Date: 11-04-2014

Case Style: Crystal Litz v. The Saint Consulting Group, Inc.

Case Number: 13-2437

Judge: Kayatta

Court: United States Court of Appeals for the First Circuit on appeal from the District of Massachusetts (Suffolk County)

Plaintiff's Attorney: Shannon Liss-Riordan, with whom John E. Duke, Lichten & Liss-Riordan, P.C., Jim Zouras, Ryan F. Stephan, and Stephan
Zouras, LLP were on brief, for appellants.

Defendant's Attorney: Sean P. O'Connor, with whom Bob Joy, Dan Field,
and Morgan, Brown & Joy, LLP were on brief, for appellees.

Description: Appellants Crystal Litz and
Amanda Payne ("plaintiffs") claim unpaid overtime wages for their
work as project managers for The Saint Consulting Group, Inc.
("Saint Consulting"). The district court concluded that plaintiffs
were "highly compensated employees" and thus exempt from the
overtime pay protections of the Fair Labor Standards Act ("FLSA").
29 U.S.C. § 213(a)(1); 29 C.F.R. § 541.601. For the following
reasons, we affirm.
I. Background
The relevant facts are not in dispute. Saint Consulting
is a Massachusetts corporation that provides political consulting
to land use campaigns across the country. P. Michael Saint is its
founder, CEO, chairman, and majority shareholder, and Patrick Fox
serves as its president. Litz joined Saint Consulting as a project
manager in 2005. Her relevant period of employment for this appeal
is from October 2009, when she returned to the project manager
position after a three-year stint as division manager, until her
employment with Saint Consulting ended in March 2010. Amanda Payne
worked as a project manager for Saint Consulting from June 2003
until October 2008.
The plaintiffs earned well over $100,000 per year as
project managers during the years at issue. For most weeks, their
earnings equaled the number of hours they billed to clients
multiplied by an hourly rate between $40 and $60. Project managers
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typically received $2,500 to $4,000 per week in gross pay, which
means that they typically worked more than 40 hours per week.
Saint Consulting did not pay its project managers at a higher,
overtime rate for hours worked beyond 40 hours per week. Saint
Consulting's compensation plan for the relevant time provided,
however, that "[a]ll project managers will . . . be guaranteed a
minimum weekly salary of $1,000 whether they bill any hours or
not." Therefore, if a project manager billed 10 hours at a $50
hourly rate, or $500, she would still receive $1,000 in pay for
that week. If she instead billed 60 hours, she would simply
receive $3,000, or 60 times $50. There is no dispute that Saint
Consulting always paid the $1,000 stipend1 when the value of a
project manager's billed hours did not exceed $1,000. Indeed,
Payne billed no hours during several weeks and still received
$1,000 per week, designated as "MINSAL" or "STIPEN" on her
paystubs.
1 The plaintiffs use the term "stipend," arguing that this is
consistent with Saint Consulting's usage. In this litigation,
Saint Consulting prefers the term "guaranteed minimum weekly
salary." This is a debate of no consequence, as the terms
"stipend" and "salary" are commonly viewed as synonyms for one
another, see, e.g., Roget's II: The New Thesaurus 861, 960 (3d ed.
1995), and some sources even define "stipend" as a "salary." See,
e.g., Black's Law Dictionary 1550 (9th ed. 2009) (defining
"stipend" as "[a] salary or other regular, periodic payment").
There is, moreover, no evidence that Saint Consulting sought to
communicate any particular technical meaning by usage of either
term. In any event, since the plaintiffs lost on summary judgment,
we will use their preferred term.
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In September 2010, former project manager Leigh Mayo
filed suit against Saint Consulting in the Northern District of
Illinois for unpaid overtime compensation under the FLSA. See 29
U.S.C. § 207. Litz and Payne consented to join the action as party
plaintiffs in December 2010 and January 2011, respectively. Litz
became the representative plaintiff2 in March 2011 after Mayo
settled with Saint Consulting. Because none of the 36 other
project managers opted to join the lawsuit after receiving notice
of opt-in rights under 29 U.S.C. § 216(b), Litz and Payne were the
sole party plaintiffs.
With Mayo, an Illinois resident, out of the case, Saint
Consulting filed and the court granted an uncontested motion to
transfer venue to the District of Massachusetts. After the
transfer, the plaintiffs sought leave to file a second amended
complaint with a claim under the Massachusetts overtime statute.
See Mass. Gen. Laws ch. 151, § 1A. The district court denied their
motion, reasoning that the Massachusetts statute did not apply
because they did not allege that they or any other project manager
worked, resided, or had sufficient contact with Massachusetts.
Litz v. Saint Consulting Grp., Inc., No. 11–10693–GAO, 2012 WL
549057 (D. Mass. Feb. 17, 2012). Two years later, after both sides
filed motions for summary judgment, the plaintiffs asked the
2 29 U.S.C. § 216(b) allows collective actions commenced by
one or more plaintiffs as a representative, with other employees
allowed to opt in to the action by consent.
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district court to reconsider its denial of leave to add a claim
under Massachusetts overtime law. As support for their motion, the
plaintiffs pointed to a new decision by the Massachusetts Supreme
Judicial Court applying the Massachusetts independent contractor
statute to New York residents and workers, although, unlike here,
a written contract between the parties in that case contained an
