Rebischke v. Tile Shop, LLC, The
MEMORANDUM OPINION AND ORDER granting 66 Defendant's Motion for Summary Judgment. (Written Opinion) Signed by Judge Susan Richard Nelson on 01/25/2017. (SMD)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
David Rebischke, on behalf of himself and
all others similarly situated,
Case No. 14-cv-624 (SRN/BRT)
Tile Shop, LLC, The,
Paul J. Lukas and Michele R. Fisher, Nichols Kaster, PLLP, 80 South 8th St., Ste. 4600,
Minneapolis, MN 55402; J. Derek Braziel, Lee & Braziel, LLP, 1801 North Lamar St.,
Ste. 325, Dallas, TX 75202; Rowdy B. Meeks, Rowdy Meeks Legal Group LLC, 8201
Mission Rd., Ste. 250, Prairie Village, KS 66208, for Plaintiffs.
Joseph M. Sokolowski, Ashley R. Thronson, Pamela Abbate-Dattilo, and Timothy
Billion, Fredrikson & Byron, P.A., 200 South 6th St., Ste. 4000, Minneapolis, MN
55402, for Defendant.
SUSAN RICHARD NELSON, United States District Judge
This matter is before the Court on Defendant’s Motion for Summary Judgment
(“Mot. for Summ. J.”) [Doc. No. 66]. For the reasons set forth below, the Motion is
The material facts of this matter are undisputed. Instead, the parties dispute the
significance of some facts and which facts are relevant. The Court notes these disputes
A. The Tile Shop, Store Managers, and Their Compensation
Defendant The Tile Shop, LLC (“The Tile Shop”) sells manufactured and natural
stone tiles, settings, and related accessories and maintenance items. (Decl. of Leigh
Behrman (“Behrman Decl.”) at ¶ 2 [Doc. No. 71].) During the relevant period—between
March of 2011 and March of 2014 1—The Tile Shop experienced significant growth,
expanding from 54 to 108 stores nationwide. (Id. at ¶ 3.) The number of Tile Shop
employees more than doubled during this time, but “Human Resources and payroll
administration functions did not grow commensurately.” (Id. at ¶ 4.)
A Store Manager oversees each of The Tile Shop’s retail locations. (Id. at ¶ 5.)
Store Managers “regularly direct the work of all employees at the store they manager
[sic], and they have authority to hire and fire employees.” (Id.) Compensation for Store
Managers consists of four parts: (1) a fixed salary; (2) commissions; (3) spiffs; and (4)
bonuses. (Id. at ¶ 6; Decl. of Carl Randazzo (“Randazzo Decl.”) at ¶ 2 [Doc. No. 78].)
Store Managers’ fixed salaries range between $42,000 and $85,000—based on the store’s
sales for the prior year—and are paid out in fixed amounts each pay period. (Behrman
Decl. at ¶ 6; see Randazzo Decl. at ¶ 2.) However, the incentive-based portion of Store
Managers’ compensation—bonuses, commissions, and spiffs—can vary widely from
paycheck to paycheck. (Behrman Decl. at ¶ 6; see Randazzo Decl. at ¶ 2.) Bonuses are
The statute of limitations for claims under the Fair Labor Standards Act (“FLSA”), like
those here, is two years unless the plaintiff can show the defendant acted willfully, in
which case the statute of limitations is three years. See 29 U.S.C. § 255(a). The Tile
Shop argues Plaintiffs have failed to show that it willfully violated FLSA. (See Def.’s
Mem. in Supp. at 4, n.1 [Doc. No. 68].) However, since it does not change the outcome
here, the Court assumes without deciding that the three year statute of limitations applies.
based on store performance and can be positive or “negative.” (Behrman Decl. at ¶ 7; see
Randazzo Decl. at ¶ 2.) A negative bonus occurs when a store fails to meet its budget or
other performance goals. (Behrman Decl. at ¶ 7; see Randazzo Decl. at ¶ 2.)
Store Managers report to Regional Sales Managers (“Regional Managers”) who
each oversee 20-30 Store Managers. (Behrman Decl. at ¶ 5.)
A single Regional
Manager is responsible for calculating all Store Managers’ bonuses, positive or negative,
on a monthly basis and submitting that information “for review and approval” to the other
(Id. at ¶ 8.)
However, The Tile Shop’s centralized Human
Resources Department “reviews [Store Managers’ bonus] information and Human
Resources—not the Regional Sales Managers—determines the amount of each Store
Manager’s compensation each pay period.” (Id.) Regional Managers have “no control or
review” over payroll and “do not establish guidelines or policies for payroll
administration.” (Id. at ¶ 10.) They do not have the power to deduct negative bonuses
from a Store Manager’s salary. (Id.)
When a negative bonus is not offset by a Store Manager’s commissions and spiffs,
it is “flagged” by Human Resources “so that the negative bonus does not dip into the
employee’s salary.” (Id. at ¶ 7.) Put another way, negative bonuses are offset against
commissions and spiffs, but should “never” be offset against a Store Manager’s fixed
salary. (See id.; Randazzo Decl. at ¶ 2.) The Tile Shop gave the following example of
how deductions appeared on Store Managers’ bi-weekly payroll statements:
(Behrman Decl. at ¶ 9.)
In response to an order from the Court to supplement the record, (see Doc. No.
81), The Tile Shop conducted a payroll audit which showed that on at least twelve
occasions during the relevant period, Store Managers’ negative bonuses exceeded
commissions and spiffs, but were not deducted from fixed salaries. 2 (Decl. of Marcy
Rasmussen (“Rasmussen Decl.”) [Doc. No. 87], Ex. A (“Supp. Payroll Audit”) [Doc. No.
88].) The Tile Shop explained that the number of times negative bonuses were not taken
from fixed salaries was actually higher because the audit did not account for instances
where Human Resources adjusted negative bonuses so that they did not exceed
commissions or spiffs before entering the data into the payroll system, or “backed out” a
negative bonus before issuing the paycheck. (Rasmussen Decl. at ¶ 5.)
B. Plaintiffs, Their Claims, and the Improper Deductions
Plaintiff David Rebischke (“Rebischke”) is a former Store Manager for The Tile
Shop. (Compl. at ¶ 2 [Doc. No. 1].) On behalf of himself and all other Store Managers
employed by The Tile Shop between March of 2011 and March of 2014 (collectively,
“Plaintiffs”), Rebischke alleges that The Tile Shop violated the Fair Labor Standards Act
Plaintiffs offer a series of objections to this evidence, which the Court addresses below.
(“FLSA”) by not paying Plaintiffs for the overtime hours they worked. (Id. at ¶¶ 10, 36–
37.) Specifically, Plaintiffs claim that they are nonexempt employees entitled to overtime
under FLSA because The Tile Shop improperly deducted negative bonuses from their
fixed salaries. (See id. at ¶¶ 19–20, 34–35.)
In August of 2013—before this lawsuit was brought—a Store Manager (“Krohn”)
sent The Tile Shop’s Vice President for Human Resources and Compliance (“Behrman”)
an email showing that a negative bonus was deducted not just from his commissions and
spiffs, but also his fixed salary.
