Moore, et al v. Hannon Food Svc Inc, et al

In the
United States Court of Appeals
for the Fifth Circuit
_______________
m 01-60844
_______________
KAREN MOORE, DERRICK L. NICHOLS, SHAWYNA FRANK,
GEORGE JAMES, EUGENE PAGE, MARY ANN FRYE, AND LISA A. GREEN,
Plaintiffs-Appellees-
Cross-Appellants,
VERSUS
HANNON FOOD SERVICE, INC.; ET AL.,
Defendants,
HANNON FOOD SERVICE, INC.; HANNON’S FOOD SERVICE, INC.;
HANNON’S FOOD SERVICE OF JACKSON, INC.;
AND HANNON’S FOOD SERVICE OF NATCHEZ, INC.,
Defendants-Appellants-
Cross-Appellees.
_________________________
Appeals from the United States District Court
for the Southern District of Mississippi
_________________________

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January 20, 2003
Before JONES, SMITH, and SILER,*
Circuit Judges.
JERRY E. SMITH, Circuit Judge:
Hannon Food Service, Inc.; Hannon’s Food
Service, Inc.; Hannon’s Food Service of Jack-
son, Inc.; and Hannon’s Food Service of Nat-
chez, Inc. (collectively “Hannon”) appeal a
judgment as a matter of law (“j.m.l.”) in this
action brought pursuant to the Fair Labor
Standards Act (“FLSA”) awarding overtime
benefits to a group of restaurant managers.
Concluding that Hannon properly availed itself
of the window of correction provided for at 29
C.F.R. § 541.118(a)(6), we reverse and render
judgment in favor of defendants.
I.
A.
Hannon1 owns various KFC restaurants
throughout Mississippi. Plaintiffs were em-
ployed as restaurant managers at a salary of
$300 per week plus a monthly bonus of 2% of
the gross sales of the restaurant they managed.
Hannon had a policy of deducting recurrent
cash register shortages from the supervising
manager’s monthly bonus. In November
1997, Hannon began deducting these short-
ages from the managers’ weekly salaries rather
than their monthly bonuses, ostensibly to
increase the managers’ responsiveness to the
problem. This new practice resulted in a total
of seventeen deductions across four of the
plaintiffs; the other plaintiffs incurred no de-
ductions. Salaries were not otherwise
decreased for any reason.
Hannon made its legal counsel aware of the
policy in February 1998, and counsel prepared
a memorandum advising Hannon to discon-
tinue the practice. Hannon promptly reverted
to the previous practice of taking the deduc-
tions from the bonuses.
B.
Plaintiffs sued Hannon on May 28, 1998,2
alleging violations of the FLSA, as amended,
29 U.S.C. § 216(b). On September 13, 2000,
Hannon tendered plaintiffs the total amount of
all improper deductions plus 8% interest from
the dates of the deductions to September 18,
2000, the date then set for trial. Hannon later
moved for summary judgment and filed a stip-
ulation of facts to which all parties agreed.
Plaintiffs filed a cross-motion for summary
judgment. The district court granted j.m.l. for
plaintiffs, finding that plaintiffs were not ex-
empt bona fide executive employees for a
four-month period, because they were “subject
to” improper deductions within the meaning of
C.F.R. § 541.118(a); the court rejected Han-
non’s argument that § 541.118(a)(6) allowed
it to correct its error and maintain the exempt
status of the employees. The court ordered
Hannon to pay each plaintiff four months of
* Judge of the United States Court of Appeals
for the Sixth Circuit, sitting by designation.
1 The various Hannon companies named as
defendants share common family ownership and
make at least some management decisions in
collaboration.
2 The original complaint was filed by Karen
Moore and Derrick Nichols against Hannon Food
Service, Inc. The Third Amended Complaint, filed
March 31, 1999, resulted in the current
arrangement of parties.

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3
overtime pay.
II.
