[00:00:11] Speaker 04:
whenever you're ready.

[00:00:13] Speaker 03:
Good morning, Your Honors.

[00:00:14] Speaker 03:
Caitlin Gray, arguing on behalf of plaintiffs' appellants.

[00:00:17] Speaker 02:
Could I ask you please to speak directly to the microphone, because I'm having trouble hearing.

[00:00:21] Speaker 03:
Thank you.

[00:00:23] Speaker 03:
I'd like to try to reserve four minutes of my time for rebuttal.

[00:00:27] Speaker 03:
The question in this case is whether the city and county of San Francisco paid staff nurses on a salary basis.

[00:00:35] Speaker 03:
And the answer to that question based on applying the clear text of the governing regulations to the undisputed facts here is no.

[00:00:45] Speaker 03:
The nurses were required to clock in and out for work.

[00:00:49] Speaker 03:
The actual hours they worked were recorded on timesheets and transmitted to payroll, and payroll computed their pay each pay period by applying the applicable hourly rates to the hours shown on the timesheets.

[00:01:03] Speaker 04:
But there's quite a bit of discussion about, as you know, about the city's process of taking an annualized salary and converting it into an hourly rate for purposes of administrative convenience and accounting.

[00:01:16] Speaker 04:
So what about that?

[00:01:19] Speaker 03:
Yes, absolutely.

[00:01:20] Speaker 03:
It has the same process actually also for hourly employees like the per diem nurses where it also takes an hourly, an annual number and converts it into an hourly number.

[00:01:33] Speaker 03:
The regulations permit that.

[00:01:36] Speaker 03:
That's section 604B of the regulations that permit an employer to use an hourly rate in computing even a salary for an exempt employee.

[00:01:46] Speaker 04:
Well, I have another question about why 604 is even applicable here because we don't have a backstop situation.

[00:01:52] Speaker 04:
But if you can go back to the first question, which is, is there anything wrong with the city converting an annualized salary into an hourly rate for purposes of accounting?

[00:02:04] Speaker 03:
The regulations permit that, but only if the two conditions in 604B are met, which is a guarantee of a minimum amount paid every pay period and a reasonable relationship between that guarantee and the amount actually received.

[00:02:19] Speaker 03:
Without those two requirements, it just dissolves into an hourly pay system and overtime is required.

[00:02:25] Speaker 04:
That was not the district court's view.

[00:02:27] Speaker 04:
The district court said that he thought there's a footnote seven where it's a lengthy discussion of why he thought 604 is not applicable here at all.

[00:02:34] Speaker 04:
And as you know, there's authorities, including from the Supreme Court, discussing these are separate paths.

[00:02:39] Speaker 04:
And the city's contention is that it has satisfied 602, so we never get to 604.

[00:02:44] Speaker 04:
What is your response, please?

[00:02:46] Speaker 03:
I think the Supreme Court's decision in Helix is actually why 604 is applicable here.

[00:02:52] Speaker 04:
That's not a public employer.

[00:02:54] Speaker 03:
So we're worried about a public employer here.

[00:02:58] Speaker 04:
So we have to be worried, don't we, about 541.710?

[00:03:02] Speaker 03:
Yes, in promulgating that regulation in 1992, the Department of Labor made it clear that it was not trying to get rid of the salary basis test for public employers.

[00:03:13] Speaker 03:
It could have done that.

[00:03:14] Speaker 03:
It could have just created an exception to the salary basis test for public employers.

[00:03:19] Speaker 03:
Instead, what it did was permit partial day deductions.

[00:03:22] Speaker 03:
And the 1992 legislative history says that public employers are still subject

[00:03:28] Speaker 03:
to all other parts of the salary basis test.

[00:03:31] Speaker 03:
And there was a comment asking whether public employers would be permitted to pay additional compensation on an hourly basis.

[00:03:39] Speaker 03:
And the Department of Labor's response to that comment was, yes, as long as they complied with the then existing minimum guarantee plus extras regulation, which has been amended and is now codified at Section 604.

[00:03:53] Speaker 04:
So didn't the district court view this as two different jobs?

[00:03:57] Speaker 04:
They're staff nurses, and they have their jobs and their annual salaries.

[00:04:01] Speaker 04:
And then he viewed the other shifts, the per diem shifts, as entirely voluntary.

[00:04:05] Speaker 04:
And I think the record is that they were voluntary.

[00:04:07] Speaker 04:
Yes.

[00:04:07] Speaker 04:
And that they're almost, the way I'm envisioning this is they're parallel tracks.

[00:04:10] Speaker 04:
There's this annual income, right?

[00:04:13] Speaker 04:
And we're accounting for that for the nurses who are staff nurses.

[00:04:15] Speaker 04:
And they may or may not choose to work on Saturday or extra evenings or whatnot.

[00:04:19] Speaker 04:
So if he envisioned the accounting happening that way, what's wrong with that?

[00:04:25] Speaker 03:
So that kind of additional compensation for additional hourly work would be permitted if, as you say, there was a legitimate annual salary.

[00:04:33] Speaker 03:
But here, there's not a legitimate annual salary in place because the employer doesn't satisfy the salary basis test.

[00:04:40] Speaker 03:
The public sector employers are still bound to abide by the minimum guarantee plus extras requirement so the two things that the court should be looking for is that guarantee of a minimum amount and a reasonable relationship That's not what the district court did what he said is that you keep talking about a guaranteed minimum amount you keep going back to 604 and so you're running right into my problem, which is

[00:05:06] Speaker 04:
I see those as, I think, we've been told they're parallel tracks, we're a public employer situation here, and they had to satisfy 602.

[00:05:13] Speaker 04:
Before you shake your head, if you could just let me finish.

[00:05:17] Speaker 04:
The district court reason, I believe, that because the city satisfied 602, we never get to 604.

