USCA4 Appeal: 21-1897 Doc: 47 Filed: 07/27/2023 Pg: 1 of 17
PUBLISHED
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
No. 21-1897
FAUSTINO SANCHEZ CARRERA; JESUS DAVID MURO; MAGDALENO GERVACIO,
Plaintiffs - Appellees,
v.
E.M.D. SALES INC.; ELDA M. DEVARIE,
Defendants - Appellants.
Appeal from the United States District Court for the District of Maryland, at Baltimore. James K. Bredar, Chief District Judge. (1:17-cv-03066-JKB)
Argued: March 8, 2023 Decided: July 27, 2023
Before WYNN, HARRIS, and HEYTENS, Circuit Judges.
Affirmed by published opinion. Judge Harris wrote the opinion, in which Judge Wynn and Judge Heytens joined.
ARGUED: Eduardo Samuel Garcia, STEIN SPERLING BENNETT DEJONG DRISCOLL PC, Rockville, Maryland, for Appellants/Cross-Appellees. Omar Vincent Melehy, MELEHY & ASSOCIATES LLC, Silver Spring, Maryland, for Appellees/Cross- Appellants. ON BRIEF: Jeffrey M. Schwaber, STEIN SPERLING BENNETT DEJONG DRISCOLL PC, Rockville, Maryland, for Appellants/Cross-Appellees. Andrew Balashov, MELEHY & ASSOCIATES LLC, Silver Spring, Maryland, for Appellees/Cross- Appellants. USCA4 Appeal: 21-1897 Doc: 47 Filed: 07/27/2023 Pg: 2 of 17
PAMELA HARRIS, Circuit Judge:
The plaintiffs in this case are three sales representatives who alleged that their
employer, a food-products distributor, did not pay them the overtime wages to which they
were entitled under the Fair Labor Standards Act (“FLSA” or “Act”). Their employer
defended on the ground that the plaintiffs fell within the Act’s “outside sales” exemption,
which excuses overtime pay for employees who work outside the office and whose primary
duty is making sales.
After a nine-day bench trial, the district court found that the plaintiffs were indeed
owed overtime pay because their employer had failed to prove, by clear and convincing
evidence, that they came within the outside sales exemption. The court also awarded
liquidated damages to the plaintiffs, finding that the employer had not shown objectively
reasonable grounds for the challenged pay practices. At the same time, the court
concluded, the plaintiffs had not shown that their employer willfully violated the Act,
which meant that damages were calculated consistent with the standard two-year statute of
limitations and not the extended three-year period for willful violations.
Both parties now appeal: The employer challenges the district court’s liability
finding and its award of liquidated damages, and the plaintiffs cross-appeal the court’s
willfulness finding and attendant application of the two-year statute of limitations. For the
reasons given below, we affirm the district court’s judgment in all respects.
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I.
A.
We begin by outlining the statutory and regulatory provisions relevant to this appeal.
Among the protections the FLSA provides employees is overtime pay, or the right to be
paid at time and a half for work above the maximum hours set by the Act, generally 40
hours per week. 29 U.S.C. § 207(a); see Christopher v. SmithKline Beecham Corp., 567
U.S. 142, 147 (2012). There are, however, multiple exemptions from this requirement, see
29 U.S.C. § 213, including the “outside sales” exemption, which excludes from § 207(a)’s
protections any worker “employed . . . in the capacity of outside salesman,” 29 U.S.C.
§ 213(a)(1).
Congress did not define the term “outside salesman” in the FLSA. Instead, it
expressly delegated that task to the Department of Labor (“DOL”). See id. Under DOL’s
regulations – which no party challenges here – an “outside salesman” is an employee whose
“primary duty is [] making sales” and who “customarily and regularly” works away from
the employer’s place of business in performing that primary duty. See 29 C.F.R.
§ 541.500(a).
Everyone agrees that the employees in this case, who worked for a company that
distributes food products to grocery stores, satisfied the second part of this definition, in
that they regularly worked outside the office while servicing stores on their assigned routes.
