     06-2432-cv
     C hao v. G otham Registry



 1                                    UNITED STATES COURT OF APPEALS
 2                                        FOR THE SECOND CIRCUIT
 3
 4                                            _______________
 5
 6                                           August Term, 2006
 7
 8            (Argued March 1, 2007                      Decided January 24, 2008)
 9
10                                         Docket No. 06-2432-cv
11
12                                            _______________
13
14                                  Elaine L. Chao, Secretary of Labor,
15
16                                                       Plaintiff-Appellant,
17
18                                                  v.
19
20                        Gotham Registry, Inc., Gotham Per Diem, Inc.,
21
22                                                       Defendants-Appellees.
23
24                                            _______________
25
26   Before:
27                                          JACOBS, Chief Judge,
28                               CARDAMONE, and SOTOMAYOR, Circuit Judges.
29
30                                            _______________
31
32        Plaintiff Elaine L. Chao, Secretary of Labor, appeals from
33   an order dated March 20, 2006 of the United States District
34   Court for the Southern District of New York (Stanton, J.)
35   denying her petition for adjudication of civil contempt against
36   defendant Gotham Registry, Inc., and its president, Caroline
37   Barrett.
38
39              Affirmed.
40
41              Chief Judge Jacobs concurs in a separate opinion.
42
43                                            _______________
 1                           _______________
 2
 3   MARIA VAN BUREN, Washington, D.C. (Howard M. Radzely, Solicitor
 4        of Labor, Steven J. Mandel, Associate Solicitor, Paul L.
 5        Frieden, U.S. Department of Labor, Office of the Solicitor,
 6        Washington, D.C., of counsel), for Plaintiff-Appellant.
 7
 8   STEVEN KAPUSTIN, Blue Bell, Pennsylvania (Barry A. Furman,
 9        Kaplin, Stewart, Meloff, Reiter & Stein, P.C., Blue Bell,
10        Pennsylvania, of counsel), for Defendant-Appellee.
11
12                           _______________
 1   CARDAMONE, Circuit Judge:

 2       In 1937 America was in the depths of a depression and

 3   employment was scarce.     President Franklin Roosevelt introduced

 4   a measure to address this problem in a bill that became the Fair

 5   Labor Standards Act.     The bill aimed to raise the pay of the

 6   underpaid and reduce the hours of the overworked or, as stated

 7   in the Presidential message accompanying the proposed

 8   legislation, to obtain "a fair day's pay for a fair day's work."

 9   81 Cong. Rec. 4983 (1937) (message of President Roosevelt).

10   Today, things are different, particularly in the nursing

11   profession where there are not enough nurses to meet the demand

12   for their services.     This shortage and the frequent resort to

13   overtime to compensate for it precipitated the instant action.

14       The litigation before us was initiated in 1992 in the

15   United States District Court for the Southern District of New

16   York before Judge Louis L. Stanton by the Secretary of Labor

17   against defendants Gotham Registry, Inc. and its affiliate
18   Gotham Per Diem, Inc.     Suit was brought under the provisions of

19   the Fair Labor Standards Act, 29 U.S.C. § 201 et seq. (FLSA or

20   Act), and resulted on June 6, 1994 in a consent judgment against

21   Gotham, requiring it to pay its nurses time and one-half wages

22   for overtime in compliance with the Act.     On December 29, 2004

23   plaintiff Elaine L. Chao, the current Secretary of Labor

24   (Secretary or plaintiff), filed a petition for adjudication of

25   civil contempt against Gotham Registry, Inc. and its president,

26   Caroline Barrett (collectively, Gotham, employer or staffing

                                       2
 1   agency), for their alleged failure to abide by the terms of the

 2   consent judgment.     The Secretary sought an order requiring

 3   Gotham to pay back wages plus interest from January 1, 1999

 4   through the present.     On January 19, 2005 Gotham filed a

 5   response and counterclaim to the petition denying any violation

 6   of the consent decree and requesting the district court to

 7   vacate the decree's injunctive provision because of changed

 8   circumstances.

 9       Judge Stanton, who had maintained jurisdiction over this

10   matter since its inception, conducted an evidentiary hearing on

11   March 20, 2006.     At the close of plaintiff's case, Gotham moved

12   for judgment in its favor pursuant to Fed. R. Civ. P. 52(c).

13   Judge Stanton granted that motion from the bench and held Gotham

14   not in contempt of the consent judgment.     In an order entered

15   March 23, 2006 the district court denied the Secretary's

16   petition.     From this order the Secretary appeals.

