Leisek v.
Brightwood Corp., 278 F.3d 895 (9th Cir. 2002)
Local 246
Utility Workers Union of America v.
Southern California
Edison Co.,
83 F.3d 292 (9th Cir. 1996)
Lopez v.
Smith,
203 F.3d 1122 (9th Cir. 2000) (en banc)
Martin v.
Cooper Elec. Supply Co., 940 F.2d 896 (3rd Cir.
1991), cert. denied,
503 U.S. 936
(1992)
Martin v.
Selker Brothers, Inc., 949 F.2d 1286 (3rd Cir.
1991)
McLaughlin
v. Richland Shoe Co., 486 U.S. 128
(1988)
Nationwide
Mutual Inc. Co. v. Darden, 503 U.S. 318
(1992)
Patel v.
Wargo,
803 F.2d 632 (11th Cir. 1986)
Real v.
Driscoll Strawberry Associates, Inc., 603 F.2d 748 (9th Cir.
1979)
Reich v.
Southern New England Telecommunications Corp., 121 F.3d 58
(2d Cir. 1977)
Reich v.
State of New York, 3 F.3d 581 (2d Cir. 1993),
cert. denied, 510 U.S.
1163 (1994)
Reich v.
Waldbaum, Inc., 52 F.3d 35 (2d Cir. 1995)
Rutherford
Food Corp. v. McComb, 331 U.S. 722
(1947)
Rykoff v.
United States, 40 F.3d 305 (9th Cir. 1994)
Secretary
of Labor v. Fitzsimmons, 805 F.2d 682 (7th Cir. 1986)
SEIU,
Local 102 v. County of San Diego, 60 F.3d 1346 (9th Cir.
1995), cert. denied,
516 U.S. 1072
(1996)
Sidhu v.
Fletco Co., Inc., 279 F.3d 896 (9th Cir. 2002)
Skidmore
v. Swift, 323 U.S. 134 (1944)
Torres-Lopez v. May, 111 F.3d 633 (9th Cir. 1997)
United
States v. Mead, 533 U.S. 218 (2001)
United
States v. Rosenwasser, 323 U.S. 360
(1945)
Walton v.
United Consumers Club, Inc., 786 F.2d 303 (7th Cir.
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Wirtz v.
Savannah Bank & Trust Co., 362 F.2d 857 (5th Cir.
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Zorich v.
Long Beach Fire Department and Ambulance Service, 118 F.3d 682
(9th Cir.
1997)
Statutes and
Regulations
28 U.S.C. 1291
28 U.S.C. 1331
28 U.S.C. 1345
Fair
Labor Standards Act,
29 U.S.C. 203(b)
29 U.S.C. 203(d)
29 U.S.C. 203 (e)
(1)
29 U.S.C. 203 (g)
29 U.S.C. 203 (r)
29 U.S.C. 203 (r)
(1)
29 U.S.C. 203 (s) (1) (A)
(ii)
29 U.S.C. 206
29 U.S.C. 207
29 U.S.C. 207 (o)
29 U.S.C. 207 (a)
(1)
29 U.S.C. 211 (c)
29 U.S.C.
215(a)(2)
29 U.S.C.
215(a)(5)
29 U.S.C. 216(b)
29 U.S.C. 216(c)
29 U.S.C.
217
29 U.S.C.
260
Portal-to-Portal Act,
29 U.S.C. 251 et
seq.
29 U.S.C. 255(a)
Code of
Federal Regulations
29 C.F.R.
Part 553
29 C.F.R.
779.201
29 C.F.R.
779.202
29 C.F.R.
779.206
29 C.F.R.
779.213
29 C.F.R.
779.221
29 C.F.R.
779.226 - 232
29 C.F.R.
779.229
29 C.F.R.
779.233(b)
29 C.F.R.
779.9
29 C.F.R. 791.1
29 C.F.R. 791.2
29 C.F.R. 791.2(a)
29 C.F.R. 791.2(b)
29 C.F.R. 791.2(b)(1)
29 C.F.R. 791.2(b)(2)
29 C.F.R.
791.2(b)(3)
Miscellaneous
Ninth Circuit Rule
28-2.2
Fed. R. App. P.
4(a)(1)(B)
Fed. R. Civ. P.
56(c)
S. Rep. No. 145, 87th Cong., 1st
Sess., reprinted in [1961] U.S.C.C.A.N. 1620, 1660
S. Rep. No. 1487, 92nd Cong., 2d
Sess., reprinted in, [1966] U.S.C.C.A.N. 3002, 3009
IN THE UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
No. 02-35158
ELAINE L. CHAO,
Secretary of Labor,
U.S. Department of Labor,
Plaintiff-Appellee,
v.
A-ONE MEDICAL SERVICES, INC., a
corporation,
ALTERNATIVE REHABILITATION HOME HEALTHCARE,
INC.,
a corporation, LORRAINE BLACK, an individual and
HANAHN KORMAN, an individual,
Defendants-Appellants.
On Appeal from the United States District
Court
for the Western District of Washington
BRIEF FOR THE SECRETARY OF LABOR
The Secretary of Labor
("Secretary") agrees with the statement of jurisdiction contained in
Appellants' brief, pursuant to Circuit Rule 28-2.2. In the interest of completeness,
the Secretary states the following. The district court had subject
matter jurisdiction over this case pursuant to sections 16(c) and 17 of
the Fair Labor Standards Act ("FLSA" or "Act"), 29 U.S.C. 216(c) and 29
U.S.C. 217, and pursuant to 28 U.S.C. 1331 (federal question jurisdiction)
and 28 U.S.C. 1345 (vesting jurisdiction in the district courts over suits
commenced by an agency or officer of the United States). Appellants filed a timely notice
of appeal on January 31, 2002 of the district court's final judgment
entered on December 4, 2001.
See Fed. R. App. P. 4(a)(1)(B). This Court has jurisdiction
pursuant to 28 U.S.C. 1291.
1. Whether the
district court correctly concluded that A-One Medical Services, Inc. and
Alternative Rehabilitation Home Healthcare, Inc., which were both engaged
in the home health care business and were commonly controlled for a common
business purpose, constituted a single "enterprise" covered by the
FLSA.
2. Whether the
district court correctly concluded that A-One and Alternative, which were
jointly managed and shared office space, clients, and employees, were
"joint employers" who must aggregate the hours worked by their employees
for purposes of paying overtime under the
Act.
3. Whether the
district court correctly concluded that A-One and Alternative willfully
violated the FLSA by failing to pay overtime to eight employees when the
combined hours the employees worked for A-One and Alternative exceeded
forty hours in a work week.
4. Whether the
district court correctly awarded liquidated damages based on the
employers’ failure to meet their substantial burden to show that they
acted in good faith and in an objectively reasonable manner in failing to
comply with the overtime provisions of the
FLSA.
5. Whether the
district court correctly concluded that res judicata principles did not
foreclose the award of back wages for overtime to two former employees in
this action brought by the Secretary by virtue of Appellants' contention
that those employees previously counterclaimed for overtime compensation
as part of an action Appellants had brought against the employees in
county court.
STATEMENT OF THE CASE
A. Nature of the Case and Course of
Proceedings
On
March 13, 2001, the Secretary filed a complaint (District Court Civil
Docket (“D.”) 1; Appellants’ Record Excerpts ("RE") 35), alleging that
A-One Medical Services, Inc. ("A-One") and Alternative Rehabilitation Home
Healthcare, Inc. ("Alternative"), both of which placed nurses to provide
home health services, and Lorraine Black, president/owner of A-One, and
Hanahn Korman, owner of Alternative, willfully violated the overtime and
recordkeeping requirements of the FLSA. See 29 U.S.C. 207, 211(c),
215(a)(2), 215(a)(5). The
Secretary sought unpaid overtime compensation and an equal amount in
liquidated damages on behalf of eight employees, and a permanent
injunction to enjoin Defendants from committing future violations of the
Act. See 29 U.S.C.
216(c), 217.
The
Secretary and Defendants filed motions for summary judgment (D. 22, D.
47). Exhibits and
declarations filed with the motions and responses set forth the undisputed
facts in this case.
See Appellee’s Supplementary Record Excerpts (“SRE”) 3-104;
RE 46-134. On November 28,
2001, the district court denied the motion for summary judgment filed by
the Defendants and granted the motion for summary judgment filed by the
Secretary on all issues except for the issuance of a prospective
injunction. D. 57, RE
7-24. The district court
concluded that Defendants, covered as a single enterprise and liable as
joint employers, willfully violated the overtime provisions of the FLSA,
and ordered that they pay $7,294.85 in back wages and an equal amount in
liquidated damages.
Id. Judgment
was entered on December 4, 2001.
D. 58, RE 25.
Defendants' timely notice of appeal followed. RE 1.
B. Statement of Facts
1. The Operation of A-One and
Alternative
Defendants A-One and
Alternative are engaged in the business of employing nurses and nurse's
aides to provide home health services. RE 8, 12; SRE 44-45, 94. Home health care services provided
by A-One and Alternative include nursing care, physical therapy,
occupational therapy, speech therapy, and medical social work. Id.; RE 48; SRE 3. The nurses employed by A-One and
Alternative administered drugs and medications and utilized equipment that
were produced and or manufactured outside the State of Washington.
