion in their primary job duties, they only exercise "limited discretion and independent judgment." ( Id. at 22-24.) However, under the applicable "short test," the standard only requires that an employee's primary job duties include "work requiring the exercise of discretion and independent judgment." See McAllister v. Transamerica Occidental Life Ins. Co., 325 F.3d 997, 1000 (8th Cir. 2003). Plainly, Ms. Fuehrer's failure to use the correct FLSA standard renders her conclusions unreliable. Accordingly, the Court concludes that Ms. Fuehrer's report fails to establish a reliable factual basis for her conclusions or that her conclusions are the product of reliable principles or methods. See Fed.R.Evid. 702; see also Kumho Tire, 526 U.S. at 152 (noting that Daubert requires a court to assure itself that the expert "employs in the courtroom the same level of intellectual rigor that characterizes the practice of an expert in the relevant field").
As to Mr. Trujillo's report, it is based on some of the same deposition testimony relied upon by Ms. Fuehrer, as well as additional deposition testimony and in-person visits to the CHR's Los Angeles and Minneapolis branches. Mr. Trujillo's expert report describes at great length the structure of CHR, the FLSA regulations, and the job duties of several employees. Then in a conclusory statement, he classifies each employee as exempt. Mr. Trujillo fails to demonstrate any reasoning or analysis in reaching his conclusions. The Court concludes that the gap between his description of duties and his classifications requires too great an inferential leap to be admissible. See Gen. Elec. Co. v. Joiner, 522 U.S. 136, 142 (1997) (noting that "nothing in either Daubert or the Federal Rules of Evidence requires a district court to admit opinion evidence that is connected to existing data only by the ipse dixit of the expert" and that a "court may conclude that there is simply too great an analytical gap between the data and the opinion proffered").
The Court recognizes that in opposition to these motions, both parties cite to case law from other district courts analyzing exemption issues under the FLSA that have allowed expert testimony and reports that address whether employees are exempt. See, e.g., Donovan v. Waffle House, Inc., No. C81-609A, 1983 WL 2108 (N.D. Ga. Sept. 26, 1983); Goebel v. Colorado, Civ. No. 93-K-1227, 1995 U.S. Dist. LEXIS 21472 (D. Colo. 1995); Barth v. Wolf Creek Nuclear Operating Corp., No. 97-4174-SAC, 2002 U.S. Dist. LEXIS 11554 (D. Kan. June 19, 2002). The court in Waffle House allowed expert testimony that was based on an "activity analysis" which involved administering to employees a job duties questionnaire and then interpreting the results. Waffle House, 1983 WL 2108, at *4. That court was persuaded that the results suggest "a fairly substantial spread in management responsibilities between . . . two employee groups." Id. The kind of statistical and empirical research put forth in the Waffle House case has not been presented to this Court. Goebel involved experts who the court determined were qualified because both had been employed by the Department of Labor and had "substantial experience in investigating job functions to determine whether those functions involve the exercise of judgment and discretion; whether they are related to management policies and whether they encompass supervisory duties." Goebel, 1995 U.S. Dist. LEXIS 21472, at *39. In Barth, the court permitted the expert testimony in part because the plaintiffs conceded that the expert's testimony would be help to the fact finder, and in part because the court had been considering appointing an expert for the court's assistance anyway. Barth, 2002 U.S. Dist. LEXIS 11554, at *4-5, *4 n. 1. None of these cases involved the factual scenario presented here, nor do they persuade the Court that either Ms. Fuehrer's or Mr. Trujillo's expert reports should not be stricken. Accordingly, the Court grants both motions.
CHR also moves to strike Ms. Fuehrer's opinions regarding "accepted practices" in human resources as irrelevant to the issue of willfulness. As discussed below, the Court denies Plaintiffs' motion for summary judgment on the issue of liability, and consequently does not reach the issue of willfulness. Accordingly, the Court denies CHR's motion with regard to Ms. Fuehrer's opinions on the issue of willfulness until such time as the Court addresses that issue.