Hannon maintains that the district court
should have applied the window of correction
specified in 29 C.F.R. § 541.118(a)(6), which
would have allowed Hannon to avoid liability
because they reimbursed the improper deduc-
tions. Hannon contends that the plain lang-
uage of the regulation, as interpreted by Auer
v. Robbins, 519 U.S. 452, 463 (1997),
requires the window of correction to be
available for any deduction made for any
reason other than lack of work.
Plaintiffs argue that application of the win-
dow of correction should be denied, because
the deductions resulted from a policy that ex-
tended over four months. Plaintiffs specifically
refer to amicus curiae briefs filed in other
circuits on behalf of the Secretary of Labor
interpreting § 541.118(a)(6) as being un-
available where a policy or practice underlies
the improper deductions.3
Plaintiffs also cross-appeal the denial of
overtime compensation before the time of the
deduction, limited by the two-year limitations
period, and the denial of liquidated damages.
We review a j.m.l. de novo. Casarez v. Bur-
lington N./Santa Fe Co., 193 F.3d 334, 336
(5th Cir. 1999).
III.
A.
Though the FLSA establishes a general rule
that employers must pay their employees over-
time compensation, executive, administrative,
and professional employees are exempt. See
29 U.S.C. § 213(a)(1). The Secretary has
broad authority to “define and delimit’”’ the
scope of these exemptions. Id.; see also Auer,
519 U.S. at 456. Among the requirements for
the exemption is the salary-basis test, 29
C.F.R. § 541.118,4 under which the employee
must receive “each pay period on a weekly, or
less frequent basis, a predetermined amount
constituting all or part of his compensation,
which amount is not subject to reduction be-
cause of variations in the quality or quantity of
the work performed.” § 541.118(a).
In some circumstances, an employee may
maintain his exempt status, notwithstanding
improper deductions, under the window of
correction established by § 541.118(a)(6),
which reads:
The effect of making a deduction which
is not permitted under these interpre-
tations will depend upon the facts in the
particular case. Where deductions are
generally made when there is no work
available, it indicates that there was no
intention to pay the employee on a sal-
ary basis. In such a case the exemption
would not be applicable to him during
the entire period when such deductions
were being made. On the other hand,
where a deduction not permitted by
these interpretations is inadvertent, or is
made for reasons other than lack of
work, the exemption will not be con-
sidered to have been lost if the employer
reimburses the employee for such de-
ductions and promises to comply in the
future.
3 See, e.g., Klem v. County of Santa Clara, 208
F.3d 1085, 1091-92 (9th Cir. 2000); Whetsel v.
Network Prop. Servs., 246 F.3d 897, 900-01 (7th
Cir. 2001).
4 The duties test, see 29 C.F.R. § 541.1, and the
salary level test, see 29 C.F.R. § 541.1(f), are not
at issue here.

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4
29 C.F.R. § 541.118(a)(6).
“The plain language of the regulation sets
out ‘inadvertence’ and ‘made for reasons other
than lack of work’ as alternative grounds per-
mitting corrective action.” Auer, 519 U.S. at
463. In Auer, the Court therefore allowed the
defendant to correct an improper deduction re-
sulting from a disciplinary suspension, even
though it was intentional. Id.
The Court’s interpretation of the window
of correction in Auer informs our decision
here. In Auer, however, the Court did not
have the benefit of the interpretation of
§ 541.118(a)(6) proffered by the Secretary lat-
er in Klem and Whetsel, which, if adopted,
would narrow the regulation from the Court’s
reading of broad applicability. Furthermore,
Auer applied the window of correction to a
single deduction, 519 U.S. at 463, and the
Court had already determined that the plaintiff
was not “subject to” deductions within the
meaning of the salary-basis test, id. at 461-62.
We therefore consider the applicability of the
window of correction to the facts of this case
in light of the Secretary’s interpretation.
B.
Though we did not have a brief from the
Secretary in this case, the Ninth Circuit sum-
marized her position to be that
the window of correction is available
only to employers that have demonstrat-
ed the “objective intention” to pay their
employees on a salaried basis. When an
employer has demonstrated such an
objective intention, the window of cor-
rection is available to cure inadvertent
or isolated violations of the “salary ba-
sis” regulations. However, when an em-
ployer has not demonstrated that in-
tention, it cannot, after the fact, use the
window of correction to bring itself into
compliance with the “salary basis” reg-
ulations and thereby turn nonsalaried
employees into salaried employees.
Further, under the Secretary’s inter-
pretation, an employer “that engages in
a practice of making impermissible de-
ductions in its employees’ pay, or has a
policy that effectively communicates to
its employees that such deductions will
be made, necessarily has no intention of
paying its employees on a ‘salary ba-
sis.’” The question is not whether an
employer has the subjective intention
that its employees be exempt from the
FLSA’s overtime provisions. Rather, it
is whether the employer has evinced the
objective intention to pay its employees
on a salaried basis as defined in the Sec-
retary’s regulations. When an employer
has a practice and policy of noncom-
pliance with those regulations, the Sec-
retary reasons, it cannot demonstrate an
intention to comply with the regulations
and to pay its employees on a salaried
basis. Under those circumstances, the
employer cannot treat its employees as
exempt; nor can it use the window of
correction to comply retroactively with
the regulations and thereby obtain an
exemption for a class of employees that
it actually never paid on a salaried basis.
Klem, 208 F.3d at 1091. Accord Whetsel, 246
F.3d at 900-01.
C.
Although we must give effect to an agen-
cy’s regulation containing a reasonable
interpretation of an ambiguous statute,
Chevron U.S.A. Inc. v. Natural Resources

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Defense Council, Inc., 467 U.S. 837, 842-844
(1984), such deference is not appropriate for
an interpretation of a regulation found in an
amicus curiae brief.5 In Auer, the Court
addressed what weight should be afforded
such interpretations of regulations. The Court
considered an amicus curiae brief by the
Secretary of Labor, filed at the request of the
Court, that interpreted what it means to be
“subject to” impermissible pay deductions
under the salary-basis test created in §
541.118(a). Auer, 519 U.S. at 461.
The Secretary’s interpretation required
more than a theoretical possibility that exempt
employees could incur deductions in pay; it
required “either an actual practice of making
such deductions or an employment policy that
creates a ‘significant likelihood’ of such
deductions.” Id. The Court held “[b]ecause
the salary-basis test is a creature of the
Secretary’s own regulations, his interpretation
of it is, under o ur jurisprudence, controlling
unless plainly erroneous or inconsistent with
the regulation.” Id. (citations and internal
quotation marks omitted). It found “[t]hat
deferential standard [was] easily met” because
the “critical phrase ‘subject to’ comfortably
bears the meaning the Secretary assigns.” Id.
In Christensen, the Court explicated when
Auer deference is proper. There, petitioners
challenged their employer’s policy that
prevented them from choosing to receive cash
compensation for accrued compensatory time
in lieu of taking time off; they contended the
policy contradicted 29 U.S.C. § 207(o)(5),
“which requires that an employer reasonably
accommodate employee requests to use
compensatory time . . .” Christensen, 529
U.S. at 580-81. The Court considered an
opinion letter6 establishing the Secretary of
Labor’s interpretation of 29 C.F.R. §
553.23(a)(2), which “provides only that ‘the
agreement or understanding [between the
employer and employee] may include other
provisions governing the preservation, use, or
cashing out of compensatory time so long as
these provisions are consistent with [ §
207(o)].” Id. at 587-88. The opinion letter
argued that § 207(o) precluded the employer
from requiring employees to use their
compensatory time.7
The Court declined to adopt the Secretary’s
interpretation of the regulation, holding that
although “an agency’s interpretation of its own
regulation is entitled to deference . . . Auer
deference is warranted only when the language
of the regulation is ambiguous.” Id. (citations
omitted). “To defer to the agency’s position
would be to permit the agency, under the guise
of interpreting a regulation, to create de facto
a new regulation.” Id. Simply noting
ambiguity in some part of the regulation is in-
sufficient; there must be ambiguity with
5 See Christensen v. Harris County, 529 U.S.
576, 587-89 (2000); cf. Owsley v. San Antonio
Indep. Sch. Dist., 187 F.3d 521, 525 (5th Cir.
1999) (“Opinion letters, which are issued without
. . . formal notice and rulemaking procedures . . .
do not receive the same kind of Chevron deference
as do administrative regulations.”).
6 The Secretary also appeared as amicus curiae.
Christensen, 529 U.S. at 577.
7 As the Court explained, the Secretary argued
“that the express grant of control to employees to
use compensatory time, subject to the limitation
regarding undue disruptions of workplace
operations, implies that all other methods of
spending compensatory time are precluded.”
Christensen, 529 U.S. at 582-83.

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6
respect to the specific question considered.8
Absent ambiguity, “interpretations contained in
formats such as opinion letters are ‘entitled to
respect’ under our decision in Skidmore v.
Swift & Co., 323 U.S. 134, 140 [](1944), but
only to the extent that those interpretations
have the “power to persuade.” Id. at 587.
D.
Other circuits that have addressed the ques-
tion whether the window of correction applies
to all deductions made for reasons other than
work have reached conflicting conclusions.
Subsequent to Auer, the Eleventh Circuit had
allowed the window of correction to an
employer that made deductions for disciplinary
reasons, then reimbursed the sums and adopt-
ed a written policy proscribing unpaid
suspensions. The court did not comment on
the Secretary’s interpretation. Davis v. City of
Hollywood, 120 F.3d 1178, 1180-81 (11th Cir.
1997) (quoting Auer, 519 U.S. at 463). The
Third Circuit has indicated support for this
position in dictum, but also has not considered
specifically the Secretary’s interpretation. Bal-
gowan v. New Jersey, 115 F.3d 214, 219 (3d
Cir. 1997) (“Accordingly, if any DOT
engineer’s pay had been docked, the ‘window
of corrections’ exemption could have been
used by the State to preserve that engineer’s
exempt status.”).
The Ninth Circuit has held that the pattern
or policy of deductions does prevent
application of the “window of correction.”
Klem, 208 F.3d at 1094-96 (granting
deference to the Secretary’s interpretation and
holding that contrary language in Paresi v.
City of Portland, 182 F.3d 665, 668 (9th Cir.
1999), was dictum). The Ninth Circuit did not
contend there was any ambiguity in the
regulation requiring deference to the
Secretary’s interpretation.9 The Seventh
Circuit, citing Klem, also has adopted the
Secretary’s interpretation in Whetsel, 246 F.3d
at 904, and did find the requisite ambiguity, id.
at 901.10 Relying heavily on Whetsel and
8 See Christensen, 529 U.S. at 588 (“Because
the regulation is not ambiguous on the issue of
compelled compensatory time, Auer deference is
unwarranted.”).
9 Klem was decided a month before
Christensen. In later affirming Klem, see Block v.
City of Los Angeles, 253 F.3d 410, 419-20 (9th
Cir. 2001), the Ninth Circuit did not reconsider the
Klem holding in light of Christensen’s
requirements. Had it done so, it might have found
that Paresi advised a different outcome.
Paresi held that because there was no “pattern
of deductions” the city could correct the allegedly
improper deductions under the window of
correction rule. See id. at 668. The court
continued to note that “[i]n any event, the text of
the regulation contains no such limitation . . . .
The deductions made and corrected by the City
were made for disciplinary reasons, which are
‘reasons other than lack of work’ and, thus, are
covered by the window of correction.” Id. Though
the “discussion in Paresi focused exclusively on
the wording of the regulation and did not address .
. . the Secretary of Labor’s interpretation,” Klem,
208 F.3d at 1094, Paresi’s plain-language analysis
arguably undermines any contention that the
regulation is “ambiguous” such that it requires
interpretation by the Secretary.
10 Before Whetsel, the Seventh Circuit, like the
Ninth Circuit, had also stated that the language of
the regulation allowed correction despite a pattern
or practice. DiGiore v. Ryan, 172 F.3d 454, 465
(7th Cir. 1997) (“Even if these five incidents rose
to the level of frequent and, thus, constituted an ac-
tual practice by the SOS officials, the officers
would still be exempt from the FLSA because the
(continued...)

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Klem, the Sixth Circuit reached the same
conclusion. Takacs v. Hahn Auto. Corp., 246
F.3d 776, 782-83 (6th Cir. 2001). The Second
Circuit also adopted this position. Yourman v.
Giuliani, 229 F.3d 124 (2d Cir. 2000).11
E.
We decline to extend Auer deference to the
Secretary’s interpretation, because § 541.118-
(a)(6) is unambiguous. “[T]he plain language
of the regulation sets out ‘inadvertence’ and
‘made for reasons other than lack of work’ as
alternative grounds permitting corrective ac-
tion.” Auer, 519 U.S. at 463. Nothing in the
regulation indicates that any further restriction
on its application is implied or necessary.
As stated earlier, the Klem court did not try
to determine whether the regulation is
ambiguous.12 In finding the requisite
ambiguity, the Whetsel court relied “on the
fact that the regulation does not explicitly state
that it is available to correct a policy or pattern
of deductions, thus leaving open the question
of whether it applies to those circumstances.”
Whetsel, 246 F.3d at 901. The regulation, by
10(...continued)
SOS officials availed themselves of the regulatory
‘window of correction.’”). Overruling DiGiore,
the Whetsel court held that because DiGiore did
not discuss the Secretary’s interpretation, “the
court might not have had that argument before it,
which is a sufficient reason for reconsidering this
part of DiGiore and deferring to the Secretary’s
construction.” Whetsel, 246 F.3d at 903-04.
11 It did so with little discussion, relying on
Klem and Martin v. Malcolm Pirnie, Inc., 949
F.2d 611, 615-17 (2d Cir. 1991). Although
Martin limits the exceptions applicability to
“one-time or unintentional failure[s] to adhere to §
541.118(a)’s requirements,” id. at 616, it predates
Auer and does not address the “lack of work”
clause. It does not appear that the defendant in
Martin proffered an argument that the “lack of
work” clause created a basis for correction; rather
it relied on the argument that it had no policy that
violated the statute. Id.
12 The court did discuss the requirements of
Auer that the proposed interpretation be neither
“‘plainly erroneous [n]or inconsistent with the
regulation.’” Klem, 208 F.3d at 1089 (quoting
Auer, 519 U.S. at 461). Rejecting the defendant’s
argument that “the Secretary’s contrary
interpretation imports additional limitations into the
rule that are inconsistent with the rule’s text,” id. at
1092, the court stated that “we need not conclude
that her interpretation is the only reasonable
construction of that rule, or even the best one. It
merely must be sufficiently connected to the rule’s
text to be consistent with the rule.” Id. at 1093.
In searching for textual support, the court
focused on the word “lost” in the fourth sentence:
For an exemption to be capable of being
“lost,” it first must have been obtained. The
window of correction, therefore, is available
to employers that have exempt employees,
because those are the only employers who
can lose exemptions. An employer that does
not pay on a salaried basis does not have
exempt employees. The window of
correction is unavailable to such an
employer, because the window operates to
protect employers from losing exemptions
or, in other words, to preserve existing
exemptions.
Id. This reasoning is circular. Any improper con-
duct could result in the employee not being exempt;
the regulation creates exceptions where improper
conduct can be rehabilitated. The general rule
cannot inform the reader what the exceptions are;
the text of the window of correction can.

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its own terms, applies “where a deduction not
permitted by these interpretations is
inadvertent, or is made for reasons other than
lack of work.” This “ambiguity” is found only
by contrasting the regulation’s language with
the Secretary’s interpretation.
Under Christensen, this approach is
backwards. The presence or lack of ambiguity
in a regulation should be determined without
reference to proposed interpretations;
otherwise, a regulation will be considered
“ambiguous” merely because its authors did
not have the forethought expressly to
contradict any creative contortion that may
later be constructed to expand or prune its
scope.
Responding to the argument that “because
the regulatory language singles out only
practices or policies of deductions for lack of
work for incorrigibility, the regulation
implicitly indicates that any other kind of
policy or practice can be corrected,” the Court
in Christensen stated that “the canon of
expressio unius est exclusio alterius has
reduced force in the context of interpreting
agency administered regulations and will not
necessarily prevent the regulation from being
considered ambiguous.” Id. at 903 (citations
omitted). Expressio unius has been defined by
the Supreme Court as meaning that
“expressing one item of an associated group or
series excludes another left unmentioned.”
Chevron U.S.A. Inc. v. Echazabal, 122 S. Ct.
2045, 2049 (2002) (quotation marks and
alterations omitted). This is not truly a case of
expressio unius, because the regulation is not
silent as to deductions resulting from a policy
or practice for reasons other than a lack of
work; they are a subset of the second prong of
the exception.13
The argument that the regulation is
ambiguous is unpersuasive. The Supreme
Court has interpreted the regulation and noted
no ambiguity. Auer, 519 U.S. 463. Having
interpreted the statute, it applied it to the facts
without pausi ng to ponder unstated
exceptions. Id. at 463-64. The entire
regulation reads coherently and plainly reaches
any deductions made for reasons other than
lack of work.
Absent ambiguity, the Secret ary’s
interpretation is “entitled to respect” under
Skidmore v. Swift & Co., 323 U.S. 134, 140
(1944), “but only to the extent that those
interpretations have the ‘power to persuade,’”
see Christensen, 529 U.S. at 587 (quoting
Skidmore, 323 U.S. at 140). Though we
afford the Secretary’s interpretation its due
respect under Skidmore,14 it is insufficient to
13 The Whetsel court implied that when a reg-
ulation makes reference to a particular class of
conduct, the court should not necessarily find it
unambiguous that the regulation intends to reach
any particular subclass of that conduct. This un-
realistically requires an agency to enumerate every
conceivable subclass of a covered conduct in order
to avoid having their regulations declared
ambiguous. This is a needless burden to place on
agencies. A genuine application of expressio unius
would be to draw the presumption that there are no
other types of improper deduction besides the two
named that can be cured under the window of
correction. And given that the regulation is an
exception to a general rule that improper
deductions will cause an employee to lose his ex-
empt status, that conclusion would be appropriate.
14 Skidmore requires only that we accord to an
administrative judgment weight dependent “upon
(continued...)

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9
overcome the interpretation’s contradiction
with the plain language of the regulation,
which allows the window of correction to be
invoked for the conduct at issue here.
IV.
The district court erred in finding that the
window of correction was unavailable in this
case. Furthermore, the record demonstrates
that Hannon properly availed itself of the ex-
ception. Hannon tendered plaintiffs the
amount of all deductions plus interest five days
before trial. Reimbursements may be made at
any time to preserve the window of
correction.15 Moreover, Hannon has changed
the offending policy. We therefore REVERSE
and RENDER judgment in favor of
defendants.16
14(...continued)
the thoroughness evident in its consideration, the
validity of its reasoning, its consistency with earlier
and later
pronouncements, and all those factors which give
it power to persuade, if lacking power to control.”
323 U.S. at 140. Ultimately, Skidmore analysis is
of limited value in interpreting regulations, given
that it stops short of requiring deference and is
likely to be invoked only when a court has already
found the regulation to be unambiguous. Cf.
United States v. Mead Corp., 533 U.S. 218, 250
(2001) (Scalia, J., dissenting) (“[T]he rule of
Skidmore deference is an empty truism and a
trifling statement of the obvious: A judge should
take into account the well-considered views of
expert observers.”).
15 Auer, 519 U.S. 463-64 (“[I]n petitioners’
view, reimbursement must be made immediately
upon the discovery that an improper deduction was
made. The language of the regulation, however,
does not address the timing of reimbursement, and
the Secretary’s amicus brief informs us that he
does not interpret it to require immediate payment.
Respondents are entitled to preserve Guzy’s
exempt status by complying with the corrective
provision in § 541.118(a)(6).”).
16 Because we conclude that Hannon
properly availed itself of the window
of correction, we do not reach the
cross-appeal.

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