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Vogt Power International, Inc. v. Labor Department of Workplace Standards

Court of Appeals of Kentucky

October 18, 2019



          BRIEF FOR APPELLANT: Michael D. Risley Shannon Antle Hamilton Ashley Owens Hopkins Louisville, Kentucky




          KRAMER, JUDGE

         In an April 12, 2016 final administrative order, the Secretary of the Kentucky Labor Cabinet determined that appellant Vogt Power International, Inc., violated Kentucky Revised Statute (KRS) 337.055[2] by wrongfully withholding wages belonging to Vogt's former employee, Stephen Kapsalis. Vogt petitioned the Franklin Circuit Court for review and declaratory relief, and the circuit court affirmed. Vogt now appeals to this Court, and for the reasons set forth below we affirm in part and vacate in part.

         The general background of this wages and hours matter is relatively straightforward. As conceded by all parties to this appeal, Stephen Kapsalis was the type of "employee" classified as a "bona fide executive" as set forth in KRS 337.010(2)(a)2; to that end, he served as Vogt's President and CEO from July 2009 until April 12, 2013, and he was paid $350, 000 per year for his services. Kapsalis operated Vogt for its parent corporation, Babcock Power. Months after his resignation, Kapsalis filed a complaint with the Cabinet alleging that Vogt had violated KRS 337.055 by failing to pay him $8, 788.62 in wages, an amount representing 58 hours of his accrued annual leave. After investigating Kapsalis's complaint, the Cabinet then issued tentative findings of fact on February 25, 2014. In its findings, the Cabinet concluded that Vogt had indeed violated KRS 337.055 by failing to pay Kapsalis $8, 788.62 for 58 hours of accrued annual leave. Accordingly, the Cabinet directed Vogt to pay a civil penalty of $250, and to pay Kapsalis $8, 788.62 in restitution. Thereafter, Vogt administratively contested the tentative findings of fact;[3] an evidentiary hearing was held; the Secretary of the Cabinet ultimately affirmed the penalty and amount of restitution in an April 12, 2016 final order; and, following a petition for judicial review, [4] the Franklin Circuit Court likewise affirmed.

         We pause here to note that in part of this appeal, Vogt argues that no evidence of substance supports that it owed Kapsalis $8, 788.62 in unpaid wages, or that it otherwise violated or should have been penalized for violating KRS 337.055. For the sake of brevity, we will address that part first. The Secretary's April 12, 2016 final order set forth the evidence and applied the law in relevant part as follows:

