Auer v. Robbins

PETITIONER:Auer
RESPONDENT:Robbins
LOCATION:New York Board of Education Headquarters

DOCKET NO.: 95-897
DECIDED BY: Rehnquist Court (1986-2005)
LOWER COURT: United States Court of Appeals for the Eighth Circuit

CITATION: 519 US 452 (1997)
ARGUED: Dec 10, 1996
DECIDED: Feb 19, 1997

ADVOCATES:
Irving L. Gornstein – Department of Justice, on behalf of the United States, as amicus curiae
John B. Renick – Argued the cause for the respondents
Michael T. Liebig – Argued the cause for the petitioners
Michael T. Leibig – on behalf of the Petitioners

Facts of the case

Francis Bernard Auer, a St. Louis police sergeant, other St. Louis police sergeants, and a lieutenant sued the respondent police commissioners, including David A. Robbins, for overtime pay under the Fair Labor Standards Act of 1938 (FLSA). The commissioners argued that Auer and the other petitioners were “bona fide executive, administrative, or professional” employees exempted from overtime pay requirements by the FLSA. Under the Secretary of Labor’s regulations, that exemption applies to employees paid a specified minimum amount on a “salary basis,” which requires that the “compensation…not [be] subject to reduction because of variations in the quality or quantity of the work performed.” Auer claimed that that they did not meet this test because, under the terms of the Police Department Manual, their compensation could theoretically be reduced for a variety of disciplinary infractions related to the “quality or quantity” of their work. The District Court and the Court of Appeals disagreed with Auer’s claim. Both courts held that the salary basis test was satisfied.

Question

Must sergeants and lieutenants in the St. Louis Police Department be paid for working overtime pursuant to the Fair Labor Standards Act of 1938?

William H. Rehnquist:

We’ll hear argument next in Number 95-897, Francis Bernard Auer v. David Robbins.

Mr. Leibig, you may proceed whenever you’re ready.

Michael T. Leibig:

Mr. Chief Justice, and may it please the Court:

This case involves the application of a rule in the Fair Labor Standards Act dealing with the salary basis test.

The rule is contained in 29 C.F.R. 541.5d and 541.118.

The rule basically provides that for persons to be considered white collar exempt… that is, professional exempt adminis… professionals, administrators, exempt administrators or exempt executives, their salary must be fixed and not contingent.

The specifics of the rule provide that they must receive a predetermined amount not subject to deduction because of the variations in quality or quantity of work.

Sandra Day O’Connor:

I’ve noticed with interest that the Federal Government does not follow the salary basis test for employees that are under the jurisdiction of the Office of Personnel Management.

It chooses not to go along with that at all.

Michael T. Leibig:

Well, it attempted to choose not to go along with that at all.

In 1975, I believe, when the Federal Government first came under the act, Congress provided that the Fair Labor Standard Act would be enforced by the Office of Personnel Management, but that the rule… but the definitions would still be defined and delinated by the Department of Labor, and when the Office of Personnel Management initially issued regulations for the Federal sector, they defined exempt status for salaried persons based on salary classifications.

But that definition was challenged in court in a specific case involving the Uniform Division of the Secret Service, Police Sergeants and Lieutenants, and the court of claims in that case specifically found that the enforcement by the Office of Personnel Management has to be undertaken consistently, consistent with the Department of Labor regulations, because it’s the Department of Labor that defines and limits exemptions–

Sandra Day O’Connor:

And now are all Federal employees applying this salary basis test?

Michael T. Leibig:

–Well, first of all the court of claims found that to be the case.

They found it… and they also found it in some other cases involving the AFG case, which is cited in the briefs, and currently the position in the Department of Labor… I’m sorry.

The position in the Federal Government is that the Office of Personnel Management often treats people as exempt even though they’re not salaried, but the Court of Claims and the United States District… the United States Court of Appeals for the District of Columbia have held that they should apply the salary test.

And when that has been a challenge… and the one place it’s been challenged specifically is in the Uniform Division of the Secret Service and for employees that are exactly… do the exact work of the employees in this case, that is, sergeants and lieutenants in the Uniform Division, and the court ruled that the Department of Labor pay classification things have to be applied consistent with the salary basis.

Antonin Scalia:

But Justice O’Connor was not asking about court decisions, she was asking about the position being taken by the executive branch–

Michael T. Leibig:

I believe the–

Antonin Scalia:

–and in fact… and OPM takes a different–

Michael T. Leibig:

–Right.

Antonin Scalia:

–view from Labor, doesn’t it?

Michael T. Leibig:

The Office of Personnel Management takes the position that Federal employees can be exempted based on pay classification alone.

I do not think that, and I think that the courts have found that to be the case, and I don’t think it’s consistent with the statute.

For example, when Congress passed the statute applying the Fair Labor Standards Act to themselves, they did make… apply the salary basis test to themselves, and under the Professional Accountability Act, the regulations under that act specifically say that the salary basis test does apply to congressional employees.

And it specifically includes the regulation including, there was some discussion in the comments on the regulation of whether 541.5d, which is a special rule limiting part of it… I’ll talk about in a minute… how that should be dealt with by the Congressional Accountability Office, and after considering the comments they included the regulation and specifically made reference to the applicability of the salary basis test to congressional employees.

So… and in addition to that, in the record there’s a history of the Department of Labor’s current consideration of the regulations and as part of that history the Director of OMB has had a series of reports and considerations with the Department of Labor about this problem and what to deal… how to deal with it in the future.

So the answer is, the Office of Personnel Management, just like a lot of employers in a lot of places, claim that they can exempt people based on classifications alone, but when the Federal Government and when the Congress have looked at it they’ve said they have to–

Sandra Day O’Connor:

Well, they also have a regulation saying the Federal Government can dismiss or suspend employees for 14 days or less.

Michael T. Leibig:

–Right.

Sandra Day O’Connor:

By way of discipline.

Michael T. Leibig:

They have a regulation to… yes, that’s true, they do, and in the… and the… that raises the question of whether that would make all Federal employees subject to that rule, which doesn’t cover all Federal employees, but I think it covers all Federal employees in the Classified Service, nonexempt, and I think that is part of the struggle the Department of Labor has had, and that is why the Department of Labor has had the practical rule to the longstanding salary basis test, and I think I can explain how the practical rule I think works.

