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Stone v. Troy Construction, LLC

United States Court of Appeals, Third Circuit

August 20, 2019

LINDA STONE, on behalf of herself and those similarly situated, Appellant
v.
TROY CONSTRUCTION, LLC

          Argued March 12, 2019

          On Appeal from the United States District Court for the Middle District of Pennsylvania (D.C. No. 3-14-cv-0306) District Judge: Hon. James M. Munley

          Matthew D.Miller [ARGUED] Richard S. Swartz Justin L. Swidler Swartz Swidler Counsel for Appellant

          James N. Boudreau [ARGUED] Adam R. Roseman Greenberg Traurig

          Michael Burnett Jacob E. Godard Greenberg Traurig Counsel for Appellee

          Before: JORDAN, KRAUSE, and ROTH, Circuit Judges.

          OPINION

          JORDAN, CIRCUIT JUDGE.

         Linda Stone sued Troy Construction Inc. ("Troy"), on behalf of herself and others similarly situated, alleging a willful violation of the Fair Labor Standards Act ("FLSA"). She claims that Troy paid local employees per diem compensation that should have been classified as wages and included in the regular rate of pay, which would in turn have affected the calculation of overtime pay. The District Court was unpersuaded and granted summary judgment for Troy, holding that, as a matter of law, there had been no willful violation of the FLSA. Whether a violation is willful determines the length of the applicable statute of limitations. In light of its holding that there had been no willfulness in this case, the Court applied a two-year statute of limitations and concluded that Stone's claims were time-barred. Because the Court, in effect, applied an incorrect standard in deciding the willfulness question, we will vacate and remand.

         I. BACKGROUND

         A. Factual Background[1]

         Troy builds and maintains oil and gas pipelines and compressor stations across the country, including in Pennsylvania, where Stone worked. During the relevant period, many of Troy's employees had to travel long distances from their permanent residences to their Pennsylvania worksites, but Troy acknowledges that it also "often hired employees closer to [those] worksites[.]" (App. at 63.) We will refer to the long-distance travelers as "nonlocal employees" and the local commuters as "local employees." When hiring a new employee, Troy required him or her to fill out a W-4 form for tax purposes, an I-9 immigration form to verify employment eligibility, and a form of Troy's own making to get background information about the employee (collectively, the "New Hire Forms").[2]The New Hire Forms included a space for the employee to note his or her permanent address.

         Because non-local employees had to travel long distances to their worksites, Troy paid them a per diem to cover their travel costs. During discovery, Troy, through a corporate designee, defined the term "per diem" in this context as "a reimbursable -- [i]t's a payment to an employee for a reimbursable expense." (App. at 68.) Specifically, the "intent of the per diem" was to reimburse out-of-pocket expenses "[r]elated to traveling to the job, … lodging while the job's going on, [and] meals." (App. at 69.) Troy paid per diems to both local and non-local employees, unless an employee opted out by affirmatively telling Troy not to pay the per diem "[a]t the time of hiring." (App. At 69.) Unsurprisingly, Troy has not identified a single employee who did so.

         For local employees, the per diems often represented a large fraction of their income. For instance, Troy paid Stone a per diem of $109 in addition to her hourly wage of $10.75. Thus, even factoring in overtime, the per diems accounted for around 40-56% of Stone's total weekly income from Troy.

         In January 2014, Troy, heeding advice from its accountants, started treating per diems paid to local employees as taxable income to those employees. Troy made that tax-accounting change because it understood that a per diem paid to local employees would not have been viewed by the Internal Revenue Service ("IRS") as a proper reimbursement. Instead, the per diem "would have rolled up into [an employee's] wage box[, ]" on federal income tax returns. (App. at 74 (emphasis added).) The company was thus at pains to distinguish between local and non-local employees to ensure that per diems paid to local employees were reported to the IRS as taxable wages.