A-One and Alternative
are Washington corporations separately incorporated on different dates and
owned by Lorraine Black and Hanahn Korman, respectively. RE 8, 48, 50 (Black Declaration at
¶¶s 2, 18), 132, 134. Black
has been the sole stockholder, president, vice president, and secretary of
A-One since she incorporated the company in 1988. SRE 42-43. The annual dollar value of A-One's
business exceeded $1,800,000.00 for the years 1998, 1999 and 2000. RE 11-12; SRE 12. The annual dollar value of
Alternative's business did not exceed $500,000.00 for each of those
years. RE 12, 53.
A-One and Alternative
maintained separate licenses to provide home health care services in
different counties in Washington, separate tax identification numbers,
separate employee records including time sheets, nursing forms, rates of
pay, and reimbursement rates; they filed separate corporate documents and
tax returns; and they issued separate pay checks. RE 13, 50 (Black Declar. at ¶19),
114; SRE 23, 34-35. The pay
period for A-One was from Saturday to Friday and the pay period for
Alternative was from Thursday to Wednesday every two weeks. SRE 23.
In 1996, Black entered
into negotiations to purchase the stock of Alternative because
Alternative's Certificate of Need, which was extremely difficult to
obtain,
could enable A-One to provide Medicare services in certain counties of the
Puget Sound area. RE 8; RE 49
(Black Declar. at ¶10); SRE 46, 75.
Alternative, however, needed to obtain Medicare certification
before the purchase took place and A-One could make use of Alternative's
valuable Certificate of Need.
SRE 56. Therefore,
Black agreed to help Alternative obtain its Medicare certification while
Korman resolved the company's debts.
RE 8-9, 49 (Black Declar. at ¶11); SRE 53.
To facilitate the
Medicare certification, Black agreed to allow, with the patients'
permission, the transfer of A-One patients to Alternative to enable
Alternative to have "an adequate census for [Medicare certification]
survey purposes." RE 50
(Black Declar. at ¶14); SRE 60-63; see SRE 37. During this time, Korman managed
the care of private patients and Black admitted Medicare patients in her
name and oversaw those patients' care and charts in order to pass the
survey to obtain Medicare certification. SRE 55-56, 61-62, 68. A-One assisted Korman with
staffing and supervision of Alternative's patient care. SRE 57.
In 1998, Korman and
Black agreed to an amendment to the sales agreement for the purchase of
Alternative by A-One, which left Korman with authority over the care of
one Alternative patient, and held A-One responsible for services rendered
by Alternative after March 1, 1998.
RE 126; see SRE 71-72, 80-82. Korman worked for A-One
between March and April 1998 while providing case management for one of
Alternative's clients. SRE
99-100. Korman's only
function, after April 1998, was to represent Alternative in court,
depositions, and legal matters until the sale of the company, although she
remained the sole owner and president of Alternative. RE 126-127; SRE 86-91.
Beginning in March or
April 1998, A-One oversaw and managed the clinical operations of
Alternative pursuant to the agreement resulting from mediation over the
contract for A-One's purchase of Alternative. RE 13; RE 50 (Black Declar. at
¶18); SRE 71-73, 80-82, 88.
A-One's management duties over Alternative involved "mak[ing] sure
that everything runs smoothly . . . everything that's involved in managing
her company." RE 109. Specifically, A-One oversaw the
patient care of Alternative, supervised Alternative's employees,
contracted for accounting services for Alternative, contracted with
vendors for Alternative, answered Alternative's telephones at the office
it shared with A-One, and oversaw the paperwork necessary to comply with
government requirements. RE
15, 109. Black also prepared
the policy and procedure manual for Alternative. SRE 55.
Black told the
"scheduler" for A-One -- Donita Iverson -- that her services were being
contracted out to Alternative, and Iverson took direction from Korman for
six months until Korman "disappeared" and Black supervised all the work of
the scheduler for the two companies.
SRE 34. The scheduler
shared by the two companies scheduled employees to work for both
companies, which included scheduling care for patients who had been
transferred from one company to the other. RE 14-15; SRE 35-37.
When a patient was
transferred from one company to another, the families of the transferred
patients were told that A-One was going to eventually purchase
Alternative, in order to reassure patients that their care arrangements
would not change. SRE
54-56. Some of the transfers
were made by A-One to ensure that the government surveyors who reviewed
patient charts as part of the process by which Alternative was to obtain
Medicare certification would not see clients who did not have Medicare
needs on Alternative's charts.
SRE 52, 55, 61-63, 68, 70-71, 85.
To preserve continuity
of care of patients transferred between A-One and Alternative, nurse
employees were given the choice of transferring with the transferred
patients or declining the patient assignment once the transfer was
made. RE 50 (Black Declar. at
¶15). This policy was
consistent with "the longstanding practice of A-One to allow its employees
to accept or decline a patient assignment." Id. at ¶16. While there was no formal
arrangement between the companies to share employees, the employees of
both companies were offered patient assignments to the other company that
they could accept or decline.
RE 13; RE 51 (Black Declar. ¶22). The scheduler would coordinate the
assignments so that a nurse could work some hours during the week for an
A-One client and other hours for an Alternative client while providing
continuity of care for both patients. RE 114. A nurse who worked for A-One and
then worked for Alternative would fill out an application packet for
Alternative prior to being put on that payroll. Id. A nurse who worked for Alternative
and then began working for A-One was required to fill out separate
paperwork, including an employment contract for A-One. SRE
27.
For example, an A-One
patient who Becky Lockard had cared for since July 1998 was transferred to
Alternative. See SRE
23. A-One had paid
Lockard overtime for all hours she worked over 40 hours a week after she
took on this patient. When
the patient was switched from being an A-One client to being a client of
Alternative in February 1999, however, Lockard did not receive overtime
pay for caring for this patient because she was told that she "was
technically working for two different companies." Id. Lockard discussed the matter with
Black, who "explained that there were two separate companies with separate
payrolls and an employee had to work over 40 hours a week at each company
to receive pay at the overtime rate." Id. Lockard stated that she had "the
same pay and the same supervisor whether I was working for A-One or for
Alternative Rehab."
Id.; RE 14.
While she saw patients for both companies, she received one pay
check from A-One, and even when she received a separate check from
Alternative for her work for that company, Black signed that check. Id.
Lockard was directed
to change all references on the transferred patient's chart from "A-One"
to "Alternative" by either cutting off the top of a document with A-One
letterhead or covering the smaller references to A-One with Alternative
address stickers. SRE 24; see
SRE 67-68. At the request of
a caller from A-One on or around February 2, 1999, Rebecca Goodrich, a
case manager with the Department of Social and Health Services of the
State of Washington ("DSHS"), recorded the patient transfer by filling out
a Contract Request Form, dated February 2, 1999: "A-One- changing name to
Alternative Rehabilitation Home Health Care" for a child client. RE 14; SRE 16, 18-20, 9. On December 4, 2000, Black wrote
to Goodrich, on Alternative stationary, as "Administrator" of Alternative,
describing the care the patient needed and referring to the patient as
"our most fragile client." RE
13; SRE 8.
Kathleen Yarbrough was
hired by Korman to work as a nurse for Alternative, and began working in
April 1998 under Korman's supervision for an hourly rate of $20. SRE 26-27. Before filling out separate
paperwork to work for A-One in June 1998, she was assigned a second
patient for Alternative, but Black demanded that she reimburse Alternative
for the difference between the $20 hourly rate that Alternative paid and
the $17.50 rate that A-One paid.
Id. By this
time, Black and another employee were supervising Yarbrough's work for
Alternative patients. SRE
28. Yarbrough noticed
sometime in 1998 that Black was signing the checks she received from
Alternative. SRE 27, 77-78.
During the summer of
1998, Yarbrough worked for patients of Alternative and A-One and expressed
concern to the scheduler and to Black that she was not getting paid
overtime. Black responded to
her complaints by telling her what a great nurse she was and telling her
to "count her blessings." SRE
26-27. She told Yarbrough
repeatedly that "she would go broke if she had to pay the nurses who
worked on the state-pay cases for the overtime." SRE 29. Black also told Yarbrough that
vacation time would only accrue after she worked for both A-One and
Alternative.
Id.
On occasion, Black
delegated her management authority over A-One and Alternative. SRE 1. For example, on May 5, 2000, Black
executed a 30-day transfer of daily management authority for "A-One
Services, Inc., A-One Home Health Services, Inc. [a sister corporation to
A-One servicing Medicare patients], and Alternative Home Healthcare, Inc."
to Diane Kelly, RN, and Anita Drammeh, a scheduler, "to make any and all
necessary decisions regarding patient care, interaction with the State and
its various agencies, staffing of the corporations and any other concerns
which may arise," other than the right or authority to sign checks on
behalf of the corporation.
Id.
Both corporations
operated at the same address.
RE 8. "For
cost-savings," Black "agreed to allow Alternative to occupy space in the
office building" she owned: 3114 Oakes Avenue, Everett, Washington. RE 50 (Black Declar. at ¶17). The sign at the building read
"A-One." SRE 28. Lorraine Black signed and filed a
form with the Secretary of State officially changing Alternative's address
for its Registered Agent to 3114 Oakes Avenue, the same address as that
for A-One's Registered Agent.
