Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 06 C 6014-Matthew F. Kennelly, Judge.
The opinion of the court was delivered by: Rovner, Circuit Judge.
ARGUED SEPTEMBER 11, 2009
Before BAUER, ROVNER and WILLIAMS, Circuit Judges.
Although plaintiff Brenda Urnikis-Negro prevailed in her suit for overtime pay, she contends on appeal that the district court improperly calculated the amount of pay she is owed. After a bench trial, the district court found that defendants American Family Property Services and its owners and officers, Todd and Nichole Lash, violated the Fair Labor Standards Act of 1938, as amended, 29 U.S.C. §§ 201, et seq. ("FLSA"), when they mistakenly treated Urnikis-Negro as an administrative employee who was exempt from the overtime provisions of the statute. Urnikis-Negro v. Am. Family Prop. Servs., Inc., No. 06 C 6014, 2008 WL 5539823, at *5-*9 (N.D. Ill. Jul. 21, 2008); see 29 U.S.C. §§ 207, 216(b). The FLSA sets the standard workweek at 40 hours and requires employers to pay their nonexempt employees one and one-half times their regular rate of pay for any hours worked in excess of 40. § 207(a)(1). Urnikis-Negro was never paid anything above her fixed salary for her overtime hours.
However, in calculating Urnikis-Negro's regular rate of pay and thence the overtime to which she was entitled, the court used the fluctuating workweek ("FWW") method set forth in 29 C.F.R. § 778.114(a), an interpretive rule promulgated by the Department of Labor. 2008 WL 5539823, at *11-*12. The FWW method calculates an employee's regular rate of pay by dividing her weekly wage by the total number of hours she works in a given week rather than by 40. Where, as here, the employee regularly works more than 40 hours per week, the FWW method results in both a lower regular rate of pay and a significantly lower award of overtime pay. The propriety of relying on section 778.114(a) and the FWW method in cases where the plaintiff has been miscategorized by her employer as exempt from the FLSA's overtime provision has divided the federal courts.
We agree that section 778.114(a) itself does not provide the authority for applying the FWW method in a misclassification case. That rule sets forth one way in which an employer may lawfully compensate a nonexempt employee for fluctuating work hours; it is not a remedial measure that specifies how damages are to be calculated when a court finds that an employer has breached its statutory obligations.
Irrespective of the rule, however, it was appropriate for the district court to apply the FWW method in this case. The authority to do so is found in the Supreme Court's decision in Overnight Motor Transp. Co. v. Missel, 316 U.S. 572, 62 S.Ct. 1216 (1942), superseded on other grounds by statute as stated in Trans World Air Lines, Inc. v. Thurston, 469 U.S. 111, 128 n.22, 105 S.Ct. 613, 625 n.22 (1985), which approved this very method of calculating of an employee's regular rate of pay and corresponding overtime premium. We therefore affirm the district court's judgment.
Our summary of the facts is taken largely from the district court's own factual determinations. Although we have not been provided with a complete record of the testimony and other evidence presented at trial, the district court's findings of fact are not challenged in this appeal; the appeal instead presents a legal question as to the proper determination of Urnikis-Negro's regular rate of pay and the overtime premium to which she is entitled.
American Family Property Services ("AFPS") was a real estate appraisal firm owned by Todd and Nicole Lash, who are husband and wife. Real estate appraisers are licensed by the State of Illinois. Todd Lash became licensed as an associate appraiser (which required him to complete specified training and pass a state examination) in the late 1990s and became a certified appraiser (which required experience as an associate appraiser, additional training, and a satisfactory score on another examination) in or about 2000. In 2003, the Lashes formed the firm Epic Appraisal, which later became AFPS. Lenders retained AFPS to conduct appraisals of residential properties on which they were considering making mortgage loans.
As of early 2004, Todd Lash was the sole certified appraiser at AFPS, although the firm also contracted with certified appraisers outside of the firm on occasion. Lash worked with a number of associate appraisers, some of whom were employed by AFPS and others of whom were independent appraisers who worked with AFPS on a contract basis. Typically, the associate appraisers prepared the appraisal reports for Lash's review. If and when Lash approved the report, he forwarded it to the lender that had retained AFPS to undertake the appraisal.
AFPS hired Urnikis-Negro in July 2004. Urnikis-Negro was a member of the religious congregation of which Lash was the pastor. One of her brothers already worked for AFPS as an associate appraiser, and a second brother would later join the firm. The firm's business was growing, and Lash wanted help in reviewing the reports prepared by the associate appraisers so that he could devote less time to AFPS and more time to his religious work: "It was my intention at that point to reduce my role in the company because... I wanted to be a pastor who appraised on the side and not an appraiser who pastored on the side." R. 98 at 8. Urnikis-Negro had no experience in real estate appraisals. At the time she was hired by AFPS, she had been working as the office manager of the loan department at LaSalle State Bank. Lash advised Urnikis-Negro that he would train her so that she could provide the assistance he sought in reviewing the appraiser reports. He also offered to pay for appraiser training so that she could eventually become an associate appraiser.*fn1
Lash agreed to pay Urnikis-Negro an annual salary of $52,000. At that time, this was the highest salary paid to anyone working at AFPS-as high as the salary Lash himself was paid. It also represented a substantial increase from the pay Urnikis-Negro had received during her employment with the bank. As the district court noted, the substantial pay reflected Lash's need to have someone at AFPS who could devote her attention to the more time-consuming aspects of the work he had been performing for the firm and thus free up time for him.