But if you look at, and we attach the Department of Labor briefs going back from 1981 and their positions, there has been some development in how you deal with the problem where there’s a rule on the books that seems counterintuitive.

How can an employer apply that rule?

And I think the rule that I would argue is that the first rule of the regulation, and after all, the Department of Labor that issued this regulation issued it under a direct rule of Congress, is that the employee’s salary must be fixed, and it cannot be contingent.

An exempt employee cannot have contingent income, and that, however… that is the test, and then, however, there can be a situation where there are rules on the books, where people have a rule that says you’re… you can be subject to discipline by… for 14 days, which would be longer than a work period, so that would be okay.

But if under that rule they discipline somebody for 1 day, which, by the way, the statute… the Federal regulation doesn’t say they can do, but if they did do it, that would raise the question of whether the people were practically subject to deductions for less than a full work period, and I think in that case you’d have to prove… if all you had was a rule and the employer claimed that the people were exempt and that they were not doing deductions, I think the burden’s on the employer to come forward with some evidence.

They at least have to assert that we wouldn’t exempt… we would not punish anybody for less than a pay period, which the Federal Government could do in a–

Sandra Day O’Connor:

Well, of course, here you’re asserting, I guess, that because of one instance involving one sergeant that all the other people who have never been disciplined fall under some nonexempt status.

Michael T. Leibig:

–I am… I am–

Sandra Day O’Connor:

Just on the basis of some possibly broader State rule applicab… or a county rule, or police department rule here.

Michael T. Leibig:

–I’m asserting that all sergeants and lieutenants in the St. Louis Police Department whose pay is contingent and who all the witnesses, including the chief of police, including all… everyone who testified, no one ever testified that any sergeant or lieutenant’s pay was not subject to discipline.

No one not only didn’t testify, but nobody ever even asserted that.

I did not rely on Mr. Guzy… it isn’t because Mr. Guzy received one 2-day suspension that that transferred all of the employees who had a contingent pay–

Sandra Day O’Connor:

Well, that’s what it looks like, because it didn’t happen to anybody else in the numerous plaintiffs here, did it?

Michael T. Leibig:

–It… I’m sorry, it didn’t… there is evidence in the record that it did happen to other sergeants, in fact, and in fact it did happen to other sergeants.

What’s not in the record is an example of a specific sergeant who testified that he was suspended, but the reason for that is, if you look at the whole record, the case was bifurcated, and it was tried on the basis of representative witnesses.

For example, there was only one witness that testified that he was a homicide detective–

Well, the–

Michael T. Leibig:

–and yet all the homicide detectives–

William H. Rehnquist:

–The Eighth Circuit, as I read its opinion, said that a one-time suspension without pay for violating the city’s residence requirement doesn’t mean that the whole thing is over.

Now, do you disagree with that ruling?

Michael T. Leibig:

–I agree that a one-time suspension, standing in isolation, if the employer took the position that the pay was guaranteed and that was a mistake, it was inadvertent, that it wouldn’t automatically mean, so a one-time suspension all by itself would not settle the case, and one reason for that is the burden’s on the employer in the first in to establish… in the first instance to establish the employees are guaranteed a predetermined amount of pay.

One instance of a… somebody losing a guaranteed amount of pay would certainly raise a lot of suspicion, but if the employer were in some case… in a given case, for instance, to claim that was a mistake, it wasn’t under the rules, that’s different.

But in our case the chief of police, the 30(b)(6) designees of the employer for exempt status and for application to the regulations, and everyone else testified that in fact all sergeants were subject to being disciplined, and there is repeated evidence in the record which… which is cited in the brief.

William H. Rehnquist:

What evidence in the record of actual discipline, other than this one sergeant?

Michael T. Leibig:

In… there is… at page… the chief of police testified that all sergeants were subject to suspension.

William H. Rehnquist:

Yes, I… but that wasn’t my question.

I asked you what evidence is there in the record of actual discipline, not whether someone was subject to discipline.

Michael T. Leibig:

Well, for instance, Sergeant Michael Fredericks testified that he knew of sergeants that were suspended for less than a day.

Michael T. Leibig:

There’s no… there is no… in the record there is no other name of a specific sergeant who was suspended, but there is a great deal of evidence that in fact other sergeants, other than Mr. Guzy, were suspended.

William H. Rehnquist:

Yes, but the Eighth Circuit didn’t find the… didn’t find for you as a fact on that point–

Michael T. Leibig:

No.

–did it?

Michael T. Leibig:

Because the Eighth Circuit did not agree with the base rule… a) they didn’t agree that the burden was on the employer to establish that pay was fixed rather than contingent, and b) they put the burden on the plaintiffs to establish actual instances of deduction, which I don’t think they should have done, but looking at all the evidence of the record, no one could conclude from the evidence of that record that the regulation which says pay is not subject to deduction was followed in this case.

I mean, it would be different if the… and there are cases that are reported–

William H. Rehnquist:

You’re just asking for a factual revision, then, from this Court.

Michael T. Leibig:

–No.

William H. Rehnquist:

The Eighth Circuit saw it one way, and you’re asking us–

Michael T. Leibig:

No.

William H. Rehnquist:

–to see it a different way.

Michael T. Leibig:

No.

The Eighth Circuit… the Eighth Circuit said that Mr. Guzy was suspended.

The Eighth Circuit did not say that the Department did not have a rule that made everybody subject to suspension.

They don’t think that’s required.

For instance, if you compare the Eighth Circuit decisions to the decisions in, now, seven of the eight circuits, in the Second Circuit the Yourman case, in the Third Circuit the Balgowan case, in the Fourth Circuit the Shockley case, in the Sixth Circuit the two Michigan court cases, and in the Seventh Circuit Mueller and Bankston, and in the Ninth Circuit Abshire and six or seven other cases, in the Tenth Circuit Carpenter and Spradling, all of those cases heard said that the test is not whether or not there were actual individual instances of deductions.

The question is whether the person working there is subject is fixed… pay is fixed or contingent.

If you have contingent pay, then you cannot be exempt, and there’s a reason for that.

If you only say the people who are disciplined lose the exemption, then you say only rule-breakers would be exempt.

For example, in–

Sandra Day O’Connor:

Well, but you have a letter, a couple of letters from the Secretary here–

Michael T. Leibig:

–Mm-hmm.