RE 14, 46-47; SRE 2.
An employee of both
companies, Angela Goshorn, generated the payroll for Alternative under
Black's ultimate supervision.
SRE 48. Before Ms.
Goshorn, another employee of both companies, Lisa Rhoddie, generated the
payroll for Alternative under the supervision of Judy's Tax and Accounting
service. SRE 48-49. Even though checks were generated
by two different accountants on two different bank accounts, payroll
checks from A-One and Alternative were mailed in one envelope. RE 14; SRE 29. Alternative paid A-One for its
management duties until early 2000, when it lacked the revenue to do
so. RE 51 (Black Declar. at
¶20); SRE 72.
2. Wage Violations
In April 1999, Karen
Ann Murphy, an investigator with the Wage Hour Division of the U.S.
Department of Labor, began an investigation into the compliance of A-One
with the FLSA. RE 9; SRE
11. Black told Murphy that
her daughter handled the payroll for A-One and referred Murphy to Judy's
Bookkeeping to gain access to Alternative's payroll records. SRE 12. That firm referred the
investigator back to A-One where Alternative's payroll records had been
forwarded. SRE 13. A-One payrolls and Alternative
payrolls were reviewed on site at the offices the companies shared, during
which time Murphy tracked
each employee's hours and wages by work week and performed the wage
computations. Id.
When the hours worked
per week for both companies were combined, eight employees -- Marcie
Angst, Susan Hewes, Becky Lockard, Ila Millard, Kathleen Peterson, Carlie
Raff, Lin Renfro, and Kathleen Yarbrough -- were found not to have been
paid overtime in accordance with section 7 of the FLSA, 29 U.S.C.
207(a)(1), which requires employees to be paid at least one and one-half
times their regular rate of pay for each hour worked over forty hours in a
work week. SRE 13; see RE
77-85 (Form WH-56 Summaries of Unpaid Wages); SRE 39-40 (complete Form
WH-56 for Kathleen Yarbrough).
3. Prior Investigations
The Wage and Hour Division of the Department of Labor conducted two
investigations of A-One prior to initiating the investigation that
culminated in the filing of this lawsuit. In 1991, Wage-Hour found that
A-One owed back wages of $9,873.00 to 46 employees for overtime pay
violations of the FLSA, which were paid. In 1994, Wage and Hour found that
A-One owed back wages of $8,054.69 to 45 employees for allowing
compensatory time in lieu of paying overtime to these employees, which
again were paid. And in 1994,
Wage and Hour also assessed civil money penalties against A-One for its
willful and repeated violations; A-One paid penalties in the amount of
$1,200. SRE 12. Lorraine Black signed the 1994
settlement document and agreed individually and on behalf of A-One to
comply with the FLSA in the future.
SRE 11-12.
4. Action To Enforce Non-Competition
Agreements
The employment agreement between A-One and its
employees contained a
liquidated damages clause that became effective "if the employee goes to
work for an A-One customer facility, home care or private duty client, or
competing health care agency or subcontracting agency for that client or
customer within 90 days of the employee's last assignment with that client
through A-One." RE 61 at
¶3.0.
During 2000, several employees left the
employment of A-One and Alternative and accepted positions with a
competitor. RE 9. A-One, believing that these former
employees were soliciting its patients, filed small claims actions for
breach of employment agreements against Ila Millard and Kathleen Yarbrough
in July 2000 in Snohomish County District Court, Everett, Washington. RE 9, 69-70, 75.
Yarbrough made a counter-claim for "vacation pay and did not pay
Medicare on W2 but did collect from my pay check." RE 72; SRE 104. While Yarbrough orally requested
"overtime pay" when appearing before the county court, her counter-claim
did not include a claim for overtime wages. RE 72, 91; SRE 104. There is no documentation in the
record of any ruling by, or discussion in, the court on the request for
overtime. See RE 91-
92. Millard made a
counterclaim for "1) liquidated damages in breach of employee agreement;
2) Harassment [and] 3) unpaid overtime," which the county court
denied. RE 76, 107; SRE 101.
She was not represented by counsel, and was not aware of whether state or
federal law required hours worked over 40 hours in a work week to be
compensated at an overtime rate.
SRE 102. At the
hearing, the judge did not give Millard the opportunity to present any
evidence or testimony to support her counterclaim. Id.
C. The District Court's Decision
In its decision dated November 28, 2001, the
district court granted partial summary judgment for the Secretary. RE 7. The court concluded that
undisputed facts showed that A-One and Alternative were a single
"enterprise" and "joint employers" for whom eight employees worked and
were willfully denied overtime wages in violation of the FLSA. Thus, the district court ordered
Defendants to pay $7,294.85 in back wages and an equal amount in
liquidated damages, but denied the Secretary's request for the issuance of
a prospective injunction.
Id.
The district court stated that A-One and
Alternative were both covered by the FLSA, because they met the statutory
criteria for an "enterprise" under section 3(r)(1) of the Act, 29 U.S.C.
203(r)(1). RE 16.
First, according to the court, both employers are "related" because
they perform the identical activities of providing home health care
services. Second, the court
determined that the undisputed facts adduced by the Secretary establish
"common control," in light of the fact that Black, the sole shareholder
and president of A-One, maintained control over both companies. In this regard, the district court
pointed out that Black supervised the day-to-day activities of Alternative
employees as well as the employees of A-One; Black testified to reviewing
the payrolls, contracts, and paperwork for government compliance for
Alternative. In further
support of "common control," the court noted that the two companies
actually shared employees such as nurses and a scheduler, who arranged for
employees to treat patients who had been transferred from one company to
the other; the companies also received phone calls on the same line and
shared the same office space, identified as the offices of A-One. RE 15.
Third, the court stated that there was a "common business purpose"
-- "to service home health patients, who were clients of either company,
utilizing the same pool of nurses, the same scheduler, and the same phone
service." The court also
noted that a "common business purpose" was evidenced by Black's intention
to strengthen Alternative by managing the company preparatory to merging
it with A-One. Thus, the
court determined that there was enterprise coverage under the FLSA. RE 16.
Based on these same facts, the district court concluded that A-One
and Alternative were joint employers. Because all of employees' work for
A-One and Alternative benefited both employers, and because the employers
were not "completely disassociated," the employees' hours must be
aggregated for overtime purposes pursuant to 29 C.F.R. 791.2(a). RE 17.
Quoting the McLaughlin v. Richland Shoe Co., 486 U.S. 128,
13 (1988), standard for "willfulness," the district court concluded that
the Secretary established that the Defendants "knew or showed reckless
disregard for the matter of whether its conduct was prohibited" by the FLSA based on the undisputed testimony of former employees that Black
attempted to maintain the appearance of separateness of the two companies,
in part to avoid paying the employees overtime. The court thus applied the
three-year statute of limitations applicable to willful violations of the
Act. RE 19. For this same reason, the district
court concluded that the companies' failure to comply with the FLSA was
not in good faith or predicated upon objective reasonable grounds, and
thus awarded liquidated damages.
RE 21.
The district court rejected Defendants' res
judicata defense with regard to two of the employees whom A-One sued in
small claims court in Snohomish County, Washington, for violation of a
non-competition agreement when they left A-One and Alternative to work for
a competitor. The court
concluded that former employees Kathleen Yarbrough and Ila Millard may
have initiated counterclaims for overtime in the small claims actions, but
that no record evidence existed to show that there was an identity of
claims since "it in unclear what the legal and factual basis was for the
counterclaim." RE 23. There was also nothing in the
record showing that the former employees had presented the small claims
court with any evidence considered and rejected on the merits as to
overtime. Id. The court further stated that no
authority was presented for the proposition that a counterclaim arising
out of a private contract action precludes the Secretary from seeking back
wages on behalf of undercompensated employees for violations of a statute
the Secretary is charged with enforcing. RE
23.
Finally, the district court denied the
Secretary's request to enjoin the employers from further violations of the
FLSA based on an assumption of current compliance and it being unlikely
that the employers could avoid the FLSA's overtime provision in the future
because of the pending sale.
In the words of the court, "the Secretary has not demonstrated that
future violations are likely to occur." RE
23.
The district court properly determined that the employers violated
the overtime requirements of the FLSA over a three-year period and owed
eight former employees $7,294.85 in back wages for unpaid overtime work,
and an equal amount in liquidated damages. As properly determined by the
district court, A-One and Alternative were covered by the overtime
provisions as an "enterprise" within the meaning of section 3(r)(1) of the
Act, 29 U.S.C. 203(r)(1). The
corporations were engaged in identical activities and shared the common
business purpose of merging to provide health care services to patients in
their homes. Undisputed
evidence further establishes that, in preparation for the sale of
Alternative to A-One, both companies operated under the common control of
Lorraine Black, who made all management decisions for both
corporations. A-One and
Alternative also shared clients, utilized the same staff to schedule
clients, and assigned the same nurses to provide services to clients of
both companies. In some
instances, employees received paychecks from either A-One or Alternative,
both of which were signed by Black and were sent in the same
envelope. In sum, the same
employees managed the day-to-day operations of both companies in the same
office, at the direction and under the control of Black. The companies thus formed a single
enterprise.