(Behrman Decl. at ¶ 13.)
Krohn challenged this
deduction. (Id.) That same day, Behrman apologized and explained that the deduction
from Krohn’s salary was a mistake. (Id. at ¶ 14.) Krohn was reimbursed the full amount
deducted from his fixed salary six days after he raised the issue. (Id.) Behrman also
informed Krohn that he had discovered a similar deduction from another Store Manager’s
fixed salary in an earlier pay period and had similarly corrected the error by reimbursing
the improperly deducted amount. (Id. at ¶ 15.)
The Tile Shop contends that the next time the issue of improper salary deductions
was brought to its attention was when this suit was filed. (Id. at ¶ 16.) Upon receiving
the complaint, The Tile Shop conducted an audit of all Store Managers’ payroll records
for the preceding three years. (Id.) “The audit spanned all 150 Store Managers, 78
payroll periods, and 4,737 checks issued to Store Managers totaling $21,243,784.68.”
(Id.) The audit revealed that during the relevant time, there were twenty-two negative
bonus deductions from the fixed salaries of sixteen Store Managers. (See id.) Put
another way, approximately 0.5% of payroll checks issued to Store Managers during that
time contained improper salary deductions.
These twenty-two deductions totaled
$5,032.89. (Id.) The Tile Shop promptly sent a letter to each Store Manager who
experienced an improper salary deduction and reimbursed them the deducted amount.
Plaintiffs agree that the twenty-two negative bonus deductions just described were
taken from Store Managers’ salaries during the relevant period. (See Pls.’ Mem. in Opp.
at 6–7 [Doc. No. 75].) However, they argue that “[t]his does not tell the whole story . . .
.” (Id.) Rather, they claim that a total of 109 improper deductions were taken from
thirty-eight Store Managers’ salaries. (Id. (citing Pl.’s Mem. in Opp., Ex. A (“Paycheck
Deductions Spreadsheet”) at 1–4 [Doc. No. 76-1]).) To reach this number, Plaintiffs
contend that commissions and spiffs are part of Store Managers’ fixed salaries, and thus
deductions from these amounts were also improper because The Tile Shop’s
Commissions and Spiffs Policy (the “Commissions and Spiffs Policy”) did not explicitly
allow for them. (Id.) The Commissions and Spiffs Policy is silent on the subject of
deductions. (See Pl.’s Mem. in Opp., Ex. G (“Commissions and Spiffs Policy”) [Doc.
1. The Tile Shop’s Alleged Policy or Practice of Improper Deductions
Plaintiffs allege that The Tile Shop has a long-standing policy or practice of
making improper salary deductions. (See Pls.’ Mem. in Opp. at 12–18.) They highlight
four pieces of evidence they believe support this contention. First, Plaintiffs present an
email sent by Regional Manager Dan Granados (“Granados”) on July 31, 2013 to Store
Managers in his region. (Pls.’ Mem. in Opp., Ex. F (“Granados Email”) [Doc. No. 766
1].) In the email, Granados notes that some stores are not on track to make their sales
numbers. (Granados Email at 4896. 3) He goes on to make the following threat:
If you are not going to hit plan, I’m going to hit your bonus’ [sic] in
relation to the % short you finish……..
Many of you know in your hearts that I take care of you every month,
no matter how bad you finish in some cases……
If I believe you could have done more than what you finish with, I
“WILL’ hit you with everything….
If that wipes out your bonus.. so be it…. If it takes from your salary….
So be it ………………..
I have never been so serious folks…………
Look for Yourselves……[ 4]
(Id. (all emphasis original).) Plaintiffs allege that this threat comports with threats they
heard or received from other Regional Managers and The Tile Shop’s Vice President
(“VP”) of Sales 5 regarding salary deductions based on poor performance. (See Pls.’
Mem. in Opp., Ex. F (“Store Manager Affs.”) at ¶ 4 [Doc. No. 76-2].)
Second, Plaintiffs note that on Store Managers’ paychecks, negative bonuses
appear under the line where fixed salary is listed, not under the lines for commissions and
The Court cites to the last four digits of the Bates number as they appear in the lower
right hand corner of this exhibit.
The Tile Shop’s Human Resources Department was unaware of Granados email until
this lawsuit was filed. (Behrman Decl. at ¶ 12.) Upon learning of his threat, Granados
was reprimanded by Human Resources, told that The Tile Shop’s compensation policy
did not allow for the deduction of negative bonuses from fixed salaries, and instructed to
never again threaten a salary deduction. (Id.; Decl. of Dan Granados (“Granados Decl.”)
at ¶ 7 [Doc. No. 70].) Granados states that he made no attempt to follow through on his
threat, nor could he have since Regional Managers do not have the authority to reduce
Store Managers’ salaries. (Granados Decl. at ¶¶ 4–6.)
The Tile Shop’s VP of Sales at the time, Carl Randazzo, denies he ever threatened
salary deductions or stated that it was The Tile Shop’s policy to employ such deductions.
(Randazzo Decl. at ¶¶ 4–5.)
spiffs. (See Pls.’ Mem. in Opp. at 7–8; supra Part I.A.1.) They argue that this placement
shows that the intent was to deduct negative bonuses from salaries and not commissions
or spiffs. (See Pls.’ Mem. in Opp. at 8, 18–19.) Third, Plaintiffs point to their subjective
belief that—based on the threats and deductions described above—The Tile Shop had a
“clearly communicated policy” of deducting negative bonuses from the salaries of Store
Managers. (See id. at 8, 17–18. 6) Fourth, Plaintiffs highlight the 109 negative bonus
deductions taken from the salaries, spiffs, and commissions of thirty-eight Store
Managers during the relevant period. (See id. at 14–16.)
A. Legal Standard
Summary judgment is proper if, drawing all reasonable inferences in favor of the
non-moving party, there is no genuine issue as to any material fact and the moving party
is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a); Celotex Corp. v. Catrett,
477 U.S. 317, 322–23 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249–50
(1986); Morriss v. BNSF Ry. Co., 817 F.3d 1104, 1107 (8th Cir. 2016), cert. denied,
(U.S. Oct. 3, 2016).
“Summary judgment procedure is properly regarded not as a
disfavored procedural shortcut, but rather as an integral part of the Federal Rules as a
whole, which are designed ‘to secure the just, speedy, and inexpensive determination of
every action.’” Celotex, 477 U.S. at 327 (quoting Fed. R. Civ. P. 1).
Plaintiffs again cite the sworn affidavits of several Store Managers wherein they
describe their subjective belief about The Tile Shop’s policy of deductions and their
efforts to avoid those deductions. (See Store Manager Affs. at ¶¶ 7–8 [Doc. No. 76-2].)
The party moving for summary judgment bears the burden of showing that the
material facts in the case are undisputed.
Id. at 323.