Sandra Day O’Connor:

–saying that the exemption… the exemption is lost as to all employees only if the employer engages in a regular and recurrent practice of making impermissible deductions, and the opinion we have before us does not find that the police department had a regular and recurring practice.

It dealt only with the one sergeant.

Michael T. Leibig:

The… there aren’t a series of letters from the Department.

The Department of Labor has written one letter in one other place where they said that they will look for regularly recurring exemptions, but they’ve always done that in the context of whether… and the regulation itself, the plain wording of the regulation itself says the key is whether you’re subject to deduction, not whether actual deductions occur.

There’s also some confusion because–

William H. Rehnquist:

It would be an important factor in deciding whether you were subject to deduction to know whether actual deductions occurred, would it not?

Michael T. Leibig:

–Absolutely.

John Paul Stevens:

May I ask one question–

Michael T. Leibig:

Could I make one other… yes.

John Paul Stevens:

–Go ahead and finish… you had–

Michael T. Leibig:

Just one other point.

That Department of Labor letter also, there’s another thing in the regulation.

There’s a difference… there’s two parts of the regulation.

One talks about deductions for part of a day for being absent.

Another part talks about disciplinary deductions, and I think the enact… the part about being absent for part of a day doesn’t apply in the public sector any more anyway, and I can explain more about that why… why, if you need to.

But the point is, disciplinary deductions are different than deductions for part of a day.

An employer that allows employees to leave for part of a day means to adopt a flexible work schedule, and intends people to be able to come and go as they please.

It would be unusual if people didn’t leave for part of a day, so you’d want to find… you’d expect to find a lot of people who did.

However, disciplinary rules are exactly the opposite.

The reason the employer imposes disciplinary rules is so people will obey them and anticipates that they will not disobey them.

Ruth Bader Ginsburg:

–May I ask a question about these disciplinary rules?

Is this manual applicable to all employees, including people who are undoubtedly covered by the Fair Labor Standards Act?

This is not a discrete code for–

Michael T. Leibig:

It’s covered by… excuse me.

Ruth Bader Ginsburg:

–Just for professional, administrative, and executive?

Michael T. Leibig:

The manual, in this case the police manual is covered by all commissioned police officers, which in St. Louis includes… probably doesn’t include the chief, but there’s two deputy chiefs.

Ruth Bader Ginsburg:

But it would include people who are covered by the FLSA.

Michael T. Leibig:

Yes.

Ruth Bader Ginsburg:

All right.

Michael T. Leibig:

Regular line officers.

Ruth Bader Ginsburg:

Now, why couldn’t somebody look at this code and say, gee, it’s got a range of sanctions, from reprimand to dismissal, and we’ll assume that a law-abiding employer is going to apply to the people who are subject to the act, the sanctions, the full range of sanctions, but to the people who are exempt, only… only those sanctions that would fit with exempt status.

Michael T. Leibig:

Hypothetically you could have this manual in some police department where you ask the people in charge of discipline do you apply this manual to sergeants and lieutenants, and they could say no, we don’t, but in the facts of this case, the chief of police, the person in charge of discipline, the person in charge of record-keeping, and the 30(b)(6) designee in terms of exemptions, all testified that sergeants and lieutenants were subject to the manual, and those–

John Paul Stevens:

Yes, but may I ask the question–

Michael T. Leibig:

–so it’s not the manual alone.

It’s the manual plus.

Ruth Bader Ginsburg:

–But it’s… but one could say yes, the manual, but only those sanctions in it that are compatible with exempt status.

Michael T. Leibig:

No, but they testified that they were subject to 2-day suspensions and suspensions less than a day under the manual.

The chief testified to that, the 30(b)(6)… I mean, an employer could have that manual–

Ruth Bader Ginsburg:

What is the testimony in this record that says people who are in this category in fact got such sanctions, that there was a pattern and practice of applying the sanctions that would ordinarily be disqualifying?

Michael T. Leibig:

–The last part of your question… there is evidence, the evidence in the record that any police sergeant or lieutenant in the St. Louis Police Department who violates a rule that provides… has one of the potential penalties of a suspension of, say, 2 days, is subject to them, is that the… the chief testified to that at joint appendix page 60, and joint appendix page 62.

When he was asked did he recall any specific person… this is at page 62… who had ever been disciplined he said he didn’t remember any names, but yes, there would be people that had done that.

Ms. Cortelyou, who was the recordkeeper that keeps track of exemptions testified in the joint appendix from page 49 through 57 that people were not subject for absenting themselves for part of a day under a flexible work week rule, but if they broke the rules, they were subject to being suspended for a day or two, and she specifically said that they could be disciplined and that they could lose pay for a day or two.

Larry Patterson–

Ruth Bader Ginsburg:

Could, but where–

Michael T. Leibig:

–If they broke the rules they would be, and they said that.

Ruth Bader Ginsburg:

–Where is this testimony?

Michael T. Leibig:

Well, that… let me get the joint appendix.

Why don’t I, ma’am… at page 60… let’s do one at a time.

That’s the chief.

This is the joint appendix at page 60.

Ruth Bader Ginsburg:

And which is the testimony from there?

Michael T. Leibig:

This is the testimony of the chief of police at the time, Robert Sheetz, and at the top of the page… well, first he was asked, as a result of charges, could they be docked pay, and there’s a question right before that.

And at the top of the page he says… this is if someone was… broke a rule, could they… and he said, I would say that he probably would be.

He could be.

He would be suspended in lieu of, say, maybe 1-day suspension or 2-days suspension.

I don’t recall that we’ve ever docked anybody, you know, like you’re docked $10 or something like that.

I don’t know.

I don’t recall any time the department has ever… that has ever happened.

But I–

Ruth Bader Ginsburg:

Well, that seems to me the answer is, as long as I’ve been in this Department, it hasn’t happened.

Michael T. Leibig:

–No.

It could be, except he says more, because he’s… that… there’s a follow-up on that, and then on page 62–

Ruth Bader Ginsburg:

Where is the followup?

Michael T. Leibig:

–Well, it goes along… there’s a series of questions about that–

Ruth Bader Ginsburg:

Well, I see the last statement he made is, I don’t recall in my time in the Department that that ever happened.

Now, what qualifies that?

Michael T. Leibig:

–This… what he… let me get you the… it’s on page 62.

