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Reich v. Interstate Brands Corporation

June 15, 1995






Appeal from the United States District Court for the Central District of Illinois.

No. 91-2345--Harold A. Baker, Judge.

Before POSNER, Chief Judge, and EASTERBROOK and KANNE, Circuit Judges.

EASTERBROOK, Circuit Judge.

ARGUED MAY 8, 1995


Shoppers make their largest purchases of baked goods on Saturday and Monday. To supply fresh products, bakeries are open on Friday and Sunday. Bakery workers' traditional work week has been Monday, Wednesday, Thursday, Friday, and Sunday. In 1972 the bakery workers' union staged a nationwide strike to back up its demand for weekly schedules with two consecutive days off. The employers were unyielding, fearing that a change would impair the freshness of the products on the main shopping days and thus dampen consumer demand. The strike ended with a compromise: workers got higher wages, and employers retained their right to require work without consecutive days off--but employers have to pay a price for exercising the privilege. An employer who gives any worker a schedule that does not include two consecutive days off in a given week must pay $12 per worker per week into a fund. In November of each year the employer distributes these "earned work credits" (as the collective bargaining agreement calls them) to all workers still on the payroll, according to the number of weeks each went without two-day breaks.

Ever since 1972 the collective bargaining agreement has provided that these $12 credits are not compensation for work performed but are "penalties" designed to induce employers to provide consecutive days off. The agreements say that the payments are not part of the base wage on which overtime pay is calculated. For two decades the Secretary of Labor apparently accepted that understanding; federal audits came and went without any challenge to the implementation of the program. In 1991, however, the Secretary reversed course and filed this suit, contending that the $12 payments are part of the employees' "regular rate" for purposes of sec. 7(a)(1) of the Fair Labor Standards Act (FLSA), 29 U.S.C. sec. 207(a)(1). The district court granted summary judgment for the Secretary and entered an injunction requiring Interstate Brands Corporation to treat the $12 payments as part of the employees' regular compensation. 849 F. Supp. 1261 (C.D. Ill. 1994). The Secretary did not seek an award of back pay; the relief is entirely prospective, which makes us wonder why anyone is excited. In the long run the parties can adjust the collective bargaining agreement to provide a little lower hourly rate (or a lower rate of increase at the next reopening) so that both employees and employers are indifferent between the current system and treating the $12 payments as part of the "regular rate." This litigation therefore appears to be about formal rather than functional issues. Nonetheless, we plow ahead because adjustment may be delayed or the employees themselves may sue for back wages; substance may lurk behind the form.

Some figures may help clarify the discussion that follows. Suppose bakery workers work 48 weeks per year, receiving an hourly wage of $10, and always put in five days per week. Half the weeks they get consecutive days off, and the other half they work on Monday, Wednesday, Thursday, Friday, and Sunday. The employer sets aside $288 per employee. Let us assume that the employer experiences 20 percent turnover, so by year's end each of the remaining employees is entitled to $360 from the kitty (those who leave in mid-year get nothing). If the employees labor 40 hours a week and never work overtime, then everything is straightforward: the employer disburses $360 to each. Now let's add overtime. According to the bakery, every overtime hour during the year earns time-and-a-half ($15 per hour). The Secretary, by contrast, believes that the $360 paid at year's end is part of the "regular rate." Forty hours a week for 48 weeks is 1920 hours. The $360 must be allocated to these hours, at 18.75 cents per hour (360 divided by 1920 equals .1875). The "regular rate" then is $10.1875 per regular hour, and the bakery must pay $15.28125 per overtime hour. For a baker who put in 100 overtime hours a year and was paid $15 per overtime hour during the year, the bakery owes an extra $28.125, and the check at year's end should be for $388.13 rather than $360. A baker who clocked more than 100 overtime hours would get more, and one who worked no overtime would settle for the $360. An employee who worked the M-W-Th-F-Su schedule three-quarters of the time, and was entitled to $540 at year's end, would have a reconstructed "regular wage" of $10.28 and a reconstructed overtime rate of $15.42. This employee would be entitled to an extra $42 for 100 hours of overtime and should receive $582 in the closing settlement. Other schedules would be handled in the same fashion.

Things would get even more complicated if the employer had to estimate during the year how many weeks each employee would be entitled to the $12 credit in order to predict the final "regular wage" and pay the full overtime wage in each paycheck. So far as the FLSA is concerned, however, employer and employee may agree to deferred payment of wages to the extent they exceed the minimum wage. Calderon v. Witvoet, 999 F.2d 1101, 1107-08 (7th Cir. 1993) (dictum); see generally Brooklyn Savings Bank v. O'Neil, 324 U.S. 697 (1945). Although the "general rule is that overtime compensation earned in a particular workweek must be paid on the regular pay day for the period in which such workweek ends", 29 C.F.R. sec. 778.106, nothing in the FLSA prevents a collective bargaining agreement from providing a different rule. The Secretary believes that "[w]hen the correct amount of overtime compensation cannot be determined until some time after the regular pay period," a retroactive adjustment is proper. Ibid.; see also 29 C.F.R. secs. 778.209, 778.303. The Secretary has not challenged the deferral mechanism in the baking industry's collective bargaining agreements, and we therefore assume that bakeries are entitled to compute and pay retrospectively, as in these examples.

