Chao v. Gotham Registry, Inc.

Dennis JACOBS, Chief Judge,

concurring in part and concurring in the judgment:

The district court entered a consent decree requiring Gotham Registry, a staffing agency for healthcare professionals, to comply with the overtime requirements of the Fair Labor Standards Act (“FLSA”) for nurses it “employ[s].” The only question presented on this appeal is whether we should affirm the ruling by the district court, which is presumed to know its own injunction, that Gotham is not in contempt. See JTH Tax, Inc. v. H & R Block Eastern Tax Svcs., Inc., 359 F.3d 699, 705 (4th Cir.2004).

The majority agrees that Gotham is not in contempt. I concur in that result, because it is obvious to me that Gotham was not in violation of the FLSA when it refused to pay overtime to employees whom it forbid to work overtime, and (when they violated their employer’s instructions) were not acting as employees under the relevant Tennessee Coal test. I cannot sign the majority opinion because it holds that Gotham’s practice violates the FLSA — though Gotham could not be expected to know this until so advised by the majority’s ambitious, consequential and dubious rulings.

The correct test for whether Gotham must pay overtime is set out in Tennessee Coal: whether the work was “controlled or required by the employer and pursued necessarily and primarily for the benefit of the employer and his business.” Tenn. Coal, Iron & RR. Co. v. Muscoda Local No. 123, 321 U.S. 590, 598, 64 S.Ct. 698, 88 L.Ed. 949 (1944). The majority recites the test, duly records the district court’s findings as to each prong, and concedes that “we detect no clear error in these factual findings ...” Maj. Op. at 286, supra. It would seem that if this court were going to *294transcend the question presented and gratuitously answer an underlying question (Were the nurses acting as employees when they did what the employer forbid?), it might content itself with the formulation of the Supreme Court and findings of an experienced district judge. The justification offered by the majority opinion is that “application of the Tennessee Coal test to the facts of this case is something of a red herring.” Maj. Op. at 286, supra. I do not find this ichthyological approach useful.

Tennessee Coal prescribes a two-part definition of “work” under the FLSA: an employee’s efforts (1) must be “controlled or required by the employer” and (2) “pursued necessarily and primarily for the benefit of the employer and his business.” Tenn. Coal, 321 U.S. at 598, 64 S.Ct. 698 (emphasis added).

As to control: the district court found that Gotham lacked control over the nurses’ performance of unscheduled shifts, that nurses and hospitals decide whether overtime will be performed based on their own interests, and that Gotham does not desire the performance of overtime. Q.E.D. Though conceding that a nurse’s decision to work overtime is “unauthorized work” that is “reached by the hospital and nurse without Gotham’s participation,” Maj. Op. at 287, supra, the majority argues that such “limited control [sic] ... does not change the nature of the exertion that follows and thus does not bear on whether such exertion is work.” Id. This is an extreme simplification — and useless, because the necessary analytical tools are readily available in Tennessee Coal and in Labor Department regulations.

The applicable regulation requires that an employer “exercise its control and see that the work is not performed if it does not want it to be performed”: “[t]he mere promulgation of a rule against such work is not enough.” 29 C.F.R. § 785.13. To this we owe Chevron deference. Gotham’s preauthorization rule bars the performance of unauthorized overtime and refuses compensation at overtime rates for such unauthorized hours. Of course a rule is insufficient unless it is applied and enforced. But Gotham has enforced this rule conscientiously, as the findings of the district court confirm: 75 .percent of preau-thorization requests are turned down, and unauthorized overtime shifts are reimbursed at the overtime rate only on the rare occasions (about ten percent of the time) when Gotham persuades the hospital to agree retroactively to an overtime rate. Gotham should not be pressed to more oppressive measures. Suspension would be ineffective because the nurses are professionals in great demand who can (and often do) work for multiple staffing agencies: there are at least 25 in competition with Gotham in the New York area alone. Gotham should not be required to rely on undercover agents to obtain advance knowledge of an unauthorized overtime shift, or on enforcers to drag nurses from the bedside of the sick. See Davis v. Food Lion, 792 F.2d 1274, 1277 (4th Cir.1986) (holding that if required work could be performed within 40 hours, and if the employer enforced its 40-hour rule, employer lacked actual or constructive knowledge of the overtime work). The nurses’ overtime efforts are therefore neither controlled nor required by Gotham.