On page 62 he says–

Antonin Scalia:

Down at the bottom of the page.

Michael T. Leibig:

–He says at the bottom of where… 40… it says, Okay.

Do you know if a sergeant has ever been disciplined for AWOL, say in the recent past, in the last 3 or 4 years?

I don’t recall any specifics, but I would say yes.

I don’t take the chief’s testimony, by the way, in isolation.

In our brief on page 42, on page 42 and then page 9 through 17, we go through… a whole bunch of witnesses testified that people–

John Paul Stevens:

May I ask the question I’ve been trying to ask for a little while?

Michael T. Leibig:

–I’m sorry.

John Paul Stevens:

The manual… you rely heavily on the manual, and you rely on this testimony they might be disciplined.

Michael T. Leibig:

Right.

John Paul Stevens:

But would you not agree that there are forms of discipline other than docking for a day’s pay, or 2 days’ pay?

Michael T. Leibig:

Right.

There are.

John Paul Stevens:

So this… the general… the text of the manual doesn’t make out your case.

It’s only if you can get enough–

Michael T. Leibig:

Well, there are some provisions in the manual that the penalty, the only penalty listed there is less than a full week’s–

John Paul Stevens:

–Well, do you take the position that the only form of discipline is docking?

Michael T. Leibig:

–No.

John Paul Stevens:

All right.

So the manual itself doesn’t get you home, at least, nor does the testimony at page 62, because he just says there’s been some discipline, and I think that we must assume that there are possibly forms of discipline other than docking.

Michael T. Leibig:

There are, and there’s a chart in the manual that says when it’s docking and when it’s not docking, and in some of the penalties, the only penalty… for instance, in the second… in the second non… in the preventable accident, the only penalty is a 1 or 2-day suspension.

And by the way, it’s not just chief… the chief’s not the only one who testified.

All of the designees testified that people were suspension and their pay… were subject to being suspended.

Ruth Bader Ginsburg:

Yes, but in actual cases, and what I tried to ask you before about this manual, which has a range of sanctions… and discipline doesn’t show docking.

Discipline can be many things, from a reprimand to termination.

Michael T. Leibig:

No… I’m sorry.

It shows… the manual at page… in the manual from page 43a… this is in the appendix to the petition, and from page 43a through 50… 49a there are charts that have the list of all the violations and then it has a list of all the penalties, and it says what the penalty is for a first offense and a second offense, and many of those penalties include suspensions, from a letter of reprimand to a 5-day suspension, and for a first or second day, and for example, one of the penalties provides a 1-day suspension.

That’s on page 147.

And so it’s clear that the sergeants are subject to being suspended for periods of less than a full week.

David H. Souter:

Well, I don’t see even on that reasoning that it’s clear, because I come back to a question that’s been asked before.

David H. Souter:

In the absence of evidence to the contrary, why shouldn’t we assume that an employer who knows that he cannot apply a particular disciplinary form consistent with the status, with the salaried status for the Fair Labor Standards Act, will not apply it?

You’ve got a manual that applies across the board to everybody.

Why shouldn’t we assume, in the absence of evidence to the contrary, that the employer will not apply what is in that manual in such a way as to destroy the salaried status?

Michael T. Leibig:

First… for two reasons.

One is, under the statute the requirement to establish exemptions, the burden is on the employer, not on the employee, so you shouldn’t assume anything.

The second thing, however, is, suppose the employer… the employer should at least be put to a standard of proof to assert that sergeants and lieutenants… have some witnesses or have somebody assert on the record that sergeants and lieutenants are not subject to being suspended for a 2-day suspension, for example, and in this case the employer simply never did that.

The reason they simply never did that is, people had been suspended, and it… there are–

David H. Souter:

Well, we know of only one instance, right?

Michael T. Leibig:

–Well, for instance, Sergeant Frederick testified that there were other instances, but he didn’t name–

David H. Souter:

Yes, but he couldn’t come up with any.

The only specific instance that is in fact shown on the record is this one–

Michael T. Leibig:

–Right.

David H. Souter:

–instance, Guzy, or Guzy.

Michael T. Leibig:

The first reason you shouldn’t assume that the employer, just because they claim exemptions, that they automatically are going to apply all the rules not to do exemptions, is because that would put the burden on the employees to prove exempt status.

The second reason which you should not approve it is because it’s contrary to the whole idea of having… of the plain wording of the statute itself, which says it’s not the act of making exemptions, but it’s the fact of putting employees and making their pay subject to deductions, that’s been the–

Anthony M. Kennedy:

But on that point, it seemed to me that the regulation, which says, subject to… not subject to reduction because of variations in the quality or quantity of work might not apply to discipline at all.

It might be just the operational needs of the employer.

On one day you have to unload the dustbin, and on the other day you get to perform a skilled job.

It seems to me that that is a plausible reading and that that’s all that it means.

Is there any authority to support my reading at all?

Michael T. Leibig:

–Sure.

The Department… The regulations go on, if you read the whole regulations, and down at a later point it talks about discipline for safety reasons but not discipline for other reasons.

Plus, the Department of Labor has interpreted the regulations for 40 years to require disciplinary docking, and there’s a lot of cites in the record, plus–

William H. Rehnquist:

Thank you–

Michael T. Leibig:

–the last 20 seconds–

William H. Rehnquist:

–Mr. Liebig.

Michael T. Leibig:

–the quality of work–

William H. Rehnquist:

I think you’ve answered the question.

Your time has expired.

Michael T. Leibig:

–Thank you.

William H. Rehnquist:

We’ll hear from you, Mr. Gornstein.

Irving L. Gornstein:

Mr. Chief Justice, and may it please the Court:

Our position is that the existence of the respondent’s police manual cannot by itself show that petitioners as a class are subject to disciplinary deductions of less than 1 week’s pay within the meaning of the Secretary’s salary basis test, and we reach that conclusion for three reasons.

The first is that the Secretary interprets the phrase subject to reduction to mean that there must be more than a theoretical possibility that a violation of a work rule will result in a partial week disciplinary deduction.

David H. Souter:

Would that more than theoretical possibility be satisfied in an instance in which the employer had promulgated the manual solely to salaried employees, and yet nonetheless provided as to them that there would be these impermissible dockings.

Would you say that was enough that–

Irving L. Gornstein:

I would say that if you just had that you could reach that conclusion, Justice Souter, subject to whatever the employer might show in response to that.

