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Ottaviano v. Home Depot

March 23, 2010


The opinion of the court was delivered by: Robert M. Dow, Jr. United States District Judge

Judge Robert M. Dow, Jr.


This matter is before the Court on Defendant Home Depot's Motion to Dismiss or Alternatively for Partial Summary Judgment [10]. Plaintiffs Gary Ottaviano, Cruz Plaza, and Jenny Macias, on behalf of themselves individually and on behalf of others similarly situated, allege that while employed by Home Depot, they were deliberately misclassified as "exempt" employees for the purpose of state overtime laws, both during their time as Assistant Store Managers in training (the "ASM training period") and during their time as Assistant Store Managers (the "ASM period"). Plaintiffs allege that Defendant violated the Illinois Minimum Wage Law, 820 ILCS 105/1, et seq., and seek to recover wages allegedly owed by the Defendant. Defendant contends that Plaintiffs' complaint should be dismissed for failure to state a claim upon which relief can be granted because Home Depot's policies, even under the facts as alleged, do not rise to a violation of the statute; alternatively, Defendant contends that summary judgment should be granted because some or all of Plaintiffs' claims may be time-barred.

With respect to Plaintiffs' claim that they were deliberately misclassified as "exempt" employees for the purpose of state overtime laws, the Court need not consider matters outside the complaint and the parties' briefing; thus, the Court will proceed on the motion to dismiss as to that claim. The issue of whether some or all claims are time-barred relies on materials outside the complaint. Because the parties have complied with the requirements of Local Rule 56.1, the Court will proceed on Defendant's motion for summary judgment as to those claims. For the following reasons, the Court dismisses the "ASM period" claims brought by Plaintiffs Ottaviano and Macias, and grants Defendant's motion for summary judgment [10] with regard to all claims brought by Plaintiff Plaza and the "ASM training period" claims brought by Plaintiffs Ottaviano and Macias.

I. Background

Plaintiffs Gary Ottaviano, Cruz Plaza, and Jenny Macias were employed by Defendant Home Depot as Assistant Store Managers (ASMs) at various retail locations throughout Illinois. Compl. ¶ 8. Plaintiffs are Illinois residents, and Defendant is a Delaware corporation with its principal executive offices located in Atlanta, Georgia. Id. ¶ 5. Defendant identified Plaintiffs as "exempt" employees for purposes of the Illinois Minimum Wage Law, and Plaintiffs were paid a salary (as opposed to being paid by the hour). Id. ¶ 11. While employed at Home Depot, Plaintiffs were required to work at least fifty-five hours a week and did not receive additional compensation for the time worked in excess of forty hours a week. Id. ¶¶ 9-10. According to Plaintiffs and not disputed by Defendant (for purposes of the motion to dismiss), Home Depot has a policy whereby it terminates ASMs who regularly work less than the fifty-five hours for which they are scheduled. Id. ¶ 11. Additionally, Home Depot requires newly hired ASMs to undergo a training period lasting between two and eight weeks prior to assuming the full responsibilities of an ASM. Id. ¶ 13. During that training period, ASMs also are paid a salary and not compensated for time worked in excess of forty hours a week, even though they do not perform "exempt" work during that time. Id. ¶ 14-15. Plaintiff Ottaviano worked as an ASM from April 2005 until December 21, 2006; Plaintiff Macias from March 2001 until January 29, 2007; and Plaintiff Plaza from March 2004 until June 2006. Def.'s UMF ¶¶ 5-7, Ex. 1-3. All three Plaintiffs have filed consents to join the pending lawsuit in Elmaghraby v. Home Depot, U.S.S., Inc., No. 04-cv-4100, (D.N.J. Aug. 25, 2004), a collective action filed against Defendant in federal court in New Jersey under the Fair Labor Standards Act, 29 U.S.C. 201, et seq. Def.'s UMF ¶ 4.

II. Discussion

A. ASMs were Properly Characterized as "Exempt" Under IMWL

The Court will treat Defendant's argument that Plaintiffs were not misclassified under the standards for ruling on a motion to dismiss. Generally, "[a]ffirmative defenses do not justify dismissal under Rule 12(b)(b)." Doe v. GTE Corp., 347 F.3d 655, 657 (7th Cir. 2003). However, this rule does not apply when a party has included in its complaint "facts that establish an impenetrable defense to its claims." Tamayo v. Blagojevich, 526 F.3d 1074, 1086 (7th Cir. 2008). "If the plaintiff voluntarily provides unnecessary facts in her complaint, the defendant may use those facts to demonstrate that she is not entitled to relief." Id.; see also Hecker v. Deere & Co., 556 F.3d 575, 588 (7th Cir. 2009) (affirming dismissal of claims because complaint "so thoroughly anticipated" an affirmative defense that dismissal was appropriate). In this case, Plaintiffs have put Defendant's exemption defense "in play." Hecker, 556 F.3d at 588. Instead of simply pleading an overtime claim under Illinois law, Plaintiffs specifically challenged their exempt status on the basis that "the ASM position does not meet the salary basis test," and alleged detailed facts in support of their claim. Specifically, Plaintiffs contend (and, for purposes of this motion, Defendant does not dispute) that Home Depot has a policy whereby it terminates ASMs who regularly work less than the fifty-five hours for which they are scheduled and that this policy does not pass muster under the salary basis test. Id. ¶ 11. Plaintiffs' opposition leaves no doubt that this is the only ground upon which Plaintiffs challenge their exempt status. See, e.g., Pls. Opp. at 2-3, 7, 11, 14. Whether termination for failure to work an assigned schedule constitutes a "reduction in pay due to the quantity or quality of work performed" is a legal question that can be addressed on a motion to dismiss; thus, the Court proceeds to the salary basis issue.