17                                 BACKGROUND
18       We turn to the facts.     A typical Gotham placement begins

19   when one of its client hospitals requests a nurse to fill a

20   temporary vacancy or to support hospital personnel during a peak

21   period.     Gotham then offers the assignment to a nurse on its

22   register, and the nurse who accepts the position reports

23   directly to the hospital.     The nurse is required to sign in and

24   out on daily time sheets, which are compiled and reviewed by the

25   hospital and forwarded to Gotham each week.     Gotham is not

26   permitted to go on hospital premises to verify the nurse's hours

                                       3
 1   or otherwise supervise his or her performance.   The hospital

 2   pays Gotham an hourly fee multiplied by the number of hours

 3   worked by the nurse and Gotham pays most of this money to the

 4   nurse.

 5       Until the early 1990s, Gotham did not pay its nurses

 6   overtime wages for hours worked in excess of 40 hours in any

 7   workweek because it viewed the nurses as independent

 8   contractors.   After the Department of Labor commenced an

 9   enforcement action in 1992 against the staffing agency asserting

10   that its practice of paying nurses straight-time wages for

11   overtime hours violated the Act, Gotham consented to treat the

12   nurses on its register as employees for purposes of the Act.

13   Specifically, the 1994 consent judgment included a prospective

14   injunction requiring Gotham to comply with 29 U.S.C. § 207(a) by

15   paying its nurses time and one-half wages for time worked over

16   40 hours in any week.

17       As Gotham's clients do not pay Gotham a premium for
18   overtime hours in all cases, Gotham's promise to abide by the

19   Act quickly proved expensive.   After seeking advice of counsel,

20   the staffing agency adopted a policy designed to check

21   unauthorized overtime or, failing that, insulate itself from

22   claims for time and one-half compensation for unauthorized

23   hours.   Gotham's overtime policy is printed on the time sheets

24   completed by its nurses and reads:   "You must notify GOTHAM in

25   advance and receive authorization from GOTHAM for any shift or

26   partial shift that will bring your total hours to more than 40

                                     4
 1   hours in any given week.     If you fail to do so you will not be

 2   paid overtime rates for those hours."

 3       In the course of their assignments at client hospitals,

 4   Gotham nurses are sometimes asked to work overtime by hospital

 5   staff.   Nurses who agree to work an unscheduled shift will on

 6   occasion contact Gotham first to request approval in compliance

 7   with Gotham's rule.     If Gotham authorizes an assignment, the

 8   nurse is guaranteed premium wages for any resulting overtime.

 9   But three out of four approval requests are denied.     At other

10   times, nurses accept unscheduled shifts without obtaining the

11   staffing agency's approval.     When these nurses report their

12   overtime for the preceding week, Gotham attempts to negotiate

13   with the hospital to procure an enhanced fee for the overtime

14   hours already worked.     If Gotham succeeds -- as it does ten

15   percent of the time -- it pays the nurse time and one-half wages

16   for the unauthorized overtime hours.     Otherwise, the nurse

17   receives straight-time wages for the extra hours worked.
18       It is this scenario that gives rise to the Secretary's

19   contention that Gotham's overtime practices violate 29 U.S.C.

20   § 207(a) and, by extension, the 1994 consent judgment.     The

21   plaintiff's petition seeks back wages in excess of $100,000 plus

22   pre-judgment interest for the period from January 1999 through

23   June 2002 and calls for an accounting of Gotham's wage

24   obligations from 2002 to the present.     After a one-day trial in

25   March 2006, Judge Stanton granted Gotham's motion for judgment

26   based on partial findings at the conclusion of the Secretary's

                                       5
 1   case.   He denied the Secretary's petition to hold defendants in

 2   contempt.   The district court also denied the Secretary's claim

 3   concerning record-keeping violations and Gotham's counterclaim

 4   to dissolve the injunction, but neither of these latter two

 5   rulings have been appealed.

 6       The Secretary challenges that portion of the district

 7   court's March 20, 2006 judgment that denies her petition for

 8   civil contempt against Gotham.     That court believed the

 9   unauthorized hours did not constitute work under the Act or, if

10   these were working hours, the legal question was too much in

11   doubt to warrant civil contempt.       On this appeal the Secretary

12   presents us with two questions:       first, whether Gotham's

13   overtime practices violate the Act; and second, if so, whether

14   the violation provides an adequate basis for civil contempt.