B. CHR's motions for summary judgment as to Tricia Porter and Gwen Carlson
Summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). The moving party "bears the initial responsibility of informing the district court of the basis for its motion," and must identify "those portions of [the record] which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). If the moving party satisfies its burden, Rule 56(e) requires the party opposing the motion to respond by submitting evidentiary materials that designate "specific facts showing that there is a genuine issue for trial." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). In determining whether summary judgment is appropriate, a court must look at the record and any inferences to be drawn from it in the light most favorable to the opposing party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986).
The FLSA requires employers to pay employees overtime pay for hours worked in excess of forty hours per workweek. 29 U.S.C. § 207(a)(1). An employee is exempt from the overtime requirements if he is employed in an administrative capacity. Id. § 213(a)(1). CHR contends that it is entitled to summary judgment as to Porter and Carlson because both qualify under the administrative exemption. This exemption is an affirmative defense and thus, CHR has the burden of proof. See Fife v. Harmon, 171 F.3d 1173, 1174 (8th Cir. 1999). To establish that Porter and Carlson are administrative employees and thereby exempt, CHR must show with respect to each that: (1) she was paid on a salary basis; (2) her primary duty consisted of the performance of office work "directly related to management policies or general business operations of the employer or the employer's customers;" and (3) her performance of such primary duty included "work requiring the exercise of discretion and independent judgment." See McAllister, 325 F.3d at 1000. The Court considers each element in turn.
In its implementing regulations, the Department of Labor (DOL) created a long test and a short test to determine whether an employee is employed in an administrative capacity. See 29 C.F.R. § 541.2 (2002); see also id. at § 541.214. The short test applies when, as is the case here, employees are paid over $250.00 per week. See id. § 541.2(e)(2).
1. Salary basis
An employee is paid "on a salary basis" if she receives a predetermined amount of compensation each pay period that is not subject to being reduced because of the "quality or quantity of the work performed." 29 C.F.R. § 541.118(a). Carlson and Porter concede that they were paid a predetermined amount each pay period, but nonetheless contend that they were subject to improper deductions. Improper deductions occur when an employee is subject to reductions based on "the quality or quantity of work performed," unless the reduction qualifies for a FLSA express exception. Id.
The "mere possibility of an improper deduction in pay does not defeat an employee's salaried status." Auer v. Robbins, 65 F.3d 702, 710 (8th Cir. 1995), aff'd, 519 U.S. 452 (1997). Moreover, a one-time deduction will not necessarily overcome an employee's salaried status because the regulations allow for a "window of correction." 29 C.F.R. § 541.118(a)(6). The "window of correction" is available if an improper deduction "is inadvertent or is made for reasons other than lack of work," and "the employer reimburses the employee for such deductions and promises to comply in the future." Id. However, an employer may not avail itself of the "window of correction" if "there is either an actual practice of making such deductions or an employment policy that creates a `significant likelihood' of such deductions." Auer v. Robbins, 519 U.S. 452, 461 (1997). Whether an improper deduction defeats an employee's salaried status depends upon the facts of each case. 29 C.F.R. § 541.118(a)(6).
It is undisputed that Carlson's and Porter's compensations were never improperly reduced, and the record reveals no evidence that their respective branch managers improperly reduced the compensation of their co-workers. Nonetheless, some CHR employees in other branches did have improper deductions taken. CHR contends that pursuant to the "window of correction," it remedied those deductions by repaying the employees the amounts deducted and by publicly promising to comply with the FLSA in the future. See id.
Carlson and Porter argue that CHR cannot utilize the "window of correction" because they have been subjected "to policies permitting reductions inconsistent with their salaried status and to `actual practices' of such pay reductions." Pls.' Comb. Mem. Opp'n at 25. To defeat CHR's use of the "window of correction," Carlson and Porter must demonstrate that a reasonable fact finder could conclude that an "actual practice" exists. See Yourman v. Guiliani, 229 F.3d 124, 129 (2d Cir. 2000). Carlson and Porter allege three ways in which CHR maintained "actual practices" of improperly reducing salaried employees: (1) nine salary deductions in six or seven branches were made for disciplinary reasons; (2) fourteen salary deductions for illness and injury not pursuant to a bona fide plan; and (3) five salary deductions in two branches were made for partial-day absences.
Porter and Carlson identify twelve deductions for disciplinary reasons. However, the FLSA provides that "an employee need not be paid for any workweek in which he performs no work." 29 C.F.R. § 541.118(a). Three out of the twelve deductions were full-week increments, and therefore were not improper.
