August 18, 2019

Tenth Circuit: One-Time Deduction from Salaried Employee’s Check Not Impermissible

The Tenth Circuit Court of Appeals issued its opinion in Ellis v. J.R.’s Country Stores, Inc. on Monday, March 9, 2015.

Sandra Ellis was a salaried manager for J.R.’s Country Stores, and as such she was required to work 50 hours per week. When she worked 40.91 hours one week, J.R.’s deducted $31.20 from her paycheck for the missed time. Ellis resigned, then sent a letter to J.R.’s claiming she was owed $42,187.50 in overtime wages and that she had lost her exempt status for FLSA purposes when J.R.’s made the one-time deduction. J.R.’s responded by paying Ellis $332.88, which it explained as reimbursement for the deduction plus all the overtime compensation she would have received for that pay period had she been an hourly employee.

Ellis filed a lawsuit in the U.S. District Court for the District of Colorado, alleging she was not a true exempt employee under the FLSA because of the one-time deduction and signaling an intent to certify a class of similarly situated managers. J.R.’s moved for summary judgment, attaching as exhibits all of Ellis’ time sheets and payroll records. Instead of responding to the summary judgment motion, Ellis filed a motion to certify a class. J.R.’s then sought a temporary stay of class certification pending determination of its summary judgment motion, and Ellis filed a response to the summary judgment motion. The district court granted J.R.’s summary judgment motion, finding the one-time deduction did not change the company’s intent to pay Ellis a salary, but even if Ellis were correct, the company was entitled to the window-of-correction defense detailed in the FLSA. The court denied Ellis’ class certification motion as moot. Ellis appealed.

The Tenth Circuit first addressed Ellis’ contention that the district court misapplied the salary-basis test associated with her FLSA exemption. Ellis contended the district court’s order only addressed the frequency factor of the salary-basis test, but the Tenth Circuit found that the district court properly applied all five factors in finding against Ellis. Ellis next disputed the district court’s conclusion that she failed to make findings of material fact concerning the existence of a company practice of making deductions. The Tenth Circuit disagreed, finding the district court properly applied Auer in determining that a one-time deduction could not be considered a practice. Addressing her argument that the company had a policy of enforcing improper deductions against salaried employees, the Tenth Circuit again disagreed, finding instead that J.R.’s policy as stated in its employee handbook essentially disallows improper deductions. Ellis also complained of J.R.’s policy of requiring managers to maintain 50 hour work weeks, but, after examining DOL policy and caselaw, the Tenth Circuit found no error.

The Tenth Circuit next addressed Ellis’ contention that the district court’s reliance on the window-of-correction defense was misplaced, and disagreed. After examining the record, the district court concluded that because J.R.’s reimbursed Ellis for the one-time deduction in a timely manner, it was entitled to the window-of-correction defense. The Tenth Circuit agreed. The Tenth Circuit found that although sister circuits had found the window-of-correction defense only applied to “inadvertent” deductions, it was not bound by those decisions and instead ruled the defense was applicable to “isolated” incidents.

Finally, the Tenth Circuit addressed Ellis’ contention that the district court erroneously denied her motion to defer summary judgment so she could conduct additional discovery. The Tenth Circuit found no error because the affidavit in issue failed to demonstrate a need for any further discovery, and Ellis’ contentions were speculative at best.

The Tenth Circuit affirmed the district court.