Our focus is on the first part of the definition, limiting the exemption to employees whose
“primary duty” is the making of sales. DOL’s outside sales regulation incorporates the
general regulatory definition of “primary duty” as the “principal, main, major or most
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important duty that the employee performs.” 29 C.F.R. § 541.500(b) (incorporating
definition at 29 C.F.R. § 541.700). But the regulations also provide guidance specific to
sales: Work performed “incidental to and in conjunction with the employee’s own outside
sales or solicitations” – including promotional work – counts as exempt “outside sales
work.” 29 C.F.R. § 541.500(b) (emphasis added); see 29 C.F.R. § 541.503(a) (discussing
promotional work). But “promotional work that is incidental to sales made, or to be made,
by someone else” is not treated as exempt sales work in applying the “primary duty”
standard. 29 C.F.R. § 541.503(a) (emphasis added).
An employer who violates the FLSA’s overtime-pay requirement is liable for unpaid
wages and, generally, for an equal amount in liquidated damages. 29 U.S.C. § 216(b). The
FLSA “plainly envisions that liquidated damages . . . are the norm.” Mayhew v. Wells, 125
F.3d 216, 220 (4th Cir. 1997). But a court “may, in its sound discretion, award no
liquidated damages” if “the employer shows to the satisfaction of the court” that its
violation “was in good faith and that [it] had reasonable grounds for believing” that its pay
practices complied with the FLSA. 29 U.S.C. § 260.
One other provision bears on the calculation of damages here. The statute of
limitations for FLSA claims usually is two years, putting a “limit on employers’ exposure”
to liability for unpaid wages and liquidated damages. McLaughlin v. Richland Shoe Co.,
486 U.S. 128, 132 (1988). But that period is extended to three years if a plaintiff can show
that his employer’s violation of the Act was “willful.” 29 U.S.C. § 255(a); see Desmond v.
PNGI Charles Town Gaming, L.L.C., 630 F.3d 351, 357–58 (4th Cir. 2011).
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B.
1.
The plaintiffs in this case are Faustino Sanchez Carrera, Magdaleno Gervacio, and
Jesus David Muro, all of whom worked as sales representatives for E.M.D. Sales Inc.
(“EMD”). EMD is a distributor of Latin American, Caribbean, and Asian food products to
chain and independent grocery stores, operating in the Washington, D.C., metropolitan
area. As a direct store delivery vendor, EMD delivers its products directly to grocery stores
(rather than to retail warehouses) and provides supplementary services on-site, including
stocking and “conditioning” the shelves at those stores.
Each plaintiff sales representative was assigned to service a “route” of stores. As
noted above, the parties agree that the plaintiffs spent most of their time out of the office
and traveling their routes. At their assigned stores, the plaintiffs’ daily tasks included
restocking the shelves with EMD products, replenishing depleted products, removing
damaged and expired items from the shelves, and issuing credits to the serviced stores for
removed items – tasks the plaintiffs described as inventory management. The plaintiffs
also were responsible for submitting orders from the stores for additional EMD products.
The plaintiffs’ routes included both chain stores and independent groceries. The
parties agree that servicing chain stores was at least half of the plaintiffs’ job, and the
district court found that the plaintiffs spent most of their time at those stores. That division
of labor matters: While the plaintiffs could make at least some of their own sales to the
independent groceries on their routes, sales opportunities were more limited – to a degree
hotly contested by the parties – at chain stores, where high-level negotiations between
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corporate buyers and EMD management generally determined what products the stores
would carry.
2.
In 2017, the plaintiffs sued EMD and its Chief Executive Officer, Elda Devarie,
alleging that they were denied overtime wages in violation of the FLSA. According to the
plaintiffs, they worked roughly 60 hours per week as sales representatives, paid on a
commission basis instead of hourly and without overtime compensation. The employees
sought both unpaid overtime wages and liquidated damages, see 29 U.S.C. § 216(b), and
argued that their back wages and damages should be calculated consistent with the three-
year statute of limitations for “willful” violations of the FLSA, see id. § 255(a).
The defendants did not dispute that the plaintiffs worked for more than 40 hours a
week without overtime pay. Instead, the defendants argued that they were not liable for
overtime wages because their sales representatives qualified as “outside salesm[e]n” under
§ 213(a)(1)’s exemption. And even if there had been an FLSA violation, they argued, the
court should decline to award liquidated damages because they had reasonable grounds for
believing that no overtime pay was due, and it should apply only the standard two-year
statute of limitations for non-willful violations.