However, a party opposing
summary judgment “‘may not rest upon the mere allegation or denials of his pleading,
but ... must set forth specific facts showing that there is a genuine issue for trial,’ and
‘must present affirmative evidence in order to defeat a properly supported motion for
summary judgment.’” Ingrassia v. Schafer, 825 F.3d 891, 896 (8th Cir. 2016) (quoting
Anderson, 477 U.S. at 256–57). “[T]he nonmoving party must ‘do more than simply
show that there is some metaphysical doubt as to the material facts.’” Conseco Life Ins.
Co. v. Williams, 620 F.3d 902, 910 (8th Cir. 2010) (quoting Matsushita Elec. Indus. Co.,
v. Zenith Radio Corp., 475 U.S. 574, 586 (1986)). Summary judgment is proper where
the non-moving party fails “‘to make a showing sufficient to establish the existence of an
element essential to that party’s case . . . .’” Walz v. Ameriprise Fin., Inc., 779 F.3d 842,
844 (8th Cir. 2015) (quoting Celotex, 477 U.S. at 322). While the moving party bears the
burden of showing that the facts are undisputed, a judge is not confined to considering
only the materials cited by the parties, and “it may consider other materials in the
record.” Fed. R. Civ. P. 56(c)(3).
B. The Fair Labor Standards Act and Its Relevant Exemptions
The FLSA was enacted “to protect the rights of those who toil, of those who
sacrifice a full measure of their freedom and talents to the use and profit of others[,]” and
is to be broadly interpreted and applied “because it is remedial and humanitarian in
purpose.” Specht v. City of Sioux Falls, 639 F.3d 814, 819 (8th Cir. 2011) (quotations
and citations omitted). To accomplish this goal, the FLSA requires, in relevant part, that
employees who work more than forty hours per week be paid overtime. 29 U.S.C. §
However, there are exemptions from this requirement for employees
employed in bona fide executive, administrative, or professional capacities. 29 U.S.C. §
The employer bears the burden of proving an exemption applies to the
employee(s) in question. Madden v. Lumber One Home Ctr., Inc., 745 F.3d 899, 903
(8th Cir. 2014).
To meet its burden in proving an exemption, an employer must establish that an
employee’s duties, salary level, and salary basis meet certain thresholds. See 29 C.F.R. §
541.700 (duties test); 29 C.F.R. § 541.600 (salary level test); 29 C.F.R. § 541.602 (salary
basis test). Plaintiffs do not dispute that Store Managers satisfy the duties and salary
level tests. Instead, they argue that Store Managers were not paid on a salary basis. (See
Compl. at ¶¶ 18–19, 22, 34; Pls.’ Mem. in Opp. at 11.)
In general, the salary basis test requires that “the employee regularly receives each
pay period on a weekly, or less frequent basis, a predetermined amount constituting all or
part of the employee’s compensation, which amount is not subject to reduction because
of variations in the quality or quantity of the work performed.” 7 29 C.F.R. § 541.602(a).
An employer may also provide an exempt employee with “additional compensation”—
beyond guaranteed, predetermined salary—without losing the exemption or violating the
salary basis test. 29 C.F.R. § 541.604(a). However, this additional compensation—
“Because the salary-basis test is a creature of the Secretary [of Labor]’s own
regulations, his interpretation of it is, under our jurisprudence, controlling unless plainly
erroneous or inconsistent with the regulation.” Auer v. Robbins, 519 U.S. 452, 461
unlike fixed salary—may be reduced based on work performance.
See Havey v.
Homebound Mortg., Inc., 547 F.3d 158, 165 (2d Cir. 2008) (“A two-part salary scheme
in which employees receive a predetermined amount, plus, on a quarterly prospective
basis, an additional portion subject to deductions for quality errors does not violate the
salary-basis test . . . .” (quotations omitted)); Lovelady v. Allsup’s Convenience Stores,
Inc., 304 F. App’x 301, 304 (5th Cir. 2008) (“Deductions or reductions from bonus
payments do not affect an employee’s status as an exempt employee so long as the
requisite minimum  salary is paid.”); Coppage v. Bradshaw, 665 F. Supp. 2d 1361, 1366
(N.D. Ga. 2009) (“[W]here an exempt employee receives additional compensation above
his guaranteed minimum salary, an employer may make deductions without destroying
the salary basis.”); Phillips v. Capital Toyota, Inc., No. 1:05-CV-215, 2006 WL 1408688,
at *4 (E.D. Tenn. May 22, 2006) (“[T]he key is not whether an employee’s overall
compensation is subject to reduction, but rather if the predetermined amount is subject to
reduction.”); see also Bell v. Callaway Partners, LLC, No. 1:06-CV-1993-CC, 2010 WL
6231196, at *5–10 (N.D. Ga. Feb. 5, 2010), aff’d, 394 F. App’x 632 (11th Cir. 2010)
(collecting cases and Department of Labor opinions that held that deductions from an
employee’s “additional compensation” did not violate the salary basis test, rejecting the
plaintiffs’ argument to the contrary, and awarding summary judgment to the defendant);
Kennedy v. Commonwealth Edison Co., 252 F. Supp. 2d 737, 742 (C.D. Ill. 2003), aff’d,
410 F.3d 365 (7th Cir. 2005) (“It is now clear . . . that whether or not there is any
deduction in an employee’s regular salary is the sine qua non of the FLSA regulation
defining ‘salary basis.’”).
1. What Portions of Store Managers’ Compensation Are Fixed Salary
Plaintiffs argue that the Tile Shop does not pay Store Managers on a salary basis
in part because it deducts negative bonuses from commissions and spiffs despite the
Commissions and Spiffs Policy making no mention of deductions. (See Pls.’ Mem. in
Opp. at 7, 15, 18–20.) In essence, Plaintiffs’ contention is that commissions and spiffs
are actually part of Store Managers’ fixed salaries. However, neither the evidence nor the
law supports this contention.
The Tile Shop’s declarations and policies show that Store Managers’ bonuses,
commissions, and spiffs (i.e., incentive pay) are separate and distinct from fixed salaries.
Most notably, commissions, spiffs, and bonuses vary widely from paycheck-to-paycheck
based on performance and sales while fixed salaries do not. By definition then, Store
Managers’ incentive pay is not “predetermined” like fixed salary. See 29 C.F.R. §§
The fact that the Commissions and Spiffs Policy does not specifically allow for
negative bonus deductions is of no consequence. The FLSA mandates employment
practices whereby employees receive guaranteed salaries, not explicit employment
policies to that effect. See 29 C.F.R. §§ 541.602(a) (“An employee will be considered to
be paid on a ‘salary basis’ within the meaning of these regulations if the employee
regularly receives . . . a predetermined amount . . . .”) (emphasis added), 541.604(a) (“An
employer may provide an exempt employee with additional compensation without losing
the exemption or violating the salary basis requirement, if the employment arrangement
also includes a guarantee of at least the minimum weekly-required amount paid on a
salary basis.” (emphasis added); Orton v. Johnny’s Lunch Franchise, LLC, 668 F.3d 843,
848 (6th Cir. 2012) (“The new (2004) [FLSA] regulations . . . establish that employment
agreements are no longer the relevant starting point for whether an employee is paid on a
salary basis. The question is therefore not what [an employee] was owed under his
employment agreement; rather, the question is what compensation [the employee]
actually received.”); Hughes v. Gulf Interstate Field Servs., Inc., No. 2:14-CV-000432,
2016 WL 4197596, at *4 (S.D. Ohio Aug. 8, 2016) (“It is not written descriptors of the
payment policies that are relevant to the salary-basis test inquiry, but rather the actual
payment practice.”). Plaintiffs do not dispute—and the evidence plainly shows—that
Store Managers received fixed salaries that were distinct from bonuses, commissions, and
The Tile Shop’s commissions, bonuses, and spiffs are the sort of “additional
compensation” an employer may offer without losing a Store Manager’s exempt status
See 29 C.F.R. § 541.604(a).