[00:05:23] Speaker 04:
It would be very helpful for me to hear your answer to, why would we get to 604?

[00:05:27] Speaker 03:
Yes, the Supreme Court's decision in Helix is actually instructive on this point.

[00:05:33] Speaker 03:
So it affirmed the Fifth Circuit's ruling, finding that of course an employer has to comply with all applicable regulations, and 604 is applicable on its face, both because

[00:05:43] Speaker 03:
of the additional compensation and because of the hourly rate used in computing pay.

[00:05:47] Speaker 03:
Hold on.

[00:05:47] Speaker 04:
When you say it's applicable on its face, you're saying 604 is applicable on its face to the facts we have here?

[00:05:52] Speaker 03:
That's correct.

[00:05:53] Speaker 04:
So we're talking about a public employer.

[00:05:55] Speaker 04:
Helix was not a public employer, right?

[00:05:57] Speaker 04:
So first- Hold on.

[00:05:58] Speaker 04:
Is that right?

[00:05:59] Speaker 04:
That's right.

[00:05:59] Speaker 04:
Okay.

[00:06:00] Speaker 04:
So go back to on its face, where do you see a backstop guarantee for these nurses?

[00:06:05] Speaker 04:
I'm missing that.

[00:06:07] Speaker 03:
Our argument is that there's not a backstop guarantee, that 602 is not satisfied, and Helix makes it very clear that where an employee is paid on an hourly rate, it cannot satisfy 602, which requires an employee to be paid

[00:06:21] Speaker 03:
without regard to the number of hours worked.

[00:06:24] Speaker 04:
Yes, but that's why the argument canceled.

[00:06:26] Speaker 04:
That's why the argument's circular.

[00:06:29] Speaker 04:
Because the premise was that the public employer is allowed to convert an annualized salary to an hourly rate.

[00:06:36] Speaker 04:
So if you can help me understand that, I'm trying to get your argument, but you keep skipping over this point.

[00:06:42] Speaker 03:
They are only permitted to do that if they comply with the text of the regulations.

[00:06:51] Speaker 03:
Where the factual predicate of the regulations is met, the expressed terms of the regulations say that if you compute pay on an hourly basis, you must provide this minimum guarantee and a reasonable relationship.

[00:07:03] Speaker 03:
It's also undisputed actually that 604A applies here because they have this additional compensation, which also requires a minimum guarantee.

[00:07:12] Speaker 03:
But Helix said, turning to 604B, Helix said that where the factual predicate for 604B is met,

[00:07:19] Speaker 03:
where there is pay computed on an hourly, daily, or shift basis, 602 cannot be satisfied.

[00:07:26] Speaker 03:
So these alternative paths and saying that 604B always applies when the predicate is met are not contradictory.

[00:07:33] Speaker 03:
It's that if pay is computed on an hourly basis, they cannot satisfy 602A, and therefore they must satisfy 604B.

[00:07:45] Speaker 03:
So the Helix's language is especially helpful here.

[00:07:53] Speaker 03:
The court said that 602A's text excludes daily rate workers, and it excludes hourly workers for the same reason.

[00:08:04] Speaker 03:
An employee is paid on a salary basis if but only if he receives the full salary for any week in which he performs work without regard to the number of days or hours worked.

[00:08:16] Speaker 03:
And that's quoting 602 directly.

[00:08:18] Speaker 03:
And the court goes on to say, a daily rate worker's weekly pay is always a function of how many days he has labored.

[00:08:25] Speaker 03:
It can be calculated only by counting those days once the week is over, not as 602A requires, by ignoring that number and paying a predetermined amount.

[00:08:35] Speaker 03:
That's exactly what the city did here.

[00:08:37] Speaker 04:
Who's the judge wrong in footnote seven?

[00:08:38] Speaker 04:
I don't see a response to the district court's footnote number seven.

[00:08:42] Speaker 04:
Could you turn to that?

[00:08:43] Speaker 03:
Yes.

[00:08:44] Speaker 03:
The district court's ruling in footnote number seven relied on two pieces of authority.

[00:08:50] Speaker 03:
First, it relied on LITs, the holding that

[00:08:54] Speaker 03:
which held that 604 wasn't applicable where the district court says where another regulation is met, but what let's actually held was where the highly compensated employee regulation is met, and that was rejected by the US Supreme Court in Helix, which held that highly compensated employees, even if they meet 601, which is the alternative to 602 for highly compensated employees,

[00:09:21] Speaker 03:
still had to abide by 604 and the salary basis test where pay was computed on an hourly or daily rate basis.

[00:09:32] Speaker 03:
And that the other regulations did not relieve the employer of having to show pay on a salary basis.

[00:09:39] Speaker 03:
And where pay is on an hourly or daily basis, it cannot satisfy 602, so it must satisfy 604.

[00:09:47] Speaker 03:
The other thing the district court relied on was the text at the bottom of the reasonable relationship test at 604B, which reads that the district court said it says that the regulation isn't applicable where additional compensation is paid, but that's not what it says.

[00:10:11] Speaker 03:
It says the reasonable relationship requirement

[00:10:14] Speaker 03:
in 604B applies only if the employee's pay is computed on an hourly, daily, or shift basis.

[00:10:21] Speaker 03:
It does not apply, for example, to an exempt store manager paid a guaranteed salary per week that exceeds the current salary level, who also receives a commission of 1.5% on all sales or 5% of the store's profits.

[00:10:37] Speaker 03:
So that's talking about an entirely distinguishable situation where pay is not computed on an hourly basis at all.

[00:10:47] Speaker 01:
Go ahead.

[00:10:47] Speaker 01:
Finish your answer, please.

[00:10:50] Speaker 03:
So the reasonable relationship test, it's true, only applies where pay is computed hourly.