         Despite changing its accounting practice, Troy did not include per diem payments to local employees in its calculation of those employees' regular rate of pay when determining the company's overtime obligations. Troy admitted that a travel per diem paid to a local employee would not be a reimbursement, but nonetheless, for overtime purposes, the company treated all per diems, whether paid to local or non-local employees, the same way.[3]

         Linda Stone was a local employee of Troy beginning in January 2013. She was fired in March 2013. The reasons for her short tenure and termination are immaterial to this suit. She received nine paychecks from Troy, the first on January 18, 2013, and the last on March 15, 2013. She was paid per diems, but they were not reflected in her overtime compensation.

         B. Procedural Posture

         In February 2014, Stone filed the present collective action, claiming Troy had willfully violated the FLSA, 29 U.S.C. § 201, et seq.[4] (App. at 29.) She alleges that Troy paid per diems that were not "a legitimate, reasonable reimbursement of expenses incurred" and that she had received per diems that "should have been included in her regular [wage] rate." (App. at 36.) The regular wage rate for an employee is supposed to be calculated to include "all remuneration for employment paid to, or on behalf of, the employee." 29 U.S.C. § 207(e). But it does not include "reasonable payments for traveling expenses, or other expenses, incurred by an employee in the furtherance of his employer's interests and properly reimbursable by the employer; and other similar payments to an employee which are not made as compensation for his hours of employment[.]" Id. § 207(e)(2); see also DOL Field Operations Handbook § 32d05a(b) (Feb. 11, 1972) ("[W]here an employee receives [per diems] but actually incurs no such additional expenses, the entire amount of the payments shall be included in determining the regular rate."). Stone's lawsuit sought to recover unpaid compensation that she says would have been paid for overtime work if her base wage rate had correctly reflected the per diem payments she received.

         A little over a year into the lawsuit, Troy asked Stone to consent to Troy having "extra time" to submit a responsive filing in the District Court. (App. at 102.) Troy's counsel had scheduling conflicts, and Stone's counsel agreed to an extension, conditioned upon Troy "agree[ing] to toll the statute for the class for the extra time[.]" (App. at 102.) Troy did agree, stating "[w]e … agree to toll the statute of limitations pertaining to the FLSA claim for the same period of time for which the Court grants us an extension[.]" (App. at 103.) Pursuant to that agreement, the District Court ordered that "[t]he statute of limitations pertaining to the FLSA claim shall be tolled from April 13, 2015 to April 27, 2015, at which time it will begin to run again." (App. at 104.)

         In December 2015, Stone moved for, and the District Court granted, conditional certification of her case as an FLSA collective action. In support of that motion, Stone attached a sworn affidavit describing Troy's per diem payment practice. Many former Troy employees filed consent forms to join Stone's collective action, in accordance with the statutory requirement that "[n]o employee shall be a party plaintiff to any such action unless he gives his consent in writing to become such a party and such consent is filed in the court in which such action is brought." 29 U.S.C. § 216(b). Stone also filed her own formal consent-to-sue form, but not until March 22, 2016.[5] She later contended, and still maintains, that her December 2015 affidavit in support of conditional certification of the collective action should suffice as her consent to sue.

         Troy and Stone both moved for summary judgment. In Troy's motion, it argued that Stone's FLSA claim was time-barred because she had failed to file a timely consent-to-sue form, as "[t]he law provides that FLSA claims must be commenced within two years after the cause of action accrued, or within three years if the cause of action arises out of a willful violation." (App. at 8 (citing 29 U.S.C. § 255(a)).) In Stone's motion, she argued that the record had established that Troy had "willfully violated the FLSA as a matter of law" (App. at 122), and so, with application of the three-year statute of limitations, her claim was timely. In opposing Stone's motion for summary judgment, Troy declared that "genuine disputes [of fact] exist regarding whether Troy recklessly disregarded its FLSA obligations." (App. at 137.)

         The District Court granted summary judgment for Troy. It rested its decision on its conclusion that, as a matter of law, Troy had not willfully violated the FLSA. The Court made that determination because, in its view, "there [were] insufficient facts for a factfinder to reasonably conclude that the defendant's conduct amounts to … [a willful] FLSA violation." (App. at 10.) Accordingly, despite Troy's admission that genuine disputes existed as to its willfulness, the Court determined ...


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