–I’ve lost you here.

If you just had that you could reach what conclusion?

If you just–

Irving L. Gornstein:

That you are… that if the only possible sanctions are… if I took the–

David H. Souter:

–Only possible sanctions and the only possible class–

Irving L. Gornstein:

–Class–

David H. Souter:

–was a salaried class.

Irving L. Gornstein:

–It’s a book for sergeants, and the only possible sanctions are partial week disciplinary sanctions.

I think you could infer from that that sergeants as a class are subject to reductions, subject to the employer coming back and say, look, we don’t really… I know we said this, but this is out of date, or it’s ineffective for some reason.

Stephen G. Breyer:

But that’s the part I don’t understand… see, you’re all knowledgeable, and I just don’t understand this.

I don’t know which way it cuts.

But there’s a statute here, and the statute uses the words, executive, professional, or administrative employees, and it says they’re not subject to overtime.

Irving L. Gornstein:

Correct.

Stephen G. Breyer:

And then there’s a reg that I can’t fit with the statute.

That is, suppose Microsoft says, Bill Gates has to dock a day’s pay every time he wrongly uses the corporate jet, okay.

Does that make Bill Gates an hourly employee, subject to overtime?

Irving L. Gornstein:

It does for purposes of the regulation, Justice–

Stephen G. Breyer:

Well, if it does, how do you reconcile that with the statute, because I would think there’s no one in history who’s less an hourly worker than Bill Gates–

Irving L. Gornstein:

–And I doubt very much that–

Stephen G. Breyer:

–and so if you have a reg–

Irving L. Gornstein:

–That’s right, and I–

Stephen G. Breyer:

–that seems to make him an hourly worker, that seems to me to be a problem.

Irving L. Gornstein:

–I think, Justice… I–

Stephen G. Breyer:

And that’s what I want to understand, how that fits within this case.

Irving L. Gornstein:

–I think what the Secretary did when he originally formulated the regulations was to try to draw a line that would not necessarily make a 100-percent case in every single case, but would be a reasonable line for the vast amount of cases.

And what the Secretary concluded, based on hearings that were held after, in the wake of the Fair Labor Standards Act being enacted, is that one of the hallmarks of having the exempt status, the exempt… that exempt employees, one of the hallmarks of the importance and status that those employees had is that they were paid on a weekly basis, that for any week in which they worked they would receive a full week’s pay.

Antonin Scalia:

But he makes it the hallmark.

He doesn’t make it one of the characteristics.

He says, this is the criterion, and is it adequate to say, you know, that will handle maybe 90 percent of the cases.

It won’t get Gates, but, you know, close enough for Government work.

Is that what you–

Irving L. Gornstein:

I think it is wrong to–

Antonin Scalia:

–The statute doesn’t say that.

The fact is, Gates shouldn’t be within it.

Irving L. Gornstein:

–Justice Scalia, what the statute says is that they are executive, administrative, and professional, as defined by the Secretary.

That’s what the statute says, and it gives the Secretary wide leeway to give content to the meaning of those terms.

And what the Secretary has done is set out an administrable statute, not to leave to a district court or an employer in every case to figure out whether under the totality of circumstances we are going to regard this person as executive, administrative, or professional.

Antonin Scalia:

So your response is, if Microsoft doesn’t like it, it can just rescind the rule that… you know, punish Gates some other way.

Irving L. Gornstein:

Some other way, or if it was a one-time deduction, then the window of correction could be used to retroactively restore his exempt status.

Stephen G. Breyer:

And that’s good, and so that’s why you say the effect of making a deduction which is not permitted under the rule as a practical matter depends on the case.

Irving L. Gornstein:

It does, but I would–

Stephen G. Breyer:

That’s what the reg says, and are you saying that then here you look at practically what happens in this case.

You’re saying as a practical matter the facts of this case show the deductions that they made didn’t transmute them into hourly employees.

Irving L. Gornstein:

–That is correct, that that–

And that’s a–

Irving L. Gornstein:

–That as a practical matter in this case, I don’t think you have to get to the window of correction to decide that, though.

I think you can look at just the text of the 541.118 and here we interpret the term, subject to reduction, to mean that as a practical matter the employees in the class have to face a significant possibility of having their pay reduced.

If there is no such practice, there is no such policy, and nonetheless there is a deduction taken, for whatever reason, then you look to the window of correction to restore retroactive status.

Now, the second point–

Antonin Scalia:

–But the burden is on the employer–

Irving L. Gornstein:

–The burden–

Antonin Scalia:

–to show that there is no such possibility, is that right?

Irving L. Gornstein:

–That there’s not a significant possibility.

Right.

Irving L. Gornstein:

That’s correct, that there’s not a significant possibility that employees in this class will face partial week disciplinary suspensions.

Antonin Scalia:

And in this case the employer bears not just that initial burden, but also the burden of overcoming a manual which on its face is applicable to all employees, and on its face seems to say that these people are subject to it.

Irving L. Gornstein:

Well, let me talk about the manual on its face, because the manual is broadly applicable to all employees, both those who clearly perform exempt duties, like captains on up, and clearly perform nonexempt duties, like patrol officers who patrol the beat, and those rules can all be enforced in ways that are completely consistent with retaining exempt status for those employees who perform clearly exempt duties, so I think if you just look at the manual–

David H. Souter:

Well, what do you do with the… what do you do with the point that your brother was making about the record, that the chief and the others who came in and testified didn’t testify that these particular sanctions would be applied only to the nonsalaried.

They said something like, well, gee, yeah, I guess it could, but I can’t think of any instance.

They didn’t take the position that’s consistent with your argument, did they?

Irving L. Gornstein:

–I think that as the case came to the court of appeals that the petitioner in this case really put the case to the court of appeals, you can just look at the manual and you can add in the Guzy incident, and we should win this case.

None of this was brought to the attention of the court of appeals.

None of this was part of the question that was framed for review by this Court.

Again, I think the question that was framed for review by this Court was, can you just look at this manual and conclude that these people are subject to disciplinary deductions.

The burden of proof issue was not raised in the court of appeals, and I don’t think it was raised here.

I think there is a problem.

When you look at all the testimony there’s a lot of ambiguous statements about what could or could not happen.