15       We think the trial court erred in labeling the nurses'

16   overtime hours as anything other than work and answer the first

17   question in the affirmative.     But because we believe Gotham
18   acted on a reasonable interpretation of then unsettled law, we

19   answer the second question in the negative, and affirm the

20   district court's judgment on the alternative ground that the

21   Secretary did not meet her burden to prove contempt.

22                                 DISCUSSION

23                         I   Standard of Review

24       We review the denial of a petition for civil contempt under

25   the abuse of discretion standard.       Dunn v. N.Y. State Dep't of

26   Labor, 47 F.3d 485, 490 (2d Cir. 1995).       While we uphold the

                                       6
 1   district court's factual findings unless they are clearly

 2   erroneous, the ultimate legal question of whether an employee is

 3   entitled to overtime pay under the FLSA is subject to plenary

 4   review.   See Barrentine v. Arkansas-Best Freight Sys., Inc., 450

 5   U.S. 728, 743 (1981); Holzapfel v. Town of Newburgh, 145 F.3d

 6   516, 521 (2d Cir. 1998).   Further, where a party challenges a

 7   principle of law relied on by the district court in making a

 8   discretionary determination, we review de novo its choice and

 9   interpretation of such principles.   Scalisi v. Fund Asset Mgmt.,

10   380 F.3d 133, 137 (2d Cir. 2004).

11             II   Violation of the Act's Overtime Provisions

12       Our first question is whether Gotham's failure to pay time

13   and one-half wages to its nurses for unauthorized overtime

14   violated the Act's overtime provisions.    The Act provides that

15   "no employer shall employ any of his employees . . . for a

16   workweek longer than forty hours unless such employee receives

17   compensation for his employment in excess of the hours above
18   specified at a rate not less than one and one-half times the

19   regular rate at which he is employed."    29 U.S.C. § 207(a)(1).

20       "Employ" is defined in the Act as including "to suffer or

21   permit to work," 29 U.S.C. § 203(g), but Congress did not define

22   the word "work."   See IBP, Inc. v. Alvarez, 546 U.S. 21, 25

23   (2005).   The broad meaning that has emerged from Supreme Court

24   cases describes work as exertion or loss of an employee's time

25   that is (1) controlled or required by an employer, (2) pursued

26   necessarily and primarily for the employer's benefit, and (3) if

                                      7
 1   performed outside the scheduled work time, an integral and

 2   indispensable part of the employee's principal activities.

 3   Holzapfel, 145 F.3d at 522; see Tenn. Coal, Iron & R.R. Co. v.

 4   Muscoda Local No. 123, 321 U.S. 590, 598 (1944); see also Armour

 5   & Co. v. Wantock, 323 U.S. 126, 133 (1944) (clarifying that

 6   exertion is not required to satisfy definition of work); Steiner

 7   v. Mitchell, 350 U.S. 247, 252-53 (1956) (addressing exertion

 8   outside of scheduled working time).

 9       The Supreme Court has explained that the Act's overtime

10   provisions were aimed not only at raising wages but also at

11   limiting hours.    Overnight Motor Transp. Co. v. Missel, 316 U.S.

12   572, 576-78 (1942).    In other words, these provisions were

13   designed to remedy the "evil of overwork" by ensuring workers

14   were adequately compensated for long hours, as well as by

15   applying financial pressure on employers to reduce overtime.

16   Id. at 577-78; see also United States v. Rosenwasser, 323 U.S.

17   360, 361 (1944).    In service of the statute's remedial and
18   humanitarian goals, the Supreme Court consistently has

19   interpreted the Act liberally and afforded its protections

20   exceptionally broad coverage.    See, e.g., Tony & Susan Alamo

21   Found. v. Sec'y of Labor, 471 U.S. 290, 296 (1985); Rosenwasser,

22   323 U.S. at 362, 363 & n.3; Tenn. Coal, 321 U.S. at 597 ("Such a

23   statute must not be interpreted or applied in a narrow, grudging

24   manner.").