As such, The Tile Shop may take
performance-based deductions—like negative bonus deductions—from commissions and
spiffs without losing the exemption. See Havey, 547 F.3d at 165; Lovelady, 304 F.
App’x at 304; Coppage, 665 F. Supp. 2d at 1366; Phillips, 2006 WL 1408688 at *4; see
also Bell, 2010 WL 6231196 at *5–10. Thus, the only relevant deductions to consider are
the twenty-two negative bonus deductions taken from Store Managers’ fixed salaries
between March of 2011 and March of 2014. 8
C. The Effect of Improper Deductions
As described above, to satisfy the salary basis test, an employee must be paid a
predetermined amount that is not subject to deductions for the quality or quantity of work
performed. See 29 C.F.R. § 541.602(a). However, not all improper salary deductions
result in the loss of the FLSA exemption. See 29 C.F.R. § 541.603. The Department of
Labor (“DOL”) provides the following relevant guidance about the effect of improper
(a) An employer who makes improper deductions from salary shall lose the
exemption if the facts demonstrate that the employer did not intend to pay
employees on a salary basis. An actual practice of making improper
deductions demonstrates that the employer did not intend to pay employees
on a salary basis. The factors to consider when determining whether an
employer has an actual practice of making improper deductions include, but
are not limited to: the number of improper deductions, particularly as
compared to the number of employee infractions warranting discipline; the
time period during which the employer made improper deductions; the
number and geographic location of employees whose salary was
improperly reduced; the number and geographic location of managers
responsible for taking the improper deductions; and whether the employer
has a clearly communicated policy permitting or prohibiting improper
The Tile Shop argues that two of these twenty-two deductions fall outside the statute of
limitations period. (See Def.’s Mem. in Supp. at 10, n.5) It is unclear whether improper
deductions that fall outside of the statute of limitations may be considered when assessing
whether an employer had an actual practice of making such deductions, or whether those
deductions were isolated. See Smith v. Pepper Source, Ltd., No. 5:12-CV-05027, 2013
WL 2250305, at *3–4 (W.D. Ark. May 22, 2013). However, since it does not change the
outcome here, the Court assumes—as did The Tile Shop—without deciding that the two
deductions that fall outside the statute of limitations should be considered. See id.
(c) Improper deductions that are either isolated or inadvertent will not
result in loss of the exemption for any employees subject to such improper
deductions, if the employer reimburses the employees for such improper
(e) This section shall not be construed in an unduly technical manner so as
to defeat the exemption.
29 C.F.R. § 541.603(a), (c), (e) (emphasis added). Section 541.603(a) is sometimes
referred to as the “actual practice provision” while subsection (c) is commonly referred to
as the “window of correction.”
The Tile Shop argues that despite the twenty-two improper deductions, it is
entitled to summary judgment based on the window of correction because those
deductions were isolated and inadvertent. (Def.’s Mem. in Supp. at 15–19 [Doc. No. 68];
Def.’s Reply at 12–14 [Doc. No. 77].) Notably, The Tile Shop claims that the window of
correction alone, regardless of the actual practice provision, allows for summary
judgment. (See Def.’s Mem. in Supp. at 15, 19; Def.’s Reply at 2, 12.) However, The
Tile Shop contends that even if the actual practice provision applied, the undisputed facts
show it did not have an actual practice of taking improper deductions. (See Def.’s Mem.
in Supp. at 19–31; Def.’s Reply at 5–12.)
Conversely, Plaintiffs argue that there are disputed questions of fact as to whether
The Tile Shop has an actual practice of taking improper deductions. (See Pls.’ Mem. in
Opp. at 13–18.) Plaintiffs also contend that the window of correction is not available to
The Tile Shop because it cannot satisfy the actual practice provision (i.e., arguing that the
actual practice provision is a “prerequisite” that must be met before the window of
correction is available) and because the improper deductions were taken intentionally.
(See id. at 20–26.)
1. Isolated or Inadvertent Improper Deductions and the Window of
Plaintiffs’ implicit argument is that summary judgment based on the window of
correction is inappropriate because there are disputed facts about whether The Tile Shop
intended to make the twenty-two improper salary deductions. (See id. at 1–3, 25–26.)
The Tile Shop contends that an employer’s intent is irrelevant to the window of
correction, so long as the improper deductions were isolated. (See Def.’s Reply at 12–
14.) The Tile Shop is correct—the window of correction allows for even intentional
improper deductions so long as they are isolated and reimbursed.
A recent Tenth Circuit opinion persuasively explains why the window of
correction applies even to intentional, but isolated, improper salary deductions. See Ellis
v. J.R.’s Country Stores, Inc., 779 F.3d 1184, 1203–05 (10th Cir. 2015). There, the
plaintiff (“Ellis”) argued that the window of correction “is only triggered where the
improper deduction is both isolated and unintentional.” Id. at 1204. The Tenth Circuit
rejected this argument. See id. at 1204–05. Looking to the language of the regulation
itself, the court held “it is apparent that this language renders the window-of-correction
defense available to an employer who has made ‘[i]mproper deductions that are either
isolated or inadvertent,’ but has ‘reimburse[d] the employees for such improper
deductions.’” Id. at 1204 (quoting 29 C.F.R. § 541.603(c)) (alterations and emphasis
original). The use of the disjunctive “or” meant that “the district court could choose
between ‘isolated’ and ‘inadvertent’ deductions and that both alternatives could satisfy
the statute.” Id. The Tenth Circuit explained:
The fact that one purpose of the FLSA is to ensure overtime pay for nonexempt employees does not preclude the possibility that an employer may
intentionally dock an exempt employee’s pay and avoid all liability for
overtime simply by reimbursing the employee. Such a situation does not
necessarily abuse the window-of-correction defense or eviscerate the
employee’s exempt status—provided, of course, that the intentional (i.e.,
not inadvertent) deduction was isolated.
Id. at 1205 (citations and quotations omitted) (emphasis original). The Court noted that
Ellis’ understanding that the window of correction only applied to unintentional
deductions also ignored subsection (e)’s directive that § 541.603 “not be construed in an
unduly technical manner so as to defeat the exemption.” Id. at 1205.