The "economic reality" was that the nurses employed by Alternative
and A-One were treated as a pool of employees available to provide
services to individual patients of either employer in accordance with the
needs of the companies and the patients. Both the internal management of
the companies, as well as their interactions with the Office of the
Secretary of State of Washington and DSHS, indicate that the employers
were not disassociated from each other and actually operated under the
common control of Lorraine Black.
Thus, A-One and Alternative, and their sole owners Black and
Korman, were “joint employers” of their "common" employees and were
required, under the FLSA and its implementing regulations, to aggregate
the hours worked by these employees in a work week to determine whether
they were owed overtime pay.
The joint employers were liable for overtime owed to eight nurses
who worked in excess of 40 hours in a work week for clients of both A-One
and Alternative.
Based on the undisputed testimony of former employees that Black
attempted to maintain an appearance of separateness of the two companies
in part to avoid paying overtime compensation, and that employees of both
companies expressly were scheduled to work in excess of 40 hours in a work
week for the two companies without being paid overtime compensation (a
fact of which they complained), the failure to pay overtime to these
employees was a willful violation of the FLSA, and a three-year statute of
limitations was properly applied.
Moreover, the willfulness determination should be upheld because
A-One and Black had a history of FLSA investigations, knew the overtime
requirement of the Act, and should have been either aware of its
application to the nurses whose employment they controlled or sought
advice to determine whether it applied. After two prior investigations by
Wage-Hour, which Black settled by paying back wages of unpaid overtime as
well as civil money penalties, Black knew or acted with reckless disregard
of the overtime requirements of the Act by continuing to withhold overtime
payments to nurses working for both A-One and Alternative for the more
than 40 hours of work they performed in a work week for both
companies.
Liquidated damages were properly awarded to fully compensate the
nurses for lost overtime wages.
A-One and Alternative failed to show that they acted in "good
faith" and had objectively "reasonable grounds" for believing that their
refusal to pay overtime when a nurse worked more than 40 hours combined
for A-One and Alternative in a work week did not violate the FLSA. The statements of Black and Korman
regarding the efforts they made to maintain the paper formalities of
separate legal entities are insufficient evidence of "good faith"
compliance with the Act or reasonable grounds to believe that their
actions did not violate the Act.
The facts in this case unquestionably show that Black and A-One
controlled all aspects of the business operations of the companies,
including the assignment of patients and nurses to A-One and
Alternative. In light of
these willful violations, the district court could not help but determine
that the Defendants did not meet the heavy burden of showing the good
faith and the objective reasonableness of their actions necessary to avoid
the usual award of liquidated damages.
The alleged counterclaims for overtime arising out of prior actions
brought in Snohomish County Court by A-One against two former employees
who the Secretary determined were owed overtime pay in this action were
not, according to the record evidence, identical claims to the action
brought by the Secretary, and were not brought by parties in privity with
the Secretary in this action.
(In fact, the record shows that only one of these employees
actually filed a counterclaim for overtime.) Accordingly, the principles of res
judicata do not apply.
I. THE DISTRICT COURT
CORRECTLY CONCLUDED THAT ALTERNATIVE PERFORMED THE SAME ACTIVITIES AS
A-ONE UNDER THE COMMON CONTROL OF A-ONE AND ITS PRESIDENT LORRAINE BLACK
FOR A COMMON BUSINESS PURPOSE AND THEREBY CONSTITUTED A SINGLE COVERED
"ENTERPRISE" WITHIN THE MEANING OF SECTION 3(r) OF THE FLSA
A.
Standard of Review
This Court reviews a grant of summary judgment
de novo. See
Baldwin v. Trailer Inns, Inc., 266 F.2d 1104, 1111 (9th
Cir. 2001). Review is
governed by the same standard used by the trial court under Federal Rule
of Civil Procedure 56(c), under which summary judgment is proper "if the
pleadings, depositions, answers to interrogatories, and admissions on
file, together with the affidavits, if any, show that there is no genuine
issue as to any material fact and that the moving party is entitled to a
judgment as a matter of law."
Id. Viewing the
evidence in the light most favorable to the nonmoving part, this Court
must determine whether there are any genuine issues of material fact and
whether the district court correctly applied the relevant substantive
law. See Lopez v.
Smith, 203 F.3d 1122, 1131 (9th Cir. 2000) (en
banc); Adcock v. Chrysler Corporation, 166 F.3d 1290, 1292
(9th Cir.), cert. denied, 528 U.S. 816
(1999). This standard is
generally applicable to the present case, in which cross-motions for
summary judgment were filed.
Specifically, in reviewing a grant of summary judgment issued on
the grounds that the defendant did not meet the FLSA requirements for
"enterprise" coverage, this Court has applied a de novo standard of
review. See Zorich
v. Long Beach Fire Department and Ambulance Service, 118 F.3d 682, 684
(9th Cir. 1997).
Where, as here, the parties present a record of undisputed facts,
the question of whether two or more businesses constitute an "enterprise"
for FLSA coverage purposes becomes purely a question of law. See Brennan v. Plaza
Shoe Store, Inc., 522 F.2d 843, 846 (8th Cir.
1975).
B. The District Court Properly Concluded That A-One and Alternative
Constituted A Single "Enterprise" Within The Meaning of Section 3(r) of
the FLSA.
The FLSA's overtime compensation
requirements apply to any employee "who in any workweek is engaged in
commerce or in the production of goods for commerce, or is employed in an
enterprise engaged in commerce or in the production of goods for commerce,
or is employed in an enterprise engaged in commerce or in the production
of goods for commerce,
for a workweek longer than forty hours unless such employee receives
compensation for his employment in excess of the hours above specified at
a rate not less than one and one-half times the regular rate at which he
is employed." 29 U.S.C. 207(a)(1).
The threshold coverage question in this case is whether the
overtime protections of the FLSA extend to the employees of both A-One and
Alternative because the two entities together constitute a single
"enterprise" within the meaning of the Act.
Appellants contend that the
jurisdictional amount for "enterprise" coverage has not been met. App. Br. at 8. A-One and Black admit that they
are subject to coverage under the FLSA; they specifically admit that
A-One's annual dollar volume of business for the years 1998-2000 exceeded
$500,000.00. See 29
U.S.C. 203(s)(1)(A)(ii). SRE 6. Alternative did not have an annual
dollar volume of business for all the relevant years that satisfied the statutory threshold
for enterprise coverage, $500,000.00. RE 12, 53. But the fact that Black determined
that the gross sales for Alternative declined from $538,158 for 1998 to
$369,645 for 1999, and to below $210,000 for 2000 (RE 53), does not
preclude its coverage as part of an enterprise, as Appellants appear to
assert (App. Br. at 8).
Instead, the gross sales data reflect that Alternative met the
statutory threshold dollar value for enterprise coverage on its own in
1998, and that it would meet the threshold in 1999 and 2000 if its sales
were combined with those of A-One.
By definition, the "enterprise" and not each individual entity that
comprises the enterprise must have an annual gross volume of sales made or
business done of not less than $500,000.00. See 29 C.F.R. 779.201 ("The
'enterprise' is the unit for determining whether the conditions of . . .
the requisite dollar volume are met."). In this case, the "enterprise"
consisting of A-One and Alternative, see infra, meets the
statutory threshold amount for coverage under the Act.
Section 3(r)(1) of the Act defines "enterprise"
as:
the related activities
performed (either through unified operation or common control) by any
person or persons for a common business purpose, and includes all
such activities whether performed in one or more establishments or by one
or more corporate or other organizational units . . . but shall not include the related
activities performed for such enterprise by an independent
contractor. Within the
meaning of this subsection, a
retail or service establishment which is under independent ownership shall
not be deemed to be so operated or controlled as to be other than a
separate and distinct enterprise by reason of any arrangement,
which includes, but is not necessarily limited to, an agreement, (A) that
is will sell, or sell only, certain goods . . .or (B) that it will join
with other such establishments in the same industry . . ., or (C) that it
will have the exclusive right to sell the goods.
29 U.S.C.
203(r)(1). See
generally Zorich, 118 F.3d at 684-86; Donovan v.
Scoles, 652 F.2d 16 (9th Cir. 1981), cert.
denied, 455 U.S. 920 (1982).
There is thus a three-part test for enterprise coverage: related
activities, unified operation or common control, and common business
purpose. See
Arnheim & Neely, Inc., 410 U.S. at 518; 29 C.F.R.
779.202.
Whether several businesses constitute a single "enterprise" "is a
question to be resolved in each case on the basis of all the particular
facts of the case." Plaza
Shoe Store, Inc., 522 F.2d at 846. The activities of businesses are
"related" for purposes of "enterprise" coverage when they are "the same or
similar," such as individual stores in a chain, or when they are
"auxiliary and service activities."
S. Rep. No. 145, 87th Cong., 1st Sess. 41
(1961), reprinted in 1961 U.S.C.C.A.N. 1620, 1660. See also 29 C.F.R.
779.206; Plaza Shoe Store, 522 F.2d at 848 (dress shop and shoe
store selling items of wearing apparel to general public entering premises
that housed both stores engaged in related activities). Activities "directed toward the
same business objective or to similar objectives in which the group has an
interest" are performed for a "common business purpose." 29 C.F.R. 779.213. There is a close relationship
between the "related activities" and the "common business purpose"
criteria. See Plaza
Shoe Store, 522 F.2d at 847; Wirtz v. Savannah Bank & Trust Co.
of Savannah, 362 F.2d 857, 861 (5th Cir. 1996).