25                A.    The Unauthorized Overtime Is Work



                                      8
 1       Gotham argues it neither benefits from nor controls the

 2   nurses' unauthorized overtime and, accordingly, such time does

 3   not constitute work under the Tennessee Coal test (as extended

 4   in subsequent cases and elaborated in Holzapfel).    Tenn. Coal,

 5   321 U.S. at 598; Holzapfel, 145 F.3d at 522.    Gotham seeks

 6   support for this proposition in the trial court's findings that

 7   (1) Gotham lacks primary control over the nurses' performance of

 8   unscheduled shifts; (2) the decision to engage in overtime is

 9   made by nurses and hospitals acting in furtherance of their own

10   interests; (3) the income generated by these unauthorized hours

11   is offset by the administrative burdens of operating Gotham's

12   overtime arrangement; and (4) Gotham does not desire the

13   overtime to be performed.   Although we detect no clear error in

14   these factual findings, the legal conclusion drawn from them --

15   that the nurses' overtime is not work under the Act -- we think

16   is wrong.

17       Whether a nurse is working a morning, afternoon or night
18   shift in emergency care, an operating room, or on a hospital

19   floor, the overtime hours are indistinguishable from the

20   straight-time hours.   Such work from the nurses' standpoint is

21   fungible.   Work is work, after all.   Nurses who work overtime,

22   at the hospitals' request, often continue doing the same kind of

23   work they were doing on their regular shifts.    In that respect

24   we believe the district judge mischaracterized the Act when he

25   commented that the extra or overtime work is not "work" under

26   the statute.

                                     9
 1       As a threshold matter, application of the Tennessee Coal

 2   test to the facts of this case is something of a red herring.

 3   Contrary to the district court's belief, the Supreme Court's

 4   definition (with roots in Webster's Dictionary, see Tenn. Coal,

 5   321 U.S. at 598 n.11) does not purport to establish a "special

 6   meaning" for work, but simply to guide the courts in applying

 7   the word as it is commonly used and understood, id. at 598.

 8   Further, if an activity fails the Tennessee Coal test, we

 9   understand that result to mean the activity is not work and is

10   not compensable.    Here, no party disputes that the performance

11   of overtime at least entitled the nurses to compensation at a

12   regular rate of pay.    What Gotham implies is that the nurses'

13   overtime belongs to a new category of exertion, call it quasi-

14   work, that was not contemplated by the drafters of the Act and

15   is subject to its own compensation rules.

16       Gotham conceded in the 1994 consent judgment and again in

17   its appellate brief that it "employs" its nurses for purposes of
18   the Act.   The classification of the nurses' regularly scheduled

19   activities as work within the meaning of the Act follows from

20   this concession.    See, e.g., 29 U.S.C. § 203(g) (defining

21   "employ" to include suffering or permitting work).    It is

22   significant, therefore, that there seems to be no distinction

23   between the exertion of Gotham's nurses during unauthorized and

24   authorized hours.    In the typical case, by contrast, the

25   Tennessee Coal test is applied to ascertain whether an activity

26   that is markedly different from an employee's primary activities

                                      10
 1   may yet qualify as work.   See, e.g., Tenn. Coal, 321 U.S. at 592

 2   (travel time to ore mines); Holzapfel, 145 F.3d at 519 (dog

 3   grooming and care by K-9 police officers); Leone v. Mobil Oil

 4   Corp., 523 F.2d 1153, 1154 (D.C. Cir. 1975) (accompaniment of

 5   federal occupational safety investigators during plant

 6   inspection).

 7       Turning to the specific elements of the test for purposes

 8   of the case at hand, the staffing agency's contention that the

 9   overtime is not work because it does not benefit Gotham is

10   unpersuasive.   It is plain that if Gotham were not bound to

11   comply with the Act and instead paid its nurses straight-time

12   wages for overtime without administrative inconvenience, all

13   hours clocked by the nurses would satisfy the benefit prong of

14   the Tennessee Coal test.   It is only by subtracting from

15   Gotham's benefit the costs of its attempted adherence to federal

16   law that the nurses' overtime ceases to benefit Gotham.     Hence,

17   Gotham finds itself in a situation that we suppose quite common
18   in the business world in which the revenues gained from overtime

19   fall short of the costs incurred.    Gotham's implication that

20   unprofitable labor is not work under the Act leads us to a

21   number of untenable conclusions; most pertinent here, an

22   employer would be permitted to avoid the Act whenever the

23   overtime provisions threaten success in achieving Congress' goal

24   of curtailing overtime by bringing its cost above its benefit to

25   the employer.