express choice of Massachusetts law provision. Taylor v. Eastern
Connection Operating, Inc., 465 Mass. 191, 192 (2013). The
district court denied the plaintiffs' request.
The district court granted summary judgment on the FLSA
claim to Saint Consulting. The plaintiffs appeal from that
judgment, as well as from the denial of their motions to amend and
reconsider.3
II. Standard of Review
We review de novo the district court's grant of summary
judgment. Velázquez-Pérez v. Developers Diversified Realty Corp.,
753 F.3d 265, 270 (1st Cir. 2014). As the moving party, Saint
Consulting is entitled to summary judgment if it "shows that there
3 The plaintiffs' notice of appeal lacks any reference to the
district court's orders denying leave to amend their complaint and
for reconsideration. Though neither party raises the point, the
notice of appeal arguably fails to "designate the judgment, order,
or part thereof being appealed" with respect to these two orders.
Fed. R. App. P. 3(c)(1)(B). Nonetheless, "this rule is not
absolute . . . and we assume arguendo that we have jurisdiction to
resolve this claim of error." Nikitine v. Wilmington Trust Co.,
715 F.3d 388, 389 n.2 (1st Cir. 2013) (citations omitted).
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is no genuine dispute as to any material fact and [it] is entitled
to judgment as a matter of law." Fed. R. Civ. P. 56(a).
III. Analysis
A. The Plaintiffs' FLSA Claim
The FLSA requires employers to pay nonexempt employees at
a higher rate for hours worked beyond 40 hours in a week. 29
U.S.C. § 207(a)(1). The FLSA exempts from its overtime protection
"any employee employed in a bona fide executive, administrative, or
professional capacity." Id. § 213(a)(1). The FLSA implementing
regulations further provide that this exemption applies to "highly
compensated employees" who (1) "customarily and regularly perform[]
any one or more of the exempt duties or responsibilities of an
executive, administrative or professional employee"; (2) receive at
least $100,000 in total annual compensation; and (3) receive "at
least $455 per week paid on a salary or fee basis." 29 C.F.R.
§ 541.601(a), (b)(1). Saint Consulting argues, and the district
court agreed, that the plaintiffs satisfied these three
requirements. The plaintiffs concede that they satisfied the
duties requirement and earned well over $100,000 annually during
the relevant time period, but they argue that they were not paid
any amount "on a salary . . . basis."
This appeal therefore depends on whether Saint Consulting
paid the $1,000 stipend on a salary basis within the meaning of 29
C.F.R. § 541.602(a). The stipend was paid on a "salary basis" if
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it was (1) "a predetermined amount," (2) "constituting all or part
of the employee's compensation," and (3) "not subject to reduction
because of variation's in the quality or quantity of the work
performed." Id. § 541.602(a). There is no dispute that the
stipend was a predetermined amount of $1,000 per week. The
plaintiffs' arguments instead apply to the latter two requirements.
The plaintiffs first direct us to two communications from
Saint and Fox that, according to plaintiffs, show that the $1,000
stipend was "subject to reduction because of variations in the
. . . quantity of work performed." Id. The first is a lengthy
email from Saint instructing managers to document instances in
which a project manager refused assignments or available billable
hours outside of their geographic division. After reading the
email in its entirety, however, it is clear that Saint was trying
to make sure his company satisfied project managers who wanted to
make more than $100,000 per year, and not suggesting that the
company would reduce stipends.4 Notably, in that same email Saint
4 It appears that the amount of hours assigned to project
managers varied greatly, in part because some division managers did
not trust certain project managers. The pertinent parts of the
email read
Each of our project managers was told when they were
hired they could make $100,000 a year or more from billed
hours. . . . We need to do everything we can to insure
each and every project manager is getting as many hours
as they want, at least up to 45 or 50 a week. How is it
fair that some project managers get 75 or 80 hours to
bill week in and week out while other[s] get[] 25 or 30?
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explained that project managers had a minimum fixed cost to Saint
Consulting of "$72,000 a year ($1,000 a week minimum and
benefits)," which suggests that Saint did not consider it a
possibility to reduce the $52,000 per year in weekly stipend
payments.
The second communication, by contrast, does speak to the
possibility of not paying the stipend. It is a brief message from
Fox instructing managers that the "stipend is not to be used like
vacation time. If there are hours available for a project manager
to bill and they choose not to do the work, they need to use
vacation time. We will not pay the stipend in that situation.”
But the plaintiffs identify no instance where Saint Consulting
actually reduced or did not pay the stipend. Without any evidence
that Saint Consulting had an actual practice of reducing the $1,000
stipend for any project manager, and with an undisputed record
showing no project manager was paid less than the stipend amount,
. . .
I understand that some [project managers] who have
been offered . . . out-of-division hours in the past have
declined . . . . We need to document these offers and
responses.
. . .
I do not want to have any more debates with a
disgruntled employee whether they were offered hours and
refused or whether the division manager simply chose not