But I think as the case went to the court of appeals, and to this Court at the certiorari stage, the understanding was there was not a single incident of actual deductions having ever occurred with the exception of the one case of Sergeant Guzy, and that took place under such highly unusual circumstances that I don’t think it was indicative that sergeants as a class face a significant possibility of having their pay reduced.

William H. Rehnquist:

The Government’s position is that the judgment of the court of appeals should be affirmed.

Irving L. Gornstein:

It is that it should be affirmed.

Ruth Bader Ginsburg:

And that we don’t need to get to the window of correction, or–

Irving L. Gornstein:

With respect to Sergeant Guzy, that in our view the only… the window of correction is only implicated with respect to Sergeant Guzy.

That incident doesn’t show that the class is subject–

John Paul Stevens:

–But isn’t it probative of–

Irving L. Gornstein:

–but Sergeant–

John Paul Stevens:

–Isn’t it probative of the treatment of the whole class when they said, well, we’ll correct it if we have to?

Irving L. Gornstein:

–I don’t think that that is… I think that the position of the employer here is, we don’t think we owed Sergeant Guzy money, but if we do, we want to be able to restore his retroactive status, and under the–

John Paul Stevens:

If they don’t think they owe him money, they must interpret the fact that they ever… they are agreeing with your opponent.

Irving L. Gornstein:

–I think that in fact what they did is, they took a view similar to the one that Justice Kennedy was raising in his question about what it means to be subject to reduction for quality and quantity of work, and they said, we don’t think Guzy was reduced for that reason, but if he was, we want to restore his status retroactively.

In our view, the window of correction–

John Paul Stevens:

And the court has to tell him why he was reduced.

I don’t quite understand that.

Irving L. Gornstein:

–Well, there is nothing in the window of correction rule that precludes an employee from correcting after litigation.

Irving L. Gornstein:

I… we don’t think that there is a prelitigation correction rule in the window.

Ruth Bader Ginsburg:

Maybe the employer… as I understand the Guzy case there was a kind of a plea bargain for this lesser sanction when the sanction that eventually was made, the single sanction termination, would not have affected FLS–

Irving L. Gornstein:

That’s correct.

He was originally filed, or that was the original imposition of a penalty, was a firing, which would not implicate the rule at all.

William H. Rehnquist:

–Thank you, Mr. Gornstein.

Mr. Renick, we’ll hear from you.

John B. Renick:

Mr. Chief Justice, and may it please the Court:

Let me address this… at least partially this question about the chief of police’s testimony.

First of all, I think it’s important for the Court to understand that the chief of police does not impose discipline.

That is the role of the police board, which is the defendant in this case.

Secondly, if you examine the testimony that Mr. Leibig was referring to, the chief consistently says, you know, maybe that could happen, it’s possible, but he can’t recall it ever happening, and I think that’s important, and I think that points out the problem with petitioner’s position here as to someone who’s subject to a deduction.

And it goes to Justice Breyer’s point.

Logically, you could file one of these lawsuits and take the deposition of the chief executive officer and simply ask the question, is it possible that you could discipline one of your vice presidents who is found to have engaged in some kind of misconduct for a period of less than a week.

And if the answer to that is yes, it’s possible, because that is part of the inherent right of management, then the logical extension of petitioner’s argument is that everyone in that organization, because they are conceivably subject to an improper deduction, would be nonexempt.

Therefore, no one, whether you’re a vice president, or Bill Gates, whatever it would be, under that theory would be exempt.

Antonin Scalia:

Well, he could say that’s not my fault, that’s the Secretary’s fault.

He wrote this regulation.

John B. Renick:

Well–

Antonin Scalia:

I mean, we’ll blame it on him.

John B. Renick:

–We think that that shows that that interpretation really doesn’t make sense.

David H. Souter:

Well, would you agree that if you had a manual that applied only to salaried employees, and specifically provided for discipline that would be inconsistent with salaried status, that that would be enough to preclude salaried status?

John B. Renick:

If the discipline… if the manual was worded in such a way that discipline was mandatory, I would agree with you, Justice Souter.

David H. Souter:

Well, I… wouldn’t… wouldn’t we be entitled to act on the assumption that the manual was not a totally nugatory exercise and that, in at least some instances, consistently with the manual, discipline would be applied?

Wouldn’t that be a reasonable basis for a decision?

John B. Renick:

Yes, but I still–

David H. Souter:

I mean, your argument has to say… it seems to me seems to be, even when they specifically say they will do and are entitled to do what is inconsistent with salaried status, we won’t take them at their word.

We’ll wait and see.

That surely is–

John B. Renick:

–What I’m saying is, and I think the Secretary of Labor has agreed with our position, is that… is that as… you have to look at what actual experience… the best evidence is what is the actual experience in the application of whatever manual… if you have a manual or not, what has actually happened, and the evidence in this case is very clear.

In 1979, which was 6 years before the Garcia case was decided by this Court, the legislature of the State of Missouri amended the governing statute which controls the operations of the St. Louis Police Department to convert all commissioned officers at the rank of sergeant or above to a salary basis of payment.

John B. Renick:

It specifically amended the statute to disallow payment of overtime and to compensate for that they gave everyone an across-the-board 8 percent increase, and none of the individuals in this case have come forward… contrary to any other representations, the record is devoid of any evidence… we had 288 sergeants by the time we go to trial.

Not a single one of those sergeants took the witness stand and testified that he or she had actually suffered an improper deduction.

David H. Souter:

–Oh, I quite agree, but that’s not the case that I put to you in the question.

John B. Renick:

Well, I think I’m agreeing with you if you have a manual that says this is specifically applicable to exempt employees, or functionally exempt, and it provides that penalties will be imposed for certain forms of misconduct that would be periods of less than a week, if you accept the Secretary’s interpretation of the salary basis test, then I would agree with you.

Antonin Scalia:

But the Secre… but penalties may be imposed.

If it says penalties may be imposed, your position is that would not be enough.

John B. Renick:

Well, I think then you have to look at the practice, because I think as one of the justices earlier pointed out, I think you… where there are a range of penalties, as there are in this case, there’s no reason to assume that the employer is going to choose a new proper penalty and thereby convert all of his or her salaried employees to nonexempt employees.

Antonin Scalia:

Well, you know, all the text of the regulation says is not which amount must be reduced because of variations in the quality or… it says which amount is not subject to reduction, and you know, subject to reduction doesn’t mean will certainly be reduced.

