The City and County of San Francisco (City) employs Staff Nurses in its hospital, jails and clinics. The City and County considered the Staff Nurses to be exempt from the Fair Labor Standards Act’s (FLSA) overtime pay requirements. There are two regulatory tests for the “white collar” exemption from FLSA overtime: 1) the duties test; and 2) the salary test. The issue in this case was whether the City paid the Staff Nurses on a salary basis as required by the salary test.
The Staff Nurses claimed that they were paid on an hourly basis because their annual compensation was divided into hourly rates and they were only paid for hours worked.
The U.S. District Court found the Staff Nurses’ hourly pay rates to be tool used for administrative purposes and concluded that the annual pay figures published in the City’s salary ordinance provided definite evidence that the Staff Nurses were compensated on a salary basis. The court granted the City’s motion for summary judgment.
The U.S. Court of Appeals for the Ninth Circuit reversed. To determine whether employees are compensated on a salary basis, courts must analyze how employees are actually paid. The salary basis test focuses on whether an employee receives a predetermined amount of compensation on a weekly or less frequent basis, irrespective of any promises made in an employment contract.
The Ninth Circuit found material factual questions regarding whether the City satisfied the salary basis test. For the most part, the data in the experts’ report that the City relied on supported the conclusion that a sample of Staff Nurses were paid for all the work and non-work hours on their regular work schedules. According to the report, the Staff Nurses appeared to have worked the hours associated with their full-time equivalencies in over 2,000 pay periods across the four years of sample data. However, the report also identified 72 pay periods when a Staff Nurse did not receive pay for all guaranteed hours. Because the Staff Nurses were paid based on the number of hours they worked, this data raised material factual questions as to whether the Staff Nurses received their predetermined amounts of compensation in those pay periods.
The City argued that even if the 72 discrepancies were improper deductions, the City did not intend to make improper deductions, so it should not lose the benefit of the professional-capacity overtime exemption. The City’s argument was based on a FLSA regulation that an employer generally loses the benefit of the white collar exemption only if “the facts demonstrate that the employer did not intend to pay employees on a salary basis.” (29 CFR section 541.603(a).) An employer’s intent not to pay employees on a salary basis can be demonstrated by an “actual practice” of making improper deductions. The evidence of the 72 unexplained deductions precluded the City from showing that it did not intend to make improper deductions.
The Ninth Circuit remanded for these factual issues to be resolved.
Silloway v. City & County of San Francisco, 2024 US App. 23102 (9/11/24)