Illinois employers are not required to pay overtime wages to employees who would have been exempted under the federal Fair Labor Standards Act (FLSA) and accompanying regulations, as they existed on March 30, 2003. 820 ILCS 105/4a(2)(E) (2004). The "short test" for exempt status under the prior FLSA regulations requires that three conditions be met: (1) the employee must be paid on a "salary basis" of at least $455 a week; (2) the employee must primarily manage a customarily recognized department or subdivision of the employer; and (3) the employee must customarily or regularly direct the work of two or more employees. See 29 C.F.R. § 541.1(f) (July 1, 2003), superseded by 29 C.F.R. 541.100 (July 1, 2008).*fn1 Plaintiffs allege that because the ASM position fails to meet the first element, the "salary basis test," they were improperly classified as exempt and therefore owed overtime wages. Compl. ¶ 12.

The "salary basis test," materially unchanged since the former regulations, is satisfied where an employee "regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of his compensation, which amount is not subject to reduction because of variations in the quality or quantity of work performed." 29 C.F.R. § 541.118(a) (July 1, 2003), superseded by 29 C.F.R. § 541.602(a).*fn2 Plaintiffs assert that Defendant's alleged policy of terminating any ASM "who exercises his or her discretion on a regular basis to work less than the eleven (11) hour per day minimum shift for which the ASM has been scheduled" runs afoul of this regulation, which is commonly referred to as the "nodocking rule." Compl. ¶ 1; id. ¶ 53 (quoting 29 C.F.R. § 541.602(a)); see Whetsel v. Network Prop. Servs., LLC., 246 F.3d 897, 900 (7th Cir. 2001). Plaintiffs allege that Defendant Home Depot requires ASMs to work fifty-five hours a week and has adopted a policy of terminating ASMs who regularly work less than that amount. Compl. ¶¶ 10-11. Under Plaintiffs' theory, the policy of termination is effectively a wage "reduction" as described in the FLSA salary basis test. Id. at ¶ 11-12.

The narrow question of whether termination is tantamount to a wage reduction under the FLSA is a novel one. However, decisions reaching related issues shed considerable light on the question and lead to the conclusion that termination, standing alone, cannot be one and the same as a wage reduction. In Auer v. Robbins, the Supreme Court addressed the permissibility of the Secretary of Labor's interpretation of the salary basis test to mean that employees whose wages could be adjusted for disciplinary reasons could not be considered "exempt." 519 U.S. 452, 456 (1997). In a unanimous decision, the Supreme Court accepted the Secretary's interpretation and its corollary -- that "true executive, administrative, or professional employees are not 'disciplined' by piecemeal deductions from their pay, but are terminated, demoted, or given restricted assignments." Id. That decision at least implicitly acknowledges that employees who meet the salary basis test for executive exemption under FLSA may be terminated as a disciplinary measure.

Plaintiffs contend that the Supreme Court's pronouncements in Auer about the disciplinary actions employers may take against exempt employees are mere dicta and do not compel dismissal of their claims. While the Court agrees with Plaintiffs' contention that exempt employees are "normally allowed some latitude with respect to the time spent at work," the proposition that employers may set general requirements as to the overall number of hours worked by exempt employees has widespread support, even if the cases are otherwise distinguishable. See Guerrero v. J.W. Hutton, Inc., 458 F.3d 830, 836 (8th Cir. 2006) ("We agree the regulations do not prohibit employers from requiring employees to work a specific number of hours per week and track their time to ensure they have worked the requisite number of hours"); Renfro v. Indiana Michigan Power Co., 370 F.3d 512, 615 (6th Cir. 2004) (holding that "employer may require exempt salaried employees to make up for time missed from work due to personal business. It is only when an employer actually deducts from an employee's paycheck that the employee is ineligible for the exemption."); Cowart v. Ingalls Shipbuilding, Inc., 213 F.3d 261, 265 (5th Cir. 2000) ("Although the salary basis regulation prohibits deductions from an [employee's] salary for personal absences of less than a day, the regulation does not prohibit an employer from requiring an employee to make up the time he misses.").

Seventh Circuit precedent also is in line with this construction of the executive exemption. In Haywood v. North Am. Van Lines, Inc., the employer subjected its salaried customer service coordinators to non-monetary discipline (i.e., verbal or written reprimand) for failing to work a scheduled shift and required them to either make up missed scheduled work time or take sick leave. 121 F.3d 1066, 1070 (7th Cir. 1997). No salary deductions were made in either instance. Id. at 1070-71. The court held that employees do not lose exempt status simply because they are subject to discipline for failure to work a particular schedule. 121 F.3d 1066, 1071 (7th Cir. 1997). The court then dealt a fatal blow to claims like the one presented by Plaintiffs here by pointing out that, "if the regulations also were to prohibit non-monetary discipline for the quantity or quality of work an employee performs, employers would have no tool with which to combat chronic absenteeism, tardiness, or poor performance." Id. Were Plaintiffs' construction of the salary basis test to be applied, employers would be subject to liability for terminating exempt employees who fail to report to work at the scheduled times. Such a construction ...

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