Carlson and Porter contend that they cannot accurately establish the exact number of deductions because of CHR's poor record keeping. In particular, they allege that CHR's payroll database reveals evidence of 1000 deductions taken from salaried employees' compensation, and that CHR failed to provide appropriate reasoning for these deductions. Given the volume of records and CHR's contention that the majority of these deductions involved reductions in pay for changes in job status or otherwise proper reasons, the parties agreed to a sampling of files totaling 167. Of those 167, there was evidence of some improper deductions. According to Carlson and Porter, CHR was required to keep specific records regarding each deduction pursuant to 29 C.F.R. §§ 516.2-516.3, and CHR's failure to do so should result in a negative inference that a proportional number of improper deductions were taken in the remaining 833 cases. Specifically, they contend that § 516.3, which applies to exempt employees, essentially requires the same records as § 516.2(a)(10), which applies to non-exempt employees. Carlson and Porter's reliance on these regulations, however, is misplaced. Section 516.3 provides that employers must keep the records delineated in § 516.2 with the exception of § 516.2 (a)(10). Id. § 516.3. Carlson and Porter's attempt to read into § 516.3 an expressly excluded provision is without merit.
Turning first to the issue of disciplinary deductions, Carlson and Porter argue that they were subjected to a policy of improper reductions because CHR's employee handbook states that an employee's wages could be reduced for disciplinary problems. In addition, they contend that they were subjected to an "actual practice" of improper deductions because some salaried employees in other branches did receive deductions in pay for disciplinary reasons. In response, CHR admits that there were nine deductions taken for disciplinary reasons in seven different branches, but nonetheless contends that these were aberrations, and cannot be construed as "an actual practice."
In Auer, the United States Supreme Court addressed the issue of impermissible deductions. 519 U.S. at 459-64. The Court relied in large part on an amicus brief filed by the Secretary of Labor at the request of the Court interpreting the regulations relating to improper deductions. Id. at 461-64. The Court stated:
[A] policy that permits disciplinary or other deductions in pay as a practical matter . . . is met . . . if there is either an actual practice of making such deductions or an employment policy that creates a significant likelihood of such deductions. The Secretary's approach rejects a wooden requirement of actual deductions, but in their absence it requires a clear and particularized policy — one which "effectively communicates" that deductions will be made in specified circumstances. This avoids the imposition of massive and unanticipated overtime liability . . . in situations in which a vague or broadly worded policy is nominally applicable to a whole range of personnel but is not "significantly likely" to be invoked against salaried employees.Id. at 461. With this guidance from the Secretary, the Supreme Court addressed whether an employer could use the "window of correction" where the employee manual "nominally subjects all department employees to a range of disciplinary sanctions that includes disciplinary deductions in pay," and where the employee at issue received one such deduction. Id. at 460. Deferring in large measure to the Secretary's opinion, see id. at 461-62, the Court concluded that the "window of correction" was available, in part because the manual did "not effectively communicate that pay deductions are an anticipated form of punishment for employees in [plaintiff's] category." Id. at 460.
The Court recognizes that subsequent circuit court decisions have adopted additional opinions of the Secretary of Labor that in part, narrowed the holding of Auer. See Moore v. Hannon Food Serv., 317 F.3d 489, 493 (5th Cir. 2003) (collecting cases). However, the Eighth Circuit's last pronouncement on this issue was in the underlying Auer opinion, which the Supreme Court affirmed. Accordingly, to the extent necessary to resolve the legal issues presented by the parties, the Court continues to follow the directives of Auer.
Like the policy at issue in Auer, CHR's employee manual provides a generalized statement that deductions in pay may be taken for violations of disciplinary rules. In addition, the manual covers all employees, regardless of their FLSA exemption status. Accordingly, this policy does not create a significant likelihood that exempt employees will be subjected to improper deductions. Moreover, even in combination with the policy in the employee's manual, the deductions taken in other branches cannot, under Auer, constitute a "clear and particularized policy" that "effectively communicates that deductions will be taken" for disciplinary reasons. See id. at 461. In this case, there is no evidence in the record that demonstrates that Porter and Carlson were even aware of these deductions. Because no reasonable fact finder could conclude that there had been effective communication to Carlson and Porter, the Court finds that they were not subject to an actual practice of improper deductions based on disciplinary problems. Accord Carpenter v. City County of Denver, Co., 115 F.3d 765, 767 (10th Cir. 1997).