John B. Renick:

Well–

Antonin Scalia:

It just means it’s subject to reduction, and as I understood the exception is, if that thing is just a paper tiger, that in fact it is never used, that’s one thing, but if it’s even used in one case, it seems to me that’s enough to show that it’s for real.

John B. Renick:

–Well, but the state of the record here, Justice Scalia, is that in the period between 1979, when the statute was amended, and the time we went to trial in 1993, not one witness came forth to testify that he or she had been subjected to a disciplinary proceeding initiated by the department, by the police department, based on a variation, which is the word in the interpretation, on a variation in the quality or quantity of work.

There’s–

Antonin Scalia:

Of course, the burden’s on the employer.

John B. Renick:

–Not one appears.

Antonin Scalia:

The burden’s on the employer here to show that nobody had.

John B. Renick:

The employer–

Antonin Scalia:

Did anyone come in on behalf of the employer and say, nobody has?

John B. Renick:

–The employer prevailed on the salary test on partial summary judgment prior to the trial, and the record shows that I queried the trial judge both at the beginning and at the end of my presentation to ensure that that issue was no longer in the case.

Antonin Scalia:

Do you claim to have established at trial that nobody had, that nobody had been subjected to this disqualifying kind of discipline?

John B. Renick:

At the trial there was no evidence to that effect because we had prevailed on partial summary judgment prior to trial.

Antonin Scalia:

Okay, but it seems to me that’s your burden.

John B. Renick:

The trial judge found that we met that burden when he ruled in a pretrial ruling which granted partial summary judgment on the salary basis issue and took that out of the case.

John Paul Stevens:

May I ask you to just address the one thing that I find a little puzzling?

Why, if you’re correct that the… Sergeant Guzy was not subject to the particular discipline he got, why hasn’t he been repaid?

John B. Renick:

Well, I think there are a couple of reasons for that.

First of all, we believe, and I think it’s clear, that the basis for the discipline in that case was the fact that he had violated a city residency requirement.

Right.

John B. Renick:

Which was a requirement of employment.

That had absolutely nothing to do with the quality or quantity of his work, so it would be my position that he was never subjected to a reduction in his salary based on anything that had to do with the quality or quantity of his work, which is the phrase that the Secretary uses.

Secondly, our position has been consistently in this litigation that if we are wrong… and the Eighth Circuit’s opinion actually only says arguably that this deduction made Sergeant Guzy nonexempt, and we think it’s just as reasonable that it may not be, but our position has been all along that if at the outcome of this litigation it is determined that that was an impermissible deduction, the salary test basis is validly applied to the Board of Police Commissioners, then we will comply by reimbursing Sergeant Guzy, and we will continue our existing practice of not allowing deductions of less than a week for exempt officers.

John Paul Stevens:

So you construe the disciplinary manual really as saying that although you may have some of the deductions, we won’t have them if they’re based on defects in quality or quantity of work.

John B. Renick:

That’s correct.

Sandra Day O’Connor:

Now, you raise a lot of other issues, I think, in your response, an Eleventh Amendment issue, a claim that the FSLA does not apply at all to public employees of State and local government, and so forth.

John B. Renick:

Yes, Your Honor.

Sandra Day O’Connor:

Respondents never filed a cross-petition here, did they?

John B. Renick:

No, we did not.

Sandra Day O’Connor:

And the court below assumed without deciding that the Fair Labor Standards Act applied to the public employees here.

John B. Renick:

That’s correct.

Sandra Day O’Connor:

And you went forward under that assumption the court–

John B. Renick:

Well, the first question presented in the petition for the writ of certiorari, as I recall, is does the salary basis test validly apply to public employees, and we would say on the facts of this case, just demonstrates that taking this disciplinary deduction rule and trying to apply it to a law enforcement agency is arbitrary and capricious.

Sandra Day O’Connor:

–Well, we really didn’t grant, as I see it, on a question of applicability of the Federal Fair Labor Standards Act.

There was no request made by you in any event, by a cross-petition, that we consider Garcia… reconsider Garcia.

John B. Renick:

I agree with you, Justice–

Sandra Day O’Connor:

Some amici have made that point, but you did not raise that.

John B. Renick:

–That’s correct, Justice.

We–

Sandra Day O’Connor:

And I assume that the respondents waived the Eleventh Amendment immunity below.

John B. Renick:

–I don’t believe that we did.

We don’t believe that we have ever waived that.

They pointed out that we consented to the judgment, but I believe the… our Eleventh Amendment argument is based on this Court’s decision on Seminole Tribe v. Florida, which only came out, I believe, March of this year, but at the time this litigation was taking place, my recollection is that Pennsylvania v. Union Gas was still good law, and there was really no basis for me to make that claim until this Court decided the Seminole Tribe.

Sandra Day O’Connor:

I would have thought there might be some cross-petition to get into these things.

John B. Renick:

Well, we raised it simply at the point in time that the Court’s Seminole Tribe decision had come out, and the timing of the sequence of events, we raised it basically as a jurisdictional issue, which, as I read the Court’s cases, can be raised under these circumstances.

Anthony M. Kennedy:

Is there any authority in the circuits to support the argument that the subject to clause doesn’t apply to disciplinary actions at all, it simply applies when the work changes, for the operational needs of the employer?

That is what I thought was the common sense reading of it when I read the regulation, but I don’t know if there’s any support for that.

John B. Renick:

I think that is the common sense reading.

When you read 541.118(a) in the general sense, what the Secretary of Labor–

Anthony M. Kennedy:

It’s such a common sense reading that none of the circuits seem to have adopted it.

John B. Renick:

–The circuits–

[Laughter]

The circuits have all picked up the point of what we’re dealing with here, that a disciplinary suspension fits under 541.118(a)(5), which says penalties… it’s actually worded in the affirmative, that an employer may impose penalties which… for violations of major safety rules.

John B. Renick:

That has since been interpreted to mean a penalty can be a suspension without pay, and the courts have then read and said the converse of that, then, is that you can’t impose a penalty for something that’s not a violation of a major safety rule, and I think that’s how we get where we are here.

Anthony M. Kennedy:

Has the agency ever expressly rejected the interpretation I suggest?

