Employee Remained FLSA-Exempt Despite Withheld Pay

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By Kevin McGowan

June 14 — A highly paid, hourly computer engineer who falls within a Fair Labor Standards Act exemption can't sue under the act's minimum wage provision for withheld pay, the U.S. Court of Appeals for the Eleventh Circuit ruled ( Pioch v. IBEX Eng'g Servs., Inc., 2016 BL 188438, 11th Cir., No. 15-10845, 6/14/16 ).

Affirming a district court's dismissal of the claim, the Eleventh Circuit said Todd Pioch remained subject to the FLSA exemption even though IBEX Engineering Services Inc. didn't pay him for his final three weeks of work while it investigated his alleged abuse of per diem allowances.

The case provides “a great example” of “overreach” on FLSA claims, which have grown “exponentially” over the past decade or so, said Steven J. Whitehead of Taylor English Duma LLP in Atlanta, which represents IBEX.

Archaic Statute Inspires Litigation

The growth in FLSA litigation can be attributed in part to an “archaic, poorly drafted” statute and regulations, Whitehead told Bloomberg BNA June 14.

But a lawyer representing Pioch called the ruling “a huge disservice to employees nationwide.”

The Eleventh Circuit “allows employers to reap the benefits of an employee’s exempt status under federal overtime statutes without paying the price of minimum wage,” said attorney Lindsey Wagner of Scott Wagner & Associates PA in Jupiter, Fla.

The decision leaves Mr. Pioch without repayment for more than $13,000 in wages, Wagner said in a June 14 e-mail to Bloomberg BNA. Pioch's lawyers remain committed to ensuring “hardworking Americans” get paid “for every hour in the workplace,” she said.

“To the extent today’s ruling allows employers, like IBEX, to commit wage theft, we intend to proceed to the appellate process,” Wagner said.

Issue of First Impression

On an issue of first impression, the appeals court said an FLSA-exempt hourly employee isn't suddenly covered by the act because of a contract dispute with his employer.

Pioch provided no “compelling reason” to hold that his FLSA-exempt status ended during the three-week period that IBEX withheld his pay, the court said. “The FLSA, after all, is not a vehicle for litigating breach of contract disputes between employers and employees,” Judge Adalberto Jose Jordan wrote.

During the period relevant to his FLSA claim, Pioch was paid at an $85.40 an hour rate and earned more than $180,000 a year, the court noted.

Pioch's case presents unusual facts, but the crucial “undercurrent” was the appeals court's conviction he wasn't the type of worker for whom Congress enacted the FLSA, Whitehead said.

FLSA Not Applied Blindly

That same reasoning can be seen in recent decisions from other federal circuits too, he said. The Eleventh Circuit “didn't just put blinders on” and apply the FLSA regardless of the facts before it, Whitehead said.

IBEX alleges Pioch over the years collected $147,230 in per diem payments to which he wasn't entitled. It therefore withheld Pioch's final three weeks of pay prior to his 2013 resignation. He sued under the FLSA, arguing that withholding of his final paycheck made him “non-exempt” and entitled him to $13,367 in unpaid wages under the act.

Withholding pay to an employee suspected of embezzlement or fraud is one of an employer's few “self-help” remedies, but it's not likely to be used often, Whitehead said.

Employers are unlikely to “go gangbusters” on not paying their employees because of the court's decision, he said.

The Eleventh Circuit also revived IBEX's state-law counterclaim against Pioch for unjust enrichment, which the district court had ruled was foreclosed by the FLSA.

On remand, the district court probably will send that counterclaim to state court, Whitehead predicted.

Exemption Doesn't Disappear

Computer employees may be exempt from the FLSA under two separate provisions codified as 29 U.S.C. Section 213(a)(1) and Section 213(a)(17). Under Section 213(a)(17), the more specific exemption passed in 1996, a computer employee who performs enumerated duties and makes at least $27.63 an hour is exempt from the act.

Pioch didn't dispute that he was FLSA-exempt under Section 213(a)(17) for the “vast majority” of his tenure with IBEX, the court said. But Pioch argued that during his last three weeks of employment, he became non-exempt because IBEX failed to pay him. The exemption doesn't prevent him from using the FLSA's minimum wage provision to recover his final three weeks of pay, Pioch contended.

The Eleventh Circuit said it didn't “write on a completely blank slate” in deciding if an FLSA-exempt hourly employee becomes “non-exempt” for a time period when the employer doesn't pay him.

Instead, both the Eleventh Circuit and First Circuit previously have ruled that otherwise exempt salaried employees don't become covered by the FLSA if an employer fails to pay them.

Those decisions, if applied to hourly exempt employees as well, support the district court's grant of summary judgment to IBEX, the appeals panel said.

Pioch argued that Orton v. Johnny's Lunch Franchise, LLC, 668 F.3d 843, 18 WH Cases2d 1316 (6th Cir. 2012), in which the Sixth Circuit held an exempt salaried executive could sue under the FLSA for a period in which he didn't receive his promised salary, supports his position.

But the Eleventh Circuit distinguished Orton because it interprets the “salary basis” test under Section 213(a)(1). “Because there is no test like the salary-basis test for hourly computer employees under § 213(a)(17)—the exemption at issue here— Orton is of limited assistance,” the court said.

Congress's Intent Invoked

The cases involving salaried employees “provide some guidance” for gauging Congress's intent for the FLSA and its exemptions for highly-paid employees, the court said.

“What Pioch is essentially trying to do is assert a state-law breach of contract claim, for his agreed-to hourly rate, through the FLSA,” Jordan wrote, in an opinion joined by Judges Stanley Marcus and John M. Walker Jr.

During his IBEX tenure, Pioch's starting pay was $50 an hour and it eventually rose to $85.40 an hour. That amounts to $3,416 for a 40-hour workweek, excluding overtime hours, a level that “knocks the statutory minimum of $455 per week for [exempt] salaried employees out of the park,” the court said.

Pioch's pay rate also was three times higher than an exempt hourly computer employee would make under the $27.63 hourly rate that triggers the FLSA's Section 213(a)(17) exemption, the court said. Pioch's evidence indicated he made more than $180,000 during his final year of work at IBEX, the court said.

“[E]ven without receiving his final three weeks of pay, Pioch's earnings for his final year are well above the benchmark salaries contemplated for both salaried and hourly exempt computer employees under the FLSA,” the court said.

The court found support for its FLSA interpretation in Christopher v. SmithKline Beecham Corp., 132 S. Ct. 2156, 19 WH Cases2d 257 (U.S. 2012), in which the U.S. Supreme Court said the Section 213(a)(1) exemption is “premised on the belief” that exempt employees “typically earned salaries well above the minimum wage.”

“As the Supreme Court noted in Christopher (when it considered employees earning more than $70,000 per year), we do not believe that Pioch, a highly-paid hourly employee typically earning over six figures a year, is the type of employee that the FLSA's wage requirements were designed to protect,” the court said. “Pioch therefore cannot use the FLSA as the vehicle for recovery of his hourly salary.”

Wright Ponsoldt & Lozeau also represented IBEX Engineering Services.

To contact the reporter on this story: Kevin McGowan in Washington at kmcgowan@bna.com

To contact the editor responsible for this story: Susan J. McGolrick at smcgolrick@bna.com