Acosta v. Hoa Salon Roosevelt, Inc., CASE NO. C17-0961JLR

R. ALEXANDER ACOSTA, Plaintiff, v. HOA SALON ROOSEVELT, INC., et al., Defendants.

CASE NO. C17-0961JLR

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON AT SEATTLE

January 25, 2019

ORDER DENYING DEFENDANTS' MOTION FOR PARTIAL SUMMARY JUDGMENT

I. INTRODUCTION

Before the court is Defendants Hoa Salon Roosevelt, Inc., Hoa Salon Ballard, Inc., Thuy Michelle Nguyen Pravitz, and Eric Pravitz's (collectively, "Defendants") motion for partial summary judgment. (See Mot. (Dkt. # 30).) Defendants argue that Plaintiff R. Alexander Acosta, Secretary of Labor ("the Secretary"), cannot meet his burden of demonstrating that Defendants' alleged Fair Labor Standards Act ("FLSA") violations were willful thereby justifying the imposition of a three-year statute of limitations for willful FLSA violations rather than the presumptive two-year limitations period. (See id.); see also 29 U.S.C. § 255(a). The Secretary opposes Defendants' motion. (See Resp. (Dkt. # 34).) The court has considered the motion, the parties' submission in support of and opposition to the motion, the relevant portions of the record, and the applicable law. In addition, the court heard counsel's oral argument on January 23, 2018. Being fully advised, the court DENIES Defendants' motion.

II. BACKGROUND

A. Factual Background

Ms. Pravitz owns Hoa Salon Roosevelt and Hoa Salon Ballard. (See Am. Compl. (Dkt. # 15) ¶ 6; Answer (Dkt. # 20) ¶ 5 (admitting these allegations).) Mr. Pravitz directs and oversees the operations, pay practices and payroll, terms of employment, and the supervisors and managers at both salons. (See id.)

Mr. Pravitz testifies that when he and Ms. Pravitz opened their first nail salon, Hoa Salon Roosevelt, they were trying to change the practices they saw in other nail salons where employees were accustomed to irregular payment methods with a mix of payroll checks and cash. (Daquiz Decl. (Dkt. # 35) ¶ 3, Ex. 4 ("E. Pravitz Dep.") at 17:11-16.) Mr. Pravitz testifies that he and Ms. Pravitz were trying to set up "a normalized employment system" to ensure that employees were paying towards Social Security and payroll taxes. (Id. at 17:14-20.) Indeed, as a part of this process, Mr. Pravitz drafted employment letters for Hoa Salon employees, which outlined the terms of employment, including the employee's hourly pay rate, the overtime rate at 1.5 times the hourly rate, the employee's duties, and information concerning schedules and breaks. (Daquiz Decl. ¶ 5, Ex. 4 (attaching employment letters produced by Defendants); E. Pravtiz Dep. at 31:1-18.) Mr. Pravitz testifies that he knew about the minimum wage and the "sick time ordinance that was passed" because this information "was widely available through media." (E. Pravitz Dep. at 58:2-10.) However, he also notes that Defendants had been paying employees for their sick time prior to the enactment of new ordinance. (See id.)

In 2013, the United States Department of Labor ("DOL") investigated Hoa Salon Roosevelt "as part of an emphasis program focusing on nail salons in the Seattle area." (Chan Decl. (Dkt. # 36) ¶ 2.) Mr. Pravitz understood that DOL's investigation of Hoa Salon Roosevelt was "random" and was intended to determine if "Hoa [Salon] Roosevelt was properly compensating its employees for their hours worked." (E. Pravtiz Decl. (Dkt. # 31) ¶¶ 3-4.) Mr. Pravitz testifies that he and Ms. Pravitz cooperated with DOL's investigator to their "fullest extent." (Id. ¶ 3.) Mr. Pravitz recalls that the DOL investigator requested, and Defendants provided to her, the Hoa Salon Roosevelt employee work schedules and payroll records for a specified period of time. (Id. ¶ 4.) Mr. Pravitz also recalls that the DOL investigator interviewed some of Hoa Salon Roosevelt's employees. (Id.)

Mr. Pravitz and Ms. Pravtiz met with the DOL investigator to discuss the result of the 2013 investigation. (Id. ¶ 5.) Mr. Pravitz testifies that the DOL investigator stated that the investigation "had not revealed any wage violations." (Id.) However, Mr. Pravitz also recalls that the investigator suggested one change—that Hoa Salon Roosevelt change its internal payroll records from classifying all employees as "salaried," and instead classify those employees who were paid by the hour and for overtime as "hourly." (Id.)

