Karen Moore, et al. v. Hannon Food Service, Inc., et al.

Hannon Food Service, Inc.; Hannon’s Food
Service, Inc.; Hannon’s Food Service of Jack-son,
Inc.; and Hannon’s Food Service of Nat-chez,
Inc. (collectively “Hannon”) appeal a
judgment as a matter of law (“j.m.l.”) in this
action brought pursuant to the Fair Labor
Standards Act (“FLSA”) awarding overtime
benefits to a group of restaurant managers.
Concluding that Hannon properly availed it-self
of the window of correction provided for
at 29 C.F.R. § 541.118(a)(6), we reverse and
render judgment in favor of defendants.
I.
A.
Hannon 1 owns various KFC restaurants
throughout Mississippi. Plaintiffs were em-ployed
as restaurant managers at a salary of
$300 per week plus a monthly bonus of 2% of
the gross sales of the restaurant they managed.
Hannon had a policy of deducting recurrent
cash register shortages from the supervising
manager’s monthly bonus. In November
1997, Hannon began deducting these short-ages
from the managers’ weekly salaries rath-er
than their monthly bonuses, ostensibly to
increase the managers’ responsiveness to the
problem. This new practice resulted in a total
of seventeen deductions across four of the
plaintiffs; the other plaintiffs incurred no de-
ductions. Salaries were not otherwise
decreased for any reason.
Hannon made its legal counsel aware of the
policy in February 1998, and counsel prepared
a memorandum advising Hannon to discon-tinue
the practice. Hannon promptly reverted
to the previous practice of taking the deduc-tions
from the bonuses.
B.
Plaintiffs sued Hannon on May 28, 1998, 2
alleging violations of the FLSA, as amended,
29 U.S.C. § 216(b). On September 13, 2000,
Hannon tendered plaintiffs the total amount of
all improper deductions plus 8% interest from
the dates of the deductions to September 18,
2000, the date then set for trial. Hannon later
moved for summary judgment and filed a stip-ulation
of facts to which all parties agreed.
Plaintiffs filed a cross-motion for summary
judgment. The district court granted j.m.l. for
plaintiffs, finding that plaintiffs were not ex-empt
bona fide executive employees for a
four-month period, because they were
“subject to” improper deductions within the
meaning of C.F.R. § 541.118(a); the court
rejected Hannon’s argument that
§ 541.118(a)(6) allowed it to correct its error
and maintain the exempt status of the
employees. The court ordered Hannon to pay
each plaintiff four months of overtime pay.

* * *

Though the FLSA establishes a general
rule that employers must pay their employees
overtime compensation, executive,
administrative, and professional employees
are exempt. See 29 U.S.C. § 213(a)(1). The
Secretary has broad authority to “define and
delimit’”’ the scope of these exemptions. Id.;
see also Auer, 519 U.S. at 456. Among the
requirements for the exemption is the salary-
basis test, 29 C.F.R. § 541.118, 4 under which
the employee must receive “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 the work
performed.” § 541.118(a).

In some circumstances, an employee may
maintain his exempt status, notwithstanding
improper deductions, under the window of
correction established by § 541.118(a)(6),
which reads:

The effect of making a deduction which
is not permitted under these interpre-tations
will depend upon the facts in the
particular case. Where deductions are
generally made when there is no work
available, it indicates that there was no
intention to pay the employee on a sal-ary
basis. In such a case the exemption
would not be applicable to him during
the entire period when such deductions
were being made. On the other hand,
where a deduction not permitted by
these interpretations is inadvertent, or is
made for reasons other than lack of
work, the exemption will not be con-sidered
to have been lost if the
employer reimburses the employee for
such deductions and promises to
comply in the future.
29 C.F.R. § 541.118(a)(6).

* * *

Click the case caption above for the full text of this case.

The district court erred in finding that the
window of correction was unavailable in this
case. Furthermore, the record demonstrates
that Hannon properly availed itself of the ex-ception.
Hannon tendered plaintiffs the
amount of all deductions plus interest five
days before trial. Reimbursements may be
made at any time to preserve the window of
correction.15 Moreover, Hannon has changed
the offending policy. We therefore
REVERSE and RENDER judgment in favor
of defendants.

Unavailable

Unavailable

None