The parties filed cross-motions for summary judgment on these issues, and in a
thoroughly reasoned opinion, the district court denied the motions. See Carrera v. E.M.D.
Sales, Inc. (Carrera I), 402 F. Supp. 3d 128 (D. Md. 2019). The court first addressed the
burden of proof by which the defendants were required to establish their entitlement to the
outside sales exemption. Relying on circuit precedent, see, e.g., Shockley v. City of
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Newport News, 997 F.2d 18, 21 (4th Cir. 1993), the plaintiffs argued for a “clear and
convincing” standard of proof. The defendants, on the other hand, cited the Supreme
Court’s then-recent decision in Encino Motorcars, LLC v. Navarro, 138 S. Ct. 1134 (2018),
which rejected a canon of construction calling for a narrow interpretation of the FLSA’s
exemptions, and argued for a lower “preponderance of the evidence” standard. The district
court agreed with the plaintiffs, explaining that “nothing in the Encino decision relates to
evidentiary burdens [or] even mention[s] the phrase ‘preponderance of the evidence.’”
Carrera I, 402 F. Supp. 3d at 146. That left the court bound, it concluded, by “longstanding
Fourth Circuit precedent” dictating that an employer must prove its entitlement to an FLSA
exemption by clear and convincing evidence. Id.
The district court then took up what it identified as the “crux of the parties’ dispute”:
whether the “primary duty” of EMD’s sales representatives was to make sales, and,
specifically, whether sales representatives could make sales at the chain stores in which
they spent most of their time. Id. at 136–37, 147–48. According to the plaintiffs, the orders
they took for EMD products at chain stores were controlled by sales terms already
negotiated by management; their time was spent only on promotional and inventory-
management activities – restocking and rearranging products, issuing credits, taking orders
– that were incidental to sales made at higher levels and therefore outside the scope of the
exemption. Id.; see 29 C.F.R. § 541.503(a). The defendants took a different view,
contending that sales representatives retained latitude to make sales at chain stores by
securing additional space for EMD products. Carrera I, 402 F. Supp. 3d at 147. Because
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the record gave rise to a genuine dispute of fact on this question, the district court denied
both parties’ summary judgment motions. Id. at 148–49.
The district court also found that fact disputes precluded summary judgment with
respect to liquidated damages and the appropriate limitations period. As to liquidated
damages, the court determined that there was a genuine dispute regarding the objective
reasonableness of EMD’s pay practices, centered on CEO Devarie’s alleged failure to
inform herself of the actual job responsibilities of EMD’s sales representatives. Id. at 151.
And the same record evidence, the court concluded, created a genuine dispute over
Devarie’s willfulness in failing to pay overtime to sales representatives. Id. at 151–52.
The case then went forward to a nine-day bench trial before the district court. At its
close, the district court ruled for the plaintiffs on liability, finding that the defendants had
not proved by clear and convincing evidence that their sales representatives were covered
by the outside sales exemption. Carrera v. E.M.D. Sales, Inc. (Carrera II), No. JKB-17-
3066, 2021 WL 1060258, at *5–7 (D. Md. Mar. 19, 2021). At chain stores, the district
court found, the defendants had not shown that the plaintiffs could make their own sales;
instead, they simply submitted orders to fill space or stock displays “already negotiated by
EMD’s management.” Id. at *6. And while there might be some room, at some stores, to
sell additional space for EMD products – and “EMD would undoubtedly welcome” those
efforts – any such work would be “ancillary to sales representatives’ primary
responsibility” of “keeping shelves full, keeping shelves clean, and placing orders
promptly,” all incidental to sales “already negotiated and executed” by EMD management.
Id. at *7. As for independent stores, the court found, while the plaintiffs did make sales in
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those groceries, the defendants had not established that sales, rather than inventory
management, was their “primary” responsibility. And in any event, the court reasoned,
because the plaintiffs spent most of their time at chain stores, their “overall primary duty”
could not be the making of sales. Id.