John B. Renick:

Not to my knowledge, although it is a matter of record at pages 43 through 46 of the joint appendix that the Secretary of Labor went on record this May and indicated that there was still confusion among litigants, particularly in the public sector, as to what all this means, and it appears that the Secretary intends to undertake some kind of a rulemaking procedure to review this disciplinary aspect of the salary test.

Anthony M. Kennedy:

In any number–

John B. Renick:

It has never been done to date.

Anthony M. Kennedy:

–Any number of the specific rulings, the letters that the Secretary has given seems to be inconsistent with the reading I suggest.

Or is that correct?

John B. Renick:

I can’t cite you to one, Justice Kennedy.

Ruth Bader Ginsburg:

In any event, your main argument, as I understand it, is you… accepting the Government’s current interpretation of the regulation, that you properly prevailed in the Eighth Circuit, but didn’t you… you made… one of your border attacks was on the Government’s position as irrational in distinguishing between suspension for a full week versus a couple of days.

John B. Renick:

That’s correct.

We believe that, particularly on the facts of this case, we are dealing with a law enforcement agency where you have a recognized exception that… and you… and again, you have to go back to the premise that all of these sections of the salary basis test are based on studies that were conducted in the 1940’s and fifties, when public employers were not subject to the law, and that’s part of the problem, is now trying to take what seemed to make sense back in the 1940’s and fifties, when these studies were done, and then there was never any contemplation that the law would apply to public employers.

Ruth Bader Ginsburg:

But if we were to get into that, we would be going considerably beyond where the Eighth Circuit was in this case.

John B. Renick:

That would be true, yes, but we believe that, as I said, on the facts of this case this demonstrates that… and the Secretary has specifically recognized that you don’t treat law enforcement agencies the same as even other public employees, let alone private employees.

There are differences in the standards for hours worked, there are differences in the fact that they get compensatory time, and our point here is that this disciplinary deduction prohibition doesn’t make sense when you try to fit it into this kind of a situation.

This is a… as the trial judge found, this is a quasimilitary organization, it would be my position, where the sole or primary function of the St. Louis Police Department is to ensure the public safety, that by limiting our ability to impose discipline on the members of that police department, that the Secretary of Labor, in application, that that application is improper, it’s arbitrary, it’s capricious, and should be invalid.

Ruth Bader Ginsburg:

That might be your dispute with the Secretary of Labor, but it doesn’t… this case, your victory in this case doesn’t turn on–

John B. Renick:

It doesn’t depend on that.

Our position is that if you assume that the regulations and the Secretary’s interpretations are entirely valid in their application to the St. Louis Police Board, that the actions in this case demonstrate first of all the… we tried the case.

We had 21 different categories of sergeants, all of whom were found to perform exempt functions as either executive or administrative employees.

They were functionally exempt, and they’ve come to this Court and claimed that solely because they were subject to a disciplinary action which might possibly include a suspension of less than a week, for that sole reason, without demonstrating that it ever actually happened, that they are thus nonexempt, and we think–

Antonin Scalia:

–Why does the distinction between suspension for less than a week and suspension for a week make sense for non-Government employees, or nonpolice employees, rather?

John B. Renick:

–Why does it make sense?

Antonin Scalia:

Yes.

John B. Renick:

I don’t know that it does.

It just… that has been in the Secretary’s interpretation of 541.118(a) I think since 1954.

Antonin Scalia:

What’s the theory of it?

Why does–

John B. Renick:

The Secretary–

Antonin Scalia:

–suspended for a whole week, not–

John B. Renick:

–It’s just included, a proviso that says in a week in which an employee performs no work at all, that the employer is under no obligation to pay the salary.

John B. Renick:

There are some distinctions as to when you have to pay the full salary.

The Secretary’s interpretation is that generally, if you perform any work at all within a week, if you’re a salaried employee, you shouldn’t lok at the number of hours.

It shouldn’t matter.

You’re entitled to your full salary.

Then they draw the distinction and say, in a week in which no work is performed, that the employer need not pay the salary.

Antonin Scalia:

–Yes, but they also… the docking rule also applies.

A docking for a whole week is okay, even though you work.

John B. Renick:

Docking for a whole week of work is okay, according to the Secretary of Labor.

Antonin Scalia:

I don’t understand that.

John B. Renick:

Well, we think that’s even more so demonstrated by the fact that in 1992 the Secretary of Labor amended the regulation 541.5d that applies to public employees, so that the salary basis test, if you read it, doesn’t even mean what it says for public employees, because the salary basis test says you’re supposed to receive a predetermined amount of compensation every pay period that is not subject to reduction based on quality or quantity of work.

The Secretary of Labor, through a rulemaking procedure in ’91, looked at the outcry that this caused in the public area, that there are many people who are exempt, but because of principles of public accountability are… under State laws are not able to be paid for time they don’t work, so the Secretary amended the regulation to specifically allow a public employer to make deductions on an hour-by-hour basis from an otherwise exempt employee’s salary and still allow them to claim that they’re paid on a salary basis, which in and of itself is inconsistent.

So the salary basis test as applied to public employers no longer means what it says, and we say, why should there be this disciplinary deduction aspect maintained when the Secretary has already recognized that the variation in quantity of work does not destroy the salary basis.

I would also point out that, in the petition that was filed by the petitioners in this case, they took the position very clearly that this Court was required to defer to the interpretations of the Secretary of Labor, and this Court invited the views of the Government, asking the Solicitor General to file a brief prior to deciding whether or not to accept this case.

In that case, the Secretary of Labor’s views were specifically expressed, and it was described in that brief as for the sole… for the very specific purpose of clarifying what the Secretary’s position was on these interpretations, and the Secretary has specifically disagreed with the position taken by the petitioners.

But the petitioners continue nonetheless to have had… apparently have had a change of heart as to the deference owed to the Secretary of Labor under the circumstances, and we would submit that the… whether or not the Secretary’s interpretations are agreeable to the petitioner should not determine whether or not they are entitled to deference in this case, and we believe, under the circumstances, that they clearly are, and as I said earlier, if you accept the Secretary’s current clarification of what the interpretations mean, this case fits squarely within it, whether or not you get to the window of correction.

If there are no other questions, thank you.

William H. Rehnquist:

Thank you, Mr. Renick.

The case is submitted.

The honorable court is now adjourned until tomorrow at ten o’clock.