In the
United States Court of Appeals
for the Fifth Circuit
_______________
m 01-60844
_______________
KAREN MOORE, DERRICK L. NICHOLS, SHAWYNA FRANK,
GEORGE JAMES, EUGENE PAGE, MARY ANN FRYE, AND LISA A. GREEN,
Plaintiffs-Appellees-
Cross-Appellants,
VERSUS
HANNON FOOD SERVICE, INC.; ET AL.,
Defendants,
HANNON FOOD SERVICE, INC.; HANNON’S FOOD SERVICE, INC.;
HANNON’S FOOD SERVICE OF JACKSON, INC.;
AND HANNON’S FOOD SERVICE OF NATCHEZ, INC.,
Defendants-Appellants-
Cross-Appellees.
_________________________
Appeals from the United States District Court
for the Southern District of Mississippi
_________________________
January 20, 2003
Before JONES, SMITH, and SILER,* problem. This new practice resulted in a total
Circuit Judges. of seventeen deductions across four of the
plaintiffs; the other plaintiffs incurred no de-
JERRY E. SMITH, Circuit Judge: ductions. Salaries were not otherwise
decreased for any reason.
Hannon Food Service, Inc.; Hannon’s Food
Service, Inc.; Hannon’s Food Service of Jack- Hannon made its legal counsel aware of the
son, Inc.; and Hannon’s Food Service of Nat- policy in February 1998, and counsel prepared
chez, Inc. (collectively “Hannon”) appeal a a memorandum advising Hannon to discon-
judgment as a matter of law (“j.m.l.”) in this tinue the practice. Hannon promptly reverted
action brought pursuant to the Fair Labor to the previous practice of taking the deduc-
Standards Act (“FLSA”) awarding overtime tions from the bonuses.
benefits to a group of restaurant managers.
Concluding that Hannon properly availed itself B.
of the window of correction provided for at 29 Plaintiffs sued Hannon on May 28, 1998,2
C.F.R. § 541.118(a)(6), we reverse and render alleging violations of the FLSA, as amended,
judgment in favor of defendants. 29 U.S.C. § 216(b). On September 13, 2000,
Hannon tendered plaintiffs the total amount of
I. all improper deductions plus 8% interest from
A. the dates of the deductions to September 18,
Hannon1 owns various KFC restaurants 2000, the date then set for trial. Hannon later
throughout Mississippi. Plaintiffs were em- moved for summary judgment and filed a stip-
ployed as restaurant managers at a salary of ulation of facts to which all parties agreed.
$300 per week plus a monthly bonus of 2% of Plaintiffs filed a cross-motion for summary
the gross sales of the restaurant they managed. judgment. The district court granted j.m.l. for
Hannon had a policy of deducting recurrent plaintiffs, finding that plaintiffs were not ex-
cash register shortages from the supervising empt bona fide executive employees for a
manager’s monthly bonus. In November four-month period, because they were “subject
1997, Hannon began deducting these short- to” improper deductions within the meaning of
ages from the managers’ weekly salaries rather C.F.R. § 541.118(a); the court rejected Han-
than their monthly bonuses, ostensibly to non’s argument that § 541.118(a)(6) allowed
increase the managers’ responsiveness to the it to correct its error and maintain the exempt
status of the employees. The court ordered
Hannon to pay each plaintiff four months of
*
Judge of the United States Court of Appeals
for the Sixth Circuit, sitting by designation.
2
The original complaint was filed by Karen
1
The various Hannon companies named as Moore and Derrick Nichols against Hannon Food
defendants share common family ownership and Service, Inc. The Third Amended Complaint, filed
make at least some management decisions in March 31, 1999, resulted in the current
collaboration. arrangement of parties.