Section 7(e) defines the "regular rate" to include "all remuneration for employment paid to, or on behalf of, an employee". The $12 credit, whether or not designed as a "penalty," is "remuneration for employment" and counts unless it comes within one of sec. 7(e)'s many exemptions. Interstate Brands relies entirely on sec. 7(e)(2), which excludes payments made for occasional periods when no work is performed due to vacation, holiday, illness, failure of the employer to provide sufficient work, or other similar cause; reasonable payments for traveling expenses, or other expenses, incurred by an employee in the furtherance of his employer's interests and properly reimbursable by the employer; and other similar payments to an employee which are not made as compensation for his hours of employment[.]

According to Interstate Brands, the $12 credit is a "payment[ ] to an employee which [is] not made as compensation for his hours of employment".

The Secretary offers two responses that do not persuade. First is that the $12 credit is "compensation for . . . hours of employment" because it goes to bakers who work six-day weeks. That simply misunderstands the arrangement. The payment is due whenever the work schedule fails to provide consecutive days off. Consider two weekly schedules: M-Tu-W-Th-F and M-W-Th-F-Su. Each has five days and 40 hours, but only the latter draws the $12 credit. (Interstate Brands adds that $12 goes into the pot whenever an employee receives a M-W-Th-F-Su schedule, even if changes provide consecutive days off.) This difference in compensation for schedules having the same number of days and hours per week is the foundation of the bakery's argument.

The Secretary's other argument is that "similar" means "rare" or at least "infrequent," which disqualifies a credit that applies to a majority of employee weeks. Our difficulty here is that vacation pay and reimbursement of expenses, the other principal subjects of sec. 7(e)(2), are not infrequent by any understanding. Many employees receive reimbursements for expenses. Most collective bargaining agreements provide for an ample program of holidays and personal vacations, the value of which swamps the payments for "earned work credits." Congress has not delegated to the Secretary of Labor the power to interpret sec. 7 of the FLSA; he appEB)s today as a prosecutor, much as the Attorney General does when enforcing the antitrust laws. Although courts should extend respect to the Executive Branch of government as it tries to chart a sensible course of implementation, see Atchison, Topeka & Santa Fe Ry. v. Pena, 44 F.3d 437, 445-47 (7th Cir. 1994) (en banc) (concurring opinion), we are not obliged to "defer" in the strong sense. See Adams Fruit Co. v. Barrett, 494 U.S. 638 (1990). Instead we give the Secretary's bulletins the respect their reasoning earns them. Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944); Roland Electrical Co. v. Walling, 326 U.S. 657, 676-77 (1946); cf. Condo v. Sysco Corp., 1 F.3d 599 (7th Cir. 1993). None of the Secretary's interpretive bulletins justifies the equation of "similar" in sec. 7(e)(2) with "infrequent." His brief is equally silent, and the novelty of the position suggests that his predecessors may have had different, but equally unarticulated, understandings. Recall that many waves of compliance audits in the baking industry did not draw a protest until 1991. A regional administrator filed an affidavit saying that despite appearances the Department of Labor had not changed policy. The district court was incredulous. We need not inquire when the Secretary first adopted the view he expresses in this case, because a public prosecutor is entitled to forgo prosecution, in order to make use of resources elsewhere, without contracting the scope of the statute. An unexplained period of non-prosecution, followed by an equally unexplained decision to prosecute, deprives us of a persuasive interpretation, however, and our own examination of the statute does not accord with the Secretary's current reading of "similar."

Although we are unimpressed with the Secretary's understanding of sec. 7(e)(2), we are not exactly bowled over by the bakery's. Interstate Brands wants us to disregard "similar" and exclude from sec. 7(e) any payment "not made as compensation for . . . hours of employment", which the bakery understands to mean "not measured by the number of hours spent at work". Excising a word from a statute is sometimes appropriate--for Congress sometimes cobbles together laws in a fashion that slights linguistic precision--but a litigant who wants to redact a statute needs to show that the context requires this step. Cf. Hubbard v. United States, 115 S. Ct. 1754 (1995); Rowland v. California Men's Colony, 113 S. Ct. 716 (1993). If Interstate Brands is right, then employers can evade the overtime requirements with ease. Imagine this compensation system: $52 (paid at year's end) for every day on which work is scheduled, plus the minimum wage for every hour actually worked. If the minimum wage is $3.50, this system produces $80 ($10 per hour) for an ordinary 8-hour day. It also yields an overtime rate of $5.25 per hour, roughly half of the average hourly wage rather than one and a half times the ...

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