"'Common' control . . . exists where the performance of the
described activities are controlled by one person or a number of persons,
corporations, or other organizational units acting together." 29 C.F.R. 779.221. Control "includes the power to
direct, restrict, regulate, govern, or administer the performance of
activities." Id. And, "[t]he fact that the firms
are independently incorporated or physically separate . . . is not
determinative [of whether "control" is present]." S. Rep. No. 1487, 92nd Cong., 2d
Sess. (1966), reprinted in, 1966 U.S.C.C.A.N. 3002, 3009. As one court has stated, "We must
look beyond formalistic corporate separation to the actual or pragmatic
operation and control, whether unified or, instead, separate as to each
unit." Donovan v. Grim
Hotel Co., 747 F.2d at 970.
A-One and Alternative were engaged in "related"
activities under the Act.
They performed the same activity of providing home health care
services. They shared
patients and employees, offering the services of the same employees to
patients of both companies.
The same scheduler prepared the assignments for the nurses, thereby
evidencing the identical nature of the work. And, the policy of offering the
nurses the option to decline work applied whether the scheduler offered
the nurses work for A-One patients or Alternative patients. SRE 34,
22.
These related activities by themselves show a
common business purpose.
Moreover, from the time they entered into negotiations in 1996 for
the eventual sale of Alternative to A-One, the companies were operated
with the common business purpose of obtaining and maintaining Medicare
certification for Alternative, and the long term profit of the intended
merged company. The value of
Alternative to A-One was its Certificate of Need, which enabled
Alternative to obtain Medicare Certification, and thereby provide home
health care services to Medicare patients in counties where A-One did not
have its own Medicare certification.
Black thus worked to rearrange the patient load of Alternative so
that it could obtain Medicare certification in the State of
Washington. RE 49 (Black
Declar. at ¶¶s 9, 10). Specifically, A-one transferred clients to
Alternative in order for it to maintain the minimum number of patients
necessary to receive Medicare certification. SRE 37.
In the operation of the companies, Black
exercised complete control over A-One and Alternative. After execution of the sales
agreement, and through mediation to facilitate the sale, Black assumed
even greater control over the day-to-day operations, until early 1999,
when her operational control became total and Korman's role was reduced to
that of a nominal owner and legal representative of
Alternative.
Indeed, Black admitted that she managed the day-to-day operations
of Alternative and acted on its behalf with respect to employees,
patients, and the state government agencies. RE 14, 50 (Black Declar. at ¶18);
see SRE 1, 8(letter to state agency regarding care of patient of
Alternative signed by Black as Administrator of Alternative). Thus, Black signed state contracts
with DSHS on behalf of both A-One and Alternative. SRE 35. The nursing supervisor supervised
employees of both companies and A-One office staff sent out separate
paychecks from A-One and Alternative. RE 14; SRE 35-36. While employees may have usually
been paid by separate checks from different bank accounts that were
generated by different accountants, Black signed the checks, and the
checks were mailed in the same envelope. RE 14; SRE 29, 22. And for a period, Black generated
the payrolls for both companies.
SRE 35. Canceled
payroll checks were returned to the shared office address and were filed
away and maintained there.
SRE 36.
The office worker who created the nurses’ schedules, the
“scheduler,” reported to both Korman and Black on the status of the
patients assigned to Alternative and A-One for the first six months of the
companies' association; thereafter, she reported solely to Black about the
patients for both companies.
SRE 34. The scheduler
also interviewed, hired, and performed office work for both
companies. SRE 36. In fact, all the office staff
answered the phone lines for both companies; there was no separate
telephone equipment or answering service. Id. And, while Black ensured that the
records for each company were kept separate, the same personnel maintained
and created the records. RE
14; SRE 34.
As noted, A-One and Black did take some steps to maintain
Alternative's operations as "separate and distinct." Nevertheless, the formalities
observed do not defeat enterprise coverage under the Act, as Appellants
contend. App. Br. at 9. Taken as a whole, the foregoing
facts reflect beyond peradventure Appellants’ related activities, the
common services they provided within the State of Washington, the
assistance Black and A-One provided to enable Alternative to obtain
Medicare certification, and the operational control Black and A-One
exerted over Alternative.
Contrary to Appellants' assertion, even if Korman did not
relinquish financial ownership
of the company, "the focus of the inquiry is the performance of the related
activities. Common control of
performance may be established in the absence of common ownership." Dole v. Odd Fellows Home
Endowment Board, 912 F.2d 689, 693 (4th Cir.
1990).
Appellants argue that the exceptions provided in section 3(r)(1)
preclude a finding that the two companies constitute a single
"enterprise." Specifically,
Appellants contend that the role Black played assisting and overseeing the
clinical operations of Alternative was that of an independent contractor,
thereby placing that role outside the category of "related
activities." App. Br. at
9-10. The Department's own
regulations refer to the Senate Report in clarifying that the term
"independent contractor as used in section 3(r) has reference to an
independent business which performs services for other businesses as an
established part of its own business activities." 29 C.F.R. 779.233(b) (citing S.
Rep. No. 145, 87th Cong., 1st Sess., p. 40). For example, the payroll services
that Judy's Tax and Accounting Service provided to Alternative would not
make Judy’s a part of the A-One and Alternative “enterprise.” Unlike Judy’s, however, A-One did
not provide scheduling and nurse supervision for any employees other than
its own and those of Alternative.
Moreover, the management agreement entered into by Black and Korman
in 1999 does not fit within the "enterprise" definition exception for
independently owned retail or service establishments under certain
franchise and other arrangements. See 29 C.F.R. 779.226-232. The Senate Report, quoted at 29
C.F.R. 779.229 (S. Rep. 145, 87th Cong., 1st Sess.,
p. 42), explains the types of services that Congress envisioned by this
exception: central warehousing, advertising, managerial advice, store
engineering, accounting systems, site locations, and hospitalization and
life insurance protection.
Id. Unlike
these examples, however, A-One essentially controlled all daily operations
of Alternative. Therefore,
this exception does not apply to defeat enterprise coverage for A-One and
Alternative under the Act.
II.
THE DISTRICT COURT CORRECTLY CONCLUDED THAT A-ONE AND ALTERNATIVE
ARE "JOINT EMPLOYERS" AND THAT THE HOURS WORKED FOR BOTH ENTITIES MUST BE
AGGREGATED TO DETERMINE COMPLIANCE WITH THE OVERTIME REQUIREMENTS OF THE FLSA
A. Standard of Review
The determination of whether an entity is a “joint employer” under
the FLSA is a question of law which is subject to de novo review by this
Court. Torres-Lopez v.
May, 111 F.3d 633, 638 (9th Cir. 1997); Bonnette v.
California Health & Welfare Agency, 704 F.2d 1465, 1469
(9th Cir. 1983).
B. The District Court Correctly Concluded That A-One and Alternative
Are "Joint Employers" Under the FLSA.
The district court correctly stated that its
determination as to enterprise coverage inexorably led to the conclusion
that Black and A-One were "joint employers" of the nurse employees of
Alternative and Korman pursuant to the broad definition of the
employer-employee relationship under the FLSA, and the Department’s
clarifying regulations on “joint employment.” The FLSA defines "employ" to
"include[] to suffer or permit to work." 29 U.S.C. 203(g). The Act's definition of
"employer," 29 U.S.C. 203(d), "includes any person acting directly or
indirectly in the interest of an employer in relation to an employee," and
is not limited by the common law concept of "employer." And "employee" is simply defined
as "any individual employed by an employer." 29 U.S.C. 203(e)(1). This court, looking to these
statutory definitions, has stated that "[t]he FLSA broadly defines the
'employer-employee relationship[s]' subject to its reach." Torres-Lopez, 111 F.3d at
638. See also
Nationwide Mutual Ins. Co. v. Darden, 503 U.S. 318, 325 (1992)
(citing Rutherford Food Corp. v. McComb, 331 U.S. 722, 728 (1947));
United States v. Rosenwasser, 323 U.S. 360, 363 n.3 (1945);
Bonnette, 704 F.2d at 1469; Real v. Driscoll Strawberry
Associates, Inc., 603 F.2d 748, 754 (9th Cir.
1979).
These expansive statutory definitions permit two or more employers
to jointly employ someone for purposes of the FLSA, as in Falk v.
Brennan, 414 U.S. 190, 195 (1973). In Falk, the Supreme Court
concluded that a real estate management firm was an "employer" within the
meaning of the FLSA of maintenance workers who were concededly employees
of the property owners. The
Court based its conclusion in Falk on the real estate firm's
"managerial responsibilities at each of the buildings, which gave it
substantial control of the terms and conditions of the work of these
employees." As this Court has
stated, "[T]he concept of joint employment should be defined expansively
under the FLSA."
Torres-Lopez, 111 F.3d at 639.
The Department’s longstanding regulations, codified at 29 C.F.R.