Mr. Kapsalis accrued annual leave pursuant to Babcock Power's vacation policy. Mr. Kapsalis stated the accrual occurred at a rate of 160 vacation hours per year. Mr. [John] Heffernan[5] confirmed that figure on direct examination. Each year, Mr. Kapsalis was allowed to carry over up to two times the maximum amount of hours accrued annually.
Mr. Kapsalis had an accrued annual leave balance of 168 hours at the time of his separation from employment of Petitioner. Mr. Kapsalis's claimed balance of 168 hours was substantiated by Mr. Heffernan on direct examination when he stated: "So based on accruing 160 hours a year, having over 160 hours upon departure, it did seem like a lot."
Petitioner's counsel asked on direct examination of Mr. Heffernan: "Why did you do an investigation after Mr. Kapsalis left and make a decision not to pay him the total amount of vacation pay?" Mr. Heffernan responded not by claiming Petitioner paid the total amount of vacation pay but rather went on at length as to why the internal investigation was performed. This exchange shows there is no dispute that Mr. Kapsalis's original leave balance upon departure was 168 hours as he claimed. It also confirms that Petitioner disliked how large the balance was and refused to pay the total balance.
Petitioner did make a payment for one-hundred-ten (110) hours of accrued vacation time earned. However, Petitioner failed to pay a balance of fifty-eight hours remaining for accrued annual leave. Mr. Heffernan wrote Investigator Blevins on August 6, 2013, stating in relevant part: "Mr. Kapsalis was paid for 110 hours of accrued vacation time." Mr. Heffernan went on to state in that letter: "We refute the additional 58 hours of accrued time Mr. Kapsalis is claiming."
As there was a total balance of 168 hours of accrued annual leave for Mr. Kapsalis upon his separation from Petitioner, and he was only paid for 110 hours of that leave, payment for 58 hours of leave is still due to Mr. Kapsalis.
Petitioner refused to pay the remaining 58 hours of accrued leave due to Mr. Kapsalis based on its assertion that he incorrectly report[ed] his work time and sick time. This contention is detailed in a letter from Mr. Heffernan to Inspector [Michael] Blevins dated August 12, 2013. On two of the days in question, Mr. Kapsalis took sick leave while on an out-of-town business trip. Each of the other dates in question occurred on a day Mr. Kapsalis was out of the office, did not report business expenses, and took annual leave for at least part of that day, the day prior, or the following day.
Mr. Heffernan appeared to assume if Mr. Kapsalis did not report business expenses on his expense report that he must not have worked on the days in question. Specifically, he stated: "There was no indication that showed that there was any business that was being conducted while on travel because there were no expenses associated with those days." This assumption is not supported by testimony in the record.
When questioned as to whether he himself would report business expenses when working from home, Mr. Heffernan stated: "I wouldn't have any expense." The same holds true for Mr. Kapsalis if or when he was working from his homes in Louisville, Florida, or the property he leased in the Carolinas. Additionally, if Mr. Kapsalis was out of town for personal reasons, and he performed a half-day of work for Petitioner, there would not have been any added expense to report.
When questioned on the type of proof an employee is required to provide to show work was actually being done while working outside of the office, Mr. Heffernan stated none was required. The exchange was as follows:
Cabinet Counsel: "There's been a lot of talk about e-mails and phone calls while out of the office on the days in question. What proof is an employee required to present on a workday outside of the office to prove they worked?"
Mr. Heffernan: "What are they required to prove?"
Cabinet Counsel: "Is there a policy requiring employees to prove it?"
Mr. Heffernan: "No."
Mr. Heffernan's understanding that there was not a proof requirement regarding work performed was echoed by Mr. Kapsalis. When questioned as to what records would be required to prove he worked when out of the office he stated: "None that I'm aware of."
While there is no requirement to provide proof of working when out of the office, there is proof Mr. Kapsalis performed work on each day in question where working hours were reported. For each day, there are numerous work phone calls and emails made by Mr. Kapsalis occurring over a number of hours. While the total time spent on work calls varies from day to day, the records prove Mr. Kapsalis was performing work on those days. Simply because Mr. Kapsalis was not on a business call at a given time is not proof he wasn't working at that time.
Petitioner's assertions that Mr. Kapsalis was hunting or traveling on a particular day are irrelevant. Both Mr. Kapsalis and Mr. Heffernan agree that there were not specific set hours which Mr. Kapsalis was required to work by Petitioner. Both also agree that Mr. Kapsalis often worked both nights and weekends as part of his job. As such, any non-work activity that may have occurred on a given day during normal nine-to-five work hours is not determinative as to whether or not he was working on that day.
Petitioner asserts Mr. Kapsalis's report of sick leave was improper for March 6th and 7th of 2013. Mr. Heffernan stated on direct, "I just assumed again, since he is back in that same area that it was another long weekend hunting trip." This assumption is not credible. Mr. Kapsalis was there for a long weekend, yet the Petitioner did not question Monday and Tuesday (March 4th and 5th) or Friday (March 8th) which were reported as work days. Any lack of proof that Mr. Kapsalis worked on these days would be due to his illness. Nothing in the vacation policy would prevent Mr. Kapsalis from taking sick leave while on a business trip. In fact, had he even been on a personal vacation during this time and took ill, he would still be allowed to take sick leave. During cross-examination Mr. Heffernan confirmed this availability of sick time during a personal vacation.
Mr. Kapsalis reported his worktime each week as seen in his timesheets. Each of Mr. Kapsalis's timesheets was approved by an employee designated by Mr. Kapsalis's supervisor Mike LeClair. Petitioner had an opportunity to reconcile any perceived inconsistencies in Mr. Kapsalis's timesheets prior to approval, yet no claims were raised prior to his resignation.
Section 2.6.1 of the Babcock Power Vacation Policy states: "Employees who leave the company will be paid for unused vacation hours that have been accrued up to the termination date." Mr. Heffernan confirmed that it was Petitioner's policy to pay unused ...

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