United States District Court, N.D. Indiana
THOMAS E. PEREZ, Secretary of Labor, United States Department of Labor, Plaintiff,
FIVE M'S, an Indiana limited liability company d/b/a PREMIER AUTO, PREMIER AUTO SALES, and VALPARAISO CAR CARE AND TRANSMISSION, R-WAY, INC., an Indiana corporation d/b/a L&W AUTO SALVAGE, and JOHN MORGAVAN, an individual, Defendants.
OPINION AND ORDER
William C. Lee, Judge United States District Court
matter is before the court on a motion for summary judgment
filed by the plaintiff, Thomas E. Perez, Secretary of Labor,
United States Department of Labor (“DOL”), on
August 1, 2016. The defendants, Five M's and John
Morgavan, filed a response to the motion on September 1,
2016, to which the DOL replied on September 19, 2016.
before the court is a motion to strike portions of the
declaration of Nancy Alcantara, filed by Five M's on
September 1, 2016. The DOL responded to the motion to strike
on September 19, 2016. Five M's declined to file a reply.
before the court is a motion to strike the affidavit of Neal
Guidarelli, filed by the DOL on September 19, 2016. Five
M's has not filed a response.
judgment must be granted when “there is no genuine
dispute as to any material fact and the movant is entitled to
judgment as a matter of law.” Fed.R.Civ.P. 56(a). A
genuine issue of material fact exists when “the
evidence is such that a reasonable jury could return a
verdict for the nonmoving party.” Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Not every
dispute between the parties precludes summary judgment,
however, since “[o]nly disputes over facts that might
affect the outcome of the suit under the governing law”
warrant a trial. Id. To determine whether a genuine
issue of material fact exists, the court must construe all
facts in the light most favorable to the non-moving party and
draw all reasonable inferences in that party's favor.
Heft v. Moore, 351 F.3d 278, 282 (7th Cir. 2003). A
party opposing a properly supported summary judgment motion
may not rely merely on allegations or denials in its own
pleading, but rather must “marshal and present the
court with the evidence she contends will prove her
case.” Goodman v. Nat'l Sec. Agency, Inc.,
621 F.3d 651, 654 (7th Cir. 2010).
1, 2015, the DOL filed a complaint against Five M's
seeking injunctive relief, restraining minimum wage,
overtime, and recordkeeping violations of the FLSA, and
recovery of unpaid compensation with an equal amount in
liquidated damages under the FLSA. The DOL's lawsuit
specifically seeks a total of $28, 954.12 for 35 employees in
unpaid wages ($1, 676.83) and unpaid overtime ($12, 800.23)
and liquidated damages ($14, 477.06).
alleges that Five M's history of FLSA violations dates
back to 2005, when the DOL's Wage and Hour Division
(“Wage and Hour”) first conducted an
investigation of Valparaiso Transmission and owner John
Morgavan. Then, like now, Wage and Hour determined that Mr.
Morgavan failed to pay an employee his last paycheck (a
minimum wage violation), paid hourly employees who worked
more than 40 hours per workweek their regular rates for all
hours worked (an overtime violation), and failed to keep
records of hours worked (a recordkeeping violation). More
than ten years later, Valparaiso Transmission, Premier Auto
Sales, and L & W Auto Salvage (hereinafter, the
“three businesses”) are still operating under Mr.
Morgavan's complete direction and control, and the DOL
contends that Mr. Morgavan is still disregarding the
obligations he and the three businesses have as employers
subject to the FLSA.
three businesses, which are an auto repair shop (Valparaiso
Transmission), a salvage yard (L & W Auto Salvage), and a
used car lot (Premier Auto Sales), operate as one vertically
integrated enterprise with a common business purpose -
buying, selling, and servicing used cars. The three
businesses are open to the public. Valparaiso Transmission
provides a range of car services to customers, while L &
W Auto Salvage buys cars, dismantles junk cars for parts, and
sells usable car parts on a walk-in basis directly to
customers. However, Valparaiso Transmission and L & W
Auto Salvage are also each other's “customers,
” even though no money changes hands. L & W Auto
Salvage supplies car parts to Valparaiso Transmission on an
as-needed basis, and it is the first stop when Mr. Morgavan
needs cheap parts to fix up used cars to sell at his Premier
Auto Sales. Likewise, when used cars for sale at Premier Auto
Sales need repairs or detailing, Valparaiso Transmission
provides those services. In turn, Valparaiso auto technicians
work at L & W Auto Salvage, providing services such as
and Hour's findings in the investigation that resulted in
this lawsuit mirror its findings in the 2005 investigation.