Still, some courts—often without expressly acknowledging doing so and citing
outdated case law—hold that the window of correction is only available in relation to
unintentional improper salary deductions. See, e.g., Scholtisek v. Eldre Corp., 697 F.
Supp. 2d 445, 453 (W.D.N.Y. 2010); Shafir v. Continuum Health Care Partners, Inc., No.
12-CV-5794 (KBF), 2016 WL 205435, at *5 (S.D.N.Y. Jan. 15, 2016); Swartz v. DJ
Eng’g, Inc., No. 12-CV-01029-DDC-KGG, 2015 WL 4139376, at *16 (D. Kan. July 9,
2015); Castellino v. M.I. Friday, Inc., No. CIV.A. 11-261, 2012 WL 2513500, at *9
(W.D. Pa. June 29, 2012). Respectfully, as discussed in more detail below, the Court
disagrees with these holdings in light of the 2004 amendments to 29 C.F.R. § 541.603
and the plain language of that regulation. See infra Part II.C.3.a. To find that the
window of correction is only available when improper deductions are unintentional
ignores the disjunctive language of the regulation and leads to illogical results. See, e.g.,
Castellino, 2012 WL 2513500 at *8–9 (noting the window of correction’s disjunctive
language, holding that the window of correction applied to deductions that were
inadvertent but not isolated, but then in the next sentence declaring that the window of
correction would not apply to deductions that were isolated but intentional).
Plaintiffs’ argument fails for the reasons articulated in Ellis. To understand that
the window of correction is only available for unintentional improper deductions ignores
the plain language of § 541.603(c), which allows for either isolated or inadvertent
deductions. The question then is whether The Tile Shop’s twenty-two improper salary
deductions were inadvertent or isolated. 9
2. The Tile Shop’s Improper Salary Deductions
The Tile Shop argues that its improper deductions were both isolated and
inadvertent. (See Def.’s Mem. in Supp. at 17.) It claims that the deductions were
inadvertent because they were a result of human error in the Human Resources
Department that occurred when that Department was struggling to keep up with The Tile
Shop’s rapid growth. (See id. at 17–19.) The Tile Shop contends that the improper
deductions were also isolated by virtue of the small total number of deductions, the small
It is undisputed that all sixteen Store Managers who suffered improper negative bonus
deductions from their fixed salaries have been reimbursed the deducted amount.
(Behrman Decl. at ¶ 16.) Plaintiffs claim that not all Store Managers have been
reimbursed, but they base this argument on their understanding that deductions from
commissions and spiffs were also improper. As previously explained, The Tile Shop’s
deductions from commissions and spiffs were not improper under the salary basis test.
See supra Part II.B.1.
percentage of Store Manager paychecks that experienced a deduction, and the small total
dollar amount of the deductions. (Id. at 17.)
Plaintiffs argue that the improper deductions were neither inadvertent nor isolated.
(See Pls.’ Mem. in Opp. at 25–26.) They argue that The Tile Shop’s “policy and
practice” of making negative bonus salary deductions, evidenced by the threats of
Regional Managers and other Tile Shop executives, demonstrates that the deductions
were not inadvertent. (See id. at 25.) Plaintiffs further contend that the number and
dollar amount of the deductions show they were not isolated. 10 (See id.)
The DOL describes inadvertent deductions as “those taken unintentionally, for
example, as a result of a clerical or time-keeping error.” Defining and Delimiting the
Exemptions for Executive, Administrative, Professional, Outside Sales and Computer
Employees, Department of Labor, 69 FR 22122-01, 22181, 2004 WL 865626(F.R.) (Apr.
23, 2004) (hereinafter, “DOL Comments on 29 C.F.R. § 541.603”). Taking the facts and
reasonable inferences in the light most favorable to Plaintiffs, the Court cannot conclude
that The Tile Shop’s negative bonus deductions from Store Managers’ salaries were
inadvertent as a matter of law.
Regional Manager Granados’ email 11 in which he
threatened to take performance-based deductions from salaries, combined with the
Plaintiffs’ assertions that other Regional Managers and Tile Shop executives made
Again, Plaintiffs’ argument rests on their understanding that deductions from
commissions and spiffs were also improper. As described above, such deductions were
not improper. See supra Part II.B.1.
To be clear, irrespective of the result in this case, the Court in no way condones or
approves of the threatening language used by Granados.
similar threats, creates a fact issue. These threats are evidence of intent—on the part of
some Regional Managers—to improperly deduct negative bonuses from Store Managers’
salaries. However, this does not end the inquiry since the window of correction would
still apply if the improper deductions were isolated.
The Court finds that the twenty-two deductions in this case were isolated. The
DOL provides the following non-exhaustive list of factors to consider when deciding
whether deductions are isolated: (1) the number of improper deductions; (2) the time
period over which the deductions were made; (3) the number and geographic location of
employees who experienced deductions; (4) the number and geographic location of
managers who made the deductions; and (5) if the employer had a clearly communicated
policy permitting or prohibiting improper deductions. DOL Comments on 29 C.F.R. §
541.603, 69 FR at 22181 (explaining that the factors set forth in 29 C.F.R. § 541.603(a)
inform whether deductions are “isolated” under the window of correction).
The total number of improper deductions here—twenty-two—is relatively small.
The isolated nature of these deductions is perhaps best exemplified by the fact that there
were a total of 4,737 Store Manager-paychecks issued between March of 2011 and March
of 2014, but less than 0.5% of those checks were subject to an improper salary deduction.
Averaged over these three years, there were fewer than eight deductions per year.
Similarly, only sixteen out of 150 Store Managers nation-wide experienced an improper
salary deduction during that period.
There is no evidence that The Tile Shop has a written policy that allows, or
disallows, negative bonus deductions from Store Managers’ fixed salaries. The threats of
Regional Manager Granados and allegedly others are some evidence of an “unwritten”
policy of improper deductions. However, all these threats came from individuals who did
not have the authority to set payroll policy or actually take deductions. Moreover—on at
least twelve occasions—Store Managers’ negative bonuses exceeded commissions and
spiffs, but were not deducted from fixed salaries. If The Tile Shop had a policy allowing
for negative bonus deductions from salaries, one would expect that these twelve instances
would have resulted in improper deductions. At a minimum, it cannot be said that this
evidence shows a “clearly communicated policy” allowing for improper salary
The undisputed facts show that the improper deductions were isolated. Thus, the
Court holds that the twenty-two improper salary deductions were isolated and the
window of correction applies. See Crabtree v. Volkert, Inc., No. CIV.A. 11-0529-WS-B,
2012 WL 6093802, at *9 (S.D. Ala. Dec. 7, 2012) (holding that improper deductions
from one percent of checks issued to certain employees over approximately three years
were isolated and thus the window of correction applied); Parmar v. Safeway Inc., No.