                                     11
 1       Gotham also insists that it lacks the degree of control

 2   over the nurses' unauthorized shifts contemplated in the

 3   definition of work.    We note, however, that Gotham is not

 4   permitted to supervise its nurses on hospital grounds at any

 5   time, including regular scheduled shifts, and possesses no less

 6   control over a nurse's activities during unauthorized shifts

 7   than at other times.    The only discernible difference suggested

 8   by Gotham relates to the decision -- reached by the hospital and

 9   nurse without Gotham's participation -- that unauthorized work

10   be performed.   Gotham's limited control over a nurse's decision

11   to work overtime does not change the nature of the exertion that

12   follows and thus does not bear on whether such exertion is work.

13   Such circumstances may be relevant to the separate question

14   whether Gotham suffered or permitted such work, the inquiry to

15   which we now turn.

16                   B.    The Suffer or Permit Standard

17       Gotham is liable for the nurses' compensation for the
18   overtime hours only if it employed the nurses during this time,

19   that is, if it suffered or permitted the nurses to work.      See 29

20   U.S.C. § 203(g).

21                          1.   Gotham's Knowledge

22       It is clear an employer's actual or imputed knowledge that

23   an employee is working is a necessary condition to finding the

24   employer suffers or permits that work.    See, e.g., Holzapfel,

25   145 F.3d at 524; Davis v. Food Lion, 792 F.2d 1274, 1276 (4th

26   Cir. 1986); Forrester v. Roth's I.G.A. Foodliner, Inc., 646 F.2d

                                       12
 1   413, 414 (9th Cir. 1981) (explaining that knowledge affords

 2   employer the opportunity to comply with the Act).

 3          Information that Gotham's nurses regularly worked overtime

 4   was communicated to Gotham each week on the nurses' time sheets.

 5   Gotham's insistence that it acquired its knowledge only after

 6   the fact misses the point.    We have never suggested that an

 7   employer's knowledge need arise concurrently with the

 8   performance of overtime, for good reason.     The Act's overtime

 9   provisions apply to work performed off premises, outside of the

10   employer's view and sometimes at odd hours, where an employer's

11   concurrent knowledge of an employee's labor is not the norm.

12   See 29 C.F.R. § 785.12.    It would appear impractical, for

13   example, to require a K-9 officer to report to his supervisor

14   before and after grooming his dog.    See Holzapfel, 145 F.3d at

15   524; see also Reich v. Dep't of Conservation & Natural Res., 28

16   F.3d 1076, 1079-80, 1084 (11th Cir. 1994) (requiring overtime be

17   paid to officers who worked in field and often at night with
18   infrequent contact with supervisors).     Moreover, a requirement

19   of concurrent knowledge would allow employers to escape their

20   obligations under the Act by purposefully eschewing knowledge as

21   to when such work was performed.

22          We regard Gotham's knowledge as sufficient to afford it the

23   opportunity to comply with the Act.     See Forrester, 646 F.2d at

24   414.    An employer who has knowledge that an employee is working,

25   and who does not desire the work be done, has a duty to make

26   every effort to prevent its performance.     Reich v. Stewart, 121

                                      13
 1   F.3d 400, 407 (8th Cir. 1997); Forrester, 646 F.2d at 414 ("An

 2   employer who is armed with this knowledge cannot stand idly by

 3   and allow an employee to perform overtime work without proper

 4   compensation . . . ."); Mumbower v. Callicott, 526 F.2d 1183,

 5   1188 (8th Cir. 1975) ("The employer who wishes no such work to

 6   be done has a duty to see it is not performed."); 29 C.F.R.

 7   § 785.13.    This duty arises even where the employer has not

 8   requested the overtime be performed or does not desire the

 9   employee to work, or where the employee fails to report his

10   overtime hours.    See Kosakow v. New Rochelle Radiology Assocs.,

11   274 F.3d 706, 718 (2d Cir. 2001); Holzapfel, 145 F.3d at 524; 29

12   C.F.R. §§ 785.11-.12.

13           2.    Gotham's Rule Against Unauthorized Overtime

14       Gotham endeavored to reduce unwanted overtime by

15   promulgating a rule requiring its employees to obtain prior

16   approval for any work that would result in overtime and

17   informing them that, absent such approval, they would be paid
18   straight-time wages for the ensuing overtime.    We do not agree

19   with the Secretary's interpretation of Gotham's rule as one that

20   disclaims liability for unauthorized overtime without barring

21   its performance outright.    A straightforward reading indicates

22   the rule serves as both a prohibition and a warning as to the

23   consequence of its violation.