Urnikis-Negro understood that she was to be an employee of AFPS, and the district court found that this was an understanding shared by AFPS itself. 2008 WL 5539823, at *2. Nonetheless, when Urnikis-Negro received her first paycheck from AFPS, she discovered that the firm had paid her as if she were an independent contractor, withholding nothing from her pay for income or Social Security taxes. After she objected, the firm began making the appropriate withholdings. The district court found that AFPS's initial failure to with-hold taxes was not only contrary to the understanding between the firm and Urnikis-Negro that she was an employee but amounted to a deliberate effort to circum-vent the firm's legal obligations to withhold taxes from her pay. Id.
Lash and Urnikis-Negro did not discuss the number of hours she would be expected to work when he hired her. Although the district court credited Urnikis-Negro's testimony that she expected to work a 40-hour week, id. at *2, it found that she also understood that her salary was to cover whatever time she was called upon to work in a given week. Id. at *12. Her job with the firm was task-oriented, and her hours were likely to fluctuate with the volume of the firm's appraisal business. Yet, Lash testified at his deposition that all of the firm's employees were paid on the basis of a 40-hour week. The district court found it to be a fair inference from his testimony that Lash recognized the firm's obligation to pay a premium to any employee who was not exempt from the overtime provisions of the FLSA for any hours worked in excess of 40 per week. Id. at *2.
After a few weeks of shadowing Lash to become familiar with what he looked for in reviewing the reports prepared by associate appraisers, Urnikis-Negro began to work without direct supervision. Much of her work was clerical in nature: she filed appraisal reports, answered the telephone, called mortgage brokers and lenders to solicit new business using a list supplied by Lash, and pursued outstanding balances owed on appraisals AFPS had completed. She also fielded calls from brokers and lenders inquiring about the status of pending appraisals, noting errors or deficiencies in reports that the firm had prepared, or in some instances rejecting an appraisal outright. In each instance, Urnikis-Negro would report the call to the appropriate appraiser. More substantively, Urnikis-Negro reviewed draft reports prepared either by the firm's associate appraisers or by outside appraisers with whom the firm had contracted. Her job was to check the reports for any errors or inconsistencies and to ensure that they conformed to the requirements of the lender or broker who had ordered the appraisal. With respect to this aspect of her work, the district court found:
Urnikis-Negro's work in this regard largely consisted of that of a glorified proofreader. Her responsibility in reviewing the appraisal reports was to make sure that all the necessary parts of the report form were filled in, the form did not contain facially apparent errors, and it did not have internal inconsistencies. In addition... on some occasions Urnikis-Negro was responsible for communicating to the appraiser deficiencies that had been noted by the mortgage lender. These duties, which took up the majority of the time Urnikis-Negro spent on the job, did not involve the exercise of discretion or judgment on her part. Rather, Urnikis-Negro simply ensured that forms had been filled out correctly, completely, and without errors. Any discretion or judgment exercised in connection with the appraisal forms was exercised by the appraiser, who had ultimate responsibility (both practically and legally) for everything in the appraisal report.
Id. at *3. The court acknowledged that some of what Urnikis-Negro did with respect to the firm's appraisals involved more than mere proofreading. Beyond making sure that the reports were complete and accurate, she was responsible for identifying any problems that might emerge when a lender reviewed the report. But her obligation was limited to identifying such potential problems and communicating them to the appraiser. Id. Similarly, although Urnikis-Negro occasionally suggested potential comparable properties that an appraiser might use to establish the value of the property being appraised, it was not her responsibility to make these suggestions and it was the appraiser who decided whether to accept her suggestion and to determine what comparable properties to include in the report. Id. at *4.
In sum, neither AFPS nor Todd Lash hired Urnikis-Negro to exercise judgment or discretion in connection with appraisals or otherwise. Rather, Lash and the company expected her, with regard to appraisal reports, to perform only the essentially ministerial function of reviewing the completeness and internal consistency of draft appraisal reports, and to note for the appraiser areas in which Lash or the lender might question the report.
Id. Finally, all reports were reviewed and approved by a certified appraiser-usually Todd Lash, but in some instances another individual. Urnikis-Negro was given the authority to affix the electronic signature of the certified appraiser once the appraiser approved the report. But ...