C10-421 MJP, 2011 WL 888238, at *7 (W.D. Wash. Mar. 14, 2011) (granting summary
judgment based in part on the conclusion that six allegedly improper salary deductions
from one employee in just over a year were isolated and thus the window of correction
The only remaining issue then is whether The Tile Shop must satisfy the actual
practice provision in order to employ the window of correction.
3. The Actual Practice Provision and the Window of Correction
Plaintiffs argue that the actual practice provision controls the result here and is not
met as a matter of law. (See Pls.’ Mem. in Opp. at 13–18 (looking at the factors
enumerated in 29 C.F.R. § 541.603(a)).) Implicit in this argument is that unless The Tile
Shop can satisfy the actual practice provision, the window of correction is unavailable.
Conversely, The Tile Shop contends that the window of correction alone entitles it to
(Def.’s Reply at 12–14; see Def.’s Mem. in Supp. at 15–19.)
However, it also contends that even if the actual practice provision applied, the
undisputed facts show that provision is satisfied as a matter of law. (See Def.’s Mem. in
Supp. at 19–31; Def.’s Reply at 6–12.) For the reasons discussed below, the Court holds
that although the actual practice provision and window of correction are closely related,
the window of correction is an independent basis by which the FLSA exemption may be
preserved despite some improper deductions. Furthermore, even if the actual practice
provision controlled here, it is satisfied as a matter of law.
a. The Relationship Between the Regulatory Provisions
Before 2004, the regulations governing the salary basis test looked considerably
different than they do today. See 29 C.F.R. § 541.118. Relevant to the present matter,
the pre-2004 regulation regarding the effect of improper deductions read:
The effect of making a deduction which is not permitted under these
interpretations will depend upon the facts in the particular case. Where
deductions are generally made when there is no work available, it indicates
that there was no intention to pay the employee on a salary basis. In such a
case the exemption would not be applicable to him during the entire period
when such deductions were being made. On the other hand, where a
deduction not permitted by these interpretations is inadvertent, or is made
for reasons other than lack of work, the exemption will not be considered to
have been lost if the employer reimburses the employee for such deductions
and promises to comply in the future.
29 C.F.R. § 541.118(a)(6). Notably, besides the previously quoted subsection, 29 C.F.R.
§ 541.118 made no mention of the effect of an employer’s intent to make improper
deductions or its “actual practice” of making such deductions. It was not until the
Supreme Court held that the salary basis test was not satisfied if an employer had “either
an actual practice of making such [improper] deductions or an employment policy that
creates a ‘significant likelihood’ of such deductions” that the term “actual practice”
became part of the salary basis test vernacular. See Auer v. Robbins, 519 U.S. 452, 461
(1997) (emphasis added).
However, Auer did not address whether the window of
correction (then, 29 C.F.R. § 541.118(a)(6)) was applicable to an employer with an
“actual practice” of making improper salary deductions and a circuit split on this issue
grew. See Belcher v. Shoney’s, Inc., 30 F. Supp. 2d 1010, 1022 (M.D. Tenn. 1998)
(noting the split and collecting cases).
In the early 2000s, the Department of Labor (the “DOL”) began working on major
revisions to the FLSA regulations.
See generally DOL Comments on 29 C.F.R. §
541.603, 69 FR 22122-01. This included revamping the regulations related to the salary
basis test and the effect of improper deductions. See id. 69 FR at 22179–83. The DOL
acknowledged that the then-existing window of correction (29 C.F.R. § 541.118(a)(6))
was not “a model of clarity[,]” especially when it came to the effect of improper
deductions. Id. at 22181. The new regulatory framework aimed to resolve those shortcomings. See id. at 22181–83.
Initially, the DOL proposed a single subsection that contained both the actual
practice language of Auer and a sentence providing that “isolated or inadvertent”
improper deductions would not result in loss of the FLSA exemption. Id. at 22179.
However, the final rule made a number of “substantive changes” that included separating
the window of correction (§ 541.603(c)) and actual practice provision (§ 541.603(a)) into
distinct subsections. Id. The DOL explained that the new window of correction, §
541.603(c), “contains language taken from proposed subsection 541.603(a) and the
existing ‘window of correction’ in current subsection 541.118(a)(6) regarding the effect
of ‘isolated’ or ‘inadvertent’ improper deductions.”
Id. at 22181.
It then defined
“inadvertent” and “isolated,” as described above. Id.; see supra Part II.C.2.
The DOL also provided several examples of how the new subsections of 541.603
were related, but ultimately operated independently.
See, e.g., id. 69 FR at 22181
(describing how the new window of correction and safe harbor 12 subsections would
clarify where employers could maintain the FLSA exemption, despite some improper
deductions), 22182 (“We intend this safe harbor provision to apply, for example, where
an employer has a clearly communicated policy prohibiting improper deductions, but a
manager engages in an actual practice (neither isolated nor inadvertent) of making
improper deductions.”), and 22183 (“[The safe harbor provision] applies, moreover,
Subsection (d), generally referred to as the “safe harbor provision,” allows employers
with certain policies and procedures designed to identify and prevent improper salary
deductions to preserve the FLSA exemption if, despite these precautions, some improper
deductions occur. See 29 C.F.R. § 541.603(d). The Tile Shop does not invoke the safe
regardless of the reasons for the improper pay deductions.”).
admonishment that § 541.603 “not be construed in an unduly technical manner so as to
defeat the exemption” further supports the conclusion that the DOL intended § 541.603’s
subsections to offer independent bases by which an employer might preserve the FLSA
exemption despite some improper salary deductions. 13 Notably, at no time did the DOL
suggest that intentional, improper deductions would automatically foreclose the window
Despite this history and the amendments to § 541.603, some courts continue to
treat the actual practice provision as a “prerequisite” that must be satisfied before an
employer can use the window of correction. See, e.g., Scholtisek v. Eldre Corp., 697 F.
Supp. 2d 445, 453 (W.D.N.Y. 2010); Shafir v. Continuum Health Care Partners, Inc., No.
12-CV-5794 (KBF), 2016 WL 205435, at *5 (S.D.N.Y. Jan. 15, 2016); Swartz v. DJ
Eng’g, Inc., No. 12-CV-01029-DDC-KGG, 2015 WL 4139376, at *16 (D. Kan. July 9,
2015); Castellino v. M.I. Friday, Inc., No. CIV.A. 11-261, 2012 WL 2513500, at *9
(W.D. Pa. June 29, 2012); Santos v. Just Wood Furniture, Inc., No. 7:05-CV-9369
(WWE), 2009 WL 1616497, at *6 (S.D.N.Y. Jan. 14, 2009); see also Crabtree, 2012 WL
6093802 at *10–11 (noting the 2004 amendments and the unclear “interplay” between the
Later, in an opinion letter, the DOL again affirmed that the actual practice provision (§
541.603(a)) and window of correction (§ 541.603(c)) were independent bases on which
an employer might lose or retain the FLSA exemption in the face of improper salary
deductions. See Opinion Letter Fair Labor Standards Act (FLSA), Dept. of Labor, 2005
WL 3308612, at *3 (October 24, 2005) (“An employer will lose the exemption if it has an
actual practice of making improper deductions that demonstrates it did not intend to pay
employees on a salary basis. On the other hand, isolated or inadvertent deductions do not
result in loss of the exemption if the employer reimburses the employees for the improper
actual practice provision and window of correction, but assuming without deciding—
because the parties failed to brief the issue—that the actual practice provision “is indeed a
preliminary hurdle that an employer must overcome before it may unlock the window of
correction”). Others courts have essentially combined the actual practice provision and
window of correction into a single analysis. See, e.g., Smith v. Pepper Source, Ltd., No.
