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Brock v. Claridge Hotel and Casino

argued: March 16, 1988.


Appeal from the United States District Court For the District of New Jersey, D.C. No. 84-4336.

Stapleton, Mansmann and Hunter, Circuit Judges.

Author: Hunter


HUNTER, Circuit Judge:

1. The district court found that defendant Claridge Hotel and Casino violated the Fair Labor Standards Act (FLSA) by failing to pay overtime to certain casino employees. The district court awarded two years of backpay and imposed no liquidated damages. Claridge claims that these employees fall under the exemption for "executive" employees, 29 U.S.C. § 213(a)(1); 29 C.F.R. § 541.1, and appeals the finding of a violation. The government appeals the damage award. The district court had jurisdiction under 29 U.S.C. § 217. We have jurisdiction under 28 U.S.C. § 1291.


2. Defendant Claridge is a limited partnership which operates a hotel and gambling casino in Atlantic City. In the casino, Claridge employs dealers, who actually operate the games, and several levels of supervisors. A boxperson serves the first level of supervision, observing the operation of a single craps table, at which three dealers work. A floorperson observes a number of gaming tables, providing a second level of supervision over all other games. A pit boss, in turn, supervises the dealers, boxpersons and floorpersons in a specified area of the casino. At issue is the executive status of these three classes of supervisors.

3. These supervisors were required to report to their stations fifteen minutes before the start of their shifts. On arrival and departure, boxpersons and floorpersons had to place their identification cards in a computerized time clock, which recorded their work hours. All supervisors had to sign a sheet located at their work stations, giving their times of arrival and departure. If the casino is overstaffed, Claridge uses its "early out" procedure, by which employees can choose to leave work early. Those who choose not to leave are, if the casino is still overstaffed, assigned to different tasks. An employee qualified in one or more of these supervisory capacities can and does work in other supervisory capacities or as a dealer.

4. Each pit boss, floorperson and boxperson executed a written contract containing a "Weekly Salary Guarantee". That guarantee stated:

In consideration of the fact that you are employed in a supervisory capacity, you will be guaranteed a weekly salary of $250.00 for any week in which you perform any service.

Absence from work due to jury duty, court appearance or military leave will not affect this guarantee.

If your absence is due to an accident or illness, you will be covered under our sick leave and disability plans, and therefore this guarantee does not apply.

During weeks in which no service is performed, or in any given week when some service is performed but absence is voluntary or due to a personal reason, this guarantee does not apply.

Wages over the $250 minimum were paid by the hour, according to the number of hours the supervisor had worked. Similarly, deductions for voluntary absence were made according to the number of work hours the employee missed by leaving early. The supervisors did not receive overtime pay, though they regularly worked more than 40 hours in a week.

5. The district court found that the guarantee applied only "where an employee is not scheduled for a sufficient number of shifts, or is not permitted by defendant to work a sufficient number of hours, to earn $250.00." The district court found the instances when the garanteed payment applied "rare."*fn1 In part, the rarity resulted from the high pay received by the supervisors, so that a supervisor in an average week would earn well over the $250 minimum. In part, the rarity resulted from the exceptions to the guarantee, which included sickness and absence under the "early out" procedure. In 11 or 12 instances,*fn2 the minimum payment had not been made, but was paid after the labor department began its investigation, after which defendant conducted an audit of its wage practices. By its own terms, defendant had found only 12 instances where the guarantee actually came into play, out of up to 70,000 payments. Few supervisors, and even high-level managers who were former supervisors, understood the operation of the agreement.

6. The district court also found that defendant was aware that the FLSA applied to its operation, and intended to avoid paying its supervisors overtime. The labor department had held a seminar in 1980 on the applicability of the wage standards, but this particular pay plan was not specifically discussed. Defendant sought no oral or written opinion on the effect of its wage plan from the Secretary of Labor. The Secretary instituted this action in October 1984, seeking to enjoin the casino from paying no overtime to its supervisors, seeking three years backpay, and liquidated damages. The Secretary claimed that defendant Claridge had willfully violated the FLSA. The casino claimed that these employees were exempt from the overtime requirements as executive employees.

7. The district court concluded that the exemption for executive employees did not apply. It based its decision on its finding that the supervisors are compensated on an hourly, and not a salary basis. The court rejected defendant's contention that wages were calculated according to a daily rate, and found that "with the exception of only 12 instances," pay was calculated according to the number of hours worked. The minimum guaranteed payment the court found "nothing more than illusion." It based this finding on several factors: the 12 instances of nonpayment, including the lack of "a mechanism to ensure that the guarantee was provided," as well as its conclusion that the "early out" program is "not a voluntary absence, but occasioned by defendant and its lack of sufficient business." The district court concluded that these employees were not paid on a salary basis as that term is defined in 29 C.F.R. 541.118. "Just as dressing a mannequin up in a skirt and blouse does not transform it into a woman, so too masquerading an hourly employee's compensation as a guaranteed salary plus hour-based bonuses does not transform the compensation scheme into a salary-based plan." Because the employees were not paid on a salary basis, they were not executive employees under the Act. 29 C.F.R. 541.1(f). Because no exemption applied, defendant Claridge was liable for overtime pay. 29 U.S.C. § 207(a)(1).

8. The district court applied a two-year statute of limitations to the claim, rejecting the three-year limit for willful violations. The district court held that, under Brock v. Richland Shoe Co., 799 F.2d 80 (3d Cir. 1986), cert. granted, 484 U.S. 813, 108 S. Ct. 63, 98 L. Ed. 2d 27, 56 U.S.L.W. 3242 (1987), knowledge or reckless disregard was required to establish willfulness. The district court found that, under this standard, it "cannot conclude that defendant's violation of the FLSA was willful," and limited the Secretary to two years' backpay. The district court did not assess liquidated damages, stating that the court believed defendant's violation "was in good faith and [it] had reasonable grounds for believing that [its] act or omission was not a violation of the Fair Labor Standards Act."

9. The district court's opinion was filed September 19, 1986, but an order was postponed pending additional information with which to calculate back pay. On June 9, 1987, the court entered its order and judgment, including an injunction and a two-year backpay award. On August 6, 1987, the Secretary filed a notice of appeal seeking review of the decisions on willfulness and liquidated damages. On August 19, 1987, ...

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