2
overtime pay. and professional employees are exempt. See
29 U.S.C. § 213(a)(1). The Secretary has
II. broad authority to “define and delimit’”’ the
Hannon maintains that the district court scope of these exemptions. Id.; see also Auer,
should have applied the window of correction 519 U.S. at 456. Among the requirements for
specified in 29 C.F.R. § 541.118(a)(6), which the exemption is the salary-basis test, 29
would have allowed Hannon to avoid liability C.F.R. § 541.118,4 under which the employee
because they reimbursed the improper deduc- must receive “each pay period on a weekly, or
tions. Hannon contends that the plain lang- less frequent basis, a predetermined amount
uage of the regulation, as interpreted by Auer constituting all or part of his compensation,
v. Robbins, 519 U.S. 452, 463 (1997), which amount is not subject to reduction be-
requires the window of correction to be cause of variations in the quality or quantity of
available for any deduction made for any the work performed.” § 541.118(a).
reason other than lack of work.
In some circumstances, an employee may
Plaintiffs argue that application of the win- maintain his exempt status, notwithstanding
dow of correction should be denied, because improper deductions, under the window of
the deductions resulted from a policy that ex- correction established by § 541.118(a)(6),
tended over four months. Plaintiffs specifically which reads:
refer to amicus curiae briefs filed in other
circuits on behalf of the Secretary of Labor The effect of making a deduction which
interpreting § 541.118(a)(6) as being un- is not permitted under these interpre-
available where a policy or practice underlies tations will depend upon the facts in the
the improper deductions.3 particular case. Where deductions are
generally made when there is no work
Plaintiffs also cross-appeal the denial of available, it indicates that there was no
overtime compensation before the time of the intention to pay the employee on a sal-
deduction, limited by the two-year limitations ary basis. In such a case the exemption
period, and the denial of liquidated damages. would not be applicable to him during
We review a j.m.l. de novo. Casarez v. Bur- the entire period when such deductions
lington N./Santa Fe Co., 193 F.3d 334, 336 were being made. On the other hand,
(5th Cir. 1999). where a deduction not permitted by
these interpretations is inadvertent, or is
III. made for reasons other than lack of
A. work, the exemption will not be con-
Though the FLSA establishes a general rule sidered to have been lost if the employer
that employers must pay their employees over- reimburses the employee for such de-
time compensation, executive, administrative, ductions and promises to comply in the
future.
3
See, e.g., Klem v. County of Santa Clara, 208
4
F.3d 1085, 1091-92 (9th Cir. 2000); Whetsel v. The duties test, see 29 C.F.R. § 541.1, and the
Network Prop. Servs., 246 F.3d 897, 900-01 (7th salary level test, see 29 C.F.R. § 541.1(f), are not
Cir. 2001). at issue here.
3
29 C.F.R. § 541.118(a)(6). tention, it cannot, after the fact, use the
window of correction to bring itself into
“The plain language of the regulation sets compliance with the “salary basis” reg-
out ‘inadvertence’ and ‘made for reasons other ulations and thereby turn nonsalaried
than lack of work’ as alternative grounds per- employees into salaried employees.
mitting corrective action.” Auer, 519 U.S. at
463. In Auer, the Court therefore allowed the Further, under the Secretary’s inter-
defendant to correct an improper deduction re- pretation, an employer “that engages in
sulting from a disciplinary suspension, even a practice of making impermissible de-
though it was intentional. Id. ductions in its employees’ pay, or has a
policy that effectively communicates to
The Court’s interpretation of the window its employees that such deductions will
of correction in Auer informs our decision be made, necessarily has no intention of
here. In Auer, however, the Court did not paying its employees on a ‘salary ba-
have the benefit of the interpretation of sis.’” The question is not whether an
§ 541.118(a)(6) proffered by the Secretary lat- employer has the subjective intention
er in Klem and Whetsel, which, if adopted, that its employees be exempt from the
would narrow the regulation from the Court’s FLSA’s overtime provisions. Rather, it
reading of broad applicability. Furthermore, is whether the employer has evinced the
Auer applied the window of correction to a objective intention to pay its employees
single deduction, 519 U.S. at 463, and the on a salaried basis as defined in the Sec-
Court had already determined that the plaintiff retary’s regulations. When an employer
was not “subject to” deductions within the has a practice and policy of noncom-
meaning of the salary-basis test, id. at 461-62. pliance with those regulations, the Sec-
We therefore consider the applicability of the retary reasons, it cannot demonstrate an
window of correction to the facts of this case intention to comply with the regulations
in light of the Secretary’s interpretation. and to pay its employees on a salaried
basis. Under those circumstances, the
B. employer cannot treat its employees as
Though we did not have a brief from the exempt; nor can it use the window of
Secretary in this case, the Ninth Circuit sum- correction to comply retroactively with
marized her position to be that the regulations and thereby obtain an
exemption for a class of employees that
the window of correction is available it actually never paid on a salaried basis.
