Hourly Employee's FLSA Exemption Retained Despite Final Paycheck Being Withheld: Eleventh Circuit | Practical Law

Hourly Employee's FLSA Exemption Retained Despite Final Paycheck Being Withheld: Eleventh Circuit | Practical Law

In Pioch v. IBEX Engineering Services, Inc., the United States Court of Appeals for the Eleventh Circuit, in a matter of first impression for any circuit court, held that once an hourly employee is properly classified as exempt under the Fair Labor Standards Act (FLSA) based on the Department of Labor (DOL) test's earnings requirement, the exemption remains despite the employer's withholding of the employee's final paycheck.

Hourly Employee's FLSA Exemption Retained Despite Final Paycheck Being Withheld: Eleventh Circuit

by Practical Law Labor & Employment
Published on 20 Jun 2016 • USA (National/Federal)
In Pioch v. IBEX Engineering Services, Inc., the United States Court of Appeals for the Eleventh Circuit, in a matter of first impression for any circuit court, held that once an hourly employee is properly classified as exempt under the Fair Labor Standards Act (FLSA) based on the Department of Labor (DOL) test's earnings requirement, the exemption remains despite the employer's withholding of the employee's final paycheck.
On June 14, 2016, in Pioch v. IBEX Engineering Services, Inc., the United States Court of Appeals for the Eleventh Circuit, in a matter of first impression for any circuit court, affirmed the district court's dismissal of an employee's FLSA claim, and held that the hourly computer employee who was otherwise exempt under the FLSA did not become non-exempt during his final weeks of work because his employer withheld his final paycheck ( (11th Cir. June 14, 2016)).

Background

Todd Pioch worked for IBEX Engineering Services as a computer software and hardware engineer. He typically worked more than 40 hours per week at an hourly rate that increased over his ten years with IBEX, but was not paid overtime. After an audit revealed concerns regarding his collection of per diem payments, Pioch resigned from IBEX in 2013.
Pioch sued IBEX under the FLSA asserting overtime and minimum wage claims. IBEX admitted that it withheld Pioch's final three weeks of pay, but raised Pioch's status as an exempt employee under the FLSA as an affirmative defense to his FLSA claims. IBEX also brought counterclaims for fraud and unjust enrichment for Pioch's per diem payments.
The district court:
  • Held that:
    • Pioch was exempt from FLSA coverage as a matter of law; and
    • he did not become non-exempt during the three week period when he was not paid.
  • Granted summary judgment for Pioch concerning IBEX's unjust enrichment counterclaim, because Pioch's per diem payments were considered unrecoverable wages in an FLSA action.
Both parties appealed to the Eleventh Circuit. Pioch argued that IBEX's withholding of his final paycheck made him non-exempt during his final three weeks of work, entitling him, under the FLSA, to further payment at his hourly rate.

Outcome

The Eleventh Circuit:
  • Affirmed the district court's dismissal of the employee's FLSA claim, holding, in a matter of first impression, that an hourly computer employee who was otherwise exempt under the FLSA did not become non-exempt during his final weeks of work just because his employer withheld his final paycheck, causing him to dip below the earnings required to qualify for the exemption.
  • Held that district court erred in granting summary judgment to the employee on the employer's state-law counterclaim for unjust enrichment.
The Eleventh Circuit noted that:
  • Computer employees may be exempt from minimum wage and overtime requirements under two different FLSA provisions:
    • originally, employees were analyzed generally under 29 U.S.C. § 213(a)(1); and
    • the more recently-enacted specific computer employee exemption applies to an employee who performs certain duties, and "in the case of an employee who is compensated on an hourly basis, is compensated at a rate of not less than $27.63 an hour" (29 U.S.C. § 213(a)(17)(A)-(D)).
  • Multiple circuit courts, including the Eleventh Circuit, have found that the failure to pay an exempt salaried employee for a particular period of time does not make that employee non-exempt during that time period:
    • in Nicholson v. World Bus. Network, Inc., the Eleventh Circuit considered the language of the DOL regulation defining the salary-basis test and congressional intent to determine that the focus should be on what an employee was owed pursuant to an agreement, rather than what he was actually paid (105 F.3d 1361 (11th Cir. 1997)); and
    • in Donovan v. Agnew, the US Court of Appeals for the First Circuit held that no precedent instructed that the FLSA should cover "exempt employees whose contractual salaries are not paid" (712 F.2d 1509 (1st Cir. 1983)).
  • The US Court of Appeals for the Sixth Circuit stated that:
    • employer agreements are no longer the relevant starting point for whether employees were paid on a salary basis; and
    • the burden of establishing the exemption should be placed on the employer, not the employee.
    (Orton v. Johnny's Lunch Franchise, LLC, 668 F.3d 843 (6th Cir. 2012).)
  • There are three tests for analyzing salaried employees' exempt status under § 213(a)(1), and the DOL's regulations for the provision requires each:
    • the salary-basis test;
    • the salary-level test; and
    • the duties test.
    (See 29 C.F.R. §§ 541.600, 541.602, 541.700.)
  • There is no salary-basis test for hourly computer employees under § 213(a)(17).
  • The FLSA is not a vehicle for litigating breach of contract disputes between employees and their employer.
  • The Supreme Court has recognized that high-salaried employees were not the employees that the FLSA was intended to protect (Christopher v. SmithKline Beecham Corp., 132 S. Ct. 2156 (2012)).
The Eleventh Circuit found that:
  • Pioch cannot use the FLSA as a vehicle to recover his hourly salary.
  • The rationale of Nicholson and Donovan, if applied to exempt hourly employees, would support the grant of summary judgment for IBEX.
  • It agreed with the Sixth Circuit that the revised DOL regulations removed the phrase "under his employment agreement," and that employer agreements are no longer the relevant starting point for whether employees are paid on a salary basis, but Orton was not helpful to Pioch since there is no salary-basis test for hourly computer employees under § 213(a)(17).
  • Pioch failed to provide a compelling reason to hold that his exempt status was terminated during the three weeks when he was not paid.
  • The FLSA is generally applied to lower-paid employees. Pioch's salary (more than $3,400 per week) placed him well above the benchmark salaries considered for salaried ($23,660 per year under § 213(a)(1)) and hourly ($57,470 per year under § 213(a)(17)) exempt computer employees under the FLSA. (See 69 Fed. Reg. 22,122, 22,123, 22,164 n. 12 (Apr. 23, 2004).)

Practical Implications

In Pioch, the Eleventh Circuit dealt with an issue of first impression in any circuit court: whether an hourly computer employee who is exempt under § 213(a)(17) becomes "non-exempt" during a brief time period during which he is not paid by his employer. The court held that he does not, and given other courts' similar stances in instances with salaried employees, it seems likely that these courts will follow the Eleventh Circuit's lead concerning hourly employees.
The court drew attention to the fact that the FLSA is designed to help lower-paid employees and that exempt employees are typically subject to other benefits not afforded to lower-paid employees. The court also noted that Pioch essentially tried to assert a state-law breach of contract claim for his agreed-to hourly rate, through the FLSA, and that resolving contract disputes such as this is not the FLSA's intended purpose.