5:12-CV-05027, 2013 WL 2250305, at *3–4 (W.D. Ark. May 22, 2013); Parmar, 2011
WL 888238 at *7.
To the extent that the cases just described held that the window of correction is
only available where an employer first satisfies the actual practice provision, this Court
respectfully disagrees. This concept—that the actual practice provisions is a prerequisite
that must be met before employing the window of correction—appears to rest heavily on
the assumption that the window of correction is available only in cases of unintentional
and isolated deductions. However, as just described, that assumption is incorrect. See
supra Part II.C.1.; Ellis, 779 F.3d at 1204–05 (rejecting the argument that the window of
correction should be “read in context” with the actual practice provision such that it
applies “only when there is no other evidence of the employer’s intent, such as a policy
allowing deductions” since that would be precisely the sort of “unduly technical” read of
the regulation, meant to defeat the exemption, that § 541.603(e) cautions against).
Although the actual practice provisions and window of correction are closely
related, they are distinct. The actual practice provision describes how an employer can
lose the FLSA exemption by not intending to pay employees on a salary basis, as
evidenced by having an actual practice of making improper deductions. In contrast, the
window of correction allows an employer to maintain the FLSA exemption even where it
has taken isolated or inadvertent deductions. If an employer has an actual practice of
making improper deductions, those deductions were not inadvertent in the sense that they
were not the unintentional result of a clerical or time-keeping error. See DOL Comments
on 29 C.F.R. § 541.603, 69 FR at 22181. However, those same deductions might be
isolated, in which case the window of correction would still apply. 14 See Ellis, 779 F.3d
Even if the actual practice provision controlled the result here, for the reasons
described below, the Court holds as a matter of law that The Tile Shop did not have an
actual practice of taking improper deductions.
b. Actual Practice
The Tile Shop avers that it did not have an actual practice of making improper
salary deductions. (See Def.’s Supp. Br. at 3–4 [Doc. No. 86].) It claims that the
improper deductions that did occur were simply mistakes that resulted from a Human
Resources department and payroll system that did not keep up with The Tile Shop’s rapid
expansion during this time. (Behrman Decl. at ¶ 4.) As evidence that The Tile Shop did
not have an actual practice, it points to: (1) the twelve instances where deductions were
possible but not taken (which it contends is the minimum number of times this occurred),
(2) Human Resource’s practice of flagging negative bonuses and ensuring that any
amounts exceeding commissions and spiffs were not deducted from salary, (3) the
The Court acknowledges that it would be rare—based on the considerations set forth in
the actual practice provision—for an employer to have an actual practice of taking
improper deductions, but for the number of deductions taken to be isolated.
sporadic and isolated nature of the improper deductions that did occur, and (4) the fact
that when improper deductions were brought to The Tile Shop’s attention, they were
immediately remedied. (Def.’s Supp. Br. at 3–4; Def.’s Mem. in Supp. at 25–28.) The
Tile Shop also notes that it is Plaintiffs’ burden to put forth evidence of an actual practice
and argues that they fall short of satisfying that requirement. (Def.’s Supp. Br. at 3
(citing Yourman v. Giuliani, 229 F.3d 124, 128 (2d Cir. 2000)).)
Plaintiffs contend that there is a question of fact as to whether The Tile Shop had
an actual practice of making improper deductions. (Pls.’ Mem. in Opp. at 13–22.)
Specifically, they point to: (1) the twenty-two improper deductions that were taken, and
(2) the statements made by Regional Manager Granados—and those allegedly made by
other Regional Managers and executives—to the effect that negative bonuses could be
deducted from salaries. 15 (See id.) Plaintiffs also object to The Tile Shop’s evidence that
on at least twelve occasions, negative bonuses exceeded commissions and spiffs, but
were not deducted from salaries. (Pl.’s Supp. Br. at 2–4.) They contend that this new
evidence should be “ignored” because it was not produced to Plaintiffs in discovery and
because its veracity cannot be assessed.
The Court addresses Plaintiffs’
objections to this evidence first.
Plaintiffs also make much of the fact that Store Managers’ paychecks listed negative
bonuses on a line immediately below the one for their fixed salary—a fact they argue
proves that negative bonuses were always deducted from salary. (Pls.’ Mem. in Opp. at
18–19.) However, the evidence definitively rejects this understanding. On at least
twelve occasions, negative bonuses exceeded commissions and spiffs, but were not
deducted from Store Managers’ salaries. See supra Part I.A. If Plaintiffs were correct,
these twelve instances would instead have resulted in additional improper deductions.
Although the placement of negative deductions on Store Managers’ paychecks may be
confusing, it is not evidence of an actual practice of making improper salary deductions.
Plaintiffs note that The Tile Shop’s evidence of instances where improper
deductions were possible, but not taken, was not produced during discovery. (Id. at 2–3.)
They explain that despite requesting payroll data for all Store Managers, The Tile Shop
objected to this request on relevance grounds and produced only the payroll data related
to Plaintiffs. (Id.) However, Plaintiffs do not allege that they challenged this limited
production or that The Tile Shop was ever ordered to produce all payroll data. There is
no indication in the record that Plaintiffs ever brought such a challenge.
The Tile Shop did object to Plaintiffs’ request for all Store Manager payroll data
on the basis that only the data related to the Plaintiffs was relevant. The Tile Shop further
explained that it was withholding payroll data for Store Managers who were not
Plaintiffs, but produced the data for those that were. Although The Tile Shop’s position
as to the relevance of this information was likely not justified, Plaintiffs never pursued
their initial request for all payroll data, nor did they argue at the time that all payroll data
was in fact relevant. Thus, The Tile Shop had not been ordered to produce this evidence
until this Court ordered that production to supplement the record on summary judgment.
(See Doc. No. 81.)
Furthermore, even if The Tile Shop improperly withheld this evidence, that would
not warrant disregarding this evidence on summary judgment. This evidence is relevant
to whether or not The Tile Shop had an actual practice of making improper deductions
from Store Managers’ salaries. Once The Tile Shop produced this evidence, Plaintiffs
had three weeks to assess it and respond, including the opportunity to present new
evidence of their own. (See Doc. Nos. 81, 91.)
Plaintiffs also argue that the new evidence should be disregarded because “the
facts and circumstances which produced the [new evidence] remain a mystery.” (Pls.’
Supp. Br. at 3.)
The Court disagrees.