The court awarded the plaintiffs both their unpaid overtime wages and liquidated
damages. As to liquidated damages, it found that the defendants had not carried their
“substantial burden” of showing good faith or objectively reasonable grounds for their pay
practices under § 260. Id. at *8 (quoting Mayhew, 125 F.3d at 220); see 29 U.S.C. § 260.
Central to the court’s determination was CEO Devarie’s trial testimony, which revealed
that the defendants had not investigated and did not have actual knowledge of EMD’s sales
representatives’ daily job responsibilities. Id. The court declined, however, to extend the
standard two-year statute of limitations for FLSA claims to three years, finding that the
defendants’ “error was one of neglect, not recklessness or willful misbehavior.” Id.; see
29 U.S.C. § 255(a) (extending limitations period for “willful” violations). Here, too, the
court put great weight on Devarie’s testimony, finding her to be “impermissibly but
credibly uninformed on the topic of how the FLSA applied” to her company’s sales
representatives. Id.
EMD and Devarie timely appealed the district court’s liability finding and its award
of liquidated damages. The plaintiffs then filed a timely cross-appeal, challenging the
district court’s finding that the defendants’ FLSA violation was not “willful” for purposes
of extending the limitations period.
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II.
We turn first to the district court’s liability finding. The defendants challenge that
finding on one ground only: that the district court erred as a matter of law in holding them
to a “clear and convincing” standard of proof in showing that their employees were covered
by the outside sales exemption. We review that question de novo, see Everett v. Pitt Cnty.
Bd. of Educ., 678 F.3d 281, 288 (4th Cir. 2012), and because we agree with the district
court, we affirm its liability finding.
Our starting point here is straightforward. As the district court explained, it is well
established in our circuit that when an employer defends an FLSA action on the ground
that its employee falls within a § 213 exemption, it bears the burden of proof on that
question (a point no party contests) and must carry that burden under the “clear and
convincing evidence” standard. See, e.g., Shockley, 997 F.2d at 21 (“Employers must
prove by clear and convincing evidence that an employee qualifies for exemption.”);
Desmond v. PNGI Charles Town Gaming, 564 F.3d 688, 691 (4th Cir. 2009) (“[The
employer] bore the burden of proving, by clear and convincing evidence, that the
[employees’] jobs fell within the administrative exemption.” (citation omitted)).
Undaunted, the defendants present two arguments for why the district court nevertheless
erred in applying that standard – instead of the lower “preponderance of the evidence”
standard – to their case.
We may dispense briefly with the first. According to the defendants, while our court
may have said “clear and convincing,” it did not “consciously adopt[]” that standard –
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meaning, as we understand it, that the court has not adequately explained its imposition of
this heightened burden of proof, so its holdings may be overlooked. But that is not how
panel precedent works. Indeed, we have explained as much in precisely this context: In
Desmond, too, a defendant employer urged us to depart from our precedent on the burden
of proof, citing critiques from other circuits. But as we reminded the defendant, “this Court
unequivocally held that the proper standard is clear and convincing evidence” in Shockley,
and one “panel cannot overrule the decision of a prior panel.” Desmond, 564 F.3d at 691
n.3. “[A]bsent contrary law from an en banc or Supreme Court decision,” all parties here
– the defendants, the district court, and this panel – are bound by Fourth Circuit precedent
establishing the burden of proof for FLSA exemptions. Taylor v. Grubbs, 930 F.3d 611,
619 (4th Cir. 2019).
That brings us to the defendants’ second and more substantial argument: that there
is indeed contrary Supreme Court law superseding our precedent, in the form of the
Supreme Court’s 2018 decision in Encino Motorcars. There, the Court rejected the
principle that exemptions to the FLSA should be construed narrowly. 138 S. Ct. at 1142.
That principle, the Court held, was not a “useful guidepost for interpreting the FLSA.” Id.