Notably, this conclusion comports with the new DOL regulations. See 29 C.F.R. § 541.602(b)(5) (2004) (providing that full-day deductions for disciplinary actions are permissible for exempt employees); see generally id. § 541.603.
Next, Porter and Carlson contend that CHR violated 29 C.F.R. § 541.118(a)(3) which permits sick-leave deductions only consistent with a "bona fide plan, policy or practice." In particular, Carlson and Porter assert that CHR failed to satisfy the DOL requirement that bona fide plans be "impartially allocated to the affected employees" and as such, the discretion left to the branch managers resulted in arbitrary enforcement. See Exemptions From Minimum Wage and Overtime Compensation Requirements of the Fair Labor Standards Act; Public Sector Employers, 57 Fed. Reg. 37666 (Aug. 19, 1992). They argue that "unfettered discretion is not impartial allocation." Pls.' Comb. Mem. Opp'n at 29.
In response, CHR contends that each branch maintained its own practice with regard to sick leave. Thus, some branch managers allowed employees to take as many sick days as needed, while others set limits, for example allowing five sick days per year. CHR asserts that Carlson and Porter's argument regarding the DOL standard for a "bona fide plan" unnecessarily limits the regulation's options of "bona fide plan, policy or practice." 29 C.F.R. § 541.118(a)(3) (emphasis added). As such, CHR contends that the decentralized nature of the company results in each branch establishing its own practice.
The record reveals no evidence that the sick leave at either Carlson's branch or Porter's branch was partially allocated. Moreover, Carlson and Porter fail to identify facts in the record that demonstrate that partiality was associated with any of the fourteen sick leave deductions. The Court notes that the comments relied upon by Carlson and Porter state in context that:
[T]he plan that an employer would have to adopt to preserve exempt status for its employees can be simple and need not be particularly generous, so long as it is impartially allocated to the affected employees. In this regard, there is no requirement in § 541.118(a)(3) for any specific amount of leave to be stated under such plans, thus allowing considerable flexibility under the regulations.57 Fed. Reg. 37666 (Aug. 19, 1992). Accordingly, because Carlson and Porter fail to identify a genuine issue of material fact with regard to whether impermissible deductions were taken for sick leave policies, the Court concludes that they were not subjected to an actual practice of deductions inconsistent with "a bona fide plan, policy or practice."
Finally, Carlson and Porter contend that they were subjected to an actual practice of improper deductions based on five instances in two branches of deductions taken from employees' pay for partial-day absences. Indeed, Porter asserts that her branch manager threatened to deduct one half-day of pay from her salary after she left work to spend the afternoon with her daughter. Porter concedes that such a deduction was never taken. In response, CHR asserts that these few deductions cannot constitute a practice, especially given that only two branches were involved.
Applying the holding of Auer, the Court concludes that there is no policy or actual practice regarding partial-day absences that has been effectively communicated. Even with Porter's alleged threat, there was no deduction taken from her, or any of her co-workers. Without more, a reasonable fact finder could not conclude that Carlson and Porter were subject to a policy of impermissible deductions or that an actual practice had been effectively communicated to them.
In short, Carlson and Porter have failed to demonstrate that they were subjected to improper deductions. Because there is no dispute that Carlson and Porter were paid a predetermined amount that was over $250.00 per week, the Court concludes that CHR has satisfied its burden with respect to the salary basis test.
2. Primary duties test
Next, CHR must demonstrate that Carlson's and Porter's primary duties consist of office work "directly related to management policies or general business operations of the employer or the employer's customers," 29 C.F.R. §§ 541.2(a)(1), 541.214(a), and include activities "relating to the administrative operations of a business," id. § 541.205(a). To make this showing, CHR must demonstrate that Carlson's and Porter's primary duties consist of activities that are administrative, and that their work is of substantial importance to the operation of CHR's business. See id. § 541.205(a). The Court first turns to whether Carlson's and Porter's primary duties consisted of administrative activities.