As to the second Tennessee Coal consideration — whether the activity is “pursued necessarily and primarily” for the employer’s benefit — the Secretary has demonstrated no error in the trial court’s finding that the additional shifts do not necessarily benefit Gotham. The district court found that the documented administrative costs alone would wipe out any remaining profit if Gotham were to pay an overtime rate on *295shifts reimbursed at a straight-time rate. This finding is amply supported by the record: Gotham’s CEO testified that unauthorized overtime triggers additional costs such as time spent tracking, confirming, and negotiating rates for overtime hours with hospitals. No wonder Gotham forbids overtime. It cannot be said that such shifts are “pursued necessarily and primarily” for Gotham’s benefit.

Under Tennessee Coal, the shifts in question were not performed in Gotham’s “employ” within the meaning of the FLSA, and Gotham therefore did not violate the consent decree. In lieu of undertaking the prescribed analysis under Tennessee Coal, the majority announces the tautology that “[w]ork is work, after all.” Maj. Op. at 286, supra.

The majority complains that “Gotham has not persuaded us that it made every effort to prevent the nurses’ unauthorized overtime,” Maj. Op. at 290, supra (emphasis added), and goes on to speculate as to how Gotham might (within the law) effectively stop it. For example, the majority cites Gotham’s supposed failure to explain (though never asked) “why it could not keep a daily, unverified tally of its nurses’ hours and reassign shifts later in the week that would result in overtime.” Maj. Op. at 290, supra. I do not understand this formulation and I would be surprised if Gotham or the nurses did. Moreover, the majority ignores the fact that nurses often work for more than one agency. The majority also taxes Gotham for its supposed failure to explain why it does not “refuse to assign any shifts to nurses who habitually disregard Gotham’s overtime rule.” Maj. Op. at 290, supra. In other words, Gotham could fire them. Perhaps: maybe an employer can discipline an employee for habitually staying in the operating room or on a ward. I say “maybe” because I don’t know, and the reason I don’t know is because this argument has not been made to us and has not been briefed by the parties and input has not been solicited from the members of the nursing profession who have the largest stake in this question. I am compelled to add that the majority does not know either, for the same reasons.

The majority next posits that “Gotham could simply contract in advance with the hospitals to charge a higher fee when nurses are working overtime.” Maj. Op. at 291, supra. That of course begs the (not “simple”) question of what happens when a nurse working for Gotham works at more than one hospital or when a nurse works at one or more hospitals for multiple agencies.

Finally, the majority opinion says that an agency can “entirely disavow overtime hours, announcing a policy that it does not, under any circumstances, employ a nurse for more than 40 hours in a week.” Maj. Op. at 291, supra. Thus the majority holds that an employer can enforce its overtime restriction by paying the employee nothing at all for such hours. That may be. And this certainly will solve Gotham’s problem and ensure that a staffing agency can comply with the labor laws (at least those applicable in the Second Circuit) and avoid contempt. But this holding may come as a surprise to the Secretary of Labor. And it runs counter to the position of every party; as the majority concedes, “no party disputes that the performance of overtime entitled the nurses to compensation at the regular rate of pay at least.” Maj. Op. at 286, supra. My strong view is that this appellate panel should affirm the denial of contempt without reaching and deciding large underlying questions of labor law. Maybe a staffing agency can and should pay nurses zero dollars per overtime hour worked. But though as a panel-member I am drawn into a critique of the majority’s unnecessary analysis, I would *296not decide that question on this appeal because we lack the benefit of input from the parties (and amici) and we lack findings by a district judge made on the basis of a developed record.

The majority opinion affirms the denial of the contempt motion, on the ground of the “then unsettled law” prevailing when Judge Stanton made his ruling. Maj. Op. at 284, supra. I agree that the law was then unsettled (though I think it is little good we have now done in that department). It is obvious that the agency system in which Gotham and many nurses operate is a preferred market mechanism of a profession whose services are much in demand. The majority has upended the way in which many nurses elect to make a living. Nurses evidently have the bargaining power to sell their services to individual hospitals without becoming employees, without joining unions, and without submitting themselves to the work schedules of wage slaves. In short, nurses use agencies create for themselves the freedom and profit opportunities available to other professionals whose services are in great demand. The majority opinion unsettles these market arrangements.