The Act’s “exemptions are as much a part of the FLSA’s purpose as the overtime-pay
requirement” itself, the Court concluded, and “there is no reason to give them anything
other than a fair (rather than a ‘narrow’) interpretation.” Id. (alteration omitted). It follows,
the defendants argue, that there also is no reason for a heightened clear and convincing
standard of proof, rendering our prior case law “untenable” under Encino Motorcars. See
United States v. Banks, 29 F.4th 168, 175 (4th Cir. 2022) (explaining that panel precedent
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is not binding if it “subsequently proves untenable considering Supreme Court decisions”
(internal quotation marks omitted)).
“We do not lightly presume that the law of the circuit has been overturned,” see
Taylor, 930 F.3d at 619, or rendered “no longer tenable,” see United States v. Brown, 67
F.4th 200, 217 (4th Cir. 2023) (Heytens, J., concurring in the judgment) (outlining “high
standard” applied to the inquiry). And here, we cannot agree with the defendants that it is
impossible to reconcile our clear and convincing burden of proof with Encino Motorcars.
Encino Motorcars is a case about statutory interpretation, and a canon of construction –
now rejected – that mandated a narrow reading of the scope of the FLSA’s exemptions. As
the district court observed, see Carrera I, 402 F. Supp. 3d at 146, that is distinct from the
question of what burden of proof an employer bears in proving the facts of its case – here,
what EMD’s employees actually do on the job, and whether they can make sales at the
independent stores where they spend most of their time. See Lederman v. Frontier Fire
Prot., Inc., 685 F.3d 1151, 1156–58 (10th Cir. 2012) (distinguishing between evidentiary
burdens as to factual questions and statutory-construction principles that govern the legal
scope of the FLSA’s exemptions); Yi v. Sterling Collision Ctrs., Inc., 480 F.3d 505, 506–08
(7th Cir. 2007) (same). And because these are distinct concepts, it is entirely possible for
us to read our precedent “harmoniously” with Encino Motorcars, see Taylor, 930 F.3d at
619, giving a fair, not narrow, legal construction to the FLSA’s exemptions, see 138 S. Ct.
at 1142, while also requiring employers to prove the facts that would put their employees
within those exemptions by clear and convincing evidence.
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Perhaps this court will want to revisit the appropriate evidentiary standard for FLSA
exemptions in light of the Supreme Court’s reasoning in Encino Motorcars and what can
be extrapolated from it. But that is a choice that “belongs to the en banc Court rather than
this panel.” See Brown, 67 F.4th at 217–18 (Heytens, J., concurring in the judgment). At
present, we are bound to conclude that the district court properly applied the law of this
circuit in requiring the defendants to prove their entitlement to the outside sales exemption
by clear and convincing evidence. Accordingly, we affirm the district court’s finding that
the defendants are liable under the FLSA for unpaid overtime compensation. See Carrera
II, 2021 WL 1060258, at *9.
We turn next to the parties’ respective challenges to the district court’s damages
award. As to each, we affirm the district court’s judgment.
First, the defendants contend that the district court erred in awarding liquidated
damages after finding that they had not acted in good faith or demonstrated reasonable
grounds for believing their pay practices complied with the FLSA. See Carrera II, 2021
WL 1060258, at *8. We review an award of liquidated damages under the FLSA only for
an abuse of discretion. McFeeley v. Jackson St. Ent., LLC, 825 F.3d 235, 245 (4th Cir.
2016). Indeed, liquidated damages are “the norm” under the FLSA, see Mayhew, 125 F.3d
at 220, and district courts are expressly vested with discretion when it comes to making
exceptions: Only if an employer can “show to the satisfaction of the court” that he acted
in “good faith” or had “reasonable grounds” for believing he was in compliance with the
FLSA may the court, “in its sound discretion,” deny liquidated damages. 29 U.S.C. § 260;
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see also Calderon v. GEICO Gen. Ins. Co., 809 F.3d 111, 132 (4th Cir. 2015). The
employer’s threshold burden, we have explained, is a “substantial” one, Mayhew, 125 F.3d
at 220, and even if he meets it, liquidated damages still may be awarded at the district
court’s discretion, 29 U.S.C. § 260.
