Gentry v. Hamilton-Ryker IT Sols., L.L.C.

102 F.4th 712

Terry GENTRY, on behalf of himself and all others similarly situated, Plaintiff—Appellee, v. HAMILTON-RYKER IT SOLUTIONS, L.L.C., Defendant—Appellant.

No. 22-40219

United States Court of Appeals, Fifth Circuit

FILED May 24, 2024

Appeal from the United States District Court for the Southern District of Texas, USDC No. 3:19-CV-320, Jeffrey Vincent Brown, U.S. District Judge

Melinda Arbuckle, Ricardo Jose Prieto, Wage & Hour Firm, L.L.P., Dallas, TX, Richard J. Burch, Houston, TX, for Plaintiff—Appellee.

Ashlee Cassman Grant, Esq., Paul Michael Knettel, Baker & Hostetler, L.L.P., Houston, TX, for Defendant—Appellant.

Erin Mohan, U.S. Department of Labor, Office of the Solicitor, Fair Labor Standards Division, Washington, DC, for Amicus Curiae Julie A. Su, Acting Secretary, U.S. Department of Labor.

Before Higginbotham, Stewart, and Southwick, Circuit Judges.

Patrick E. Higginbotham, Circuit Judge:

Today we return to the "highly compensated employee" and "learned professional" exemptions to the Fair Labor Standards Act of 1939, a statute which mandates that employees receive time-and-a-half pay for hours worked in excess of the standard forty-hour workweek.¹ To qualify for either exemption, employers must pay their employees on a "salary basis."² The district court found that Hamilton-Ryker IT Solutions ("HR-IT") did not pay Terry Gentry and Marc Taylor on a salaried basis and owed both employees actual and liquidated damages for prior overtime work. We earlier affirmed the district court's judgment but withdrew the opinion. On reconsideration, we again affirm the district court's judgment that the workers here were not exempt. We also vacate and remand for reconsideration of liquidated damages.

I.

A.

Terry Gentry worked as a senior control systems engineer for HR-IT from 2015 to 2019. Marc Taylor began working at HR-IT in August 2017. On September 25, 2019, Gentry filed a putative class action alleging that HR-IT violated the Fair Labor Standards Act ("FLSA") by failing to pay overtime wages to its non-exempt, hourly-paid employees. Taylor joined the lawsuit on May 28, 2020.

During the relevant time period, both men were paid on a two-tiered system. First, a "Guaranteed Weekly Salary equal to 8 hours of pay."³ The "weekly salary" only compensated Gentry and Taylor for, at most, one eight-hour workday. Then, for any hour they worked beyond their eighth hour, Plaintiffs were paid at their hourly rates, including any hours worked over 40.

The parties filed cross motions for summary judgment. HR-IT argued Gentry and Taylor were exempt from the FLSA's time-and-a-half requirement as either "highly compensated employees" or "learned professionals." The essential issue was whether Gentry and Taylor were paid on a "salary basis," a requirement for either exemption.

The magistrate judge recommended, and the district court agreed, that, as Plaintiffs were not paid on a salary basis, they were not exempt from the FLSA's overtime requirements. The magistrate also advised the district court to impose liquidated damages equal to Plaintiffs' actual damages, as authorized by the FLSA.⁴

HR-IT objected to the magistrate judge's report and recommendations and offered additional evidence regarding its good faith defense to the liquidated damages award. Specifically, HR-IT submitted evidence from a May 10, 2021 deposition in a separate case to show its good faith belief that it complied with the FLSA. The deposition reflected that HR-IT's President consulted with the company's attorney, attended staffing conferences, and performed independent research to "stay up to date" on the industry and to develop HR-IT's pay practices regarding exempt employees. The district court reviewed the magistrate judge's report de novo and concluded that it could not consider HR-IT's new evidence. Ultimately, the district court adopted the magistrate judge's report and recommendation in full on March 25, 2022.

B.

HR-IT timely appealed on April 8, 2022. Shortly thereafter, the Supreme Court granted certiorari in another FLSA case, Helix Energy Solutions Group, Inc. v. Hewitt.⁵ We stayed this case pending Helix's resolution. The Supreme Court issued its Helix decision on February 22, 2023 and, with the benefit of Helix, the parties resumed briefing this case.⁶ On June 20, 2023, the Secretary of Labor filed a brief as amicus curiae in support of Plaintiffs and asked this court to affirm the district court's judgment. In its brief, the Secretary explained that in light of Helix, Gentry and Taylor were not exempt from the FLSA's overtime requirements because they were not paid on a salary basis.