791.2, provide additional guidance in determining when a joint employment
relationship is present under the FLSA. Section 791.2(a) provides as
follows:
A single individual may stand in the relation of an employee to two
or more employers at the same time under the Fair Labor Standards Act of
1938, since there is nothing in the act which prevents an individual
employed by one employer from also entering into an employment
relationship with a different employer. A determination of whether the
employment by the employers is to be considered joint employment or
separate and distinct employment for purposes of the Act depends upon all
the facts in the particular case. . . . [I]f the facts establish that the
employee is employed jointly by two or more employers, i.e., that employment by one employer is not
completely disassociated from employment by the other employer(s),
all of the employee's work for all of the joint employers during the
workweek is considered as one employment for purposes of the
Act.
29 C.F.R. 791.2(a) (footnotes
omitted).
Section 791.2(b) provides three separate examples of joint
employment where either
"the employee performs work which simultaneously benefits two or more
employers," as in the "joint employment" of farmworkers by farm labor
contractors and growers, or where the employee "works for two or more
employers at different times during the workweek," as in the present
case:
(1) Where there is an arrangement between the employers
to
share the employee's services, as, for example, to interchange employees; or
(2) Where one employer is acting directly or indirectly in the
interest of the other employer (or employers) in relation to the employee;
or
(3) Where the employers are not completely disassociated with
respect to the employment of a particular employee and may be deemed to
share control of the employee, directly or indirectly, by reason of the
fact that one employer controls, is controlled by, or is under common
control with the other employer.
29 C.F.R. 791.2(b)(1), (2), (3) (footnotes omitted).
Neither the caselaw nor
the interpretive regulations, which as noted above are entitled to
Skidmore deference, see 29 C.F.R. 791.1 (introductory
statement referencing Skidmore), suggest or require a rigid test to
determine the nature of an employment relationship. See Bonnette, 704
F.2d at 1469-70; Driscoll Strawberry Associates, 603 F.2d at
756. "[T]he determination of
the relationship does not depend on such isolated factors, but rather upon
the circumstances of the whole activity." Rutherford Food Corp., 331
U.S. at 730. The touchstone
of the inquiry is “economic reality.” Bonnette, 704 F.2d at 1469
(quoting Goldberg v. Whitaker House Co-operative, Inc., 366 U.S.
28, 33 (1961)). In fact, this Court
in Bonnette, noting that the district court used a four-part test
(power to hire and fire, exercising control over work schedules,
determining rate and method of payment, and maintaining employment
records) to determine whether the California Health and Welfare Agency
were employers of "chore workers" providing domestic in-home services to
disabled public assistance recipients, stated that "[t]he four factors
considered by the district court provide a useful framework for analysis
in this case, but they are not etched in stone and will not be blindly
applied." 704 F.2d at
1470. "A court should
consider all those factors which are relevant to [the] particular
situation in evaluating the economic reality of an alleged joint
employment relationship under the FLSA." Torres-Lopez, 111 F.3d at
639 (internal quotation marks omitted).
In the present case, reference to the FLSA joint employment
interpretive regulations, quoted above, are sufficient in themselves to
show the economic reality of the situation. As Appellants concede, A-One and
Alternative were both “employers” of the nurses involved in the present
case. App. Br. at 11. It is true that there was no
formal agreement or understanding between A-One and Alternative and
their respective employees that employees would be shared or directed to
work for the other employer.
See RE 48 (Black Declar. at ¶¶s 16, 19, 22). Yet even in the absence of a
formal agreement, the nurses performed work for both employers and
continued to provide home health services to patients of one company when
they were transferred and became clients of the other company. Black decided whether it benefited
A-One or Alternative to have a particular patient, and transferred the
patient in accordance with that assessment. Black also decided whether to
offer to transfer the nurse who regularly provided that patient with
services. See RE 50;
SRE 53-54, 59-64, 68, 75. The
"economic reality" was that the nurses employed by Alternative and A-One
were treated as a pool of employees available to provide services to
individual patients of either company in accordance with the needs of the
companies and the patients.
Thus, there was "an arrangement between the employers to share the
employee's services, as, for example, to interchange employees." 29 C.F.R.
791.2(b)(1).
Appellants contend that Black's oversight of the clinical
operations of Alternative did not involve the use of Alternative's
employees "for A-One's services or benefit" (App. Br. at 12). The regulations state that joint
employment may be established "[w]here one employer is acting directly or
indirectly in the interest of the other employer (or employers) in
relation to the employee." 29
C.F.R. 791.2(b)(2). A-One did
in fact act in the interest of itself and Alternative in relation to the
employees who worked for both companies. Indeed, for a period of time,
Alternative paid A-One for A-One's management duties (see RE 50-51
(Black Declar. at ¶¶s 19-20), and those duties were still provided even
after Alternative stopped paying A-One in early 2000 due to lack of
revenue. Id. Black stated that the "benefit
derived from the services [A-one provided to Alternative] is the
maintenance of Alternative's continued existence for the potential sale."
RE 51 (Black Declar. at ¶20).
Furthermore, since 1998, by helping Alternative obtain clients with
Medicare-qualifying needs through the transfer of such clients from A-One
to Alternative, Black and A-One facilitated Alternative's Medicare
certification, which benefited Alternative directly and A-One
indirectly. See App.
Br. at 12. As Black herself
testified, once Alternative obtained Medicare certification, its sale to
A-One would allow A-One to provide Medicare service to almost all the
counties in the Puget Sound area (see RE 48-49, Black Declar. at
¶¶s 9-14, SRE 68-72).
Moreover, as the district court found, and as the Secretary has
described in detail above, A-One and Alternative were not completely
disassociated with respect to the employment and control of the employees through
A-One's and Black's extensive control of Alternative. See 29 C.F.R.
791.2(b)(3). Even personnel
of DSHS, the state agency involved in providing Medicaid compensation for
home health services to companies with state contracts, believed that
A-One and Alternative were the same company when A-One notified the agency
of the transfer of an A-One patient to the care of Alternative. SRE 15,
18.
For the foregoing reasons, the district court correctly applied the
applicable statutory and regulatory principles, and relevant caselaw, in
holding both companies and their sole owners liable for overtime payments
to the employees who worked for both employers for more than 40 hours
during a work week.
III. THE
DISTRICT COURT PROPERLY DETERMINED THAT BY FAILING TO PAY OVERTIME AS
JOINT EMPLOYERS DEFENDANTS WILLFULLY VIOLATED THE FLSA AND WERE THEREFORE
SUBJECT TO A THREE-YEAR STATUTE OF LIMITATIONS.
A. Standard of Review
The issue of willfulness should generally be reviewed as a mixed
question of fact and law.
See Herman v. RSR Security Services, 172 F.3d 132,
139 (2d Cir. 1999); Martin v. Selker Brothers, Inc., 949 F.2d 1286,
1292 (3d Cir. 1991).
Cf. Rykoff v. United States, 40 F.3d 305, 307-08
(9th Cir. 1994) (willfulness under the Internal Revenue
Code). However, where the
underlying facts concerning willfulness are not in dispute, as in the
present case, the appellate court should review the district court's legal
conclusion regarding willfulness de novo. See Reich v. Waldbaum,
Inc., 52 F.3d 35, 39 (2d Cir. 1995); Reich v. State of New
York, 3 F.3d 581, 587 (2d Cir. 1993), cert. denied, 510
U.S. 1163 (1994).
B.
The District Court
Properly Awarded Back Wages For Three Years' Unpaid Overtime Based On
Willful Violations of the FLSA By A-One And Alternative, Who, Despite
Being Joint Employers, Failed To Aggregate The Number Of Hours Worked In A
Work Week By The Employees Of Both Companies.
Section 6(a), 29 U.S.C. 255(a), of the
Portal-to-Portal Act, 29 U.S.C. 251 et seq., provides for a statute of
limitations of three years rather than two years for a willful violation
of the FLSA. The Supreme
Court has held that violations are willful where the employer "knew or
showed reckless disregard for the matter of whether its conduct was
prohibited by" the Act.
McLaughlin v. Richland Shoe Co., 486 U.S. 128, 133
(1988). See SEIU,
Local 102 v. County of San Diego, 60 F.3d 1346, 1356 (9th
Cir. 1995), cert. denied, 516 U.S. 1072 (1996); Baker v.
Delta Air Lines, Inc., 6 F.3d 632, 644 (9th Cir.
1993).
Applying this standard, the district court concluded that the
Defendants willfully violated the FLSA and were thereby liable for the
overtime violations of the preceding three years instead of the preceding
two years. The district court
based its conclusion on the undisputed evidence that Black knew or should
have known that the FLSA prohibited the failure to pay overtime under the
circumstances. Specifically,
the court relied on the steps taken by Black, as de facto manager of A-One
and Alternative, to maintain the appearance of separateness of the two
companies, which was designed in part to avoid paying
overtime.
Thus, according to the district court, separate time cards were
used for each company at the same time that at least one employee was
"encouraged to work overtime using clients from each company." SRE 23. A-One paid nurse Lockard overtime
until the patient who brought her workload over 40 hours in a work week
was transferred to Alternative.
Id. At that
point, Lockard was told that she no longer was entitled to overtime
because she was then "technically" working for two employers. Id. The scheduler, Iverson, complained
to Black that nurses were working overtime without being paid overtime
compensation. SRE
37.
