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Novick v. Shipcom Wireless, Inc.

United States Court of Appeals, Fifth Circuit

January 7, 2020


          Appeal from the United States District Court for the Southern District of Texas.

          Before JOLLY, SMITH, and COSTA, Circuit Judges.

          E. Grady Jolly, Circuit Judge.

         This appeal is from a judgment after a jury trial in which Shipcom Wireless was found to have misclassified the Plaintiffs, its former employees, as exempt from the overtime requirements of the Federal Labor Standards Act (FLSA), 29 U.S.C. § 201 et seq. The Plaintiffs were awarded both actual and liquidated damages for unpaid overtime. On appeal, Shipcom argues that the trial court abused its discretion in two respects. First, Shipcom argues that the court erroneously denied its motion to present opening and closing arguments. Second, Shipcom argues that the court erred in admitting evidence of an internal audit that led Shipcom to reclassify some of the Plaintiffs as nonexempt. We affirm.


         Shipcom Wireless, Inc. is a supply-chain management and technology company, which developed an inventory-management software system called "Catamaran." In 2013, the Department of Veterans Affairs awarded Shipcom a contract to implement Catamaran at VA hospitals around the United States. With that new contract came substantial growth; to meet the needs of the contract Shipcom grew from a size of 20-30 employees to over 200 employees.

         Among those hired during this period of growth were the four Plaintiff-Appellees in this case: Justin Novick, Chris Kehn, Charles Bethas, and James Abraham.[1] Novick, Kehn, and Bethas were hired as "Trainers." They traveled to various VA hospitals where the Catamaran system had been installed and trained the hospital staff in how to use the system. Abraham was hired as a "Technical Support Engineer." He traveled to various VA hospitals, helped install the Catamaran system, and trained hospital staff on its use.

         All four Plaintiffs were hired at an annual salary, rather than an hourly wage. Thus, Shipcom treated them as exempt from the overtime requirements of the FLSA, which requires that covered and nonexempt employees be paid at an hourly rate and compensated at least one-and-one-half times the regular hourly rate for hours worked in excess of forty hours per week. 29 U.S.C. § 207(a)(1).

         Later, in 2015, Shipcom engaged in an audit to reevaluate whether positions in the company were properly classified as exempt or nonexempt from FLSA overtime rules. Shipcom ultimately decided to reclassify the Trainer position as nonexempt going forward and to pay its Trainers at an hourly rate. Using past hours that had been logged by the Trainers for the purpose of billing the VA, Shipcom calculated the hours that the Trainers had worked over forty in each workweek prior to the reclassification. Bethas and Kehn, who were still working at Shipcom at the time, were given backpay equal to their calculated overtime due, increased by five percent. Novick, who was no longer employed by Shipcom at the time the audit was completed, was not given backpay for overtime worked. Abraham's position was not reclassified, and he continued to be paid as an exempt employee.

         All four Plaintiffs later sued Shipcom, alleging that they had been misclassified as exempt employees. Novick and Abraham sought backpay for unpaid overtime. And all four Plaintiffs sought liquidated damages under 29 U.S.C. § 260, contending that their original classification was not made in good faith.

         By the time the case reached trial, only two disputed merits issues remained. The first was whether the Plaintiffs' job duties meant that they fell within the "administrative" exemption from the FLSA's overtime requirements. The second was whether Shipcom acted in good faith in its original classification of the Plaintiffs as exempt.

         Before trial, Shipcom moved to present opening and closing arguments, arguing that this order was appropriate because it bore the burden of proof on both remaining issues. That motion was denied. Shipcom also moved to exclude from the jury evidence related to the audit and reclassification. Shipcom argued that this evidence was inadmissible under Federal Rule of Evidence 407 because it was a "subsequent remedial measure." Shipcom also argued that evidence of the audit was inadmissible under Rules 401 and 402 because it was not relevant to whether Plaintiffs were exempt, or alternatively, under Rule 403, because its prejudicial effect substantially outweighed its probative value. These motions were also denied.

         The jury found that the four Plaintiffs were in fact nonexempt under the FLSA and had therefore been misclassified. The jury also issued an advisory finding that Shipcom had not acted in good faith in classifying Plaintiffs as exempt. The trial court adopted the jury's advisory finding and awarded liquidated damages. The trial court then issued a final judgment awarding each of the Plaintiffs actual damages plus liquidated damages. Shipcom timely appealed, contesting ...

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