[00:10:56] Speaker 03:
And the minimum guarantee part of the test applies both where pay is computed hourly or where there's additional compensation provided on top of salary.

[00:11:06] Speaker 01:
If you are right, counsel, it sounds like the employer would have a very powerful incentive to cap the number of per diem shifts that your clients could take on.

[00:11:19] Speaker 03:
Yes, and I think that's what the FLSA is designed to encourage.

[00:11:23] Speaker 03:
The Fifth Circuit's ruling in Hewitt v. Helix describes that this reasonable relationship test is designed as a ceiling on the amount that employees can actually work so that an employer doesn't overwork employees to such an extent that the salary

[00:11:37] Speaker 03:
becomes a fiction, and pay is actually a function of how much the employees work.

[00:11:42] Speaker 04:
But there's no danger of that here, it seems to me, because these folks were working on, as I said, two jobs.

[00:11:48] Speaker 04:
The second job, the per diem work is entirely voluntary.

[00:11:54] Speaker 04:
That's really key to Judge Seberg's ruling, it seems to me.

[00:11:57] Speaker 04:
But it's not staff nurses who may or may not choose to take on these other

[00:12:02] Speaker 04:
Unlike a situation where if I just pay you a hundred and fifty thousand dollars a year and then I then it would be very concerned that I might work you too hard

[00:12:09] Speaker 03:
The voluntary nature of the shifts wouldn't change the overtime requirement if the employees were not paid on a salary basis.

[00:12:18] Speaker 03:
So whether the shifts are voluntary or not, they were voluntary, isn't relevant to the question of whether an employer would have to pay them an overtime rate if there was not a fundamental salary in place in the first instance.

[00:12:33] Speaker 03:
And the salary here

[00:12:36] Speaker 03:
It's not met under 602 for the reasons that I just discussed in Helix, that it's specifically with regard to the number of hours worked, and it's also not predetermined.

[00:12:46] Speaker 03:
There's a strong piece of testimony, a few strong pieces of testimony from Steve Ponder, the PMK on the city's payroll practices here, but especially at page 433 of the Sillaway record,

[00:13:00] Speaker 03:
He describes that pay is administered by the hours and cannot be administered based on whatever annual salary because the city doesn't know what hours people are going to work throughout the year.

[00:13:12] Speaker 03:
because people don't always work their full schedule.

[00:13:15] Speaker 03:
So that's why we use increments to cover the period by which we are going to pay employees.

[00:13:19] Speaker 04:
But that's entirely consistent though.

[00:13:21] Speaker 04:
It depends on, sorry, it's absolutely consistent with the notion that people are, to go back to my silly hypothetical, somebody's paid $150,000 a year and they have a union contract and it allows a certain amount of time off, but this is a public employer.

[00:13:36] Speaker 04:
If this hypothetical nurse takes another week off, just decides not to come in, the city's not allowed to pay her for that, right?

[00:13:43] Speaker 04:
That's the public accountability provision.

[00:13:46] Speaker 04:
And so they convert all this to an hourly, just for administrative convenience, and that's going to show up on a paycheck.

[00:13:53] Speaker 03:
Yes, but when they apply that hourly accounting system, they fall under 604 because they're no longer paying a predetermined amount

[00:14:01] Speaker 03:
without regard to hours, and now they're paying an amount that changes without regard to hours.

[00:14:06] Speaker 03:
So to make sure it's a real salary, you need to look for that guarantee, an enforceable contractual guarantee, and a reasonable relationship between that guarantee and the amount paid to ensure that it's a real salary and not just an hourly pay system.

[00:14:21] Speaker 03:
The other problem with it is that the deductions the city is permitted to make under 710 are only those for personal absences, sickness, an injury or illness of the employee.

[00:14:34] Speaker 03:
And the city here, there are several instances in the record where pay is dropping below the alleged biweekly salary.

[00:14:43] Speaker 03:
And there is no permissible basis for a deduction recorded.

[00:14:46] Speaker 01:
Could we pursue that in the expert report a little bit?

[00:14:50] Speaker 01:
As I understand it, what they found is something like 72 unexplained discrepancies for 26 of the plaintiffs, correct, over a period of several years.

[00:15:01] Speaker 01:
You're familiar with the acts against Detroit Power and Light case, I think, I expect, if I got that right, where there, as I understand it, there were something like 40 discrepancies with 353 plaintiffs over a number of years, right?

[00:15:20] Speaker 01:
Have I got that math right?

[00:15:24] Speaker 01:
Yeah.

[00:15:25] Speaker 01:
Okay.

[00:15:26] Speaker 01:
I share Judge Christen's concern about the public accountability provisions here, but I also, at least if I'm doing the math right, the ratio of discrepancies here was something like 20 times as high as in the Detroit case.

[00:15:45] Speaker 01:
Is that consistent with your math?

[00:15:46] Speaker 03:
That's right.

[00:15:47] Speaker 03:
And there's also those two Ninth Circuit cases finding that there was an issue, Block and Clem.

[00:15:55] Speaker 03:
Block found an issue where one employee had just 13 suspensions over a six-year period.

[00:16:01] Speaker 03:
Some of the employees in the record here

[00:16:03] Speaker 03:
have nine and 10 suspensions or 11% of the time are seeing.

[00:16:11] Speaker 03:
There weren't suspensions here.

[00:16:12] Speaker 03:
I'm sorry.

[00:16:12] Speaker 04:
And Block and Clem were.

[00:16:13] Speaker 04:
And that's one of the problems we've got.

[00:16:15] Speaker 04:
So in Block and Clem, this word discrepancies is slippery.

[00:16:19] Speaker 04:
Because if we could see that somebody wasn't paid and knew why, that'd be one thing.

[00:16:23] Speaker 04:
In Block and Clem, we had that.

[00:16:25] Speaker 04:
We don't have that here.