24       Whether Gotham's pre-approval rule satisfied its legal

25   obligation to prevent unwanted overtime involves a question of

26   first impression in this Circuit, complicated by Gotham's

                                      14
 1   limited control over the nurses.     Our starting point is the

 2   Department of Labor (Department) regulation addressing such

 3   rules.

 4             In all such cases it is the duty of the
 5             management to exercise its control and see
 6             that the work is not performed if it does
 7             not want it to be performed. . . . The mere
 8             promulgation of a rule against such work is
 9             not enough. Management has the power to
10             enforce the rule and must make every effort
11             to do so.
12
13   29 C.F.R. § 785.13 (emphasis added); accord Reich v. Dep't of

14   Conservation, 28 F.3d at 1084; Wirtz v. Bledsoe, 365 F.2d 277,

15   278 (10th Cir. 1966) ("It has long been established that the

16   purpose of the [FLSA] cannot be frustrated by an employer's

17   instructions or even a contract not to work overtime.").

18   Although courts are responsible for final decisions concerning

19   interpretation of the Act, see 29 C.F.R. § 785.2; A.B.

20   Kirschbaum Co. v. Walling, 316 U.S. 517, 523 (1942), the

21   Department's explanations bearing on the meaning of "suffer or

22   permit" and "work" in §§ 785.11-.13 are entitled to our respect.
23   Cf. Kavanagh v. Grand Union Co., 192 F.3d 269, 272 (2d Cir.

24   1999).   The long-standing regulations in Part 785 reflect the

25   Department's expertise on interpretive questions that are

26   essential to the administration of the Act.     Cf. Barnhart v.

27   Walton, 535 U.S. 212, 222 (2002); Leary v. United States, 395

28   U.S. 6, 25 (1969).

29       In Reich v. Dep't of Conservation, the Eleventh Circuit

30   adopted the position laid out in 29 C.F.R. § 785.13 and held


                                     15
 1   liable an employer that, like Gotham, had limited concurrent

 2   control over its employees' work schedules.        28 F.3d at 1083-84.

 3   The case involved a state agency charged with enforcing game and

 4   fish laws, which employed enforcement officers posted throughout

 5   the state.     Id. at 1078.   The officers, whose job it was to

 6   answer citizen complaints around the clock, worked from home

 7   under minimal supervision.      Id. at 1078-79.    The state agency

 8   promulgated a rule forbidding officers to work more than 40

 9   hours per week, but had actual and constructive knowledge that

10   some officers continued to work overtime without reporting the

11   extra hours.     Id. at 1079-80.   The Eleventh Circuit concluded

12   the agency could not avoid overtime compensation simply by

13   adopting a policy against overtime and issuing periodic

14   warnings.    Id. at 1084.

15       Gotham's efforts to distinguish Reich v. Dep't of

16   Conservation do not convince us.        The staffing agency points out

17   that the majority of employees involved in the Eleventh
18   Circuit's case were unable to perform their duties within a 40

19   hour workweek, id. at 1081 & n.12, while Gotham nurses can

20   fulfill their obligations -- at least to Gotham -- without

21   incurring overtime.     Given this difference, Gotham urges us

22   instead to follow Lindow v. United States, 738 F.2d 1057, 1061-

23   62 & n.3 (9th Cir. 1984), where the Ninth Circuit held an

24   employer may insulate itself from overtime claims by notifying

25   its employees that overtime is not expected, so long as the



                                        16
 1   employees can complete their duties within regular hours and are

 2   under no pressure to perform overtime.

 3          In Lindow, employees of the Army Corps of Engineers were in

 4   the habit of arriving fifteen minutes early to exchange

 5   information with their colleagues working the earlier shift,

 6   review the log book, drink coffee, and socialize.     Id. at 1059,

 7   1061.    A portion of this time was classified by the court as

 8   working time.    Id. at 1059-61.   The Corps issued a letter

 9   informing its employees that they were not required to arrive

10   early, but some employees continued to do so.     Id. at 1060-61.

11   The Ninth Circuit held that the letter relieved the Corps of

12   liability for overtime compensation because the Corps did not

13   require or pressure the employees to work overtime and the work

14   could have been performed during regular hours.     Id. at 1061 &

15   n.3.

16          In the instant case, the district court found the

17   unauthorized shifts were controlled and required by the
18   hospitals and by the employees.     It is not obvious to us that

19   the nurses do not on occasion work overtime because they feel

20   unable to satisfactorily perform their duties to hospital

21   supervisors or patients within their scheduled hours.      It is

22   plain that Lindow's rationale does not extend to employees whose

23   jobs require them on occasion to work beyond regular hours,

24   whether the requirement is enforced by the employer or inherent

25   in the nature of the work.    See id.