The only thing that seems to have changed since 2005 is the
fact that Mr. Morgavan created a parent company (Five
M's) to make filing his taxes easier. The DOL now seeks
summary judgment to require Mr. Morgavan and his three
businesses to comply with the FLSA.
first argues that the three business are a covered
“enterprise” under the FLSA. The FLSA defines an
“enterprise” as “the related activities
performed (either through unified operation or common
control) by any person or persons for a common business
purpose, and includes all such activities whether performed
in one or more establishments or by one or more corporate or
other organizational units . . . .” 29 U.S.C. §
203(r)(1). Thus, there is a three-part test to establish
enterprise coverage: (1) related activities; (2) unified
operation or common control; and (3) common business purpose.
See Brennan v. Arnheim & Neely, Inc., 410 U.S.
512, 518 (1973); 29 C.F.R. § 779.202. Determining
whether the three businesses are an “enterprise”
is a question of law. Hicks v. Avery Drei, LLC, 654
F.3d 739, 747 (7th Cir. 2011) (citations omitted). The FLSA
requires employees of “an enterprise engaged in
commerce” to be paid the minimum wage and the overtime
premium. See 29 U.S.C. §§ 206(a),
present case, Five M's does not dispute that the three
businesses are a covered “enterprise” under the
FLSA. Additionally, Five M's admitted in an interrogatory
answer that Mr. Morgavan is a § 3(d) employer under the
FLSA. Accordingly, this court finds that the three businesses
are an “enterprise” subject to the FLSA and that
Mr. Morgavan is an individual employer pursuant to §
3(d) of the Act.
next argues that Five M's failed to maintain required
records. The FLSA requires employers to maintain records of
hours worked each workday and total hours worked each
workweek. 29 U.S.C. § 211(c); 29 C.F.R. §§
516.2(a)(7); 516.6(a)(1). FLSA § 11(c) requires
employers to “make, keep, and preserve such records of
the persons employed by him and of the wages, hours, and
other conditions of employment maintained by him, ” as
prescribed by regulation of the DOL. 29 U.S.C. § 211(c).
The United States Supreme Court recognized the importance of
accurate recordkeeping in the FLSA enforcement scheme and
held that an employer's failure to maintain accurate
records of hours actually worked or kept records that are
inaccurate or inadequate shifts the burden of proof
concerning back wage liability to the employer. Anderson
v. Mt. Clemens Pottery Co., 328 U.S. 680 (1945); see
also Wirtz v. Turner, 330 F.2d 11 (7th Cir. 1964);
U.S. Dep't of Labor v. Cole Enterprises, Inc.,
62 F.3d 775, 780-81 (6th Cir. 1995).
for any period in which the employer has failed to maintain
accurate records as required by the Act, the DOL's burden
of proof as to the extent of any back wage liability is met
by showing that work was performed which was not properly
compensated and by producing sufficient evidence to show the
nature and extent of that work as a matter of just and
reasonable inference. The burden then shifts to the employer
either to come forward with precise evidence of the work
performed or to rebut the reasonableness of the inference to
be drawn from the DOL's evidence. Mt. Clemens,
328 U.S. at 687-88; see also Turner, 330 F.2d at 13.
The employer must not be allowed to profit from difficulties
of proof created by his own misconduct. Mt. Clemens,
328 U.S. at 688. Evidence that provides a reasonable basis
for inference of a “pattern or practice”
concerning the actual hours worked is sufficient for
approximation of a remedy that includes non-testifying
employees. Martin v. Tony & Susan Alamo
Foundation, 952 F.2d 1050, 1052 (8th Cir. 1992).
M's admit that they maintained time cards for an unknown
time after the hours were reported to the payroll company,
“[a]nd then after a while, [Five M's] would
probably dispose of them.” (Guidarelli Aff. ¶ 34).
Mr. Guidarelli, the manager in charge of payroll for all
three businesses, told Wage and Hour that he believed time
cards could be disposed of after calling hours into the
payroll company. (Id. ¶ 35). Five M's
retained “book rate” hours of Valparaiso
Transmission technicians for no more than six weeks.
(Id. ¶ 36). Five M's admit that there was
no policy regarding time sheets that Five M's employees
used to record their hours worked (Id. ¶ 37),
despite being repeatedly told by Wage and Hour that
maintaining and preserving records of hours worked for two
years are required by the Act.
basic time records showing hours worked are required to be
preserved for two years, and Five M's failed to do so.
See 29 C.F.R. § 516.6(a)(1). Five M's
payroll records (DOL Ex. J) did not accurately reflect the
number of hours worked based on Wage and Hour's
interviews of 20 employees. Investigator Alcantara used Five
M's year-to-date payroll reports (DOL Ex. J at 1-30) to
identify employees' hourly rate and Five M's'
weekly payroll journals (Id. at 31-58) to identify
employees' gross pay. (Guidarelli Aff. ¶ 54).
Because Five M's did not maintain complete or accurate
time records for the investigatory period, the DOL relied on
the interviews of twenty employees of Valparaiso Transmission
and L & W Auto Salvage and Five M's operating hours
to determine the actual hours worked. (Id.).