[00:16:26] Speaker 04:
But we do have a system that allows a nurse to look at a paycheck and say, hey, this isn't correct.

[00:16:32] Speaker 04:
and to raise a red flag and have that, what you're calling a discrepancy, corrected, right?

[00:16:36] Speaker 04:
That was important to Judge Seidberg's ruling as well.

[00:16:39] Speaker 03:
Yes, there is a path to correct discrepancies, but the procedure in the first instance isn't actually paying attention at all to whether there's a permissible reason to reduce pay below salary.

[00:16:52] Speaker 04:
And what is the support for that?

[00:16:53] Speaker 04:
That would be helpful to me if I understood why you think that the procedures on the front end aren't paying attention to that.

[00:16:59] Speaker 03:
So the expert report, the incidences in the expert report paired with the city has presented evidence that it had a comprehensive system for tracking all paid and unpaid absences.

[00:17:12] Speaker 03:
There's a chart of those at page 787 in the record.

[00:17:16] Speaker 03:
And so you would expect to see any personal absences, unpaid leave, sicknesses, injuries captured in that payroll system.

[00:17:27] Speaker 03:
Christine Beats in her declaration testified that the timesheets that payroll was prepared from

[00:17:33] Speaker 03:
were prepared by comparing it to the nurse's schedule and the actual hours worked.

[00:17:38] Speaker 03:
So you'd expect to see any deviations from the schedule captured in those time sheets and then captured in payroll.

[00:17:45] Speaker 03:
So when we have all of these instances for some employees as high as 11% of the time where their pay is dropping below salary but there's no personal absence or other permissible reason for a deduction recorded, that is a real problem.

[00:18:01] Speaker 03:
That failure to

[00:18:03] Speaker 03:
track all absences isn't happening.

[00:18:06] Speaker 03:
The city isn't really

[00:18:09] Speaker 03:
Either the city is not really tracking all absences, which is what I was talking about, the process problem.

[00:18:15] Speaker 03:
Or if they are, the only explanation for these is an impermissible deduction.

[00:18:20] Speaker 04:
Well, or that the people didn't work the hours.

[00:18:22] Speaker 04:
And we don't have that.

[00:18:23] Speaker 04:
Well, you are three minutes over your time.

[00:18:25] Speaker 04:
So I'm going to ask you to take a seat, if you could, so we can hear from opposing council.

[00:18:29] Speaker 04:
And for planning purposes, when you come back, we'll put a few more minutes on the clock for you for rebuttal, because we took you over.

[00:18:36] Speaker 00:
Sure.

[00:18:49] Speaker 00:
Thank you your honors Spencer Wilson for the city and county of San Francisco Your honors this case does not present any tribal issues of material fact Appellants premise their case on various intricacies of the city's payroll system which are undisputed

[00:19:07] Speaker 00:
But these payroll practices, the hourly accounting system, the clocking in and out, the tracking of work hours, the use of leave banks, the deductions for personal time off, do not undermine the fact that staff nurses are salaried.

[00:19:21] Speaker 00:
Rather, they are indicia, the city using a pay system based on principles of public accountability

[00:19:28] Speaker 00:
Like most public agencies, San Francisco's city charter contains a public accountability provision that prohibits the city from paying any employee, salaried or otherwise, for time not worked.

[00:19:39] Speaker 04:
Counsel, could I interrupt you?

[00:19:40] Speaker 04:
I think you're arguing that you satisfied 602 and so you don't go any farther.

[00:19:44] Speaker 00:
Correct.

[00:19:45] Speaker 04:
All right.

[00:19:45] Speaker 04:
So that's my paraphrase of your opening.

[00:19:48] Speaker 04:
And I think Judge Seberg agreed with you.

[00:19:51] Speaker 04:
So if we decide that 602 is satisfied, do you agree that we don't reach 603 or 604?

[00:19:59] Speaker 00:
603 is a separate provision dealing with inadvertent deductions.

[00:20:05] Speaker 00:
We reached 604A, which allows us to pay additional compensation on top of the salary, but we don't reach 604B, because that's a separate path under the helix decision.

[00:20:14] Speaker 04:
All right.

[00:20:15] Speaker 04:
So I spoke to—I should have separated my 604.

[00:20:17] Speaker 04:
So I appreciate that.

[00:20:19] Speaker 04:
Opposing counsel thinks that 602 is not satisfied.

[00:20:22] Speaker 04:
And so can you talk about the 72 discrepancies?

[00:20:25] Speaker 04:
because that's more than in other cases, and now I'm using the word discrepancies, because that's what's in the briefing, and tell us why we shouldn't find a question of fact there.

[00:20:34] Speaker 00:
So there are no deductions in the record.

[00:20:39] Speaker 00:
What the experts did is they took the regular scheduled salaried hours.

[00:20:43] Speaker 00:
They didn't look at any of the overtime.

[00:20:45] Speaker 00:
They didn't look at any of the P103 time.

[00:20:47] Speaker 00:
And they said, how are we accounting for this time?

[00:20:50] Speaker 00:
and they put together a chart that explains, you know, this is how that the nurses.

[00:20:55] Speaker 04:
Well, right, but but it's your burden and you haven't contested that.

[00:20:58] Speaker 04:
And so and so you convince the district court that you had a system that does indeed

[00:21:06] Speaker 04:
Breakdown and annualized salary into into hourly components for purposes of accounting But we have the spreadsheets and not all the little boxes are filled up, right?

[00:21:15] Speaker 04:
So we don't know if a nurse wasn't paid for 80 hours during a pay period and she was full-time We don't know why for some of these examples, do we?

[00:21:23] Speaker 00:
No, we don't know for certain and in all instances what happened That that's true.