only to employers that have demonstrat-
ed the “objective intention” to pay their Klem, 208 F.3d at 1091. Accord Whetsel, 246
employees on a salaried basis. When an F.3d at 900-01.
employer has demonstrated such an
objective intention, the window of cor- C.
rection is available to cure inadvertent Although we must give effect to an agen-
or isolated violations of the “salary ba- cy’s regulation containing a reasonable
sis” regulations. However, when an em- interpretation of an ambiguous statute,
ployer has not demonstrated that in- Chevron U.S.A. Inc. v. Natural Resources
4
Defense Council, Inc., 467 U.S. 837, 842-844 in lieu of taking time off; they contended the
(1984), such deference is not appropriate for policy contradicted 29 U.S.C. § 207(o)(5),
an interpretation of a regulation found in an “which requires that an employer reasonably
amicus curiae brief.5 In Auer, the Court accommodate employee requests to use
addressed what weight should be afforded compensatory time . . .” Christensen, 529
such interpretations of regulations. The Court U.S. at 580-81. The Court considered an
considered an amicus curiae brief by the opinion letter6 establishing the Secretary of
Secretary of Labor, filed at the request of the Labor’s interpretation of 29 C.F.R. §
Court, that interpreted what it means to be 553.23(a)(2), which “provides only that ‘the
“subject to” impermissible pay deductions agreement or understanding [between the
under the salary-basis test created in § employer and employee] may include other
541.118(a). Auer, 519 U.S. at 461. provisions governing the preservation, use, or
cashing out of compensatory time so long as
The Secretary’s interpretation required these provisions are consistent with [ §
more than a theoretical possibility that exempt 207(o)].” Id. at 587-88. The opinion letter
employees could incur deductions in pay; it argued that § 207(o) precluded the employer
required “either an actual practice of making from requiring employees to use their
such deductions or an employment policy that compensatory time.7
creates a ‘significant likelihood’ of such
deductions.” Id. The Court held “[b]ecause The Court declined to adopt the Secretary’s
the salary-basis test is a creature of the interpretation of the regulation, holding that
Secretary’s own regulations, his interpretation although “an agency’s interpretation of its own
of it is, under o ur jurisprudence, controlling regulation is entitled to deference . . . Auer
unless plainly erroneous or inconsistent with deference is warranted only when the language
the regulation.” Id. (citations and internal of the regulation is ambiguous.” Id. (citations
quotation marks omitted). It found “[t]hat omitted). “To defer to the agency’s position
deferential standard [was] easily met” because would be to permit the agency, under the guise
the “critical phrase ‘subject to’ comfortably of interpreting a regulation, to create de facto
bears the meaning the Secretary assigns.” Id. a new regulation.” Id. Simply noting
ambiguity in some part of the regulation is in-
In Christensen, the Court explicated when sufficient; there must be ambiguity with
Auer deference is proper. There, petitioners
challenged their employer’s policy that
prevented them from choosing to receive cash
compensation for accrued compensatory time 6
The Secretary also appeared as amicus curiae.
Christensen, 529 U.S. at 577.