The Tile Shop provided a sworn affidavit
explaining how the payroll data was audited and what that audit showed, including a
spreadsheet that gave detailed information about the twelve instances in which Store
Managers’ negative bonuses exceeded commissions and spiffs, but were not deducted
(See Rasmussen Decl.; Supp. Payroll Audit.)
Plaintiffs present no
evidence of their own to refute these numbers, nor do they provide any compelling reason
why the Court should doubt the veracity of this evidence.
Turning to the merits of the parties’ arguments about whether The Tile Shop had
an actual practice of making improper salary deductions, the Court holds as a matter of
law that it did not. As previously described, the improper deductions were isolated. See
supra Part II.C.2. Twenty-two deductions, taken over three years from only sixteen out
of 150 Store Managers, constituting 0.5% of all Store Manager paychecks issued during
that period, and totaling approximately $5,000 is not evidence that The Tile Shop
intended to pay its Store Managers on something other than a salary basis. See 29 C.F.R.
§ 541.603(a); Ellis, 779 F.3d at 1196 (holding that isolated deductions by definition did
not show an “actual practice”); Kennedy v. Commonwealth Edison Co., 410 F.3d 365,
372 (7th Cir. 2005) (“Identifying a few random, isolated, and negligible deductions is not
enough to show an actual practice or policy of treating as hourly the theoretically
salaried.”); Cash v. Cycle Craft Co., 508 F.3d 680, 684 (1st Cir. 2007) (“[T]wo aberrant
paychecks out of the approximately 50 that [the plaintiff] received do not amount to an
‘actual practice.’”); Pepper Source, 2013 WL 2250305 at *4 (granting the defendantemployer summary judgment and finding there was no actual practice based on only nine
deductions from three plaintiff-employees’ salaries). This is especially true since on at
least twelve occasions, improper deductions were possible, but avoided.
The statements by Regional Manager Granados—and those allegedly made by
other Regional Managers and executives—to the effect that negative bonuses could and
would be deducted from salaries do not alter this conclusion. These threats—however illadvised and incorrect they were—came from managers who were not capable of
following through on them (i.e., they did not have the authority or ability to actually take
improper deductions). These threats were belied by the fact that on at least twelve
occasions, a deduction was possible but not taken. Moreover, The Tile Shop produced
sworn testimony from Human Resources executives—those with the ability to take
deductions and charged with setting policy for when deductions are taken—that the
policy was to prevent salary deductions, even when a negative bonus exceeded
commissions and spiffs. See supra Part I.A. The Tile Shop did not have a “clearly
communicated policy” one way or the other when it came to deducting negative bonuses
See Carlson v. C.H. Robinson Worldwide, Inc., No. 02-cv-3780
(JNE/JGL), 2005 WL 758601, at *9 (D. Minn. Mar. 30, 2005) (granting the defendantemployer summary judgment after concluding that it did not have an actual practice of
improper deductions based on five salary deductions from non-plaintiff employees at two
branches and alleged threats from a manager to the plaintiffs that such deductions would
The Regional Managers’ improper threats that negative bonuses would be
deducted from Store Managers’ salaries are evidence of human error or rogue managers,
but not an actual practice of taking improper deductions.
The Crabtree case is
informative on this point. See 2012 WL 6093802. There, a manager intentionally took
deductions from employees’ salaries based on her mistaken belief that those deductions
were permitted, if not required, under company policy. Id. at *3–4. The plaintiffemployees claimed this was evidence that their employer had an actual practice of
making improper deductions. Id. at *11 n.21. However, the court rejected this argument
on summary judgment:
If . . . a single manager’s misunderstanding is automatically dispositive of
the employer’s intent for subsection (a) purposes, surely the regulation
would not have specified that the number of managers making improper
deductions was a relevant factor. By wording the regulation as it did, the
DOL is acknowledging that the outcome of the “actual practice” inquiry
differs where a single rogue manager imposes improper deductions, versus
where myriad managers are doing so. The latter circumstance would
obviously be far more probative of an employer’s actual practice of making
unlawful deductions than would the former. For all of these reasons, the
Court cannot accept plaintiffs’ contention that [the manager’s] “actual
practice” is all that matters for the § 541.603 inquiry; rather, the clear
language of that regulation specifies that it is the employer’s actual practice
(not that of a single misinformed, confused, or even malicious/rogue
manager) that is relevant. Plaintiffs have not argued—and cannot
reasonably argue on this record—that [the employer] as a whole ever had
an “actual practice” of making the unlawful deductions at issue.
Id. (emphasis original). Other courts agree—albeit while considering other parts of
FLSA—that the improper acts of a few rogue managers, even when intentional, are not
evidence that an employer has an actual practice of violating FLSA. See Thompson v.
Speedway SuperAmerica LLC, No. 08-cv-1107 (PJS/RLE), 2009 WL 130069, at *2 (D.
Minn. Jan. 20, 2009) (refusing to conditionally certify a class because the plaintiffs failed
to show that the alleged FLSA violations were the result of a “policy-to-violate-thepolicy” rather than human error or the acts of a rogue store manager); Seever v. Carrols
Corp., 528 F. Supp. 2d 159, 174 (W.D.N.Y. 2007) (same); Brickey v. Dolgencorp., Inc.,
272 F.R.D. 344, 348 (W.D.N.Y. 2011) (same). Moreover, to hold that the Regional
Managers’ threats and the twenty-two improper deductions constituted an actual practice
would expose The Tile Shop to potentially millions of dollars in overtime liability—a
result the case law cautions against. See Paresi v. City of Portland, 182 F.3d 665, 668
(9th Cir. 1999) (“Application of the [pre-2004] window of correction on these facts [two
improper deductions and the threat of others] is consistent with the text of the regulation,
with precedent, and with the policy underlying the administration of the salary basis test
of “avoiding the imposition of massive and unanticipated overtime liability.” (quoting
Auer, 519 U.S. at 461)).
In sum, the Court holds as follows. First, only The Tile Shop’s deductions from
Store Managers’ fixed salaries were improper under FLSA.
deductions from commissions and spiffs were permitted under the law. Second, the
window of correction allows for an employer to maintain the FLSA exemption if
improper salary deductions are either inadvertent or isolated. Third, The Tile Shop’s
improper deductions from Store Managers’ salaries were isolated and thus the window of
correction applies. Fourth, the window of correction is an independent basis by which
the FLSA exemption may be preserved and is not dependent on the actual practice
provision. Fifth, even if the actual practice provision controlled the result here, The Tile
Shop did not have an actual practice of making improper salary deductions. Thus, the
Court grants The Tile Shop’s Motion for Summary Judgment.
Based on the foregoing, and all the files, records, and proceedings herein, IT IS
HEREBY ORDERED THAT:
1. Defendant’s Motion for Summary Judgment [Doc. No. 66] is GRANTED and
Plaintiffs’ claims are DISMISSED WITH PREJUDICE.
LET JUDGMENT BE ENTERED ACCORDINGLY.
Dated: January 25, 2017
s/ Susan Richard Nelson
SUSAN RICHARD NELSON
United States District Judge
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