[00:21:29] Speaker 04:
But I think if I'm understanding your public accountability provision if she didn't show up to work

[00:21:34] Speaker 04:
or if she, maybe she had used up all her leave time or she had used up all of the time she has for continuing medical education, whatever, she's over those limits, then it shouldn't show up, right?

[00:21:45] Speaker 04:
But I can't tell from this record, can I, why those absences occurred?

[00:21:53] Speaker 00:
We explained several of them, and we are able to explain some of them.

[00:21:57] Speaker 00:
Some of them the expert talked about and said, this was the first pay period we analyzed.

[00:22:02] Speaker 01:
Did the experts say that definitely, or did they just speculate about possible explanations for those discrepancies?

[00:22:13] Speaker 01:
I thought they were quite clear that they did not double check all those 72 reported discrepancies.

[00:22:19] Speaker 00:
They didn't double check everything, but they did look at the records to see what was going on, how the time was being used.

[00:22:25] Speaker 00:
For example, the employee, and I just want to remind, Your Honors, that the sample that we looked at, the sample of employees where there are purported deductions, is the same sample of employees

[00:22:38] Speaker 00:
that we took depositions of and they all consistently said I was never denied the opportunity to work.

[00:22:45] Speaker 04:
Right so it seems to me the question is what is the city the city has the burden of proof but the question I had is the burden to prove what and I think the district court thought looking at the our case.

[00:22:55] Speaker 04:
that what the city had to show was an actual practice of making such deductions and that there's not a significant likelihood of making errors.

[00:23:03] Speaker 04:
In other words, it has to establish a sort of, this is my word, a bona fide system of doing it this way, not that it's flawless.

[00:23:11] Speaker 04:
But those are my words and I want to make sure that I'm understanding what the goal was here.

[00:23:15] Speaker 04:
What do you think you had the burden to show?

[00:23:17] Speaker 00:
Yeah, it's our burden to show that the parties are paid by a salary.

[00:23:25] Speaker 00:
And I believe that we met that because we showed that this is our system.

[00:23:29] Speaker 00:
This is how we track time.

[00:23:30] Speaker 00:
This is what we do.

[00:23:31] Speaker 00:
There are a couple instances where it's not fully explained, but there's also no specific evidence that there were any improper deductions.

[00:23:40] Speaker 01:
Let's be more specific.

[00:23:42] Speaker 01:
You say a couple of instances.

[00:23:45] Speaker 01:
And I think we're all familiar with the case law that refers to isolated or inadvertent errors.

[00:23:52] Speaker 01:
And I was doing what I thought was a pretty simple little algebra problem, trying to compare this to what in the Detroit case was said not to be a significant rate of errors.

[00:24:04] Speaker 01:
But the rate here looks about 20 times that.

[00:24:07] Speaker 00:
In each of those cases, there were undisputed errors.

[00:24:11] Speaker 00:
Everybody agreed, okay, we docked somebody's salary and that was improper.

[00:24:17] Speaker 00:
There's no evidence that that happened once here.

[00:24:20] Speaker 01:
And so that's where the problem comes is to Judge Christian's question, what exactly do you have to prove versus what plaintiffs have to prove regarding when we have this information showing a significant rate of discrepancies away from paying a predetermined amount.

[00:24:41] Speaker 00:
On summary judgment, we carry the burden to show that we are subject to an exemption.

[00:24:50] Speaker 00:
So it's our burden to show that we are salary and we've done that.

[00:24:54] Speaker 00:
um, by pointing to the fact that, uh, we have an MOU, which says that they're paid on a bi-weekly salary.

[00:25:01] Speaker 01:
But you also reserve the right to cancel work, correct?

[00:25:05] Speaker 00:
No, we do not.

[00:25:05] Speaker 00:
There is a provision in there that purports to allow that, and everybody who was deposed

[00:25:12] Speaker 00:
All of the plaintiffs, all of the witnesses said that that is never exercised.

[00:25:18] Speaker 01:
It did not happen, yes, now correct.

[00:25:20] Speaker 01:
And it cannot be exercised.

[00:25:21] Speaker 00:
If we're going to go, who says it can't be exercised?

[00:25:24] Speaker 00:
Steve Ponder says it can't be exercised.

[00:25:26] Speaker 00:
He sent out a letter directing.

[00:25:28] Speaker 04:
I think he gave the direct.

[00:25:29] Speaker 04:
So this isn't important to be clear on this part of your language.

[00:25:32] Speaker 04:
My understanding is that he directed that it not be applied to nurses.

[00:25:36] Speaker 04:
So I'm picking those words carefully, not to paraphrase.

[00:25:39] Speaker 04:
But is that your understanding, that he directed these provisions do not apply to nurses?

[00:25:44] Speaker 00:
Yes.

[00:25:44] Speaker 00:
He said that they've never applied to nurses.

[00:25:48] Speaker 00:
It's just a stock link.

[00:25:50] Speaker 04:
He's changing the words.

[00:25:51] Speaker 04:
Did he direct them not to apply it to the nurses?

[00:25:54] Speaker 01:
Yes.

[00:25:55] Speaker 01:
Thank you.

[00:25:56] Speaker 01:
If a nurse were ordered not to work and brought a claim for breach of contract, wouldn't the city turn to 289, Section 289 to say we are not contractually obliged to provide you those hours?

[00:26:14] Speaker 00:
Not if it was a salaried staff nurse, no, because they know that they can't apply that.

[00:26:20] Speaker 00:
And they agree.

[00:26:21] Speaker 00:
They say in their depositions, no, we understand that we can't apply this.

[00:26:25] Speaker 00:
And this is a negotiated contract with SEIU.

[00:26:28] Speaker 00:
We can't just change the provision.

[00:26:32] Speaker 04:
Can you take one more run at telling us how you think the city met its burden?

[00:26:36] Speaker 04:
You mentioned, we keep interrupting you.