to assign them enough hours. Nor do I want to open us up
for charges of discrimination.
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this single email cannot demonstrate that plaintiffs' pay was
actually subject to improper deductions. See 29 C.F.R. §
541.603(a) & (b) (requiring "[a]n actual practice of making
improper deductions" for an employer to lose the exemption); see
also 69 Fed. Reg. 22,122-01, 22,181 (Apr. 23, 2004) ("[A]
corporate-wide policy permitting improper deductions is some
evidence that an employer has an actual practice of not paying
employees on a salary basis, but not sufficient evidence by itself
to cause the exemption to be lost if a manager has never used that
policy to make any actual deductions . . . ."). Even if Saint
Consulting did require project managers to use vacation time when
they rejected available hours, this would only show that the
project managers' vacation time, and not their salary, was subject
to deduction. See McBride v. Peak Wellness Ctr., Inc., 688 F.3d
698, 705-06 (10th Cir. 2012) (employer permissibly deducted
employee's accrued leave for partial day absences).
The plaintiffs also point to the paystubs generated by
Saint Consulting's payroll company. These paystubs show hours
times hourly rate, with no express reference to hourly pay. In
other words, if an employee earning $50 per hour works 21 hours,
the paystub reflects $50 times 21 as equaling gross pay of $1050.
The plaintiffs argue that for the exemption to apply, the paystub
formula need have been something like $1,000 + (# of hours -
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20)($50). In short, the plaintiffs contend that the "stipend" does
not exist except when hours times hourly rate falls below $1,000.
This argument elevates form over substance, and simply
ignores the economic reality of the guarantee. Under the paystub
formula, as backed by the undisputed guarantee, every single
project manager in every single possible situation would receive
exactly the same pay as under the more complicated formula that the
plaintiffs say Saint Consulting should have used. The fact that
the pay was usually--but not always--high enough to render the
guaranteed stipend unnecessary hardly means that the guarantee was
not "part of the employee's compensation." 29 C.F.R. § 541.602(a).
And since it was both "predetermined" and "not subject to reduction
because of variation's in the quality or quantity of the work
performed," it plainly qualifies as a payment on a "salary basis."
Id.; see Anani v. CVS RX Servs., Inc., 730 F.3d 146, 148 (2d Cir.
2013) (pharmacist qualified for highly compensated employee
exemption when he received a guaranteed $1,250 weekly salary and
significant additional compensation based on number of hours
worked); Hogan v. Allstate Ins. Co., 361 F.3d 621, 624 (11th Cir.
2004) (insurance agents were paid on salary basis when they
received a "monthly minimum compensation amount if their
compensation from net written premiums was less than the
guarantee").
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Lastly, we need not reach the alternative argument to
which the plaintiffs devoted a significant portion of their opening
brief, contending that the separate "[m]inimum guarantee plus
extras" regulation of 29 C.F.R. § 541.604 required Saint
Consulting's stipend to be reasonably related to plaintiffs' actual
pay of more than $3,000 per week. Saint Consulting does not rely
on that exemption, and we see no reason why its requirements should
be grafted onto the materially different exemption on which Saint
Consulting relies. See Anani, 730 F.3d at 149 ("We perceive no
cogent reason why the requirements of C.F.R. § 541.604 must be met
by an employee meeting the requirements of C.F.R. § 541.601.").
The plaintiffs thus sensibly abandoned in their reply brief the
argument that section 541.604(b) applies to highly compensated
employees ("[p]laintiffs do not take a position on this issue").
In sum, because the undisputed evidence shows that Saint
Consulting paid its project managers on a salary basis within the
meaning of 29 C.F.R. § 541.602(a), and the parties agreed that they
received more than $100,000 per year for continuously performing
the duties of a professional employee, the project managers were
exempt as highly compensated employees under 29 C.F.R. § 541.601.
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B. Denial of Leave to Amend Complaint
The Massachusetts statute under which the plaintiffs
sought to bring a claim in their second amended complaint exempts
from its overtime protections "a bona fide executive, or
administrative or professional person . . . earning more than
eighty dollars per week." Mass. Gen. Laws ch. 151 § 1A(3). In
construing this exemption, Massachusetts looks to track federal
law. Goodrow v. Lane Bryant, Inc., 432 Mass. 165, 171 (2000)
(looking to FLSA regulations to interpret Massachusetts executive
employee exemption); see also Swift v. AutoZone, Inc., 441 Mass.
443, 447 (2004) ("[T]he overtime provisions under State law were
intended to be essentially identical to Federal law." (quotation
omitted)). Because our resolution of the plaintiffs' FLSA claim
would therefore dictate the failure of their Massachusetts claim,
see Cash v. Cycle Craft Co., 508 F.3d 680, 687 (1st Cir. 2007),
whether the district court should have allowed them to add such a
claim is a moot question.

Outcome: For the foregoing reasons, we conclude that the
plaintiffs were highly compensated employees exempt from the
overtime protections of the FLSA. We therefore affirm the district
court's grant of summary judgment in favor of Saint Consulting.

Plaintiff's Experts:

Defendant's Experts:

Comments: