Perez v. Sauson et al

MOTION for Summary Judgment

E.D. Wash.October 28, 2016

SECRETARY’S MOTION FOR PARTIAL SUMMARY JUDGMENT CASE NO. 1:15-cv-03197-RMP 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 JANET M. HEROLD, Regional Solicitor BRUCE BROWN, Associate Regional Solicitor BENJAMIN R. BOTTS, Trial Attorney CA Bar No. 274542 HAILEY R. McALLISTER, Trial Attorney WA Bar No. 49975 OFFICE OF THE SOLICITOR U.S. DEPARTMENT OF LABOR 90 Seventh Street, Suite 3-700 San Francisco, CA 94103 Telephone: (415) 625-7767 Facsimile: (415) 625-7772 botts.benjamin.r@dol.gov Attorneys for Plaintiff UNITED STATES DISTRICT COURT EASTERN DISTRICT OF WASHINGTON YAKIMA DIVISION THOMAS E. PEREZ, Secretary of Labor, United States Department of Labor, Plaintiff, v. SUNSHINE MOTEL INN, LLC, a limited liability company; RAJ AND COMPANY, INC., a corporation; and RAJIV SAUSON, an individual, Defendants. Case No. 1:15-cv-03197-RMP SECRETARY’S MOTION FOR PARTIAL SUMMARY JUDGMENT December 19, 2016, 10:00 a.m. With Oral Argument Ph: 1-888-363-4749 Access Code: 6699898 Case 1:15-cv-03197-RMP Document 96 Filed 10/28/16 SECRETARY’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page i CASE NO. 1:15-cv-03197-RMP 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF CONTENTS INTRODUCTION .................................................................................................... 1 ARGUMENT ............................................................................................................ 2 1. Defendants violated and continue to violate Section 211(c) of the FLSA by failing to keep accurate and reliable records of Sunshine Motel employees’ hours and pay…………………………………….3 2. Defendants have violated and continue to violate section 206 of the FLSA by paying their employees subminimum wages………...…....7 a. Defendants admit that they pay Sunshine Employees well below the federal minimum wage……………………………...7 b. Defendants cannot treat Sunshine Motel employees’ lodging as wages………………………………………………..……....8 i. Defendants failed to maintain accurate records of the cost of providing lodging to Sunshine Motel’s employees……………………………………..……..….9 ii. The employees’ acceptance of lodging as wages was not voluntary……………………………………......…13 3. The Court should enjoin Defendants from continued violation of the FLSA’s recordkeeping and minimum wage provisions…………....15 4. Sunshine Motel Inn, LLC is a covered enterprise under the FLSA……………………………………………………………......16 5. Defendant Rajiv Sauson is an individually liable employer…….......17 6. Raj and Company jointly employs Sunshine Motel’s employees…………………………………………………...…….....19 CONCLUSION ....................................................................................................... 20 Case 1:15-cv-03197-RMP Document 96 Filed 10/28/16 SECRETARY’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page ii CASE NO. 1:15-cv-03197-RMP 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF AUTHORITIES Cases Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986) ................................................................................................ 2 Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680 (1946) ............................................................................................ 3, 7 Bonnette v. California Health & Welfare Agency, 704 F.2d 1465 (9th Cir.1983) ......................................................................... 17, 18 Boucher v. Shaw, 572 F.3d 1087 (9th Cir. 2009) .............................................................................. 17 Brennan v. Dillion, 483 F.2d 1334 (10th Cir. 1973) ............................................................................ 17 Brennan v. Heard, 491 F.2d 1 (5th Cir. 1974) .................................................................................... 12 Brennan v. Veterans Cleaning Serv., Inc., 482 F.2d 1362 (5th Cir. 1973) .............................................................................. 10 Brock v. Big Bear Mkt. No. 3, 825 F.2d 1381 (9th Cir. 1987) .............................................................................. 15 Brock v. Carrion, Ltd., 332 F. Supp. 2d 1320 (E.D. Cal. 2004) .................................................... 10, 11, 12 Brock v. Hamad, 867 F.2d 804 (4th Cir. 1989) ................................................................................ 17 Brooklyn Sav. Bank v. O’Neil, 324 U.S. 697 (1945) .............................................................................................. 14 Celotex Corp. v. Catrett, 477 U.S. 317 (1986) ................................................................................................ 2 Case 1:15-cv-03197-RMP Document 96 Filed 10/28/16 SECRETARY’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page iii CASE NO. 1:15-cv-03197-RMP 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Chao v. A-One Med. Servs., Inc., 346 F.3d 908 (9th Cir. 2003) .................................................................... 16, 19, 20 Donovan v. Crisostomo, 689 F.2d 869 ..................................................................................................... 9, 12 Donovan v. New Floridian Hotel, Inc., 676 F.2d. 468 (11th Cir. 1982) ....................................................... 9, 10, 11, 12, 14 Donovan v. S & L Dev. Co., 647 F.2d 14 (9th Cir. 1981) .................................................................................. 16 Donovan v. Scoles, 652 F.2d 16 (9th Cir. 1981) .................................................................................. 16 Donovan v. Williams Chem. Co., 682 F.2d 185 (8th Cir. 1982) .................................................................................. 9 Garcia v. San Antonio Metropolitan Transit Auth., 469 U.S. 528, 539 (1985)………………………………………………………..17 Gilbreath v. Cutter Biological, Inc., 931 F.2d 1320 (9th Cir. 1991) .............................................................................. 18 Goldberg v. Whitaker House Coop., Inc., 366 U.S. 28 (1961) ................................................................................................ 17 Kasten v. Saint-Gobain Performance Plastics Corp., 563 U.S. 1 (2011) .................................................................................................. 13 Klem v. Cty. of Santa Clara, 208 F.3d 1085 (9th Cir. 2000) .............................................................................. 12 Lambert v. Ackerley, 180 F.3d 997 (9th Cir. 1999) .......................................................................... 17, 18 Marshall v. Chala Enterprises, Inc., 645 F.2d 799 (9th Cir. 1981) ................................................................................ 15 Case 1:15-cv-03197-RMP Document 96 Filed 10/28/16 SECRETARY’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page iv CASE NO. 1:15-cv-03197-RMP 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Marshall v. Intraworld Commodities Corp., No. 79 C, 1980 WL 2097 (E.D.N.Y. June 9, 1980) .............................................................. 14 Marshall v. New Floridian Hotel, Inc., 1979 WL 1991 (S.D. Fla. Aug. 29, 1979) ............................................................ 13 Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574 (1986) ................................................................................................ 2 Mitchell v. Lublin, McGaughy & Assocs., 358 U.S. 207 (1959) .............................................................................................. 16 Mitchell v. Robert DeMario Jewelry, Inc., 361 U.S. 288, (1960) ............................................................................................. 13 Perez v. Blue Mountain Farms, LLC, 2015 WL 6869191 (E.D. Wash. Nov. 9, 2015) ................................................ 7, 15 Reyes v. LaFarga, 2014 WL 12526324 (D. Ariz. Jan. 17, 2014) ....................................................... 12 Rutherford Food Corp. v. McComb, 331 U.S. 722 (1947) .............................................................................................. 18 Solis v. Min Fang Yang, 345 F. App’x 35 (6th Cir. 2009) ........................................................................... 10 Statutes 29 U.S.C. § 203(d) ........................................................................................ 2, 17, 18 29 U.S.C. § 203(m) ......................................................................... 7, 8, 9, 10, 12, 13 29 U.S.C. § 203(s) ................................................................................................... 16 29 U.S.C. § 206 ......................................................................................................... 1 29 U.S.C. § 206(a) .............................................................................................. 7, 16 29 U.S.C. §§ 206(c) .................................................................................................. 7 29 U.S.C. § 207(a)(1) .......................................................................................... 7, 16 Case 1:15-cv-03197-RMP Document 96 Filed 10/28/16 SECRETARY’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page v CASE NO. 1:15-cv-03197-RMP 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 U.S.C. §§ 211 ....................................................................................................... 1 29 U.S.C. § 211(c) ................................................................................................ 3, 6 29 U.S.C. § 215(a)(2) ............................................................................................ 1, 7 29 U.S.C. § 215(a)(5) ............................................................................................ 1, 3 29 U.S.C. § 217 ................................................................................................... 2, 14 Rules Fed. R. Civ. P. 56 ...................................................................................................... 1 Fed. R. Civ. P. 56(c)(1) ............................................................................................. 2 Fed. R. Civ.P. 56(a)................................................................................................... 2 Fed. R. Evid. 403 .................................................................................................... 12 Regulations 29 C.F.R. § 516.1(a) .................................................................................................. 7 29 C.F.R. § 516.2(a) .................................................................................................. 3 29 C.F.R. §516.2(a)(5) .............................................................................................. 4 29 C.F.R. § 516.2(a)(8) ............................................................................................. 5 29 C.F.R. § 516.2(a)(10) ........................................................................................... 5 29 C.F.R. § 516.2(a)(12) ........................................................................................... 5 29 C.F.R. § 516.6(c)(2) ........................................................................................... 10 29 C.F.R. §§ 516.27(a) .......................................................................................... 8, 9 29 C.F.R. § 516.27(a)(1) ........................................................................................... 9 29 C.F.R. § 516.27(a)(2) ......................................................................................... 10 29 C.F.R. § 516.27(b) ............................................................................................. 10 29 C.F.R. § 516.27(c) ................................................................................................ 9 29 C.F.R. § 531.3(a)-(b) ............................................................................................ 8 29 C.F.R. § 531.4 .................................................................................................... 10 Case 1:15-cv-03197-RMP Document 96 Filed 10/28/16 SECRETARY’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page vi CASE NO. 1:15-cv-03197-RMP 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 C.F.R. § 531.30 ................................................................................................ 8, 9 29 C.F.R. § 778.5 ...................................................................................................... 7 29 C.F.R. § 791.2(b) ......................................................................................... 19, 20 Case 1:15-cv-03197-RMP Document 96 Filed 10/28/16 SECRETARY’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 1 CASE NO. 1:15-cv-03197-RMP 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 INTRODUCTION Defendants have long operated Sunshine Motel Inn on the principle that the requirements of the Fair Labor Standards Act (FLSA) do not apply to them. Their business model is to staff the motel with residents they admit are the motel’s employees but whom they pay nothing or a nominal weekly sum. Instead of keeping the records of employees’ hours and pay that the FLSA requires, they create fake documents to present the illusion of compliance, or they simply ignore their recordkeeping duties entirely. While Defendants profit from their lawless conduct, the employees, Defendants’ law-abiding competitors, and the greater Yakima community suffer the consequences. The undisputed facts establish as a matter of law that Defendants continue to shirk their statutory duties to pay minimum wage and keep adequate records. The Secretary asks the Court to adjudicate these issues and immediately enjoin these ongoing violations of the FLSA’s most basic protections to prevent further harm to the employees and the public. To aid in the efficient resolution of this case, the Secretary also requests that the Court decide pre-trial who bears responsibility for Defendants’ violations. Based on Defendants’ admissions alone, this record plainly establishes both that Sunshine Motel Inn, LLC is a covered enterprise under the FLSA, and that Defendants Rajiv Sauson and Raj and Company, Inc. are co-employers, jointly and severally liable for the back wages and damages owed to the motel’s employees. Accordingly, the Secretary asks the Court to enter summary judgment under Fed. R. Civ. P. 56 on the following issues: (1) Defendants violated and continue to violate 29 U.S.C. §§ 211 and 215(a)(5), the recordkeeping provisions of the FLSA; (2) Defendants violated and continue to violate 29 U.S.C. § 206 and 215(a)(2), the minimum wage provisions of the FLSA; (3) the Secretary is entitled to an immediate injunction under 29 U.S.C. § 217 prohibiting Defendants from future Case 1:15-cv-03197-RMP Document 96 Filed 10/28/16 SECRETARY’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 2 CASE NO. 1:15-cv-03197-RMP 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 violations of the FLSA’s recordkeeping and minimum wage provisions; (4) Defendant Sunshine Motel Inn, LLC is an FLSA-covered enterprise; (5) Defendant Rajiv Sauson is an individually-liable employer of Sunshine Motel’s employees under 29 U.S.C. § 203(d); and (6) Defendant Raj and Company, Inc. is a joint employer of Sunshine Motel’s employees. ARGUMENT Summary judgment is appropriate when there is no genuine dispute of any material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ.P. 56(a). “Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment. Factual disputes that are irrelevant or unnecessary will not be counted.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). When the moving party establishes the absence of a genuine issue of fact on each issue material to its case, the court should grant summary judgment unless the opposing party produces specific facts showing there is a genuine dispute for trial. Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986). The opposing party may not rest on mere allegations or denials from the pleadings, but instead must demonstrate by affidavits or other materials in the record that there is a genuine dispute for trial. See Fed. R. Civ. P. 56(c)(1); Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 586 (1986). “Where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party” on a particular issue, there is no genuine dispute for trial. Matsushita, 475 U.S. at 587. The uncontroverted facts in this case show that there is no genuine dispute on any of the six issues listed above. In the interest of judicial efficiency and simplification of the issues for trial, the Court should summarily adjudicate each of them in the Secretary’s favor. Case 1:15-cv-03197-RMP Document 96 Filed 10/28/16 SECRETARY’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 3 CASE NO. 1:15-cv-03197-RMP 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 1. Defendants violated and continue to violate Section 211(c) of the FLSA by failing to keep accurate and reliable records of Sunshine Motel employees’ hours and pay. The FLSA places the burden on employers to “make, keep, and preserve such records of the persons employed by him and of the wages, hours, and other conditions and practices of employment maintained by him . . . .” 29 U.S.C. § 211(c). Employers must maintain the following records for employees: (1) the full name and employee identifying numbers, (2) home address, (3) date of birth (if the employee is under 19), (4) sex and occupation, (5) start time for the workweek, (6) regular rate of pay, the basis for that rate (e.g. payment on an hourly, piece or commission basis), (7) hours worked each workday, total hours worked each workweek, (8) total daily or weekly straight time earnings, (9) total premium pay for overtime, (10) deductions from or credits to wages, (11) total wages paid for each pay period, and (12) the date of payment and period covered by the payment. 29 C.F.R. § 516.2(a). Failure to “make, keep, and preserve” required records, or making employee records while knowing them to be “false in a material respect,” is a violation of the FLSA. 29 U.S.C. § 215(a)(5). “[I]t is the employer who has the duty under [section 211(c)] of the Act to keep proper records of wages, hours and other conditions and practices of employment,” not the employees. Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680, 687 (1946). The record before the Court establishes that that there is no dispute that Defendants have repeatedly violated, and continue to violate, the recordkeeping requirements described above. First, Defendants concede that they have no reliable, contemporaneous record of the hours their employees worked. Secretary’s Statement of Undisputed Material Facts (“SF”) ¶ 20-27. Indeed, the only documents that Defendants claim bear any relationship to hours worked are the schedules they have produced to the Secretary, but Defendants admit that they Case 1:15-cv-03197-RMP Document 96 Filed 10/28/16 SECRETARY’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 4 CASE NO. 1:15-cv-03197-RMP 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 don’t know whether the employees actually worked the hours listed; Defendants did nothing to verify that these actually represent the hours employees actually worked; and Defendants created many of the schedules produced to the Secretary years after the dates listed. Id. ¶¶ 21-27.1 Defendants’ former employees explain further that Defendants neither used written schedules nor kept any other record of employees’ hours worked. Id. ¶ 28. Defendants’ former employees also consistently declare that the schedules Defendants have produced do not show the hours the employees actually worked, confirming that these “schedules” are not real time records but documents Defendants created after the fact to conceal their violations of the law. Id. ¶¶ 29-30. Defendants similarly lack any accurate record of their employees’ dates of employment, in direct violation of the requirement that they maintain records reflecting the start date of employees’ workweek and the dates they were paid. See 29 C.F.R. §516.2(a)(5), (12). The dates of employment that Defendants have put forth in this litigation—which they claim to have discerned from the “schedules” discussed above—are directly at odds with other records Defendants maintained contemporaneously to the dates the employees performed the work. Specifically, the dates of employment Defendants have adopted repeatedly contradict: (a) the motel’s daily “register” (which Defendants admit reflect workweeks during which the employees were working), (b) the motel’s “housekeeping checklist,” a written maintenance record that names employees who performed work on a particular 1 Defendants claim that they began requiring employees to initial their weekly schedules at some point in 2016, after the Secretary filed this case. Sauson Dep. at 161:10-162:11. Incredibly, however, the 2016 schedule Defendants have produced is identical for every week from February 27, 2016 through August 12, 2016. Ex 14 to Botts Decl. (D009075- 009048). In other words, Defendants claim that their employees worked exactly the same hours every week for nearly six months, without a single missed hour for sickness or other personal needs. Case 1:15-cv-03197-RMP Document 96 Filed 10/28/16 SECRETARY’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 5 CASE NO. 1:15-cv-03197-RMP 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 day, and (c) the motel’s schedules themselves. SF ¶ 34. Defendants’ most recent version of their employees’ dates of employment, which Defendants produced and adopted during the LLC’s deposition, also contradict Defendants’ interrogatory responses regarding these dates, which—tellingly—they claim to have answered by reference to the same flawed records. SF ¶¶ 33-35. Further, Defendants’ former employees have declared that the dates of employment Defendants have adopted are erroneous, and understate the employees’ periods of employment, often by several months. SF ¶ 37. Finally, Defendants lack any reliable record of employees’ pay. The only record Defendants claim to maintain regarding pay actually issued to employees is the motel’s hand-written daily register, which purports to list the rooms the motel has rented, payments received from customers, and cash payouts employees have taken from the motel’s till. SF ¶ 40. The register does not purport to list wages due to employees per day or week, or total wages paid per pay period, as required under the FLSA. Id. ¶ 42; see 29 C.F.R. § 516.2(a)(8), (12). Nor does the register show any deductions Defendants take from employees’ pay, including the $1,000 per month Defendants charge employees for their rooms at the motel. SF ¶ 40; see 29 C.F.R. § 516.2(a)(10). Indeed, Defendants admit that they keep no record of deductions taken from employees’ pay in exchange for lodging. SF ¶ 43. Moreover, the payments listed in the register consistently did not match the cash pay Defendants claim the employees should have received after the $1,000 rent charge based on the employees’ hours listed in the motel’s schedule, multiplied by the applicable Washington State minimum wage. SF ¶¶ 41.2 2 As the Secretary has explained in prior briefing to the Court, Defendants have repeatedly concealed the identities of their employees during the course of this litigation. See ECF No. 29 at 1-2. The motel’s register, which lists numerous payments to individuals whom Defendants have never acknowledged as Sunshine Motel employees, shows that Defendants’ deceptive tactics continue. SF ¶ 36. Case 1:15-cv-03197-RMP Document 96 Filed 10/28/16 SECRETARY’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 6 CASE NO. 1:15-cv-03197-RMP 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 The other records Defendants have offered as substitutes for maintaining reliable pay records are likewise inadequate under the FLSA. Defendants admit that the payroll summaries, W-2, and 1099 forms they have created to report employee compensation to government tax authorities list payment amounts that Defendants computed based solely on the hours listed on the employee schedules discussed above, multiplied by the applicable Washington state minimum wage. SF ¶ 50. This is not a reliable record of pay given that the schedules themselves are not an accurate record of hours worked. SF ¶ 20-30. Additionally, the gross payment amounts listed on the W-2 and 1099 forms varies significantly from the gross pay that employees should have received based on their hours listed on the motel’s schedules multiplied by the applicable minimum wage. SF ¶ 53. On a more basic level, however, these records do not even purport to show how much pay the motel actually issued to the employee since they say nothing about the lodging deductions the motel admits that it takes from employees on a semimonthly basis. Id. ¶¶ 51-52. Accordingly, the Court should enter summary judgment for the Secretary on his claim that Defendants violated, and continue to violate, the FLSA’s recordkeeping requirements. 29 U.S.C. § 211(c).3 Even accepting Defendants’ incredible claim that these individuals were motel guests to whom Defendants loaned money or family members who picked up pay on employees’ behalf (see Sauson Dep. at 300:7-18, 305:4-18), however, the intermingling of payments to non-employees on Defendants’ only record employee pay (with no indication of who is an employee and who is not) is only further proof that the register is not a reliable record of employee pay. 3 Although the records employers must keep of employees, pay and hours worked need not take any particular form, “every employer subject to any provisions of the [FLSA] is required to maintain records containing the information and data required” under the FLSA’s recordkeeping rules. 29 C.F.R. § 516.1(a). As explained above, Defendants unquestionably failed to maintain records of the required information and data. Case 1:15-cv-03197-RMP Document 96 Filed 10/28/16 SECRETARY’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 7 CASE NO. 1:15-cv-03197-RMP 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Further, as the Supreme Court explained 70 years ago, “where the employer’s records are inaccurate or inadequate . . . an employee has carried out his burden if he proves that he has in fact performed work for which he was improperly compensated and if he produces sufficient evidence to show the amount and extent of that work as a matter of just and reasonable inference.” Mt. Clemens, 328 U.S. at 687. Because the uncontroverted evidence before the Court establishes that “Defendants’ records are inadequate, the Secretary is entitled to prove wages owed as a matter of just and reasonable inference” under Mt. Clemens. Perez v. Blue Mountain Farms, LLC, No. 2:13-CV-5081-RMP, 2015 WL 6869191, at *7–8 (E.D. Wash. Nov. 9, 2015). 2. Defendants have violated and continue to violate section 206 of the FLSA by paying their employees subminimum wages. a. Defendants admit that they pay Sunshine Employees well below the federal minimum wage. The FLSA straightforwardly requires employers to pay employees at least $7.25 for every hour worked. 29 U.S.C. §§ 206(c), 215(a)(2).4 There is no dispute that since at least the beginning of 2012, Sunshine Motel has paid its employees well below this statutorily required rate. SF ¶ 61-62. Indeed, Defendants admit 4 During workweeks in which an employee works 40 hours or fewer, the FLSA (as distinguished from state wage law) requires payment of at least the federal minimum wage. 29 U.S.C. § 206(a). If an employee works more than 40 hours in a workweek, however, the FLSA requires payment of a “regular rate” of pay for all hours worked plus a 50% premium for hours over 40. 29 U.S.C. § 207(a)(1). Where, as here, the state minimum wage is higher than the federal minimum, the “regular rate” must be at least the state minimum wage. 29 C.F.R. § 778.5 Case 1:15-cv-03197-RMP Document 96 Filed 10/28/16 SECRETARY’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 8 CASE NO. 1:15-cv-03197-RMP 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 that there are pay periods in which they pay employees zero dollars in cash for that pay period. Id.¶ 61.5 Even when Defendants pay their employees something, however, it continues to be well below federal minimum wage. SF ¶ 62. For example, Defendants’ most recently-produced schedules list the motel’s housekeeper, Crystal Owens, as working 4 hours per day, 7 days a week, or 124 hours in the 31- day month of August 2016. Ex. 14 to Botts Decl.; Ex. 1 to Walum Decl. at 5. Based on Washington State’s current minimum wage, this amounts to a gross pay of 124 x $9.47 = $1,174.28 for the month. Id. With the $900 deduction the motel takes monthly from Ms. Owen’s pay, her cash pay for the month is $274.28, or $2.21 per hour based on 124 hours worked in the month.6 Ex. 1 to Walum Decl. at 5. All other employees have similarly been paid well below the statutory minimum wage rate. SF ¶ 62.7 b. Defendants cannot treat Sunshine Motel employees’ lodging as wages. The FLSA defines wages to include “the reasonable cost . . . to the employer of furnishing [an] employee board, lodging, or other facilities, if such board, 5 As explained below, although Defendants claim to compensate employees with lodging, as a matter of law, they cannot meet their burden to establish their entitlement to treat the reasonable cost of employees’ lodging as wages under 29 U.S.C. § 203(m). 6 Defendants claim to charge Ms. Owens $900 per month for lodging instead of the $1,000 they charge other employees because Defendants’ prior housekeeper quit, they “need[ed] somebody. And she [didn’t] want to come unless we charge her $900” per month. Sauson Dep. at 218:25-219:3. 7 The evidence before the Court plainly shows that the schedules do not accurately reflect employees’ hours worked. Even if the schedules didn’t list significantly fewer hours than employees actually worked, however, the motel would still have paid employees well below $7.25 per hour. SF ¶ 62. Case 1:15-cv-03197-RMP Document 96 Filed 10/28/16 SECRETARY’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 9 CASE NO. 1:15-cv-03197-RMP 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 lodging, or other facilities are customarily furnished by such employer to his employees[.]” 29 U.S.C. § 203(m). “Reasonable cost” is limited to “not more than the actual cost to the employer” of the lodging, and “does not include a profit to the employer or to any affiliated person.” 29 C.F.R. § 531.3(a)-(b). To treat the reasonable cost of lodging as wages, however, it is the employer’s burden to satisfy several requirements, including maintaining accurate records of the cost of furnishing lodging to employees and ensuring that the employees’ acceptance of the lodging was “voluntary and uncoerced.” 29 C.F.R. §§ 516.27(a), 531.30. The undisputed facts in this case establish that Defendants fail on both of these requirements as a matter of law. i. Defendants failed to maintain accurate records of the cost of providing lodging to Sunshine Motel’s employees. An employer bears the burden of establishing its entitlement to treat the reasonable cost of lodging provided to employees as wages under section 203(m). Donovan v. Crisostomo, 689 F.2d 869, 877 and n. 16 (9th Cir. 1982) (affirming district court determination that employer was not entitled to offset for lodging and food provided to employee where employer failed to make any showing at trial that they “fell within the exception of [section] 203(m)” and citing cases establishing that it is employer’s burden “to prove that the terms of 29 U.S.C. s 203(m) have been met.”); Donovan v. New Floridian Hotel, Inc., 676 F.2d. 468, 473-74 (11th Cir. 1982); Donovan v. Williams Chem. Co., 682 F.2d 185, 190 (8th Cir. 1982). To lawfully treat lodging provided to employees as wages under section 203(m), an employer “shall maintain and preserve records substantiating the cost of furnishing” the lodging to employees. 29 C.F.R. § 516.27(a) (emphasis added).8 8 An exception, not applicable here, is that an employer need not keep these records for workweeks in which employees are “not subject to the overtime provisions of the Act and receive[] not less than the applicable statutory minimum wage in cash for all hours worked in that workweek.” 29 C.F.R. § 516.27(c). Case 1:15-cv-03197-RMP Document 96 Filed 10/28/16 SECRETARY’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 10 CASE NO. 1:15-cv-03197-RMP 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 These records “shall include itemized accounts showing the nature and amount of any expenditures entering into the computation of the reasonable cost.” 29 C.F.R. § 516.27(a)(1). Although “[n]o particular degree of itemization is prescribed . . . the amount of detail shown in these accounts should be consistent with good accounting practices, and should be sufficient to enable [the Secretary] to verify the nature of the expenditure and the amount by reference to” the “records used by the employer in determining the original cost, operating and maintenance cost, and depreciation and interest charges . . . .” 29 C.F.R. §§ 516.6(c)(2), 516.27(a)(2). Additionally, an employer must keep records showing lodging-related deductions, on a workweek basis, from employees’ wages. 29 C.F.R. § 516.27(b).9 An employer must demonstrate compliance with the above recordkeeping provisions to claim a credit for the reasonable cost of providing lodging to employees. New Floridian, 676 F.2d at 474; accord Solis v. Min Fang Yang, 345 F. App’x 35, 38 (6th Cir. 2009) (employer disallowed from claiming meal and lodging credit under section 203(m) because it failed to keep “contemporary records” of the cost of lodging). “An employer's unsubstantiated estimate of his cost, where the employer has failed to comply with the recordkeeping provisions of the FLSA, and where there has been no determination of reasonable cost by the Wage and Hour Division, does not satisfy the employer's burden of proving reasonable cost.” New Floridian, 676 F.2d at 475. If the employer fails to maintain and produce credible records of actual cost, the employer may not treat lodging provided to employees as wages and is not entitled to any lodging credit. 9 An employer may request a determination of reasonable cost from the Department of Labor. 29 C.F.R. § 531.4. The burden of invoking the Secretary’s assistance is on the employer. New Floridian Hotel, Inc., 676 F.2d at 475 n.13. Defendants admit that they have made no such request in this case. SF ¶ 55. Case 1:15-cv-03197-RMP Document 96 Filed 10/28/16 SECRETARY’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 11 CASE NO. 1:15-cv-03197-RMP 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Id. at 474-475; Brock v. Carrion, Ltd., 332 F. Supp. 2d 1320, 1324-27 (E.D. Cal. 2004).10 Both New Floridian and Brock provide instructive parallels to this case. The employers in New Floridian, operators of retirement communities where employees lived onsite, failed to keep records of the cost of providing employees meals and lodging or of the deductions they took from employees’ pay for these facilities. 676 F.2d at 475. In Brock, the defendant owners of an apartment complex provided their building manager an apartment in exchange for his work maintaining and managing the property. 332 F. Supp. 2d at 1322-23. Defendants never paid the manager anything, or gave him any record of what they were charging him for his room in lieu of pay; nor did they maintain time records or documents reflecting the actual cost of providing him the apartment. Id. In both cases, the court held as a matter of law that the employers’ deficient recordkeeping meant that they could not satisfy their burden of proving “reasonable cost” and thus were not entitled to any credit against wages for providing lodging. New Floridian, 676 F.2d at 475-76; Brock, 332 F. Supp. 2d at 1327. Like in those cases, the uncontroverted facts before this Court establish that Defendants have failed to maintain any contemporaneous record of the actual cost of lodging provided to Sunshine Motel employees or of the deductions for lodging that they took from employees’ pay. The only records that Defendants claim to have are business expense deductions listed on Sunshine Motel Inn LLC’s tax returns. SF ¶ 56. Even putting aside the myriad problems with the idea that tax returns could constitute an adequate record of actual cost (e.g., because this 10 By the same token, an employer’s failure to segregate the reasonable cost of meals, lodging, or other facilities from the costs including profit results in the denial of any wage credit under section 203(m). Brennan v. Veterans Cleaning Serv., Inc., 482 F.2d 1362, 1370 (5th Cir. 1973). Case 1:15-cv-03197-RMP Document 96 Filed 10/28/16 SECRETARY’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 12 CASE NO. 1:15-cv-03197-RMP 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 provide employers a direct disincentive from creating the records the FLSA otherwise requires), it is beyond dispute that the business expenses claimed on these particular tax returns cannot establish actual cost of providing rooms to the motel’s employees. Most obviously, Sunshine Motel Inn, LLC’s tax returns include not only the business expenses of the motel, but also those of Sunshine Mart, a gas station and convenience store that operates at an entirely separate location, does not provide rooms, and incurs its own separate expenses unrelated to the providing rooms to the motel’s employees. SF ¶ 59. Determining the cost of the rooms Defendants provide to employees based on these deductions would thus vastly overstate the actual cost of the lodging.11 Because Defendants’ admissions establish that they have no credible documentation of the actual cost of lodging provided to their employees, and they failed to maintain any record of lodging deductions taken from employees’ pay, they cannot claim an offset against wages for the lodging as a matter of law. New Floridian, 676 F.2d at 474-475; Brock, 332 F. Supp. 2d at 1324-27. “[U]nsubstantiated testimony as to the reasonable cost of wage credits cannot, without some other evidence, carry an employer's burden of proof.” Reyes v. LaFarga, No. CV-11-1998-PHX-SMM, 2014 WL 12526324, at *2 (D. Ariz. Jan. 17, 2014) (granting motion in limine under Fed. R. Evid. 403 to exclude employer 11 Defendants’ claimed methodology for computing the cost of rooms to employees —dividing the deductions claimed on the LLC’s tax returns by 365, then by the average number of rooms rented per day during the applicable year—adds at least one additional layer of overcharge to employees. Sauson Dep. 226:14-20. This method overstates the actual cost of the room by many times, as Defendants concede that they frequently rent fewer than 25 of the motel’s 72 rooms per day. Id. at 229:7-10. By using the average number of rooms rented, Defendants are imposing the cost of slow business on the employees. Case 1:15-cv-03197-RMP Document 96 Filed 10/28/16 SECRETARY’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 13 CASE NO. 1:15-cv-03197-RMP 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 testimony regarding actual cost of lodging because employer had no corroborating records; thus, testimony would have been a waste of time). Significant policy reasons also support disallowing an employer that keeps no contemporaneous records of reasonable cost from treating lodging as wages. First, section 203(m) is an exception to the normal rule that that “statutory wages be paid in cash and ‘free and clear.’” Crisostomo, 689 F.2d at 877 (citing Brennan v. Heard, 491 F.2d 1, 3-4 (5th Cir. 1974)). Just as it has long been established that “FLSA exemptions are to be ‘narrowly construed against . . . employers’” in the interest of advancing the remedial purposes of the statute, Klem v. Cty. of Santa Clara, 208 F.3d 1085, 1089 (9th Cir. 2000), the Court should strictly apply the requirements an employer must satisfy under section 203(m) to qualify for an exception to the normal rule that minimum wage be paid “free and clear.” Further, as a matter of equity, it is simply unfair to allow an employer to pay its employees subminimum wages based on lodging provided when the employees have no notice of what they are purportedly being charged. When an employer keeps no records of the cost of lodging or of the amounts deducted from employees’ pay, the employees cannot know whether the employer is violating their statutory rights.12 This has the effect of inhibiting employees from bringing their valid claims to the Secretary, directly contravening Congress’s policy of relying on “‘information and complaints received from employees seeking to vindicate rights claimed to have been denied’” for enforcement of the FLSA’s substantive provisions. Kasten v. Saint-Gobain Performance Plastics Corp., 563 U.S. 1, 11–12 (2011) (quoting Mitchell v. Robert DeMario Jewelry, Inc., 361 U.S. 288, 292, (1960)).13 12 Indeed, several employees have declared that didn’t know what they were being charged for their rooms at Sunshine Motel. SF ¶ 45. 13 As explained above, as a matter of law, Defendants cannot meet their burden to prove reasonable cost and thus are not entitled to treat the reasonable cost of Case 1:15-cv-03197-RMP Document 96 Filed 10/28/16 SECRETARY’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 14 CASE NO. 1:15-cv-03197-RMP 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ii. The employees’ acceptance of lodging as wages was not voluntary. Where an employer fails to provide its employees with the option to receive cash payment in lieu of lodging before deducting wages as payment for the lodging, the employees’ acceptance of the lodging is not voluntary and uncoerced. Marshall v. New Floridian Hotel, Inc., No. 77-1028-CIV, 1979 WL 1991, at *11 (S.D. Fla. Aug. 29, 1979), aff’d sub nom. Donovan v. New Floridian Hotel, Inc., 676 F.2d 468 (11th Cir. 1982); accord Marshall v. Intraworld Commodities Corp., No. 79 C 918, 1980 WL 2097, at *4 (E.D.N.Y. June 9, 1980) (acceptance of lodging was not voluntary where employee “had no other place to live and no choice but to accept the food and facilities provided to him.”). The employees in this case could not have voluntarily accepted lodging in lieu of wages because Defendants never provided them notice of what they were being charged. SF ¶ 45. It is undisputed that from at least 2012 through early 2016, Defendants gave employees no pay record showing what the motel was charging them to live onsite. SF ¶ 44. Nor have Defendants ever kept records showing rent deductions from employees’ pay. SF ¶ 43. As a result, at least some employees didn’t know what they were being charged. SF ¶ 47. Employees lodging as wages under section 203(m). It bears noting, however, that there is no question that the actual cost of the motel rooms Defendants provided to the employees in this case could not be anywhere close to $1000 per month. A simple search on craigslist.org returns numerous full multiple bedroom apartments (i.e., not a single room in a motel without a kitchen) for rent in Yakima for well under $1000 per month. Ex. 7 and 8 to Botts Decl. Presumably, the owners of these properties rent them for more than their “actual cost.” Further, Sunshine Motel has been the site of hundreds of police visits for pervasive drug use and dealing, prostitution and violent crime during the relevant period. Ex. 9 to Botts Decl. (Yakima Herald article discussing shooting at Sunshine Motel and City of Yakima chronic nuisance lawsuit based on average of more than one call for police service per day from the motel between March 2013 and January 2014). Case 1:15-cv-03197-RMP Document 96 Filed 10/28/16 SECRETARY’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 15 CASE NO. 1:15-cv-03197-RMP 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 cannot agree voluntarily to a term of employment without ever being informed what the term is. Indeed, requiring employees to accept subminimum wages as a condition of employment amounts to a prohibited waiver of their FLSA rights. Brooklyn Sav. Bank v. O’Neil, 324 U.S. 697, 713 (1945). 3. The Court should enjoin Defendants from continued violation of the FLSA’s recordkeeping and minimum wage provisions. The FLSA expressly provides the Court with jurisdiction to enjoin violations of its minimum wage and recordkeeping provisions. 29 U.S.C. § 217. Faced with an undisputed and ongoing violation, the Court should not hesitate to enjoin Defendants from shirking their statutory duties. “In exercising its discretion [whether to issue a prospective injunction against FLSA violations] the district court must give substantial weight to the fact that the Secretary seeks to vindicate a public, and not a private, right.” Marshall v. Chala Enterprises, Inc., 645 F.2d 799, 804 (9th Cir. 1981). As the Ninth Circuit has explained: The purpose of issuing an injunction against future violations is to effectuate general compliance with national policy as expressed by Congress. . . . Congressional policy is to abolish substandard labor conditions by preventing recurrences of violations in the future. . . . Prospective injunctions are essential to effectuate that policy because the cost of noncompliance is placed on the employer. Brock v. Big Bear Mkt. No. 3, 825 F.2d 1381, 1383 (9th Cir. 1987). Likewise, an injunction prohibiting Defendants in this case from failing to keep required records and to pay at least minimum wage advances Congress’s policy of abolishing substandard labor conditions by placing the cost of noncompliance on Defendants. See id. Defendants have no discernible interest in continuing to violate the law. “‘The injunction subjects the defendants to no penalty, to no hardship. It requires the defendants to do what the Act requires anyway to comply with the law.’” Marshall, 645 F.2d at 804. Case 1:15-cv-03197-RMP Document 96 Filed 10/28/16 SECRETARY’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 16 CASE NO. 1:15-cv-03197-RMP 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 A prospective injunction is necessary here to give effect to congressional policy. Faced with an employer that had similarly disregarded the FLSA’s recordkeeping provisions, this Court recently entered an injunction on the Secretary’s motion for summary judgment. Blue Mountain, 2015 WL 6869191, at *7–8. There, the Court enjoined further violations even though the employers “may well have acted in good faith,” because they had failed to take “extraordinary efforts to prevent recurrence” and had committed “unquestionable” recordkeeping violations. Id. at *8. Like in Blue Mountain, Defendants’ violations in this case are unquestionable. Unlike in that case, however, Defendants here have no discernible argument for having acted in good faith. 4. Sunshine Motel Inn, LLC is a covered enterprise under the FLSA. To be covered under the FLSA's minimum wage and overtime rules, employees must be “engaged in commerce or in the production of goods for commerce, or . . . employed in an enterprise engaged in commerce.” 29 U.S.C. §§ 206(a), 207(a)(1). “In other words, coverage exists if either the employee is engaged in commerce (individual coverage) . . . or the employer is an enterprise engaged in commerce (enterprise coverage).” Chao v. A-One Med. Servs., Inc., 346 F.3d 908, 914 (9th Cir. 2003). As relevant here, an “enterprise engaged in commerce” is one that (1) “has employees engaged in commerce or in the production of goods for commerce, or that has employees handling, selling, or otherwise working on goods or materials that have been moved in or produced for commerce by any person” and (2) has a gross annual revenue of $500,000 or greater. 29 U.S.C. § 203(s). “It has long been established that the [FLSA]’s coverage provisions are to be construed broadly to apply to the ‘furthest reaches consistent with congressional direction.’” Donovan v. S & L Dev. Co., 647 F.2d 14, 17 n.5 (9th Cir. 1981) (quoting Mitchell v. Lublin, McGaughy & Assocs., 358 U.S. 207, 211 (1959)). Case 1:15-cv-03197-RMP Document 96 Filed 10/28/16 SECRETARY’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 17 CASE NO. 1:15-cv-03197-RMP 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 The undisputed facts establish that Sunshine Motel Inn, LLC is a covered “enterprise engaged in commerce” under this broad test. First, Defendants admit that Sunshine Motel has declared sales of more than $500,000 since 2012 and expects to declare more than $500,000 once it files its 2015 tax returns. SF ¶ 12. Further, as noted above, in addition to its motel, the LLC operates Sunshine Mart, a gas station and convenience store that sells gasoline and packaged food products, items shipped in interstate commerce. Id. ¶ 16. Based on these facts alone, the enterprise is subject to enterprise coverage. See Donovan v. Scoles, 652 F.2d 16, 20 (9th Cir. 1981) (holding that gas station and garage was a covered enterprise because employees handled and sold gasoline moved in commerce). Additionally, the employees who work at the motel regularly use and handle cleaning supplies moved in commerce, including Pine-Sol, Clorox bleach, Windex glass cleaner, and Costco or Ajax laundry detergent, and regularly process credit card transactions. Id. ¶ 14. Accordingly, there can be no doubt that the LLC is a covered enterprise. See, e.g., Brock v. Hamad, 867 F.2d 804, 805 (4th Cir. 1989) (apartment manager who bought goods moved in commerce and used in the course of his employees’ employment subject to enterprise coverage); Brennan v. Dillion, 483 F.2d 1334, 1335-38 (10th Cir. 1973) (operator of apartment complexes was covered enterprise given regular purchase and use of supplies and materials moved in commerce, including, inter alia, paint, light bulbs, soap, cleansers, and cleaning equipment). 5. Defendant Rajiv Sauson is an individually liable employer. The FLSA broadly defines “employer” to include “any person acting directly or indirectly in the interest of an employer in relation to an employee.” 29 U.S.C. § 203(d). This definition is to “be given an expansive interpretation in order to effectuate the FLSA’s broad remedial purposes.’” Lambert v. Ackerley, 180 F.3d 997, 1011-12 (9th Cir. 1999) (en banc) (quoting Bonnette v. California Health & Welfare Agency, 704 F.2d 1465, 1469 (9th Cir.1983), abrogated on Case 1:15-cv-03197-RMP Document 96 Filed 10/28/16 SECRETARY’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 18 CASE NO. 1:15-cv-03197-RMP 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 other grounds by Garcia v. San Antonio Metropolitan Transit Auth., 469 U.S. 528, 539 (1985)). The touchstone of the inquiry is the “economic reality” of the relationship. Boucher v. Shaw, 572 F.3d 1087, 1091 (9th Cir. 2009) (citing Goldberg v. Whitaker House Coop., Inc., 366 U.S. 28, 33 (1961)). Where an individual exercises “control over the nature and structure of the employment relationship,” or “economic control” over the relationship, that individual is an employer under the FLSA, and is subject to liability. Lambert, 180 F.3d at 1012 (internal quotation marks and citations omitted); accord Boucher, 572 F.3d at 1091 (holding that individual defendant responsible for handling labor and employment matters was an “employer” under section 203(d)). The Ninth Circuit uses a multi-factor “economic reality” test to determine whether an individual is an employer under section 203(d), including “whether the alleged employer (1) had the power to hire and fire the employees, (2) supervised and controlled employee work schedules or conditions of employment, (3) determined the rate and method of payment, and (4) maintained employment records.” Gilbreath v. Cutter Biological, Inc., 931 F.2d 1320, 1324 (9th Cir. 1991) (citing Bonnette, 704 F.2d at 1470). These factors, however, are guidelines; the determination of whether an employer-employee relationship exists does not depend on “isolated factors but rather upon the circumstances of the whole activity.” Rutherford Food Corp. v. McComb, 331 U.S. 722, 730 (1947). The undisputed facts before the Court unquestionably establish that Defendant Sauson is an individually liable employer under this legal standard. Defendants admit that Sauson has managed the motel since he purchased it in 2008. SF ¶ 17. Sauson exerts total “control over the nature and structure of the employment relationship,” and “economic control” over the relationship. Lambert, 180 F.3d at 1012. Indeed, he hires and fires employees; schedules their work hours; determines the method and rates of pay; signs the paychecks and Case 1:15-cv-03197-RMP Document 96 Filed 10/28/16 SECRETARY’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 19 CASE NO. 1:15-cv-03197-RMP 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 controls the bank accounts from which pay is issued; decides how much employees will be charged for their rooms; maintains employment records; directs discipline; and decides whether to evict employees who reside on the property. SF ¶ 18. Given these facts, Sauson is the paradigmatic example of an individually liable employer under section 203(d). 