[00:26:38] Speaker 04:
We're probably going to continue to interrupt you, but I just want to acknowledge that's what's happening.

[00:26:42] Speaker 04:
It seems more polite that way.

[00:26:45] Speaker 04:
Your answer was we have an MOU.

[00:26:48] Speaker 04:
What else have you got?

[00:26:49] Speaker 00:
So we have an MOU which says that you're paid on a salary basis.

[00:26:54] Speaker 00:
It defines the increases in salary expressed as a percentage of pay and it says it's going to be rounded to the nearest bi-weekly hour.

[00:27:03] Speaker 00:
It incorporates by reference the city's salary ordinance, which reflects the hourly salary, which currently for 2320s is almost $157,000 starting salary.

[00:27:18] Speaker 04:
For staff nurses?

[00:27:19] Speaker 00:
For staff nurses.

[00:27:21] Speaker ?:
Okay.

[00:27:21] Speaker 00:
Right.

[00:27:22] Speaker 00:
And under the MOU, it defines a normal work schedule, and it tethers the salary to the normal work schedule.

[00:27:31] Speaker 00:
You're obligated and guaranteed the opportunity to work those shifts.

[00:27:35] Speaker 00:
And if you are a part-time staff nurse, you receive a prorated salary in exchange for working a prorated number of hours.

[00:27:45] Speaker 00:
and we debosed all named plaintiffs, also some randomly selected plaintiffs, and they all uniformly conceded that they are always scheduled according to their MOU.

[00:27:57] Speaker 00:
They're always paid for that.

[00:28:00] Speaker 04:
Okay, so we have these, what I'm going to go back to the discrepancies, the 72 instances.

[00:28:06] Speaker 04:
The system that you've got also allows

[00:28:09] Speaker 04:
for a nurse to come in and say, hey, there's been a mistake.

[00:28:12] Speaker 00:
Correct.

[00:28:13] Speaker 04:
You didn't pay me for last Friday, and I worked last Friday.

[00:28:15] Speaker 00:
Correct.

[00:28:16] Speaker 04:
Right.

[00:28:17] Speaker 04:
And so where do we look?

[00:28:19] Speaker 04:
So I'm trying to figure out what you have the burden to prove.

[00:28:21] Speaker 04:
Did you have the burden to prove we've got this machine, here's our system, and these people are paid

[00:28:27] Speaker 04:
on a salary basis, or do you have to, or do the 72 instances raise an issue of fact?

[00:28:36] Speaker 04:
Judge Seaborg in the district court said,

[00:28:40] Speaker 04:
The report's methodology is reliable enough.

[00:28:43] Speaker 04:
He recognized that there was some back and forth about the experts.

[00:28:46] Speaker 04:
He said the report's methodology is reliable enough to determine that there is neither an actual practice of making such deductions nor a significant likelihood of them occurring.

[00:28:57] Speaker 04:
And then know that the FLSA has been complied with in good faith.

[00:29:01] Speaker 04:
Where is he looking to decide that this is what the city needed to show?

[00:29:08] Speaker 00:
I can't say with certainty what the judge was looking at.

[00:29:11] Speaker 04:
Where should we look to figure out what your burden is?

[00:29:16] Speaker 00:
I think you need to look at the entire system and see that there is no evidence.

[00:29:22] Speaker 00:
Once we put on our initial showing that there is no salary, it is plaintiff's obligation to come forward with specific evidence saying, no, you aren't entitled to this.

[00:29:35] Speaker 00:
And they haven't cited to anything.

[00:29:37] Speaker 00:
They've only cited to that one provision in the MOU.

[00:29:40] Speaker 00:
which says that you can send employees home in extenuating circumstances, and we presented evidence, including evidence from the plaintiffs, that that doesn't apply.

[00:29:50] Speaker 00:
So there's no specific evidence, and we have gone through and we've explained

[00:29:57] Speaker 00:
all of the specific deductions that are challenged.

[00:29:59] Speaker 00:
In our briefing, you know, they cite to specific examples of some deductions that are problematic, and we explain why, even if we take those as true, even if we assume that they were deprived of that, that that's a permissible deduction.

[00:30:15] Speaker 01:
And they... But that was without actually checking.

[00:30:19] Speaker 01:
Isn't that what the experts said?

[00:30:22] Speaker 01:
So they said there are possible explanations, and there probably are.

[00:30:27] Speaker 01:
But this is the problem about the burden of the uncertainty here in the record.

[00:30:38] Speaker 00:
Yeah, well, some of the deductions, there are explanations that we can glean from the record.

[00:30:43] Speaker 00:
Like, we explain that with plaintiff's silhouette and her use of educational leave.

[00:30:49] Speaker 00:
We can explain that based on the record.

[00:30:52] Speaker 04:
Would you agree that the city can't be the one responsible for that nurse, our hypothetical full-time nurse, the city can't be the one responsible for her not having 80 hours on her paycheck?

[00:31:05] Speaker 04:
Right.

[00:31:05] Speaker 04:
They have to make the time available if she's ready and willing and able.

[00:31:08] Speaker 00:
Correct.

[00:31:09] Speaker 04:
Hence your comment that you stressed earlier that the nurses all testified that the city had never not allowed them to work.

[00:31:17] Speaker 04:
Right.

[00:31:17] Speaker 04:
But I think what Judge Hamilton is getting at is we don't have, I don't think in this record, the ability to know that the time not worked in those 72 examples is attributable to something or rather the employee did, like not going up for work.

[00:31:33] Speaker 00:
Right, so let's say, even if we assumed that some of these are inappropriate, there's no pattern, there's no scheme of the city consistently docking in an inappropriate way.

[00:31:47] Speaker 00:
And if we look at section 603, 541-603,

[00:31:52] Speaker 00:
payroll errors and isolated discrepancies, those don't make an FLSA claim.

[00:32:00] Speaker 00:
That can support a collective action.

[00:32:04] Speaker 00:
And here, the entire premise is, oh, you have a dual status system.

[00:32:09] Speaker 00:
And specifically, these plaintiffs who work in a dual status as a salary staff nurse

[00:32:14] Speaker 00:
and a per diem nurse that the FLSA is being violated against these employees.

[00:32:22] Speaker 00:
And these deductions have nothing to do with that payment arrangement.

[00:32:26] Speaker 02:
Mr. Wilson, could I ask a question?

[00:32:29] Speaker 02:
It's probably more basic.

[00:32:32] Speaker 02:
You identified Mr. Ponder as the responsible city person for administering this program, right?

[00:32:40] Speaker 02:
Yes.

[00:32:40] Speaker 02:
And didn't he testify that a nurse's salary shall be calculated proportionate to the hours actually worked?

[00:32:49] Speaker 02:
Doesn't that make them hourly workers?

[00:32:52] Speaker 00:
No, I believe that language comes from the MOU, and it isn't the best choice of words, but the way it's described... It may not be the best choice of words from your point of view, but the words that were spoken under oath.

[00:33:08] Speaker 00:
Right, but you have to look at the undisputed testimony of everybody here.

[00:33:12] Speaker 00:
And everybody says the regular full-time schedule is 80 hours every two weeks.

[00:33:18] Speaker 00:
And then for part-time, we do a pro-rated schedule.

[00:33:24] Speaker 00:
So if you're a 0.9, you work 72 hours every two weeks, and you get 90% of the pay.

[00:33:30] Speaker 02:
So the context of these words have to be taken with the FTE program.

[00:33:37] Speaker 00:
Yes, they need to be taken there.

[00:33:39] Speaker 00:
And also, I encourage the court to look at the actual deposition transcripts because I believe a lot of the statements made by Mr. Ponder and some of the other city witnesses are taken out of context.

[00:33:58] Speaker 00:
And I think that the court needs to see that

[00:34:01] Speaker 00:
what they are really talking about when they're talking about the hourly system is how they administer this pay system to comply with the public accountability exception and to make sure that all time is accounted for and folks are, deductions are proper and consistent with the FLSA.

[00:34:22] Speaker 01:
Could I ask you a couple of things?

[00:34:24] Speaker 01:
On the expert report, as I understand it, if a nurse took sick leave that exceeded what she had in the bank, in essence, that was captured and is not treated as a discrepancy.

[00:34:42] Speaker 01:
That should not show up as an error in the expert report.

[00:34:47] Speaker 00:
It depends on whether that time was coded.

[00:34:50] Speaker 00:
There's a code for unpaid sick leave, so it's entirely possible.

[00:34:54] Speaker 00:
And this happened with Ruiz.

[00:34:57] Speaker 00:
She had some unexplained absences, but if you look at the payroll data, which is attached as an exhibit to the report, these were in the same pay periods when she was taking a lot of time off for unpaid absences.

[00:35:12] Speaker 01:
Okay, and then if I can go back to sort of back up from the lens here a little bit.

[00:35:20] Speaker 01:
If we were to find that you do not satisfy 602A and that you do need to satisfy 604B to maintain the exemption, what would be your best argument for satisfying the reasonable relationship test in 604B?

[00:35:42] Speaker 00:
So our best argument there, I believe we have a footnote addressing this, but the guarantee has to have a reasonable relationship to the normal work schedule.

[00:35:56] Speaker 00:
And the normal work schedule here is defined in the MOU.

[00:36:01] Speaker 00:
And so what we pay them doesn't have a reasonable relationship to it.

[00:36:06] Speaker 00:
It's exactly the same.

[00:36:12] Speaker 04:
Do you have more questions, Judge Baya?

[00:36:17] Speaker 04:
No.

[00:36:17] Speaker 04:
I think we are done.

[00:36:19] Speaker 00:
Thank you, Your Honor.

[00:36:20] Speaker 04:
Thank you for your patience with our questions.

[00:36:22] Speaker 04:
Counsel?

[00:36:31] Speaker 03:
There's two brief points that I'd like to make.

[00:36:34] Speaker 03:
The first is that 604 applies, and specifically 604A applies, which is really not disputed here.

[00:36:43] Speaker 03:
The city and the district court both rely on 604A applying.

[00:36:48] Speaker 03:
The district court acknowledges that 604A applies to protect the practice of paying additional compensation for per diem work.

[00:36:55] Speaker 03:
That's at record page 13.

[00:36:57] Speaker 03:
And the city relies on the protection of 604A throughout its brief, starting on page three in the introduction.

[00:37:05] Speaker 03:
And the legislative history in 1992 further makes it clear that the minimum guarantee plus extras regulation was intended to apply in the public sector.

[00:37:14] Speaker 03:
Now 604A here requires the same thing as 604B.

[00:37:20] Speaker 03:
first test a minimum guaranteed amount of compensation to be paid each pay period on a salary basis.

[00:37:27] Speaker 03:
And that minimum guarantee must be an enforceable guarantee in the employment arrangement.

[00:37:33] Speaker 03:
And I say that it has to be enforceable because something is not guaranteed if someone can just take it away from you and you don't have any recourse.

[00:37:40] Speaker 03:
This guarantee has to be enforceable.

[00:37:43] Speaker 03:
And here, not only is there not anything in writing, nothing communicated to the nurses, no policy actually preventing the city from canceling shifts, it's conceded it was never even communicated to the nurses.

[00:37:57] Speaker 03:
Now the city relies on this internal email from Steve Ponder to another manager saying that it should be understood that this provision doesn't really, this provision in the nurses collective bargaining agreement

[00:38:09] Speaker 03:
doesn't really apply to nurses, but there's two problems with that.

[00:38:13] Speaker 03:
First, it's disputed.

[00:38:15] Speaker 03:
Page 256 of the record is a union representative saying that's not true and has never been true or communicated to the union.

[00:38:23] Speaker 03:
And second, it contradicts his PMK deposition testimony that he didn't actually know if 298 or 299 had ever been applied, but that, quote, it is available and is a provision that would apply here.

[00:38:35] Speaker 03:
The second point that I'd like to make is that these discrepancies, at least at the very least, raise a triable issue of material fact.

[00:38:46] Speaker 03:
Archuleta v. Walmart and Coates and the Eighth Circuit are both on point here.

[00:38:52] Speaker 03:
The inference to be raised is that the city is that the nurses were simply not scheduled for all hours in their regular shift because there's no deviation from the schedule recorded even though that's what you'd expect based on based on beats his declaration testimony that the payroll should have captured any deviations from the schedule.

[00:39:12] Speaker 03:
and the city does not have sufficient evidence about what happened here.

[00:39:17] Speaker 03:
It attempts to explain a few instances, but it really can't explain them all.

[00:39:22] Speaker 03:
And it is admitted that there's not evidence in the record that could explain this, which is an issue because it's the city's burden to show all elements of the affirmative defense.

[00:39:32] Speaker 03:
Can I ask about that?

[00:39:34] Speaker 04:
I keep asking this question.

[00:39:35] Speaker 04:
Nobody's really answered it for me.

[00:39:37] Speaker 04:
Everybody agrees that it's a city's burden.

[00:39:39] Speaker 04:
What do they have to prove?

[00:39:41] Speaker 04:
Do they have to prove they have a system that's supposed to work this way and it's their intent, right, and there may be aberrations that are, there's an off-ramp to pay those kinds of discrepancies?

[00:39:50] Speaker 04:
Or do they have to prove a certain level of, you know, the system works as it was intended to?

[00:39:57] Speaker 03:
So it's clear, it's black letter law that the city has to prove all elements of its affirmative defense.

[00:40:04] Speaker 03:
And here the important element that comes into play is in 602, 602 states that

[00:40:10] Speaker 03:
The employer must pay the full amount of salary for every pay period that any work is performed, regardless of the amount of hours worked subject only to permissible deductions.

[00:40:21] Speaker 03:
So it's the city's burden to show.

[00:40:23] Speaker 04:
Right.

[00:40:24] Speaker 04:
I understand it's the city's burden to show.

[00:40:27] Speaker 04:
The district court thought they met that burden.

[00:40:29] Speaker 04:
You're out of time, but what is your most concise takeaway for why you think that the district court erred

[00:40:35] Speaker 04:
in concluding, and this is my paraphrase, that the city's system was intended to pay them on a salary.

[00:40:44] Speaker 03:
Yeah, the district court held that the expert report was sufficient to show that there was no actual practice or real risk of deductions.

[00:40:51] Speaker 03:
But as a matter of law, the instances in the expert report could be sufficient, at least.

[00:40:59] Speaker 03:
There might be a tribal issue, at least,

[00:41:01] Speaker 03:
that the issues in the expert report, these 72 unexplained discrepancies would rise to the level of a tribal issue of fact and destroy the salary basis exemption.

[00:41:12] Speaker 04:
Because it would raise an issue of fact about whether that was the city's actual practice?

[00:41:21] Speaker 04:
Despite the ordinance and despite the MOU?

[00:41:23] Speaker 04:
Is that what you're telling me?

[00:41:25] Speaker 03:
Well, the MOU permits it.

[00:41:26] Speaker 03:
And so if the MOU was implemented that way, there is a tribal issue of whether the city, in fact, didn't schedule nurses for all of the hours in their regular schedule.

[00:41:39] Speaker 03:
In Coates, where there was an undeveloped record about these deductions and loss and pay below the salary level,

[00:41:46] Speaker 03:
summary judgment was not appropriate for the defendant.

[00:41:49] Speaker 03:
And in Archuleta, even where the employer had some explanations for five improper deductions,

[00:41:56] Speaker 03:
the court held that there was a disputable issue that needed to go to a jury.

[00:42:01] Speaker 03:
You're well over time.

[00:42:02] Speaker 01:
I'm sorry.

[00:42:02] Speaker 01:
It looks like you've got one more question.

[00:42:04] Speaker 01:
On that point, though, what do we do with the fact that in the depositions of the nurses, as I understand it, all said, in essence, I've never had work canceled.

[00:42:18] Speaker 01:
I've been paid for all the work.

[00:42:20] Speaker 03:
So that was, so they deposed 12 nurses out of 336 and they presented testimony from just 10 of these nurses saying personally it hasn't happened to me and I don't know people that it's happened to.

[00:42:33] Speaker 03:
That's not really sufficient to say that it's never happened and could never happen.

[00:42:37] Speaker 01:
How does that match up though with the expert report saying those nurses, we have these 72 discrepancies with those nurses?

[00:42:45] Speaker 03:
A few of those nurses are in the 10 with deposition testimony, but there's others like Annalisa Ruiz who was deposed.

[00:42:54] Speaker 03:
But there's still not testimony from her saying that she never experienced a cancellation or was never sent home early.

[00:43:00] Speaker 03:
And there's several other employees who were not deposed.

[00:43:04] Speaker 03:
The city has no evidence.

[00:43:05] Speaker 03:
And there's nothing in payroll that could explain why their pay was less than their salary, why their schedule was- I'm going to cut you off there.

[00:43:11] Speaker 03:
You really are several minutes over your time.

[00:43:13] Speaker 03:
Thank you.

[00:43:13] Speaker 04:
I want to thank you both very much for your argument.

[00:43:26] Speaker 01:
Not at all.

[00:43:28] Speaker 04:
We'll move on to the next case on the calendar.