We affirmed the district court's judgment, and HR-IT petitioned for panel rehearing. This court granted HR-IT's motion, withdrew its opinion, and reopened the case. HR-IT now advances two arguments on appeal.⁷ First, HR-IT challenges the district court's conclusion that Plaintiffs were not exempt employees. Second, HR-IT asserts that the district court abused its discretion by rejecting HR-IT's new evidence and ordering HR-IT to pay liquidated damages.

Upon reconsideration, we AFFIRM the judgment of the district court related to the FLSA exemption but VACATE the judgment on liquidated damages and REMAND for reconsideration of that issue.

II.

We review summary judgment determinations de novo and apply the same standard as the district court.⁸ When considering cross motions for summary judgment, we examine "each party's motion independently"⁹ and "each movant bears the burden of establishing that no genuine issue of material fact exists and that it is entitled to judgment as a matter of law."¹⁰ The employer has the burden of establishing by a preponderance of the evidence that an exemption applies.¹¹ "[T]he ultimate decision [of] whether [an] employee is exempt from the FLSA's overtime compensation provisions is a question of law."¹²

"This [c]ourt reviews liquidated damages awards for clear error."¹³ "Clear error exists when although there may be evidence to support it, the reviewing court on the entire record is left with the definite and firm conviction that a mistake has been committed."¹⁴

III.

We first address HR-IT's argument that the district court erred when it found Plaintiffs non-exempt under the FLSA. After reviewing this question de novo, we find that it did not. Plaintiffs do not qualify for an exemption under the FLSA because they were not paid on a salary basis under either 29 C.F.R. §§ 541.602(a) or 541.604(b).

A.

The Fair Labor Standards Act of 1938 guarantees covered employees overtime pay at a rate "not less than one and one-half times the regular rate" when they work more than 40 hours a week.¹⁵ Employees working "in a bona fide executive, administrative, or professional" capacity are exempt from this protection.¹⁶ The Secretary of Labor in turn has promulgated regulations exempting "highly compensated employees" ("HCEs") and "learned professionals."¹⁷ HR-IT argued that Plaintiffs were exempt from FLSA protection under either the HCE or learned professional exemptions.

To meet either the HCE or learned professional exemption, employees must satisfy three tests: (1) the "job duties" test;¹⁸ (2) the "salary level" test;¹⁹ and (3) the "salary basis" test.²⁰ As the parties agree that Gentry and Taylor meet the job duties and salary level tests, only the salary basis test is at issue.

There are two ways to satisfy the salary basis test: through the avenue provided by 29 C.F.R. §§ 541.602(a) and 541.604(a) ("§ 602(a)" and "§ 604(a)"); or through the alternative route established by 29 C.F.R. § 541.604(b) ("§ 604(b)"). The issue today is which regulation applies. HR-IT argues that its compensation structure is governed by § 602(a), while Plaintiffs rely on § 604(b).

Section 602 provides:

(a) General rule. An employee will be considered to be paid on a "salary basis" within the meaning of this part if the employee regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of the employee's compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed.

(1) Subject to the exceptions provided in paragraph (b) of this section, an exempt employee must receive the full salary for any week in which the employee performs any work without regard to the number of days or hours worked.

Exempt employees need not be paid for any workweek in which they perform no work.²¹

Section 604(a) supplements § 602(a) and explains: "[a]n employer may provide an exempt employee with additional compensation without losing the exemption or violating the salary basis requirement, if the employment arrangement also includes a guarantee of at least the minimum weekly-required amount paid on a salary basis."²² The provision provides three examples of permissible, additional compensation: (1) commissions on sales; (2) percentages of sales or profits; and (3) "additional compensation based on hours worked for work beyond the normal workweek."²³

Together, sections 602(a) and 604(a) allow employers to pay a true weekly salary, a salary paid on a weekly or less frequent basis, plus additional compensation in the form of commissions, profit-sharing, or hourly wages for hours worked beyond the normal workweek. Section 602(a) provides a stable and predictable source of income while § 604(a) allows performance incentives for work beyond the regular workweek.²⁴

While sections 602(a) and 604(a) define the permissible compensation schemes for employees paid on weekly or less frequent basis, § 604(b) concerns situations when employees paid on a more frequent basis—such as by the hour, shift, or day—are still considered to be paid on a "salary basis":

An exempt employee's earnings may be computed on an hourly, a daily or a shift basis, without losing the exemption or violating the salary basis requirement, if the employment arrangement also includes a guarantee of at least the

...