W Auto Salvage is open to the public from 8:00 am to 5:00 pm
Monday through Friday and from 8:00 am to 4:00 pm on
Saturday. (DOL Ex. C 241:19-242:3). Employees typically
worked during these operating hours, which equal 47 hours per
workweek when a one-hour daily lunch is deducted. Therefore,
the DOL used a 47-hour workweek for L & W Auto Salvage
employees when calculating back wage amounts due.
(Id. ¶ 54a). The DOL states that the 47-hour
workweek was consistent with employee interview statements.
Transmission is open to the public from 8:00 am to 5:00 pm
Monday through Friday and from 8:00 am to 12:00 pm on
Saturdays. (DOL Ex. C at 242:10-16). Employees typically
worked Monday through Friday from 8:00 am to 5:15 pm; the
extra fifteen minutes is a result of employees parking cars
inside Valparaiso Transmission's garage bays at the end
of the day. This equals 43.75 hours Monday through Friday
when a half-hour daily lunch is deducted. Valparaiso
Transmission employees typically worked from 8:00 am to 2:45
pm on Saturdays, which equals 6.25 hours on Saturday.
Therefore, the DOL used a 50-hour workweek for Valparaiso
Transmission employees when calculating back wage amounts
due. The 50-hour workweek was consistent with employee
M's has not addressed the DOL's argument that it
failed to comply with FLSA recordkeeping requirements.
Moreover Five M's admits that it had no policy regarding
time cards, maintained time cards for an unknown time after
the hours were reported to Paycor, and retained “book
rate” hours of Valparaiso Transmission technicians for
no more than six weeks. In response to the DOL's request
for all timesheets, time cards, and other time records for
their employees, Five M's produced payroll records for
February 2012 through September 2014 and were only able to
produce copies of 22 time cards. As the DOL notes, Five
M's submitted no evidence that it complies with the
FLSA's recordkeeping requirements. Therefore, this court
finds as a matter of law that Five M's violated the
FLSA's recordkeeping requirements and will enter a
recordkeeping injunction against all Defendants.
the DOL argues that Five M's failed to pay at least $7.25
per hour for certain hours worked. The DOL has proffered the
declaration of Investigator Nancy Alcantara in support of its
assertions. Employers are prohibited from paying
employees less than the applicable minimum wage per hour as
defined by the Act. 29 U.S.C. § 206. The DOL asserts
that the current investigation covering the period from June
30, 2012, through September 20, 2014, revealed several
minimum wage violations. First, Five M's payroll records
reflect that Salaried Parts Puller James Wilhelm's pay
was docked during his last two workweeks (weeks ending
October 26, 2013, and November 11, 2013), which brought his
pay below the minimum wage rate. Mr. Wilhelm earned a weekly
salary of $420.00, but he was paid only $210.00 and $105.00
during his last two workweeks. Mr. Wilhelm is due $315.61 in
unpaid minimum wage.
on August 16, 2013, Book Rate Technician Thomas Bade was paid
by a check for $111.83 with insufficient funds, resulting in
a minimum wage violation because it brought his pay below the
minimum wage rate. Mr. Bade is due a total of $67.72 in
unpaid minimum wage. Five M's recalls an issue with
issuing a bounced check to Thomas Bade, but does not know how
it was resolved.
Transmission paid some technicians a weekly salary
(“Salaried Technicians”); most technicians were
paid using the “book rate” system in which they
were paid based on the amount of time it should take an
average mechanic to perform a specific task instead of being
paid based on the actual hours worked (“Book Rate
Technicians”). Section 7(I) of the FLSA permits
employers to pay employees on this type of book rate basis
“if (1) the regular rate of pay of such employee is in
excess of one and one-half times [the minimum wage in section
6 of the Act] and (2) more than half his compensation for a
representative period (not less than one month) represents
commissions on goods or services.” 29 U.S.C. §
207(I); see also Wage and Hour's FIELD
OPERATIONS HANDBOOK ¶ 21(h) (available at
https://www.dol.gov/whd /FOH/FOH_Ch21.pdf.). Five M's has
“no idea” whether anyone at the company is
responsible for ensuring compliance with the FLSA, and no one
at the three businesses verified that Book Rate Technicians
earned at least the Federal minimum wage.
and Hour investigated Five M's pay practices with respect
to the Book Rate Technicians on a workweek-by-workweek basis.
If the regular rate of a Book Rate Technician was more than
one and one-half times the minimum wage ($10.88 per hour),
then no back wages were due. (See 29 U.S.C. §
207(I)). If the regular rate of a Book Rate Technician were
less than $10.88 per hour, then the employee was entitled to
minimum wage and overtime. In order to determine whether the
employee was paid minimum wage and overtime, for each
workweek Wage and Hour took the Book Rate Technicians'
gross pay from Five M's payroll records and divided that
number by the 50-hour workweek to determine the regular rate.
If that rate were less than $7.25, the difference between
$7.25 and the regular rate was multiplied by 50 hours. The
record shows that, in certain workweeks, four of the Book
Rate Technicians' regular hourly rates ...