The regulations provide that an exempt employee's job must be "office or non-manual" work. 29 C.F.R. §§ 541.2(a)(1), 541.214(a). The parties agree that both Carlson and Porter meet the office or non-manual requirement.
a. Primary duties are administrative activities
In assessing an employee's "primary duty," the amount of time spent performing administrative activities is relevant but not necessarily dispositive. See id. § 541.103, incorporated by § 541.206(b); see generally Spinden v. GS Roofing Prods. Co., 94 F.3d 421, 427 (8th Cir. 1996). Other appropriate factors include the "relative importance of the [administrative] duties as compared with other types of duties, the frequency with which the employee exercises discretionary powers, his relative freedom from supervision, and the relationship between his salary and the wages paid other employees for the kind of nonexempt work performed by the [administrator]." 29 C.F.R. § 541.103, incorporated by § 541.206(b).
Defining "administrative" under the regulations is not always a straightforward exercise. See Bothell v. Phase Metrics, Inc., 299 F.3d 1120, 1126 (9th Cir. 2002) (describing the definition of "administrative" as "elusive"). As a general measure, administrative work may be distinguished from the "production" work of the company. See 29 C.F.R. § 541.205(a). More specifically, "[t]he administrative operations of the business include the work performed by so-called white-collar employees engaged in `servicing' a business as, for, example, advising the management, planning, negotiating, representing the company, purchasing, promoting sales, and business research and control. `Servicing' denotes employment activity ancillary to an employer's principal production activity." Id. § 541.205(b); see Haywood v. N. Am. Van Lines, Inc., 121 F.3d 1066, 1072 (7th Cir. 1997); Martin v. Cooper Elec. Supply Co., 940 F.2d 896, 904-05 (3d Cir. 1991), cert. denied, 503 U.S. 936 (1992). These activities are considered exempt whether they service the business of the employer or of the employer's customers. See 29 C.F.R. § 541.205(d) ("`Management policies or general business operations' may be those of the employer or the employer's customers.").
Carlson and Porter contend that the Court must conduct its analysis of their primary duties under the framework of the administrative/production dichotomy. Rooted in § 541.205(a), this analysis queries whether an employee's work can be characterized as what the employer "produces." In support of their position, Carlson and Porter rely on the Casas v. Conseco Finance Corp., Civ. No. 00-1512, 2002 WL 507059 (D. Minn. March 31, 2002). The Court in Casas structured its analysis around the administrative/production dichotomy and concluded that summary judgment in favor of the employees was justified because their work constituted "production." See 2002 WL 507059, at *6-9. That the Casas court used the administrative/production dichotomy in a determinative way does not mean that it is the only or best method.
Based on persuasive case law from both the Eighth and Ninth Circuit Courts of Appeal, the Court concludes that a more holistic approach is warranted. Notably, the Eighth Circuit in Spinden conducted its analysis without any reference to § 541.206(a) and focused instead on § 541.206(b). See 94 F.3d at 426-28. In Spinden, the district court had relied significantly on assessing the percentage of time the employee devoted to non-exempt and exempt duties and the court found that "the percentage of time an employee spends on administrative tasks is but one factor in determining if administration is that employee's primary duty." Id. at 427. Furthermore, the Ninth Circuit in Bothell directly addressed Carlson and Porter's argument and found that "the administration/production dichotomy is useful only to the extent that it helps clarify the phrase `work directly related to the management policies or general business operations,'" and is but one piece of the larger inquiry, recognizing the court's obligation to construe the statutes and applicable regulations as a whole. 299 F.3d at 1126. Given the fact-intensive nature of the Court's inquiry, see Spinden, 94 F.3d at 426, the Court considers those regulations relevant to the facts of the case before it.
