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Dacar v. Saybolt, L.P.

United States Court of Appeals, Fifth Circuit

October 18, 2018

JOSEPH DACAR, individually and for similarly situated people; JASON WHITELAW; DAVID TARDIFF, et al Plaintiffs - Cross-Appellees
v.
SAYBOLT, L.P., Defendant-Appellee Cross-Appellant LYLE DEROCHE; FELTON RAVIA, Plaintiffs - Appellants Cross-Appellees

          Appeals from the United States District Court for the Southern District of Texas

          Before DAVIS, JONES, and HIGGINSON, Circuit Judges.

          PER CURIAM.

         The fluctuating workweek ("FWW") method is one way of calculating overtime compensation that satisfies the requirements of the Fair Labor Standards Act ("FLSA"). See 29 C.F.R. § 778.114(a). Saybolt LP, a petroleum products company, used the FWW method to calculate overtime compensation for some of its oil and gas inspectors who worked radically varying hours each week. These inspectors also received incentive payments for working less desirable hours during the workweek. A group of these inspectors ("the plaintiffs"), sued Saybolt, alleging that the incentive payments precluded use of the FWW method and placed their employer in violation of the FLSA. The plaintiffs claimed that Saybolt's violation was willful.

         The district court held that Saybolt's payment scheme violated the FLSA, but the violation was not willful. The district court adopted the plaintiffs' model for calculating damages after concluding that Saybolt was judicially estopped from challenging this model. The district court also awarded liquidated damages. We affirm the district court's conclusions as to liability and willfulness, reverse the district court's ruling on estoppel and its calculation of damages, vacate the district court's order on liquidated damages, and remand for reconsideration of the liquidated damages award and for reconsideration of its calculation of damages in accordance with this opinion and entry of an appropriate judgment.

         BACKGROUND

         I. Saybolt's Payment Scheme and the FWW Method

         The FLSA requires that nonexempt employees receive an overtime premium of not less than one and one-half times their "regular rate of pay" for each hour worked over 40 hours in a given workweek. 29 U.S.C. § 207(a). Until February 2012, Saybolt used two different methods to pay overtime. Saybolt paid one group of inspectors ("the non-FWW inspectors") using the FLSA's standard time and one-half method. These inspectors earned one and one-half times their "regular rate" for every hour worked over 40. The "regular rate" for salaried employees is simply the salary divided by the number of hours the salary is intended to compensate. 29 C.F.R. § 778.113(a). A non-FWW inspector earning $600 for an intended 40-hour workweek would thus have a "regular rate" of $15.00 per hour (the $600 base salary divided by 40 hours). The non-FWW inspector's "overtime rate" would be one and one-half times the "regular rate"-here, $22.50 per hour (one and one-half times the $15.00 "regular rate"). Thus, in a workweek in which the non-FWW inspector worked 60 hours (instead of the intended 40 hours), the non-FWW inspector would receive the $600 base salary plus a $450 overtime premium (20 overtime hours times the $22.50 "overtime rate") for a total weekly compensation of $1050.

         A second group of Saybolt inspectors ("the FWW inspectors") received overtime compensation under the FWW method. Federal regulations state that this method is appropriate when an employee works hours that fluctuate from week to week and the employee agrees that a fixed weekly salary will constitute straight-time pay (i.e., non-overtime pay) for all the hours worked in a week, however many or few. See id. § 778.114(a). Accordingly, FWW inspectors received the same weekly base salary, regardless whether they worked 60 hours or only 20.

         Calculation of overtime premiums under the FWW method is different from the standard FLSA method in several respects. First, the "regular rate" under the FWW method is determined by dividing the weekly base salary by the total number of hours an employee actually works during the week. This is an application of the principle that the "regular rate" equals the weekly salary divided by "the number of hours which the salary is intended to compensate." See id. § 778.113(a). In the FWW context, "the salary is intended to compensate" all hours an employee actually works. Because the hours actually worked each week fluctuate, the "regular rate" under the FWW method will fluctuate from week to week as well. See id. § 778.114(a). As the hours worked increase, the "regular rate" will decrease. Therefore, assuming a $600 weekly base salary and 40 hours actually worked during the week, the FWW method would yield a "regular rate" of $15.00 per hour (the $600 base salary divided by 40 hours). But a 60-hour workweek would yield a "regular rate" of $10.00 per hour (the $600 base salary divided by 60 hours).[1]

         Another key difference under the FWW method is that the "overtime rate" is one-half, instead of one and one-half, times the "regular rate." See id. The reason for this is, again, that the fixed weekly salary is meant to compensate all hours worked, including overtime hours. Before receiving an overtime premium, an employee has already agreed to be compensated according to the "regular rate" for every overtime hour worked. See id. The employee need receive only an additional one-half times the "regular rate" to satisfy the FLSA's one and one-half times requirement. See id. In a 60-hour workweek, then, an employee would receive an "overtime rate" of $5.00 per hour (one half times the $10 "regular rate"). The total overtime premium would be $100 (20 overtime hours times the $5.00 "overtime rate").