5 7
See Christensen v. Harris County, 529 U.S. As the Court explained, the Secretary argued
576, 587-89 (2000); cf. Owsley v. San Antonio “that the express grant of control to employees to
Indep. Sch. Dist., 187 F.3d 521, 525 (5th Cir. use compensatory time, subject to the limitation
1999) (“Opinion letters, which are issued without regarding undue disruptions of workplace
. . . formal notice and rulemaking procedures . . . operations, implies that all other methods of
do not receive the same kind of Chevron deference spending compensatory time are precluded.”
as do administrative regulations.”). Christensen, 529 U.S. at 582-83.
5
respect to the specific question considered.8 City of Portland, 182 F.3d 665, 668 (9th Cir.
Absent ambiguity, “interpretations contained in 1999), was dictum). The Ninth Circuit did not
formats such as opinion letters are ‘entitled to contend there was any ambiguity in the
respect’ under our decision in Skidmore v. regulation requiring deference to the
Swift & Co., 323 U.S. 134, 140 [](1944), but Secretary’s interpretation.9 The Seventh
only to the extent that those interpretations Circuit, citing Klem, also has adopted the
have the “power to persuade.” Id. at 587. Secretary’s interpretation in Whetsel, 246 F.3d
at 904, and did find the requisite ambiguity, id.
D. at 901.10 Relying heavily on Whetsel and
Other circuits that have addressed the ques-
tion whether the window of correction applies
to all deductions made for reasons other than 9
Klem was decided a month before
work have reached conflicting conclusions. Christensen. In later affirming Klem, see Block v.
Subsequent to Auer, the Eleventh Circuit had City of Los Angeles, 253 F.3d 410, 419-20 (9th
allowed the window of correction to an Cir. 2001), the Ninth Circuit did not reconsider the
employer that made deductions for disciplinary Klem holding in light of Christensen’s
reasons, then reimbursed the sums and adopt- requirements. Had it done so, it might have found
ed a written policy proscribing unpaid that Paresi advised a different outcome.
suspensions. The court did not comment on
the Secretary’s interpretation. Davis v. City of Paresi held that because there was no “pattern
Hollywood, 120 F.3d 1178, 1180-81 (11th Cir. of deductions” the city could correct the allegedly
1997) (quoting Auer, 519 U.S. at 463). The improper deductions under the window of
Third Circuit has indicated support for this correction rule. See id. at 668. The court
continued to note that “[i]n any event, the text of
position in dictum, but also has not considered
the regulation contains no such limitation . . . .
specifically the Secretary’s interpretation. Bal-
The deductions made and corrected by the City
gowan v. New Jersey, 115 F.3d 214, 219 (3d were made for disciplinary reasons, which are
Cir. 1997) (“Accordingly, if any DOT ‘reasons other than lack of work’ and, thus, are
engineer’s pay had been docked, the ‘window covered by the window of correction.” Id. Though
of corrections’ exemption could have been the “discussion in Paresi focused exclusively on
used by the State to preserve that engineer’s the wording of the regulation and did not address .
exempt status.”). . . the Secretary of Labor’s interpretation,” Klem,
208 F.3d at 1094, Paresi’s plain-language analysis
The Ninth Circuit has held that the pattern arguably undermines any contention that the
or policy of deductions does prevent regulation is “ambiguous” such that it requires
application of the “window of correction.” interpretation by the Secretary.
Klem, 208 F.3d at 1094-96 (granting 10
Before Whetsel, the Seventh Circuit, like the
deference to the Secretary’s interpretation and
Ninth Circuit, had also stated that the language of
holding that contrary language in Paresi v. the regulation allowed correction despite a pattern
or practice. DiGiore v. Ryan, 172 F.3d 454, 465
(7th Cir. 1997) (“Even if these five incidents rose
8
See Christensen, 529 U.S. at 588 (“Because to the level of frequent and, thus, constituted an ac-
the regulation is not ambiguous on the issue of tual practice by the SOS officials, the officers
compelled compensatory time, Auer deference is would still be exempt from the FLSA because the
unwarranted.”). (continued...)