This approach is in line with the DOL comments to the 2004 revised FLSA regulations which state: "The Department's view that the production versus staff dichotomy is one analytical tool that should be used toward answering the ultimate question and is only determinative if the work falls squarely on the production side of the line." 69 Fed. Reg. 22,141 (April 23, 2004) (to be codified 29 C.F.R. pt. 541) (citing with approval Bothell, 299 F.3d at 1126).
i. Carlson
Turning first to Carlson, CHR moves for summary judgment only as to Carlson's current position as Domestic Drayage Coordinator. Initially, she was the sole member of the Domestic Drayage department, but the department has since expanded to include at least one other employee. Carlson describes her duties generally as "coordinating with the carriers the information necessary to move the load, coordinating with customers information regarding a specific load or service, coordinating with customs brokers foreign agents, negotiating rates or logistics services for a load, and providing customer service and problem solving." (Carlson Dec. 4, 2002 Decl. ¶ 2.) She spends her day "processing orders, negotiating rates, solving problems for customers, monitoring final delivery of cargo and generating additional sales for the branch." Id.
In her July 18, 2003 deposition, Carlson expanded on her current duties. She testified that she spends a significant portion of her time advising sales employees as to best methods for drayage logistics and recommending solutions for their drayage needs. She also describes her work analyzing carrier lanes and helping CHR clients re-route their cargo through more efficient and cost-effective lanes, thereby saving the client money and increasing CHR's profit. Additionally, she creates performance metrics used in vendor ratings for selection and continuances. That means she looks at the information provided by a sales person regarding a client's needs and expectations and then she assesses whether the carriers are doing their jobs and which carriers would best suit the needs of the customer. On behalf of the entire CHR network, she also appraises warehouse facilities near ports of entry for suitability of use by CHR customers. Carlson testified that some salespeople take care of their own drayage without Carlson's assistance. The record also reveals that Carlson responds to unusual carrier issues such as overweight containers. For example, Carlson helped solve a problem container that was 10,000 tons over the legal limit. Although Tom Sandstrom, CHR's chief legal counsel, signed off on the solution, Carlson generated its practical aspects.
The Court is persuaded that Carlson's primary duties are administrative. In particular, her time is spent advising the management of CHR, planning, negotiating, representing the company to customers as well as warehouses, and promoting sales through "business research" relating to her carrier lane analysis. See 29 C.F.R. § 541.205(b). Moreover, her strategic thinking, proactive research and carrier recommendations demonstrate that she is not "producing" but rather "administrating." See id. § 541.206(a). Furthermore, her most significant duties relate to her recommendations regarding drayage services and warehouses, in which she employs total discretion and is relatively free from supervision. See id. § 541.103, incorporated by § 541.206(b). To the extent that Carlson engages in non-administrative activities, there is no evidence in the record to demonstrate that they occupy a significant part of her energies. Viewing the facts in the light most favorable to Carlson, the Court thus concludes that her primary duties include activities that relate to the administrative operations of CHR, and therefore satisfy the first part of the primary duties test.
ii. Porter
The Court next turns to Porter. Her job as a transportation sales representative generally involves booking loads, ensuring the timely and safe arrival of the load, and negotiating rates which provide a margin of profit to CHR. Porter is also partially responsible for tracking her customers' accounts and timely payments, although much of the paperwork is taken care of by the support staff. More specifically, Porter describes her work as two-fold. On one hand, she has accounts whose business is constant and with whom she has a steady relationship. On the other hand, she assists companies that call CHR without a prior relationship, perhaps because they have a difficult route to cover or problems with their internal or direct-contract transportation providers. Porter testified that one of the primary reasons a non-account customer would use CHR's transportation services is more or less as a last resort. In addition, Porter also solicits outside sales by cold-calling customers to see if they are interested in CHR's services.
To facilitate her job, Porter develops relationships with both customers and transportation providers. In that way, when a customer needs to transport goods, Porter is in a position to locate reliable best-price transportation. Regardless of whether the transaction comes to her through one of her accounts or through a new customer, Porter is responsible for putting the customer and the transportation together. Thereafter, she "babysits" the load to its destination, solving any problems that arise along the way. CHR's profit on a transaction engineered by Porter is the difference between what the customer paid and what CHR had to pay the carrier. Porter testified that she negotiates well because she understands her market and is willing to take risks. On occasion a transaction loses money and Porter has the authority to engage in such a losing transaction if it was necessary to satisfy the customer's needs.
