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Secretary United States Department of Labor v. Bristol Excavating, Inc.

United States Court of Appeals, Third Circuit

August 20, 2019

BRISTOL EXCAVATING, INC.; CALVIN BRISTOL, Individually and as owner of Bristol Excavating, Inc., Appellants

          Argued September 11, 2018

          On Appeal from the United States District Court for the Middle District of Pennsylvania (D.C. No. 4-16-cv-01512) Magistrate Judge: Hon. Karoline Mehalchick

          Casandra K. Blaney Harold G. Caldwell Brann Williams Caldwell & Sheetz Counsel for Appellants

          Kate S. O'Scannlain Solicitor of Labor Jennifer S. Brand Associate Solicitor Paul L. Frieden Counsel for Appellate Litigation, Rachel Gold Berg Senior Attorney United States Department of Labor Division of Fair Labor Standards Counsel for Appellee

          Before: SMITH, Chief Judge, JORDAN, and RENDELL, [*] Circuit Judges



         This case presents a matter of first impression: whether, within the meaning of the Fair Labor Standards Act (the "FLSA" or "Act"), 29 U.S.C. § 203 et. seq., an employer must treat bonuses provided by third parties as "remuneration for employment" when calculating employees' overtime rate of pay.

         Under the FLSA's overtime provisions, id. § 207, employers must pay employees one-and-a-half times their "regular rate" of pay for all hours worked above a forty-hour work week. 29 U.S.C. § 207(a). "[R]egular rate" is defined as including "all remuneration for employment paid to, or on behalf of, the employee," subject to eight enumerated exemptions. Id. § 207(e)(1)-(8). But "remuneration for employment" is not defined in the overtime provisions or elsewhere in the Act.

         The Department of Labor, despite decades of enforcing the FLSA, has only recently discovered in that 80-year-old statute a basis for asserting that employers are bound to include bonuses from third parties in the regular rate of pay when calculating overtime pay, regardless of what the employer and employee may have agreed. This case thus asks us whether the expectations of employers and employees are made irrelevant by a novel statutory interpretation and a new enforcement strategy by the Department of Labor.

         The District Court, agreeing with the position of the Department of Labor, concluded that the incentive bonuses at issue here must be included in the regular rate of pay because they are remuneration for employment and do not qualify for any of the statutory exemptions. We disagree that all incentive bonuses provided by third parties are necessarily "remuneration for employment" under the Act and therefore properly included in the regular rate of pay when calculating overtime pay. Instead, we hold that incentive bonuses provided by third parties may or may not be remuneration for employment, depending on the understanding of the employer and employee. In this case, the factual record does not support a finding that all of the incentive bonuses were necessarily remuneration for employment. We will therefore affirm in part, vacate in part, and remand in part for further proceedings.

         I. BACKGROUND

         Bristol Excavating Inc. ("Bristol") is a small excavation contractor, owned and operated by Calvin Bristol, the sole proprietor. Talisman Energy Inc. ("Talisman") is a large natural gas production company with active drill pads in Pennsylvania. Bristol entered into a master service agreement with Talisman to provide equipment, labor, and other services at Talisman drilling sites. Due to the nature of the business, Bristol employees at those sites put in extensive overtime hours, working shifts of twelve-and-one-half-hours daily for two-week periods before having a week off.

         At some point, Bristol employees became aware of a bonus program sponsored by Talisman (the "Talisman Bonuses"), which was offered to all workers at its drilling sites, including employees of contractors. The program rewarded employees with distinct bonuses for safety, for efficiency, and for completion of work, the last being called the "Pacesetter" bonus.

         Bristol's employees asked Bristol if they, like other workers at the sites, could receive the Talisman Bonuses. Bristol in turn posed the question to Talisman, which said yes. Bristol then agreed to undertake the clerical work necessary for its employees to receive the bonuses. Talisman emailed Bristol when workers at a particular site had earned a bonus, and Bristol identified whether any Bristol employees were working at that site, submitted invoices for the bonuses to Talisman for payment, accepted bonus payments from Talisman, deducted taxes and other costs and fees, and distributed the bonus payments to its employees. Bristol and Talisman, however, never added the bonus arrangement to their master service agreement, and neither Bristol nor Talisman entered into a formal contract with Bristol's employees with respect to the bonuses. Of particular relevance now, Bristol did not include the Talisman Bonuses in the regular rate of pay when calculating overtime compensation for its employees.

         An auditor from the Department of Labor visited Bristol's offices as part of a routine inspection to assure Bristol was properly calculating overtime compensation. Following that inspection, the auditor determined that the Talisman-paid bonuses must be added in the calculation of the Bristol employees' regular rate of pay. The Department of Labor endorsed that determination and, as a consequence of Bristol's decision to allow employees to receive the Talisman Bonuses, the Department insisted that Bristol pay for overtime at a higher rate. When Bristol refused, the Department filed this suit, alleging that Bristol violated the FLSA's overtime provisions.

         The parties filed cross motions for summary judgment, which the District Court[1] resolved in a single order, granting the Department's motion for summary judgment and denying Bristol's motion for summary judgment.[2] The Court concluded that Bristol violated the FLSA's overtime provisions by failing to include the Talisman Bonuses in the "regular rate" and that the violations are subject to the statute's mandatory liquidated damages provision, but the Court denied the Department's request for injunctive relief. Bristol timely appealed.