6
Klem, the Sixth Circuit reached the same ambiguous.12 In finding the requisite
conclusion. Takacs v. Hahn Auto. Corp., 246 ambiguity, the Whetsel court relied “on the
F.3d 776, 782-83 (6th Cir. 2001). The Second fact that the regulation does not explicitly state
Circuit also adopted this position. Yourman v. that it is available to correct a policy or pattern
Giuliani, 229 F.3d 124 (2d Cir. 2000).11 of deductions, thus leaving open the question
of whether it applies to those circumstances.”
E. Whetsel, 246 F.3d at 901. The regulation, by
We decline to extend Auer deference to the
Secretary’s interpretation, because § 541.118-
(a)(6) is unambiguous. “[T]he plain language 12
The court did discuss the requirements of
of the regulation sets out ‘inadvertence’ and Auer that the proposed interpretation be neither
‘made for reasons other than lack of work’ as “‘plainly erroneous [n]or inconsistent with the
alternative grounds permitting corrective ac- regulation.’” Klem, 208 F.3d at 1089 (quoting
tion.” Auer, 519 U.S. at 463. Nothing in the Auer, 519 U.S. at 461). Rejecting the defendant’s
regulation indicates that any further restriction argument that “the Secretary’s contrary
on its application is implied or necessary. interpretation imports additional limitations into the
rule that are inconsistent with the rule’s text,” id. at
As stated earlier, the Klem court did not try 1092, the court stated that “we need not conclude
to determine whether the regulation is that her interpretation is the only reasonable
construction of that rule, or even the best one. It
merely must be sufficiently connected to the rule’s
text to be consistent with the rule.” Id. at 1093.
In searching for textual support, the court
10 focused on the word “lost” in the fourth sentence:
(...continued)
SOS officials availed themselves of the regulatory
‘window of correction.’”). Overruling DiGiore, For an exemption to be capable of being
the Whetsel court held that because DiGiore did “lost,” it first must have been obtained. The
not discuss the Secretary’s interpretation, “the window of correction, therefore, is available
court might not have had that argument before it, to employers that have exempt employees,
which is a sufficient reason for reconsidering this because those are the only employers who
part of DiGiore and deferring to the Secretary’s can lose exemptions. An employer that does
construction.” Whetsel, 246 F.3d at 903-04. not pay on a salaried basis does not have
exempt employees. The window of
11
It did so with little discussion, relying on correction is unavailable to such an
Klem and Martin v. Malcolm Pirnie, Inc., 949 employer, because the window operates to
F.2d 611, 615-17 (2d Cir. 1991). Although protect employers from losing exemptions
Martin limits the exceptions applicability to or, in other words, to preserve existing
“one-time or unintentional failure[s] to adhere to § exemptions.
541.118(a)’s requirements,” id. at 616, it predates
Auer and does not address the “lack of work” Id. This reasoning is circular. Any improper con-
clause. It does not appear that the defendant in duct could result in the employee not being exempt;
Martin proffered an argument that the “lack of the regulation creates exceptions where improper
work” clause created a basis for correction; rather conduct can be rehabilitated. The general rule
it relied on the argument that it had no policy that cannot inform the reader what the exceptions are;
violated the statute. Id. the text of the window of correction can.
7
its own terms, applies “where a deduction not the exception.13
permitted by these interpretations is
inadvertent, or is made for reasons other than The argument that the regulation is
lack of work.” This “ambiguity” is found only ambiguous is unpersuasive. The Supreme
by contrasting the regulation’s language with Court has interpreted the regulation and noted
the Secretary’s interpretation. no ambiguity. Auer, 519 U.S. 463. Having
interpreted the statute, it applied it to the facts
Under Christensen, this approach is without pausi ng to ponder unstated
backwards. The presence or lack of ambiguity exceptions. Id. at 463-64. The entire
in a regulation should be determined without regulation reads coherently and plainly reaches
reference to proposed interpretations; any deductions made for reasons other than
otherwise, a regulation will be considered lack of work.