CHR contends that these job duties are administrative for purposes of the primary duties analysis. In support, CHR relies on the descriptive list contained § 541.205(b) to demonstrate that, when viewed as a whole, Porter's duties are administrative. Under that framework, CHR characterizes Porter as " representing [CHR] to both her carrier base and the customers . . ., servicing her customers by planning appropriate transportation for them and purchasing their transportation service . . . negotiating . . . and promt[ing] additional sales for [CHR] through . . . maintaining customer relationships and through seeking out new business relationships." CHR Mem. at 19-20 (emphasis in original). CHR further directs the Court's attention to 39 C.F.R. § 541.208, which offers illustrations of exempt employees, and particularly to § 541.208(e), which lists "traffic managers" as engaged in exempt administrative work. 29 C.F.R. § 541.208(e). Section 541.208(e) describes "traffic managers" as employees who plan efficient routes, contract with carriers, resolve damage claims, and make adjustments for irregularities in transportation. According to CHR, this illustration corresponds directly to Porter's duties, and therefore, she should be classified as participating in exempt administrative work.
Porter, however, maintains that she is involved in producing the very product — a profit from transportation services bought and sold — that the company exists to produce. See id. § 541.205(a). Moreover, she contends that her work is more like that of a transportation broker described in a 1994 Department of Labor Opinion letter. That Opinion analyzed an employee whose primary job duties included locating trucking companies or independent truckers with space available to handle a load; negotiating the price the company is willing to pay the trucker; dispatching the truck, and tracking the load while it is in transit. See Op. FLSA, 1994 WL 1004874 (October 13, 1994). The Opinion concluded that the employee was non-exempt because the primary duty appeared to be more "production" than "administrative." Id. According to Porter, this most aptly describes her job duties and therefore, she is not exempt.
The Court is persuaded that the fact that Porter is engaged in work that results in the "product" that the company profits from does not, by itself, propel her into the non-exempt category. Indeed, the illustration in § 541.208(e) of a "traffic manager" cuts against such a determination. Moreover, case law supports a finding that, to the extent that Porter's duties are that of a "dispatcher," they are administrative. See Donovan v. Flowers Marine, Inc., 545 F. Supp. 991 (E.D. La. 1982) (dispatchers coordinated barge movements, dealt with the Coast Guard, responded to unusual situations and evaluated profitability of jobs); Goldberg v. Ark. Best Freight Sys., 206 F. Supp. 828 (W.D. Ark. 1962) (dispatchers who assigned employees, equipment and routes); Mitchell v. Branch Motor Express Co., 168 F. Supp. 72 (E.D. Pa. 1958) (dispatchers who spend most of their time planning quick and economical routes); McComb v. New York New Brunswick Auto Express Co., 95 F. Supp 636 (D.N.J. 1950) (dispatchers who controlled truck movements and supervised operations); but see Marshall v. Nat'l Freight, 87 Lab. Cas. (CCH) ¶ 33,839 (D.N.J. 1979) (dispatchers not exempt).
Nonetheless, the Court finds that questions of fact exist regarding the weight to be given Porter's duties. Viewing the facts in the light most favorable to Porter, the Court concludes that further assessment of facts is required and, therefore, summary judgment is inappropriate. Cf. Nelson v. Ellerbe Becket Constr. Servs., Inc., 283 F. Supp. 2d 1068, 1080 (D. Minn. 2003) (concluding that a decision regarding primary duties analysis required credibility determinations and weighing of the evidence, thereby precluding a decision on summary judgment). Accordingly, the Court denies CHR's motion for summary judgment with respect to Porter.
b. Substantial importance
Having concluded that her primary duties are administrative, the Court now addresses whether Carlson's work is of substantial importance to the management or operation of CHR. Section 541.205(c) provides:
As used to describe work of substantial importance to the management or operation of the business the phrase "directly related to management policies or general business operations" is not limited to persons who participate in the formulation of management policies or in the operation of the business as a whole. Employees whose work is "directly related" to management polices or to the general business operations include those work affects policy or whose responsibility it is to execute or carry it out. The phrase also includes a wide variety of persons who either carry out major assignments in conducting the operations of the business or whose work affects business operations to a substantial degree even though their assignments are tasks related to the operation of a particular segment of the business.