And finally, the district court noted that Yarbrough, a nurse,
complained that she was not being paid overtime. SRE 28. Black told Yarbrough that she
should “think of all the blessings [she’s] getting and what a great nurse
[she] was instead of paying [her] overtime.” Id. The district court correctly
concluded that these facts at least point to a showing of reckless
disregard for the overtime requirements of the FLSA.
Moreover,
A-One had a history of FLSA investigations by the Wage and Hour Division
of the Department of Labor, which led to A-One's payment of back wages as
well as civil money penalties for violations of the overtime requirements
of the Act. Thus, A-One and Black had undisputed knowledge of the
overtime requirements of the Act based on those several investigations of
A-One beginning in 1991, in which a Wage-Hour investigator had found that
A-One and Black violated the FLSA by engaging in pay practices to avoid
paying overtime to nurse employees. RE 48-49 (Black Declar. at ¶¶s
5-8). See RSR Security Services Ltd., 172 F.3d at
141-42 (corporation's chairman willfully violated FLSA by not making
effort to ascertain possibility that corporation was violating the FLSA
after evidence that prior pay practices had violated the law); Hodgson
v. Cactus Craft of Arizona, 481 F.2d 464, 467 (9th Cir.
1973) ("There was a sufficient basis for the court's finding that Cactus
Craft's violations were willful. Two previous investigations of
Cactus Craft's labor practices had resulted in warnings against further
violations of the FLSA. Pursuant to a third investigation leading to
the present action it was evident that promises of future compliance had
not been kept.").
In short, when it is clear that the FLSA is applicable, and it is
beyond dispute what the Act requires, knowing conduct that violates the
Act will be deemed willful.
Black, at minimum, acted in reckless disregard of the Act by not
seeking compliance advice when the question arose of whether payment of
overtime should continue once nurses under her control began working more
than 40 hours in a work week for patients of both
companies.
It simply is not material that none of the investigations focused
specifically on the question of whether A-One and Alternative were “joint
employers” for purposes of computing overtime under the FLSA. Thus, in Dole v. Elliot Travel
& Tours, Inc., 942 F.2d 962, 966-67 (6th Cir. 1991), a
travel agency and its owner were found to have willfully violated the FLSA
based on affidavits of the Wage and Hour investigator and the owner
stating that prior investigations had disclosed FLSA violations by the
predecessor travel company, that the owner had agreed to pay unpaid
overtime wages, and that he gave assurance of future compliance. The court in Elliot did not
find it material that "at no time prior to institution of this action did
the compliance officer inform defendants that commissions were to be added
into gross pay for purposes of computing overtime." Id. at 967. And, as the Second Circuit stated
in Waldbaum, "Even if, as Waldbaum contends, prior investigations
by the Secretary regarding Waldbaum's compliance with the FLSA did not
focus upon the duties performed by the Employees, they sufficed to
acquaint Waldbaum with the general requirements and policy of the statute,
and no more is required to resolve the clear issue whether hourly
employees are subject to the FLSA."
52 F.3d at 41.
Appellants argue that there is a “genuine issue of material fact
concerning Black’s intent.”
App. Br. At 28.
Black’s intent to avoid paying overtime by maintaining the outward
indicia of employment by separate companies for purposes of the Act,
however, is not in dispute.
It was precisely that intent to avoid paying overtime, by means of
maintaining separate records according to whether the patients were
nominally being served by A-One or Alternative, and in the face of
complaints by nurses and the scheduler, that persuaded the district court
to find that the violations were willful. The testimony of Black, DSHS
employees Goodrich and Summers, the nurses, and Iverson, the scheduler,
establish the transferring of patients and employees between the entities
and the resultant merging of the identities of the companies. That testimony demonstrates that
A-One and Alternative actually were operated by Black as the single
business entity they planned to officially become after the sale of
Alternative to A-One. Thus,
Black knew or should have known, or at least acted in reckless disregard
of the fact, that she was required to aggregate the hours worked by all
the employees at issue to determine whether overtime compensation was
due.
IV. THE
DISTRICT COURT'S AWARD OF LIQUIDATED DAMAGES WAS PROPER BECAUSE THE
COMPANIES FAILED TO MEET THEIR SUBSTANTIAL BURDEN TO SHOW THAT THEY ACTED
IN GOOD FAITH AND IN AN OBJECTIVELY REASONABLE MANNER IN CONNECTION WITH
THEIR OVERTIME VIOLATIONS.
A. Standard of
Review
This Court has stated
that generally the appropriate standard of review for liquidated damages
is "clearly erroneous" for whether the employer acted with subjective good
faith and de novo for whether the employer acted in an objective
reasonable manner. See
Bratt v. County of Los Angeles, 912 F.2d 1066, 1071-72
(9th Cir.), cert. denied, 498 U.S. 1086. However, just as with willfulness,
the underlying facts with regard to liquidated damages are beyond serious
dispute here. Therefore, the
district court's conclusion that liquidated damages were appropriate
should be reviewed de novo.
See Waldbaum, Inc., 52 F.3d at 39; State of New
York, 3 F.3d at 587.
B. The
District Court Correctly Awarded Liquidated Damages
The
FLSA provides that “[a]ny employer who violates the provisions of section
206 or section 207 of this title shall be liable to the employee or
employees affected in the amount of their unpaid wages, or their unpaid
overtime compensation, as the case may be, and in an additional equal
amount as liquidated damages."
29 U.S.C. 216(b).
Liquidated damages are not a penalty, but compensation to the
employees for the delay in receiving the wages due as a result of the
employer's FLSA violation.
See Local 246 Utility Workers Union of America v.
Southern California Edison Co., 83 F.3d 292, 298 (9th Cir. 1996)
(citing Brooklyn Savings Bank v. O’Neil, 324 U.S. 698, 707
(1945)). As the Seventh
Circuit has stated, "Double damages are the norm, single damages the
exception." Walton v.
United Consumers Club, Inc., 786 F.2d 303, 310 (7th Cir.
1986).
Courts have discretion to deny the award of liquidated damages
only if the employer shows that it acted in subjective "good faith"
and had objectively "reasonable grounds" for believing that its conduct
did not violate the FLSA. 29
U.S.C. 260. See
Local 246 Utility Workers Union, 83 F.3d at 297-98. In the words of this Court, "The
employer's burden is to establish that it had an honest intention to
ascertain and follow the dictates of the Act and that it had reasonable
grounds for believing that [its] conduct complie[d] with the Act." Id. at 298 (internal
quotation marks omitted).
Even the fact that an employer did not purposefully violate the Act
does not satisfy the "good faith" criterion." See Reich v. Southern New England
Telecommunications Corp., 121 F.3d 58, 71 (2d Cir. 1997); Martin v.
Cooper Elec. Supply Co., 940 F.2d 896, 909 (3d Cir. 1991),
cert. denied, 503 U.S. 936 (1992).
Neither the subjective nor objective requirements were met
here. As to subjective good
faith, it was Black’s choice to gamble that she could avoid paying
overtime without violating the FLSA by maintaining the nominal separation
of the companies. She
dismissed complaints from the scheduler as well as from the nurses that
the nurses were working overtime without receiving overtime pay; she made
no attempt to verify that doing so did not violate the FLSA.
The prior Wage and Hour overtime investigations of A-One -- while
not relied on by the district court in concluding that liquidated damages
should be awarded -- also indicate that Black knew the requirements of the FLSA's overtime requirements.
The fact that these prior investigations were conducted in
connection with different practices to avoid paying overtime compensation
than the one used here (including an incorrect utilization of
“compensatory time”), which Black employed to avoid paying $9,873.00 in back wages to 46
employees in 1991 and $8,054.69 in overtime back wages to 45 employees in
1994, did not absolve Black of the responsibility to ascertain whether the
practice used here was violative of the overtime requirements of the
Act. SRE 12, 6, 7. This is highlighted by the fact
that in settlement of the civil money penalties assessed for FLSA overtime
violations in 1994, Black agreed individually and on behalf of A-One to
comply with the FLSA in the future.
SRE 6-7, 11-12; RE 48-49 (Black Declar. at ¶¶s 1, 2). It was her responsibility to
ensure compliance in the instant case.
Also, Black was aware at the outset of the investigation in 1999
(leading to the instant action) that the Wage and Hour investigator was
requesting basic recordkeeping information for both A-One and Alternative
by letters addressed to both companies at the same address and through
requests to her directly. SRE
12. If at that time Black had
“an honest intention to ascertain what [the FLSA] requires and to act in
accordance with it,” Bratt, 912 F.2d at 1072, she could have then
made an inquiry that demonstrated her “good faith” compliance, but she did
not do so.
Black also had no objective reasonable grounds to believe that
failing to aggregate the hours worked by A-One and Alternative nurses for
overtime purposes was in compliance with the FLSA. She intended to
maintain the formalities of operating two separate companies to avoid
paying overtime but, as noted above, she operated and controlled the
business of the two corporate entities by, inter alia, determining which
company was to assume responsibility for the care of the various
client/patients of each, overseeing treatment plans for patients of both
companies, transferring clients between the companies, and offering nurses
the opportunity to “follow the patient” when she transferred a patient
from A-One to Alternative or from Alternative to A-One. Black sued her former nurses for
violating the “non-competition” clause when they left the employment of
A-One and Alternative and continued to provide care for former patients of
those companies, while permitting them to provide continuity of care
without invoking the “non-competition” clause of their contracts when
following a patient who was transferred between the two companies. This marks the unreasonableness of
any belief on Black's part that she was in compliance with the overtime
requirements of the FLSA.