Here, after a nine-day bench trial, the district court concluded that the defendants
had not carried their substantial burden of establishing good faith or objectively reasonable
grounds for believing that their sales representatives were excepted from the FLSA’s
overtime-pay requirement. Carrera II, 2021 WL 1060258, at *8. Critical to this
determination was the court’s finding, based on Devarie’s testimony, that the defendants
had failed to investigate the daily tasks of EMD’s sales representatives and, as a result,
lacked actual knowledge of their job responsibilities. Id. The court recognized that the
employees’ compensation structure was negotiated by their union and that Devarie had
consulted with accountants regarding the FLSA. But because the defendants had not
informed themselves of their employees’ daily activities, the court reasoned, they could
not have had “objectively reasonable grounds” for believing that the plaintiffs’ actual job
duties put them within the FLSA’s outside sales exemption. Id.
We see no basis for finding an abuse of discretion here. There is ample evidence in
the record to support the court’s finding that the defendants had only an “aspirational” and
not a “concrete” sense of what their sales representatives did and, specifically, their ability
to make sales at chain stores. Id. And the district court was within its discretion in
determining that without that knowledge, the defendants were not in a position to make a
good faith or objectively reasonable judgment that the plaintiffs qualified as “outside
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salesm[e]n” under the FLSA’s exemption. Cf. McFeeley, 825 F.3d at 245 (“If mere
assumption amounted to good faith and reasonable belief of compliance, no employer
would have any incentive to educate itself and proactively conform to governing labor
law.”).
The plaintiffs, for their part, argue that the district court erred in declining to extend
the FLSA’s standard two-year limitations period to three years, based on its finding that
the defendants’ FLSA violation was not “willful.” See 29 U.S.C. § 255(a). Here, the
burden is on the plaintiffs to show willfulness, meaning that the employer “either knew or
showed reckless disregard for the matter of whether its conduct was prohibited by the
FLSA.” Desmond, 630 F.3d at 358 (alteration omitted). A district court’s finding that an
employer did not act willfully is a finding of fact, not to be disturbed unless clearly
erroneous. Martin v. Deiriggi, 985 F.2d 129, 136 (4th Cir. 1992). And when a willfulness
finding is “tied closely to a trial court’s witness credibility determinations, appellate courts
give great deference to the trial court’s factual findings.” Id.
This is just such a case. Again, the district court relied critically on CEO Devarie’s
testimony, which it credited, to find that the defendants acted unreasonably but not willfully
in violating the FLSA. Devarie, the district court concluded, was “impermissibly but
credibly uninformed” on the application of the FLSA to her sales representatives; her
failure to inform herself was negligent, but it did not amount to reckless or willful
misbehavior. Carrera II, 2021 WL 1060258, at *8. Giving “great deference” to that
finding, see Martin, 985 F.2d at 136 – made by the district court after its “careful
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consideration of the full trial record,” see Carrera II, 2021 WL 1060258, at *8 – we find
no clear error and affirm the district court’s determination.
Finally, to the extent the parties each argue that the district court’s findings as to
good faith and reasonableness (for liquidated damages) and willfulness (for the limitations
period) are in conflict, they are mistaken. To be sure, a finding that a defendant did not act
willfully in violating the FLSA might support a determination that the defendant acted
reasonably and in good faith, see, e.g., Roy v. County of Lexington, 141 F.3d 533, 548 (4th
Cir. 1998), and, of course, the opposite is also true. But the two need not go hand in hand.
It can be the case both that an employer was unable to show an objectively reasonable basis
for its pay practices and that the employer did not intentionally or recklessly underpay.
Desmond, 630 F.3d at 358 (explaining that negligent, i.e., unreasonable, conduct “is
insufficient to show willfulness”); see also Braxton v. Jackson, 782 F. App’x 240, 245 (4th
Cir. 2019) (per curiam) (affirming district court finding of lack of good faith despite jury
finding that defendants did not act willfully). Indeed, the FLSA clearly contemplates as
much, establishing as the default rule both the award of liquidated damages – predicated
on the absence of objective reasonableness – and a two-year statute of limitations –
predicated on a non-willful violation. Accordingly, we see no inconsistency in the district
court’s rulings on these matters.
Finding no reversible error regarding the district court’s award of liquidated
damages or application of the two-year statute of limitations, we affirm as to both.
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III.
For the foregoing reasons, we affirm the judgment of the district court.
AFFIRMED