6. Raj and Company jointly employs Sunshine Motel’s employees. Although Sunshine Motel nominally employs the employees who work at the motel, because it lacks any funds of its own, the income of Sunshine Motel directly benefits Raj and Company, and the companies are subject to common control, Raj and Company jointly employs the motel’s employees. The focus of the Court’s analysis in determining whether a “horizontal” joint employment relationship exists is on the relationship and the degree of association between the putative joint employers with respect to the employees. Chao, 346 F.3d at 917.14 As the FLSA’s joint employment regulation explains: Where the employee performs work which simultaneously benefits two or more employers . . . a joint employment relationship generally will be considered to exist . . . . Where one employer is acting directly or indirectly in the interest of the other employer (or employers) in relation to the employee; or . . . .Where the employers are not completely disassociated with respect to the employment of a particular employee and may be deemed to share control of the employee, directly or indirectly, by reason of the fact that one employer controls, is controlled by, or is under common control with the other employer. 29 C.F.R. § 791.2(b). Thus, “joint employment will generally be considered to exist when 1) the employers are not ‘completely disassociated’ with respect to the 14 In Chao, the court distinguished this type of “horizontal” joint employment from “vertical” joint employment, where an employer contracts for workers who are directly employed by an intermediary company. 346 F.3d at 917. Case 1:15-cv-03197-RMP Document 96 Filed 10/28/16 SECRETARY’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 20 CASE NO. 1:15-cv-03197-RMP 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 employment of the individuals and 2) where one employer is controlled by another or the employers are under common control.” Chao, 346 F.3d at 918. Based on Defendants’ own admissions, it is undisputed that (1) Raj and Company, Inc. and Sunshine Motel Inn, LLC are not ‘completely disassociated’ with respect to the employment of the motel’s employees and (2) are subject to common control. On the first question, among other telling facts, Defendants admit that Raj and Company: pays Sunshine Motel’s payroll (to the extent that employees are paid at all); and pays the motel’s other business and operating expenses, mortgage, legal fees, and the cost of petitioning an H-1B foreign worker brand consultant who worked for both Sunshine Motel and Raj and Company. SF ¶ 6. Likewise, Defendants deposit all of Sunshine Motel’s proceeds from cash and credit card sales into Raj and Company bank accounts. Id. ¶¶ 7-8. In short, Raj and Company is directly involved in the employment of Sunshine Motel’s employees: it is both the source of their pay and lodging and the recipient of the fruits of their labor. On the second question, there is no dispute that Defendant Sauson is the controlling manager of both entities, and they share the same corporate principals. Id. ¶¶ 10. Accordingly, Sunshine Motel and Raj and Company jointly employ the motel’s employees.15 CONCLUSION For these reasons, the Court should grant the Secretary’s motion and enter summary judgment in the Secretary’s favor on the claims discussed above and an immediate injunction prohibiting Defendants from further violations of the FLSA’s minimum wage and recordkeeping provisions. 15 Sunshine Motel Inn, LLC, is plainly the employees’ employer as well. To hold otherwise would ignore the basic principle of joint employment doctrine that a worker may be employed by more than one entity at the same time. See Chao, 346 F.3d at 916; 29 C.F.R. § 791.2(b). Case 1:15-cv-03197-RMP Document 96 Filed 10/28/16 SECRETARY’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 21 CASE NO. 1:15-cv-03197-RMP 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Respectfully submitted, PATRICIA SMITH Solicitor of Labor JANET M. HEROLD Regional Solicitor BRUCE BROWN Associate Regional Solicitor Dated: October 28, 2016 By: /s/Benjamin R. Botts BENJAMIN R. BOTTS HAILEY R. MCALLISTER Trial Attorneys Attorneys for Plaintiff Case 1:15-cv-03197-RMP Document 96 Filed 10/28/16 SECRETARY’S MOTION FOR PARTIAL SUMMARY JUDGMENT Page 22 CASE NO. 1:15-cv-03197-RMP 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 CERTIFICATE OF SERVICE I hereby certify that on October 28, 2016, I electronically filed foregoing Secretary’s Motion for Partial Summary Judgment with the Clerk of the Court using the CM/ECF System, which will send notification of such filing to the following: Luke A. Eaton (eaton@mftlaw.com); and Peter M Ritchie (ritchie@mftlaw.com). Dated: October 28, 2016 /s/Benjamin R. Botts BENJAMIN R. BOTTS Case 1:15-cv-03197-RMP Document 96 Filed 10/28/16 [PROPOSED] ORDER GRANTING SECRETARY’S MOT. FOR PARTIAL SUMMARY JUDGMENT Page 1 CASE NO. 1:15-cv-03197-RMP 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 UNITED STATES DISTRICT COURT EASTERN DISTRICT OF WASHINGTON YAKIMA DIVISION THOMAS E. PEREZ, Secretary of Labor, United States Department of Labor, Plaintiff, v. SUNSHINE MOTEL INN, LLC, a limited liability company; and RAJIV SAUSON, an individual, Defendants. Case No. 1:15-cv-03197-RMP [PROPOSED] ORDER GRANTING SECRETARY’S MOTION FOR PARTIAL SUMMARY JUDGMENT Plaintiff Thomas E. Perez, the United States Secretary of Labor, moved for summary judgment on the following issues: (1) Defendants violated and continue to violate 29 U.S.C. §§ 211 and 215(a)(5), the recordkeeping provisions of the FLSA; (2) Defendants violated and continue to violate 29 U.S.C. § 206 and 215(a)(2), the minimum wage provisions of the FLSA; (3) the Secretary is entitled to an immediate injunction under 29 U.S.C. § 217 prohibiting Defendants from Case 1:15-cv-03197-RMP Document 96-1 Filed 10/28/16 [PROPOSED] ORDER GRANTING SECRETARY’S MOT. FOR PARTIAL SUMMARY JUDGMENT Page 2 CASE NO. 1:15-cv-03197-RMP 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 future violations of the FLSA’s recordkeeping and minimum wage provisions; (4) Defendant Sunshine Motel Inn, LLC is an FLSA-covered enterprise; (5) Defendant Rajiv Sauson is an individually-liable employer of Sunshine Motel’s employees under 29 U.S.C. § 203(d); and (6) Defendant Raj and Company, Inc. is a joint employer of Sunshine Motel’s employees. Having considered this matter based on the briefing and evidence before me and having heard the arguments of counsel, I find and order as follows: 1. The Secretary’s motion is hereby GRANTED on all issues listed above. Additionally because the uncontroverted evidence before the Court establishes that Defendants’ records are inadequate, the Secretary is entitled to prove wages owed as a matter of “just and reasonable inference” under Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680 (1946). 2. Further, Defendants are hereby enjoined from committing future violations of the FLSA’s a. Minimum wage provisions, 29 U.S.C. §§ 206 and 215(a)(2); and b. Recordkeeping provisions, 29 U.S.C. §§ 211(c) and 215(a)(5), and the implementing regulations found in 29 C.F.R. Part 516. SO ORDERED. Dated this ____ day of _________, 20___. ____________________________ United States District Judge Case 1:15-cv-03197-RMP Document 96-1 Filed 10/28/16 [PROPOSED] ORDER GRANTING SECRETARY’S MOT. FOR PARTIAL SUMMARY JUDGMENT Page 3 CASE NO. 1:15-cv-03197-RMP 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Dated: October 28, 2016 Presented by: PATRICIA SMITH Solicitor of Labor JANET M. HEROLD Regional Solicitor BRUCE BROWN Associate Regional Solicitor By /s/ Benjamin R. Botts HAILEY R. MCALLISTER BENJAMIN R. BOTTS Trial Attorneys Attorneys for Plaintiff Case 1:15-cv-03197-RMP Document 96-1 Filed 10/28/16