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Acosta v. Bristol Excavating, Inc.

United States District Court, M.D. Pennsylvania

November 7, 2017

R. ALEXANDER ACOSTA, [1] Plaintiff,
BRISTOL EXCAVATING, INC., et al., Defendants.



         Resolution of the three pending motions for summary judgment requires the Court to determine whether an employer must include bonuses accrued by employees in the regular rate of pay for work the employees performed for a third-party, where the third-party set the standards for earning the bonus, and paid the bonus to the employer, who then paid the employees. In an apparent matter of first impression, the Court finds that bonuses originating from and determined exclusively by a third-party must be included in the regular rate of pay of an employee, where the employer sacrifices discretion over fact and amount and agrees to pay bonuses designed to incentivize employees into working harder. Accordingly, Plaintiff's motion for summary judgment (Doc. 19) is GRANTED, and Defendants' motions for summary judgment (Doc. 22; Doc. 23)[2] are DENIED.

         I. Factual Background[3]

         Defendant Bristol Excavating, Inc. is an excavation contractor, incorporated and engaging in business in the Commonwealth of Pennsylvania. Defendant Calvin Bristol is the owner and sole shareholder of Bristol Excavating. Bristol Excavating entered into a master service agreement with Talisman Energy Inc. (“Talisman”), whereupon Bristol Excavating would provide “mix off” services at Talisman's drilling sites, to be rendered by Bristol employees.

         At some point around when Bristol employees began work at Talisman sites, the employees learned of a Talisman bonus program after discussions with non-Bristol employees. Talisman had a bonus program available to workers at its drilling sites, offering bonuses earned based on safety, efficiency, and completion of work. Bristol's employees spoke with Krystle Bristol, then business manager of Bristol Excavating, and she spoke with Talisman about the bonus program and the requirements for Bristol employees to participate. Per her discussions with Talisman, Krystle Bristol learned that mix off operators were indeed eligible for the Talisman bonus program.

         The employees were then informed of the three available bonuses. The safety bonus was attained if there were no accidents or injuries during the job. The AFE bonus was attained for completing a hole faster than Talisman expected. The pacesetter bonus was attained also for efficiency, with the government describing the requirement as drilling a hole “faster than a specified amount of time” and Bristol characterizing the criteria as “drilling deeper on any given day than Talisman had anticipated.” (Doc. 19-1, ¶ 17; Doc. 22-2, ¶ 29). Mix off operators knew the terms for earning each bonus.

         Talisman retained sole discretion in determining whether or not the requirements for a bonus had been met. Once Talisman determined a particular bonus was earned, Talisman would email Bristol, who would then issue an invoice to Talisman for the amount of the bonus. Talisman would approve the amount cited on the invoice, and Bristol issued payment. Bristol also deducted taxes and fees prior to issuing a check to the employees. This check was issued separately from employee paychecks. Upon Krystle Bristol's departure, this process was outsourced to the accounting firm LaBarr & LaBarr, who continued issuing a separate check for the bonuses and not including the amount in the calculation of the employee's regular rate of pay. Over the course of this working relationship, Talisman changed the amount of the bonus at its leisure. At no point did the contract between the two include a provision on the bonuses.

         II. Procedural History

         On July 22, 2016, then-acting Secretary of Labor Thomas E. Perez brought this suit against Bristol Excavating and Calvin Bristol. (Doc. 1). In the complaint, the Secretary argued that Defendants' failure to include the bonus payments in the employees' regular rate of pay violated the Fair Labor Standards Act of 1938, codified at 29 U.S.C. § 201, et seq. (Doc. 1). The Secretary sought back wage compensation for each of the harmed employees and liquidated damages in an amount equal to the amount of back wages. (Doc. 1). Defendants answered on September 20, 2016, arguing that they did not have to include the bonuses in the regular rate of pay for overtime purposes because the bonuses were “discretionary gifts” from a customer and remuneration promised by Bristol. (Doc. 5; Doc. 6).

         The parties consented to proceed before the undersigned on November 7, 2016. On March 24, 2017, the parties filed their respective motions for summary judgment, reinforcing their positions on interpreting § 207 under the facts presented. (Doc. 19; Doc. 22; Doc. 23). The parties participated in oral argument in support of their motions on August 14, 2017. Fully briefed, the motions are now ripe for review.

         III. Standard of Review

         Under Rule 56 of the Federal Rules of Civil Procedure, summary judgment should be granted only if “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). A fact is “material” only if it might affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute of material fact is “genuine” only if the evidence “is such that a reasonable jury could return a verdict for the non-moving party.” Anderson, 477 U.S. at 248. In deciding a summary judgment motion, all inferences “should be drawn in the light most favorable to the non-moving party, and where the non-moving party's evidence contradicts the movant's, then the non-movant's must be taken as true.” Pastore v. Bell Tel. Co. of Pa., 24 F.3d 508, 512 (3d Cir. 1994).

         A federal court should grant summary judgment “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Farrell v. Planters Lifesavers Co., 206 F.3d 271, 278 (3d Cir. 2000). In making this determination, “a court must view the facts in the light most favorable to the nonmoving party and draw all inferences in that party's favor.” Armbruster v. Unisys Corp., 32 F.3d 768, 777 (3d Cir. 1994). The Court need not accept mere conclusory allegations, whether they are made in the complaint or a sworn statement. Lujan v. Nat'l Wildlife Fed'n, 497 U.S. 871, 888 (1990). In deciding a motion for summary judgment, the court's function is not to make credibility determinations, weigh evidence, or draw inferences from the facts. Anderson, 477 U.S. at 249. Rather, the court must simply “determine whether there is a genuine issue for trial.” Anderson, 477 U.S. at 249.

         IV. Discussion

         As touched upon above, the key dispute is how the bonus arrangement between Bristol, Bristol's employees, and Talisman fits under § 207 of the Fair Labor Standards Act. Namely, the dispute centers upon whether these bonuses should have been included in the regular rate of pay of Bristol's employees, thus increasing the total compensation owed for overtime. Under § 207(a)(1):

no employer shall employ any of his employees who in any workweek is engaged in commerce or in the production of goods for commerce, or is employed in an enterprise engaged in commerce or in the production of goods for commerce, for a workweek longer than forty hours unless such employee receives compensation for his employment in excess of the hours above specified at a rate not less than one and one-half times the regular rate at which he is employed.

29 U.S.C. § 207(a)(1).

         The term “regular rate” is defined as “all remuneration for employment paid to, or on behalf of, the employee, ” with eight enumerated exceptions. 29 U.S.C. § 207(e). These exceptions are narrowly construed and the employer bears the burden of establishing the applicability of an exception. Minizza v. Stone Container Corp. Corrugated Container Div. E. Plant., 842 F.2d 1426, 1459 (3d Cir. 1988) (citations omitted). Three of these exceptions have been discussed either in briefs or at oral argument: bonus payments as gifts; payments made for occasional periods when no work is performed; and payments paid for services, without prior agreement, where discretionary payment in fact and amount is retained by the employer. See U.S.C. §§ 207(e)(1)-(3). Incentive bonuses are generally considered part of an employee's regular rate for overtime purposes. See Walling v. Harnischfeger Corp., 325 U.S. 427, 431 (1945).

         A. Applicability of § 207(e) Exceptions

         “Regular rate” for the purposes of calculating overtime is not all-inclusive. Regular rate is not deemed to include: “sums paid as gifts…;” or “payments made for occasional periods when no work is performed[.]” 29 U.S.C. § 207(e)(1)-(2). Both of these arguments have been touched upon in the ...

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