                                        17
 1       Even setting aside this concern and assuming that the

 2   nurses elect to work overtime without any compulsion to do so,

 3   we decline to follow Lindow.    First, the Supreme Court has

 4   rejected the argument that an employer may avoid its obligations

 5   under the Act upon proof that its employees voluntarily engage

 6   in inadequately compensated work.      See Tony & Susan Alamo

 7   Found., 471 U.S. at 302 ("[T]he purposes of the Act require that

 8   it be applied even to those who would decline its

 9   protections."); Barrentine, 450 U.S. at 740.       More generally, as

10   the Eleventh Circuit recognized in Reich v. Dep't of

11   Conservation, "[t]he reason an employee continues to work beyond

12   his shift is immaterial; if the employer knows or has reason to

13   believe that the employee continues to work, the additional

14   hours must be counted."   28 F.3d at 1082 (citing 29 C.F.R.

15   § 785.11).   In other words, once it is established that an

16   employer has knowledge of a worker's overtime activities and

17   that those activities constitute work under the Act, liability
18   does not turn on whether the employee agreed to work overtime

19   voluntarily or under duress.

20       Second, Lindow's holding was premised on the finding that

21   the duties carried out during overtime could have been completed

22   within the regular workday.    738 F.2d at 1061.     We previously

23   explained that this fact alone does not excuse an employer from

24   the FLSA's overtime provisions.     Holzapfel, 145 F.3d at 522.      In

25   addition, the scenario presented to us differs from Lindow

26   inasmuch as the nurses who were asked to work overtime provided

                                       18
 1   services in addition to those performed during their regular

 2   hours and so by definition were unable to complete their work

 3   within those regular hours.   Application of the Act's overtime

 4   provisions in this case would put to Gotham and its client

 5   hospitals the choice to either pay a premium for overtime or

 6   engage other nurses to provide the additional services.      This

 7   choice -- which was not implicated in Lindow where the Corps

 8   presumably could have barred overtime without altering its

 9   demand for labor or budget -- plays an important role in the

10   FLSA's incentive structure to reduce overtime, spread employment

11   and compensate workers for the burden of long hours.   See

12   Missel, 316 U.S. at 577-78.

13       We are of course aware that the conditions prevailing in

14   the present market for nurses in the United States influence the

15   options open to Gotham and its client hospitals.   We have

16   identified nothing in these conditions to recommend carving an

17   exception to the Act's overtime provisions, however, and will
18   not ask nurses to shoulder the burden of the nation's nursing

19   shortage by denying them their rights under the Act.   On our

20   reading, the FLSA presumes that employers, not employees, are in

21   the best position to address the evils of overwork and underpay.

22   This presumption is no less true in the nursing profession than

23   in any other.   Finally, the Supreme Court instructs that

24   employees cannot waive the overtime protections granted them in

25   the FLSA without nullifying the Act's purposes and setting aside



                                     19
 1   the legislative goals it wanted effectuated.     Barrentine, 450

 2   U.S. at 740.

 3               3.   Gotham's Duty to Prevent Unwanted Overtime

 4       In an ordinary employer-employee relationship, management

 5   is believed to have ready access to a panoply of practical

 6   measures to induce compliance with its formal rule against

 7   overtime.    In such cases, a presumption arises that an employer

 8   who is armed with knowledge has the power to prevent work it

 9   does not wish performed.     Where this presumption holds, an

10   employer who knows of an employee's work may be held to suffer

11   or permit that work.     We suppose that this presumption explains

12   why several cases and Department regulations seem to treat an

13   employer's knowledge as not only necessary, but also sufficient,

14   to establish its liability under the Act.     See, e.g., 29 C.F.R.

15   §§ 785.11-.12; Holzapfel, 145 F.3d at 524; Doe v. United States,

16   372 F.3d 1347, 1360-61 (Fed. Cir. 2004) (collecting cases).

17       Gotham seeks to rebut this presumption on the basis that
18   its power to control the nurses is severely constrained by the

19   nature of its business and the labor market in which it deals.

20   Gotham portrays its role as nothing more than an employment

21   agency matching the requirements of hospitals with the

22   qualifications of nurses and maintains that it has no ability to

23   control nurses who violate its rule.