“ambiguous” merely because its authors did
not have the forethought expressly to Absent ambiguity, the Secret ary’s
contradict any creative contortion that may interpretation is “entitled to respect” under
later be constructed to expand or prune its Skidmore v. Swift & Co., 323 U.S. 134, 140
scope. (1944), “but only to the extent that those
interpretations have the ‘power to persuade,’”
Responding to the argument that “because see Christensen, 529 U.S. at 587 (quoting
the regulatory language singles out only Skidmore, 323 U.S. at 140). Though we
practices or policies of deductions for lack of afford the Secretary’s interpretation its due
work for incorrigibility, the regulation respect under Skidmore, 14 it is insufficient to
implicitly indicates that any other kind of
policy or practice can be corrected,” the Court
in Christensen stated that “the canon of 13
The Whetsel court implied that when a reg-
expressio unius est exclusio alterius has ulation makes reference to a particular class of
reduced force in the context of interpreting conduct, the court should not necessarily find it
agency administered regulations and will not unambiguous that the regulation intends to reach
necessarily prevent the regulation from being any particular subclass of that conduct. This un-
considered ambiguous.” Id. at 903 (citations realistically requires an agency to enumerate every
omitted). Expressio unius has been defined by conceivable subclass of a covered conduct in order
the Supreme Court as meaning that to avoid having their regulations declared
“expressing one item of an associated group or ambiguous. This is a needless burden to place on
series excludes another left unmentioned.” agencies. A genuine application of expressio unius
Chevron U.S.A. Inc. v. Echazabal, 122 S. Ct. would be to draw the presumption that there are no
2045, 2049 (2002) (quotation marks and other types of improper deduction besides the two
alterations omitted). This is not truly a case of named that can be cured under the window of
correction. And given that the regulation is an
expressio unius, because the regulation is not
exception to a general rule that improper
silent as to deductions resulting from a policy deductions will cause an employee to lose his ex-
or practice for reasons other than a lack of empt status, that conclusion would be appropriate.
work; they are a subset of the second prong of
14
Skidmore requires only that we accord to an
administrative judgment weight dependent “upon
(continued...)
8
overcome the interpretation’s contradiction and RENDER judgment in favor of
with the plain language of the regulation, defendants.16
which allows the window of correction to be
invoked for the conduct at issue here.
IV.
The district court erred in finding that the
window of correction was unavailable in this
case. Furthermore, the record demonstrates
that Hannon properly availed itself of the ex-
ception. Hannon tendered plaintiffs the
amount of all deductions plus interest five days
before trial. Reimbursements may be made at
any time to preserve the window of
correction.15 Moreover, Hannon has changed
the offending policy. We therefore REVERSE
14
(...continued)
the thoroughness evident in its consideration, the
validity of its reasoning, its consistency with earlier
and later
pronouncements, and all those factors which give
it power to persuade, if lacking power to control.”
323 U.S. at 140. Ultimately, Skidmore analysis is
of limited value in interpreting regulations, given
that it stops short of requiring deference and is
likely to be invoked only when a court has already
found the regulation to be unambiguous. Cf.
United States v. Mead Corp., 533 U.S. 218, 250
(2001) (Scalia, J., dissenting) (“[T]he rule of
Skidmore deference is an empty truism and a
trifling statement of the obvious: A judge should
take into account the well-considered views of
expert observers.”).
15
Auer, 519 U.S. 463-64 (“[I]n petitioners’
view, reimbursement must be made immediately
upon the discovery that an improper deduction was
made. The language of the regulation, however,
does not address the timing of reimbursement, and
the Secretary’s amicus brief informs us that he
does not interpret it to require immediate payment. 16
Because we conclude that Hannon
Respondents are entitled to preserve Guzy’s properly availed itself of the window
exempt status by complying with the corrective of correction, we do not reach the
provision in § 541.118(a)(6).”). cross-appeal.
9