Thus, the district court's conclusion that the employers had not
met their substantial burden to avoid liquidated damages should be
affirmed.
V. THE
DISTRICT COURT PROPERLY REJECTED DEFENDANTS' AFFIRMATIVE DEFENSE THAT RES
JUDICATA BARRED RECOVERY BY FORMER EMPLOYEES YARBROUGH AND MILLARD BASED
ON THEIR SMALL CLAIMS COURT COUNTERCLAIMS FOR OVERTIME COMPENSATION FILED
SUBSEQUENT TO A-ONE'S SUITS TO ENFORCE NON-COMPETITION
AGREEMENTS.
A. Standard of
Review
The question of whether res
judicata applies is to be reviewed de novo. See Cabrera v. City of
Huntington Park, 159 F.3d 374, 381 (9th Cir. 1998); Lea
v. Republic Airlines, Inc., 903 F.2d 624, 634 (9th Cir.
1990).
B. Res Judicata
Does Not Bar The Secretary’s Overtime Claims Against Any Employees Of
A-One and Alternative.
Appellants appeal the district
court’s rejection of their res judicata defense to liability for overtime
violations with respect to two former employees, Yarbrough and
Millard. App. Br.
15-16.
Appellants alleged in district court that the overtime issue was
litigated and lost in counterclaims to two small claims cases that A-One
brought in Snohomish County District Court, Washington, against Yarbrough
and Millard, who they claimed breached the non-competition clause in their
employment contracts with A-One.
Id.; see RE 52-53 (Black Declar. at ¶¶s 30-33),
91-93, 107.
In order for res
judicata to apply there must be: 1) an identity of claims, 2) a final
judgment on the merits, and 3) identity or privity between parties. See Blonder-Tongue Lab.,
Inc. v. University of Ill. Found., 402 U.S. 313, 323-24 (1971);
Sidhu v. Fletco Co., Inc., 279 F.3d 896, 900 (9th Cir.
2002).
First, Kathleen
Yarbrough did not even assert a counter-claim seeking overtime wages (RE
72; SRE 104 ). See
App. Br. at 16. Second,
Black’s affidavit, her deposition testimony, and the small claims court
records do not establish the nature of the overtime counter-claim that
Millard presented. Finally, and most significantly,
the Secretary is not bound by judgments in private cases because the
Secretary is not in privity with private parties. See Bechtel Petroleum,
Inc. v. Webster, 796 F.2d 252, 253 (9th Cir. 1986)
(affirming district court's decision rejecting res judicata in the context
of an FLSA action brought by the Secretary after an action brought
pursuant to Alaska Wage Hour Act on basis of the district court's opinion
reported at 636 F. Supp. 486 (N.D. Cal. 1984)). See also Donovan
v. Crisostomo, 689 F.2d 869, 876-77 (9th Cir. 1982) (noting
in the context of addressing an evidentiary question that the Secretary,
not the employees, is the real party in interest in an FLSA suit brought
by the Secretary). Cf.
Secretary of Labor v. Fitzsimmons, 805 F.2d 682, 694
(7th Cir. 1986) (en banc) ("The Secretary of
Labor's interest in an ERISA action is thus clearly separate and distinct
from the private plaintiffs' interests and thus cannot be barred by the
doctrine of res judicata.").
Appellants have
clearly failed to meet their burden of proving the affirmative defense of
res judicata. See
Leisek v. Brightwood Corp., 278 F.3d 895, 900 (9th Cir.
2002) (burden of proving an affirmative defense is on the party asserting
it). Accordingly, the
district court determination that the principle of res
judicata did not bar any of the Secretary's overtime claims was
correct and should be affirmed.
For the reasons discussed above, the decision
of the district court should be affirmed in all
respects.
Respectfully
submitted,
EUGENE SCALIA
Solicitor of Labor
STEVEN J. MANDEL
Associate
Solicitor
PAUL L. FRIEDEN
Counsel for Appellate
Litigation
_________________________________
LOIS R. ZUCKERMAN
Attorney, Office of the
Solicitor
Division of Fair Labor
Standards
U.S. Department of
Labor
200 Constitution Avenue, NW
Room N-2716
Washington, D.C.
20210
(202)
693-5555
I certify
that on this 11th day of July, 2002, two copies of the Brief of the
Secretary and one copy of the Supplemental Excerpts of Record were sent by
first class United States mail to:
Elizabeth
Zink Pearson, Esq.
Lucian J.
Bernard, Esq.
Pearson &
Bernard PSC
1224 Highway
Avenue
Covington,
Kentucky 41012
______________________
LOIS R.
ZUCKERMAN
Attorney
Pursuant to Fed. R. App. P. 32
(a)(7)(C) and Ninth Circuit Rule 32-1, the attached answering brief
is Monospaced
(Courier New, 12 point), has 10.5 or fewer characters per inch and
contains 11,575 words.
____________ ___________________
Date
Lois R. Zuckerman
There are no related cases
pending in this Court.
____________ ___________________
Date
Lois R.
Zuckerman
There was no addendum included
with this brief.
Footnotes
The State of Washington requires a Certificate of Need in order for
a licensed home health care provider to obtain Medicare
certification. A home health
provider must prove that a Medicare need exists for its services in order
to obtain such certificate.
RE 8, 49 (Black Declar. at ¶ 9).
Alternative's Medicare certification became effective on February
22, 1999. SRE
3-4.
The questions of enterprise coverage and liability are separate
issues. "[W]e hold that the
enterprise analysis is different from the analysis of who is liable under
the FLSA. The finding of an
enterprise is relevant only to the issue of coverage. Liability is based on the
existence of an employer-employee relationship." Patel v. Wargo, 803 F.2d
632, 637 (11th Cir. 1986). As the court stated in Donovan
v. Grim Hotel Co., 747 F.2d 966, 969 (5th Cir. 1984),
cert. denied sub nom. Grim Hotel v.
Brock, 471 U.S. 1124 (1985), "[T]he obligation of the corporations to
conform to the Act's wage and hour requirements [i.e., coverage] depends
on whether the hotel corporations, viewed together, constitute an
'enterprise.'" After
concluding that the hotel corporations were an enterprise, the court in
Grim Hotel examined separately the question of individual employer
liability. Id. at
971. See also
Brennan v. Arnheim & Neely, Inc., 410 U.S. 512, 516 (1973)
(indicating that the questions of enterprise coverage and who is an
employer are distinct); Donovan v. Agnew, 712 F.2d 1509, 1510-16
(1st Cir. 1983) (same).
The FLSA defines commerce as "trade, commerce, transportation,
transmission, or communication among the several States or between any
State and any place outside thereof." 29 U.S.C. 203(b).
The jurisdictional paragraphs of the complaint alleged individual
and enterprise coverage, RE at 37, Doc. 1 (Complaint ¶s IV, V, VI, VII),
although the Secretary's Motion for Summary Judgment did not reference any
particular jurisdictional provision of the FLSA or discuss the application
of "enterprise" coverage by name when asserting that the FLSA covers both
entities "by virtue of A-One's annual dollar volume." D. 23 (Plaintiff's
Motion for Summary Judgment at 7-8).
Appellants characterize this omission as "significant" in arguing
that the district court improperly found that the indicia of "enterprise"
coverage are present in this case.
However, both the complaint and the Secretary's brief
jurisdictional statement in her motion were sufficient to invoke the
"enterprise" issue.
Skidmore v. Swift, 323 U.S. 134, 140 (1944), holds that the
Secretary's interpretive regulations "constitute a body of experience and
informed judgment to which courts and litigants may properly resort for
guidance." See
also United States v. Mead, 533 U.S. 218, 227-28 (2001); 29
C.F.R. 779.9.
Appellants agree that the "economic reality" of the employment
relationship and not any particular factor or set of factors is the
controlling test in determining whether A-One and Alternative were "joint
employers" of the eight nurses.
App. Br. at 17-19.
Contrary to Appellants’ assertion (App. Br. at 19), A-One’s use of
compensatory time was not in accordance with the FLSA. Collins v. Lobdill, 188 F.
3d 1124 (9th Cir. 1999), cert. denied sub
nom. Collins v. Spokane Valley Fire Protection District No.
1, 529 U.S. 1107 (2000), on which Appellants rely, involved the
application of section 7(o) of the FLSA, 29 U.S.C. 207(o), and 29 C.F.R.
Part 553, concerning the application of “compensatory time” to employees
of state and local governments.
The option of offering “compensatory time” in lieu of payment of
overtime is not available to employers in the private
sector.
This Court has laid out the following test to determine whether two
suits contain identical claims: "(1) whether the rights or interests
established in the prior judgment would be destroyed or impaired by
prosecution of the second action; (2) whether the two suits involve
infringement of the same right; (3) whether substantially the same
evidence is presented in the two actions; and (4) whether the two suits
arise out of the same transactional nucleus of facts." Sidhu, 279 F.3d at 900.
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