In Baldwin v. Trailer Inns, Inc., 2001 WL 1097042, the U.S. Court of Appeals for the Ninth Circuit held that two management employees were not entitled to overtime wages under the federal Fair Labor Standards Act (FLSA), but they may be entitled to an unpaid bonus under their employment contract.
Michael and Constance Baldwin (a married couple), were employed by Trailer Inns, Inc., as the “Management Team” at one of Trailer Inns’ recreational vehicle parks. Trailer Inns paid them a monthly salary and provided them with an apartment. After working for approximately one year in this capacity, the Baldwins terminated their relationship with Trailer Inns. The Baldwins then filed a lawsuit against Trailer Inns claiming unpaid overtime wages under the FLSA and breach of contract for failing to pay a bonus under the employment contract.
The overtime claim: The FLSA requires employers to pay their employees time and one-half for work in excess of forty hours per week. 29 U.S.C. § 207(a)(1). However, the FLSA provides an exemption from overtime pay for persons “employed in a bona fide executive, administrative, or professional capacity.” 29 U.S.C. § 213(a)(1). The Department of Labor has established a four-part test to use in determining whether employment meets this “executive exemption.” 29 C.F.R. § 54.1(f). Applying this test, the Court determined that the Baldwins’ employment fell under the executive exemption and, therefore, they were not entitled to overtime pay:
(1) Were the Baldwins paid on a “salary basis”? The parties agreed that the Baldwins were paid on a salary basis.
(2) Were the Baldwins paid at a rate of not less than $250 per week? Again, the parties agreed that the Baldwins were paid more than $250 per week.
(3) Did the Baldwins’ primary duties consist of “the management of the enterprise in which the employee is employed?” Even accepting as true the Baldwins’ claim that they spent most of their time on non-managerial tasks, the Court of Appeals determined, based on several factors, that management was the Baldwins’ primary duty. First, although the Baldwins may have spent 50% of their time on maintenance and cleaning of the park (work not considered managerial), they also spent considerable time on managerial activities such as, interviewing, selecting, and training employees; setting hours and planning and directing work; evaluating and disciplining employees; and maintaining the safety of the employees and the park. Second, the Baldwins’ managerial tasks outweighed their non-managerial tasks, because they were in charge of making the important day-to-day decisions of the facility and of providing for the safety of the property. Third, the Baldwins frequently exercised discretionary powers, such as supervising employees, implementing corporate policies, and acting as Trailer Inns’ on-site representative. Fourth, the Baldwins had relative freedom from supervision, because Trailer Inns’ representative visited the park only once or twice a month and Trailer Inns exercised no constant oversight. Fifth, the Baldwins’ salary was greater than the salaries of the assistant managers and the Baldwins received better living accommodations than the assistant managers did.
(4) Did the Baldwins’ primary duties include “the customary and regular direction of the work of two or more other employees?” The Court also answered “yes” to this question, because, except for three weeks, the park employed assistant managers and the Baldwins trained, supervised, and evaluated those employees.
The bonus claim. The Court of Appeals next turned to the question of whether the Baldwins were entitled, under the contract of employment, to a bonus for working as the “Management Team” for Trailer Inns for one year. Trailer Inns argued that the Baldwins had not been employed as the "Management Team" for one year because the month that they spent in on-site training did not count toward the one-year period. The Baldwins, on the other hand, argued that the one-month period counted because they had already completed the necessary training when they first became assistant managers. The Court determined that a question of fact existed on this issue, because Trailers Inns’ representative, before and after making the contract, may have led the Baldwins to believe that they did not have to do any training in addition to the training they did to become assistant managers.
Therefore, the Court of Appeals found that the Baldwins were not entitled to overtime pay, but the Court sent the case back to the trial court to determine whether the Baldwins had worked as the "Management Team" for a period of one year and thus were entitled to a bonus under the contract.
If you have any questions about this Legal Alert, please contact Emily Vasquez, or any attorney in the Employment & Labor Department at (916) 321-4500.