         II. DISCUSSION[3]

         On appeal, Bristol continues to argue that the District Court erred in concluding that the Talisman Bonuses should be included in the "regular rate." Bristol contends the bonuses were not remuneration for employment or, in the alternative, that they qualified for a statutory exemption. The Department of Labor responds by arguing that "[t]he payments are indisputably remuneration for employment … because they are payments made to Bristol's employees that are directly tied to the hours and quality of work that the employees performed for Bristol." (Answering Br. at 10.) In the Department's view, all "compensation for performing work" qualifies as remuneration for employment (Answering Br. at 15), regardless of whether the payment is provided by a third party, and no statutory exemption applies to the Talisman Bonuses.

         We conclude that the District Court erred in determining that all payments relating to employment, regardless of their source, must be included in the regular rate of pay, absent a statutory exemption. Instead, whether a payment qualifies as remuneration for employment depends on the employer's and employee's agreement. Under the correct legal standard, and on the record before us, there is a genuine dispute of material fact as to whether the efficiency and Pacesetter bonuses are remuneration for employment, so we will vacate in part the District Court's judgment and remand for further consideration of those bonuses.[4] But, we conclude that the safety bonus is remuneration for employment and is not subject to a statutory exemption, and thus we will affirm the District Court's judgment as to that bonus.

         A. Incentive Bonuses Qualify as Remuneration for Employment Only by Agreement.

         When interpreting a statute, we begin, of course, with the text. Cazun v. Att'y Gen., 856 F.3d 249, 255 (3d Cir. 2017). If the statute's text is unambiguous, our inquiry ceases. Matal v. Tam, 137 S.Ct. 1744, 1756 (2017). To the extent the text may have multiple meanings, we must endeavor to discern Congress's intent. Susinno v. Work Out World Inc., 862 F.3d 346, 348-49 (3d Cir. 2017).

         Here, the pertinent provision of the FLSA says that "the 'regular rate' at which an employee is employed shall be deemed to include all remuneration for employment paid to, or on behalf of, the employee," subject to certain statutory exceptions. 29 U.S.C. § 207(e). But it does not define "remuneration for employment" or address payments from third parties to employees.

         The Department of Labor handles that silence by arguing that "there is a presumption that remuneration in any form is included in regular rate calculations." (Answering Br. at 9 (citations omitted).) That argument begs the question. To say that all remuneration for employment is included in the "regular rate" does not answer whether a payment, in the first place, is remuneration for employment.[5]

         The Department of Labor also seems to argue that we should treat the Act's silence on the meaning of "remuneration for employment" as proof that all sources of income should be treated the same when analyzing whether a payment qualifies as such remuneration. That argument, though, ignores the understanding of the parties to the actual employment agreement. The silence of the Act is better understood as evidence that Congress took it for granted that it was only regulating the employer-employee relationship, not re-writing that relationship to impose the effects of decisions made by third parties. After all, the FLSA was drafted more than 80 years ago against a long-understood and still true principle: employment contracts are contracts and must be interpreted to reflect the agreement reached by the parties. "Remuneration for employment" should therefore be understood as being what the employer and the employee agreed would be paid for the job.

         There is, moreover, strong support in other provisions of the FLSA for the view that third-party payments should be viewed differently from those made by an employer. The FLSA as originally passed contained no reference to any payments from third parties to employees. Fair Labor Standards Act of 1938, ch. 676, § 1, 52 Stat. 1060-69 (1938). In 1966, though, Congress amended the Act to allow tips received by employees to be counted by employers in determining whether they have fulfilled up to 50% of their minimum wage obligation. Pub. L. No. 89-601, § 101(a), 80 Stat. 830 (1966) (adding § 203(m) to 29 U.S.C. § 203). Thus, the first time that Congress spoke about third-party payments, it allowed employers to count such payments - up to a point - for the purpose of the minimum wage requirement. If such payments had already been understood in the law to be included in employees' wages, that amendment would have been superfluous. The 1966 amendment indicates the sensible legislative understanding that money given by a third party to an employee is not automatically remuneration for employment. As the Supreme Court observed, "[t]he Fair Labor Standards Act is not intended to do away with tipping" and "not every gratuity given a worker by his employer's customer is a part of his wages[, ]" meaning, of course, the wages used to calculate the regular rate of pay. Williams v. Jacksonville Terminal Co., 315 U.S. 386, 388, 404 (1942). In 1974, Congress clarified that tips could only be counted towards the minimum wage requirement if the "employee has been informed by the employer." Pub. L. No. 93-259, § 13(e), 88 Stat. 65 (1974). In other words, a third-party payment - tips - would be included in the regular rate of pay if there was an understanding between employer and employee about the treatment of the third-party payment.

         At least one of the statutory exemptions to the overtime provisions gives further support to reading the FLSA as treating third-party payments differently. That exemption excludes from the regular rate of pay any discretionary incentive bonuses paid by employers. 29 U.S.C. § 207(e)(3) (exempting "[s]ums paid in recognition of services performed during a given period if … both the fact that payment is to be made and the amount of the payment are determined at the sole discretion of the employer at or near the end of the period and not pursuant to any prior contract, agreement, or promise causing the employee to expect such payments regularly"). It seems unlikely that Congress intended to exempt discretionary payments from employers, but not such payments from customers.

         The guidance we have from the case law is also consistent with that view. The Supreme Court has described the regular rate of an employee's pay as a matter of agreement between the employer and the employee, saying, "[t]he regular rate by its very nature must reflect all payments which the parties have agreed shall be received regularly during the workweek, exclusive of overtime payments." Walling v. Youngerman-Reynolds ...

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