29 C.F.R. § 541.205(c).
Carlson concedes that her work is of substantial importance to CHR, but nonetheless contends that "the importance is to [CHR's] day to day operations, not [its] general business operations." The Court disagrees. Carlson testified to the extent to which her organization and proactive work has generated money for the company. Even though her work only covers a particular segment of CHR's business, her work affects that segment to a substantial degree. See id. Given that her work covers the logistics of an entire department, and that all of CHR's domestic drayage business depends on Carlson's organizational and practical systems, the Court concludes that her work is of substantial importance to CHR.
3. Discretion and independent judgment
Finally, under the last element of the exemption analysis, CHR must prove that Carlson's duties "include work requiring the exercise of discretion and independent judgment." The regulations define "discretion and independent judgment" as follows:
In general, the exercise of discretion and independent judgment involves the comparison and the evaluation of possible courses of conduct and acting or making a decision after the various possibilities have been considered. The term . . . implies that the person has the authority or power to make an independent choice free from immediate direction or supervision and with respect to matters of significance.
. . . .
The term discretion and independent judgment . . . does not necessarily imply that the decisions made by the employee must have a finality that goes with unlimited authority and a complete absence of review. The decisions made as a result of the exercise of discretion and independent judgment may consist of recommendations for action rather than the actual taking of action.
29 C.F.R. § 541.207(a), (e)(1) (emphasis added).
The Court is satisfied that Carlson operates with a sufficient degree of discretion and independent judgment. As described above, Carlson operates independently. Her conclusions with regard to how to transport may be subject to review, for example, by CHR's legal counsel, but with regard to her basic duties, Carlson operates primarily on her own, in her own relatively specialized environment. See Dymond, 670 F.2d at 96 ("Even though an employee's work is subject to approval, even to the extent that a decision may be reversed by higher level management, it does not follow that the work did not require the exercise of discretion and independent judgment."). Accordingly, the Court concludes that CHR has carried its burden as to all three prongs of the exemption analysis and therefore, Carlson is exempt as an administrative employee and is not owed overtime pay. The Court recognizes that this conclusion applies to Carlson's job duties that started in January 2001.
Contrary to Carlson's assertion, it is not necessary that she "customarily and regularly" exercise discretion. See Dymond, 670 F.2d at 95. Instead, under the short test and the high earner test, Carlson need only demonstrate that she exercises discretion and independent judgment. See 29 C.F.R. §§ 541.2(e), 541.214(a).
C. Plaintiffs' motion for summary judgment
Also before the Court is Plaintiffs' motion for summary judgment on the issues of liability, willfulness and liquidated damages. Plaintiffs contend that they are entitled to summary judgment on liability because CHR cannot meet its burden to demonstrate that the class qualifies as exempt. Having granted CHR's motion with regard to Carlson and having established that questions of fact preclude a decision as to Porter, the Court concludes that questions of fact exist as to liability of the class. Accordingly, the Court denies Plaintiffs' motion for summary judgment as to liability. Moreover, because under the FLSA, liability is a predicate to a willfulness analysis and to a finding of liquidated damages, the Court denies Plaintiffs' motion insofar as it requests a finding of willfulness and liquidated damages.
III. CONCLUSION
Based on the files, records, and proceedings herein, and for the reasons stated above, IT IS ORDERED THAT:
1. CHR's motion for partial summary judgment as to Gwen Carlson [Docket No. 243 in Civ. No. 02-3780; Docket No. 214 in Civ. No. 02-4261] is GRANTED.
2. CHR's motion for partial summary judgment as to Tricia Porter [Docket No. 254 in Civ. No. 02-3780; Docket No. 225 in Civ. No. 02-4261] is DENIED.
3. Plaintiffs' motion for partial summary judgment [Docket No. 266 in Civ. No. 02-3780; Docket No. 237 in Civ. No. 02-4261] is DENIED.
4. Plaintiffs' motion to preclude the expert testimony of Timothy Trujillo [Docket No. 379 in Civ. No. 02-3780; Docket No. 351 in Civ. No. 02-4261] is GRANTED.
5. CHR's motion to preclude the expert testimony of Victoria Fuehrer [Docket No. 596 in Civ. No. 02-3780; Docket No. 492 in Civ. No. 02-4261] is GRANTED insofar as she opines on FLSA exemption classifications and DENIED insofar as she opines on accepted practices relating to willfulness.