Ultimately, Mr. Pravitz and Ms. Pravtiz made this suggested change, but not until April 1, 2015. (See id.; Daquiz Decl. ¶ 6, Ex. 5 ("Roosevelt Disc. Resp.") at 3, Id. ¶ 7, Ex. 6 ("Ballard Disc. Resp.") at 3.) On April 1, 2015, Defendants switched the payroll systems at both Hoa Salon Roosevelt and Hoa Salon Ballard "to reflect hourly pay rather than an annual salary." (Roosevelt Disc. Resp. at 3; Ballard Disc. Resp. at 3.) Prior to this change, Hoa Salon employees were paid twice a month on the 5th and 20th of each month. (Id.) Mr. Pravitz explained that he initially used a "salary" payroll system because that was the type of system with which he was familiar, and he used his own experience as his model. (E. Pravitz Dep. at 17:3-20.) Nevertheless, Defendants' initial payroll system calculated overtime hours that employees worked in excess of 87 hours for each bi-monthly payroll period at 1.5 times the base hourly rate. (Roosevelt Disc. Resp. at 3; Ballard Disc. Resp. at 3.) Defendants entered employees' overtime hours into the payroll system under the category "Bonus." (Id.) Thus, although Defendants initially categorized employees as "salary," the payroll system nevertheless accounted for overtime payments.¹ (See id.)

Based on the testimony of DOL's former investigator, Sherrie Chan, the Secretary's description of DOL's 2013 investigation of Hoa Salon Roosevelt differs in certain ways from Defendants' recollection. (Compare Chan Decl., with E. Pravtiz Decl.) For example, although Mr. Pravitz recalls "that the investigation had not revealed any wage violations" (E. Pravtiz Decl. ¶ 5), Ms. Chan testifies that she "found some instances where employees were not paid overtime," although Defendants then paid these amounts "immediately" (Chan Decl. ¶ 5). In addition, Ms. Chan recalls that Mr. Pravitz and Ms. Pravitz did not maintain employees' time records showing the start and end of each employee's shift, and she informed them that they needed to maintain these types of records for two years. (Id. ¶¶ 4, 6.) Finally, Ms. Chan testifies that she provided Mr. Pravitz and Ms. Pravtiz with a variety of FLSA "guidance documents in the form of booklets and pamphlets." (Id. ¶ 7, Exs. A-K.) Mr. Pravtiz makes no mention of receiving any of these documents.² (See generally E. Pravtiz Decl.)

On June 1, 2016, Defendants made an additional change to their payroll system. (Roosevelt Disc. Resp. at 3; Ballard Disc. Resp. at 3.) They added an "Overtime" category so that they no longer recorded overtime pay in the "Bonus" category. (Id.) Mr. Pravtiz explained that he had wanted to make this change when Defendants changed from a "salary" to an "hourly" payroll system, but he had difficulty initially getting his accountant to make this change. (E. Pravitz Dep. at 54:6-17.) Ultimately, he obtained the ability to make this change in the payroll system himself, and so he did. (See id.)

In October 2016, DOL initiated another investigation of Defendants' payroll practices at three related salons—Hoa Salon Roosevelt, Hoa Salon Ballard, and Hoa Salon Madison.³ (See E. Pravtiz Decl. ¶ 6; Walum Decl. (Dkt. # 37) ¶¶ 2-3.) Mr. Pravitz testifies that he and Ms. Pravitz were confident that they would "again be found in compliance" because he understood that the 2013 investigation "had not revealed any wage violations" and with the exception of the classification change from "salary" to "hourly," they had been "following the same employee scheduling and payroll practices . . . in place at the time of the July 2013 investigation." (E. Pravitz Decl. ¶¶ 5-6.)

On October 21, 2016, DOL's investigator, Katherine Walum, met with Mr. Pravitz and Ms. Pravtiz. (Walum Decl. ¶ 2.) Ms. Walum testifies that at that initial conference, Mr. Pravitz and Ms. Pravtiz told her that their employees were required to be at work from 9:30 a.m. to 7:15 p.m. daily and that they were paid for nine hours of work with 30 minutes for lunch deducted. (Id.) They further described a "turn-based" system for assigning clients to employees throughout the day. (Id.) Ms. Walum further testifies that Mr. Pravitz and Ms. Pravtiz "readily admitted that they did not record breaks on the time sheets," but that employees could "choose to skip their turn with a client in order to take a break." (Id.) Ms. Walum states that Mr. Pravitz and Ms. Pravitz were unable to produce any of the time records showing the time at which employees started and ended their

// shifts because they had not maintained them at either Hoa Salon Roosevelt or Hoa Salon Ballard. (Id. ¶ 4.) For Hoa Salon Roosevelt, they provided worksheets with a daily number of hours worked per employee. (Id.) For Hoa Salon Ballard, they provided payroll records of paychecks issued and worksheet records of daily hours for a few months. (Id.) Mr. Pravitz and Ms. Pravitz explained that they had not maintained the balance of the records because they had sold Hoa Salon Ballard. (Id.)

Beginning on January 1, 2017, Defendants began calculating employee hours by using seven-day periods, Sunday through Saturday, instead of their previous bi-monthly system based on 87-hour pay periods. (Roosevelt Disc. Resp. at 3; Ballard Disc. Resp. at 3.) Under the new system, any hours worked in excess of 40 hours during the seven-day pay period was calculated at 1.5 times the regular pay. (Id.) On April 16, 2017, Defendants changed to payday every two weeks from the previous system of twice a month. (Id.) The "change to a 7-day pay period (instead of a semi-monthly pay period) coupled with the use of an overtime category to reflect overtime payments allows employees and independent auditors to review pay records against records of hours worked to...