         Under Saybolt's payment scheme, FWW inspectors were purportedly paid overtime under the FWW method. But the company also paid incentive payments for working on a scheduled day off ("day-off pay"), working at sea ("offshore pay"), and working on a scheduled holiday ("holiday pay"). Non-FWW inspectors were ineligible for these incentives. When calculating the "regular rate," Saybolt added weekly incentive payments to the weekly base salary. Therefore, if a FWW inspector had a weekly base salary of $600, earned $150 in incentive payments, and worked a 60-hour workweek, the "regular rate" for that week would be $12.50 per hour ($600 base salary plus incentive payments of $150 for a total of $750 divided by the 60 hours worked). The "overtime rate" would be $6.25 per hour (one half times the $12.50 "regular rate"), resulting in an overtime premium of $125 (20 overtime hours times the $6.25 "overtime rate"). The FWW inspector's total compensation for the 60hour week would be $875 ($600 base salary plus $150 incentive pay plus $125 overtime premium).[2]

         II. Saybolt's Legal Advice

         Saybolt communicated with outside counsel to assess whether the FWW method allowed for additional incentive payments. In May 2009, Saybolt contacted attorney Robert Ivey. Ivey counseled Saybolt that combining incentive payments with the FWW method was a "potential issue." Ivey explained that several district courts and the First Circuit had concluded that paying hours-based premiums in addition to a weekly salary precluded the use of the FWW method. But Ivey also explained that the Fifth Circuit had not addressed the question and that the Department of Labor ("DOL") had issued proposed regulations in 2008 that would allow the payment of incentives under the FWW method.

         Saybolt contacted Joseph Maddaloni, another outside attorney, in January 2010. Saybolt forwarded Ivey's recommendation to Maddaloni and said that it was "seeking a final opinion and recommendation in order to bring closure to this pay practice." Maddaloni said he disagreed with the court decisions rejecting the use of incentive payments under the FWW method. But Maddaloni conceded that the judges involved were well respected and that a New Jersey district court would likely find their reasoning persuasive. Maddaloni concluded that "while I have always taken the position that Saybolt's use and application of the FWW was defensible, I am concerned that under the present state of the law and the facts that may no longer hold true." Maddaloni later testified that he had considered the law on this issue to be unsettled.

         III. Proceedings in the District Court

         In January 2010, Joseph Dacar, on behalf of Saybolt inspectors paid under the FWW method, filed a collective action complaint in the Eastern District of North Carolina. A year later, the case was transferred to the Southern District of Texas, and the plaintiffs filed an amended complaint, alleging that (1) Saybolt did not comply with the requirements for using the FWW method and (2) Saybolt willfully violated the FLSA. The complaint also substituted Lyle Deroche and Felton Ravia as named plaintiffs in place of Dacar. The district court conditionally certified a collective action in June 2011, and a total of 112 employees and former employees opted into the case.

         In January 2013, the parties filed cross-motions for summary judgment. Saybolt moved for partial summary judgment on the issue of willfulness; the plaintiffs moved for summary judgment on willfulness, liability, damage calculation, and liquidated damages. In August 2014, the district court granted Saybolt's motion and held that Saybolt's violation, if any, was not willful. The plaintiffs moved for reconsideration.

         In December 2015, the district court denied the plaintiffs' motion for reconsideration but granted, in part, their motion for summary judgment. The district court held that Saybolt had violated the FWW method because the plaintiffs were not paid a "fixed salary," that liquidated damages were appropriate, and that damages should not be offset by the incentive payments the plaintiffs already received.

         In December 2016, the district court held a hearing on damages. The district court asked the parties to brief any remaining issues related to the damages calculation. Saybolt's brief contended that the "regular rate" for calculating overtime damages should be based on the plaintiffs' hours actually worked-not on a 40-hour workweek-and that overtime hours should be multiplied by one half-not one and one-half-times that "regular rate." The district court held that Saybolt was judicially estopped from contesting the appropriate damages model and ordered damages of $3, 020, 813.21 plus an equal amount in liquidated damages.

         The plaintiffs timely appealed the district court's partial grant of summary judgment on Saybolt's willfulness. Saybolt cross-appealed the district court's summary judgment on liability and damages.

         STANDARDS OF REVIEW

         A district court's grant or denial of summary judgment is reviewed de novo, applying the same standards as the district court. Castellanos-Contreras v. Decatur Hotels, LLC, 622 F.3d 393, 397 (5th Cir. 2010) (en banc). The court views all evidence in the light most favorable to the non-moving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356 (1986). Summary judgment is appropriate only where there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Bolton v. City of Dallas, 472 F.3d 261, 263 (5th Cir. 2006).

         A district court's determination of judicial estoppel is reviewed for abuse of discretion. See Love v. Tyson Foods, Inc., 677 F.3d 258, 262 (5th Cir. 2012). A court's imposition of liquidated damages is likewise reviewed for abuse of discretion. See Singer v. City of Waco, 324 F.3d 813, 823 (5th Cir. 2003). The correct methodology for calculating the amount of overtime pay due is a question of law, which is reviewed de novo. Black v. SettlePou, P.C., 732 F.3d 492, 496 (5th Cir. 2013).

         DISCUSSION

         I. Liability

         As explained above, the FLSA generally requires that employees be paid an overtime premium of one and one-half times the "regular rate of pay" for all hours worked in excess of the 40-hour workweek. 29 U.S.C. § 207(a)(1). Although an employer may satisfy this requirement by ...


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