24       We recognize that Gotham does not have at its disposal all

25   the instruments of control available to ordinary employers.

26   That said, the law does not require Gotham to follow any

                                        20
 1   particular course to forestall unwanted work, but instead to

 2   adopt all possible measures to achieve the desired result.     See

 3   28 C.F.R. § 785.13.   Gotham has not persuaded us that it made

 4   every effort to prevent the nurses' unauthorized overtime:     for

 5   example, it did not explain why it could not keep a daily,

 6   unverified tally of its nurses' hours and reassign shifts later

 7   in the week that would result in overtime; or refuse to assign

 8   any shifts to nurses who habitually disregard Gotham's overtime

 9   rule.   Notably, Gotham admitted at trial that a nurse who

10   disregards its pre-approval rule faces no adverse consequences

11   beyond straight-time wages for the ensuing overtime, while one

12   who disregards Gotham's other policies is subject to contractual

13   penalties.   If Gotham were serious about preventing unauthorized

14   overtime, it could discipline nurses who violate the rule.     It

15   could also entirely disavow overtime hours, announcing a policy

16   that it does not, under any circumstances, employ a nurse for

17   more than 40 hours in a week.   Any hours over the limit would
18   not be billed to the hospital and would not result in any

19   compensation for the nurse (as opposed to the current policy of

20   regular pay).   Alternatively, Gotham could simply contract in

21   advance with the hospitals to charge a higher fee when nurses

22   are working overtime, thus shifting the decision to those best

23   placed to judge when overtime is cost-effective and avoiding the

24   need for an anti-overtime policy to begin with.

25       We confess we are skeptical whether an employer with full

26   knowledge respecting the activities of its employees ever lacks

                                     21
 1   power, at the end of the day, to require those it retains to

 2   comply with company rules that implicate federal law.      Gotham in

 3   any event has not overcome the presumption here that it

 4   possessed such power.     It follows that Gotham suffered or

 5   permitted the nurses' overtime and, by failing to compensate

 6   them in accordance with 29 U.S.C. § 207(a), violated the Act and

 7   the 1994 consent judgment.

 8             III   Denial of Petition for Contempt Affirmed

 9         We turn now to whether that violation subjects Gotham to

10   being held in contempt.     A federal court has the authority to

11   punish contempt of a consent decree.     United States v. Int'l

12   Bhd. of Teamsters, 899 F.2d 143, 146 (2d Cir. 1990).     However,

13   the judicial power of contempt is circumscribed and "[t]he

14   failure to meet the strict requirements of an order does not

15   necessarily subject a party to a holding of contempt."      Dunn, 47

16   F.3d at 490.    A party may be held in civil contempt only where a

17   plaintiff establishes (1) the decree was clear and unambiguous,
18   and (2) the proof of non-compliance is clear and convincing.

19   Id.   Although the defendant's conduct need not be willful, a

20   plaintiff must also prove that (3) the defendant has not been

21   reasonably diligent and energetic in attempting to comply.        City

22   of New York v. Local 28, Sheet Metal Workers' Int'l Ass'n, 170

23   F.3d 279, 283 (2d Cir. 1999); Dunn, 47 F.3d at 490; see also

24   Levin v. Tiber Holding Corp., 277 F.3d 243, 250 (2d Cir. 2002)

25   (noting plaintiff's burden of proof).     While we disagreed with

26   the district court's determination that the unauthorized work

                                       22
 1   was not compensable as overtime, we now affirm its alternative

 2   holding that the Secretary did not carry her burden to prove

 3   contempt.

 4    A.   The Decree Was Ambiguous with Respect to Gotham's Conduct

 5         The Supreme Court has cautioned that contempt is a powerful

 6   weapon under any circumstance and, when founded on a decree that

 7   the defendant could not comprehend, it can be a ruinous one.

 8   Int'l Longshoremen's Ass'n v. Phil. Marine Trade Ass'n, 389 U.S.

 9   64, 76 (1967).   To ensure fair notice to the defendant, the

10   decree underlying contempt must be sufficiently clear to allow

11   the party to whom it is addressed to ascertain precisely what it

12   can and cannot do.   King v. Allied Vision Ltd., 65 F.3d 1051,

13   1058 (2d Cir. 1995); N.Y. State Nat'l Org. for Women v. Terry,

14   886 F.2d 1339, 1351-52 (2d Cir. 1989); see also Fed. R. Civ. P.

15   65(d) (requiring injunctive orders to be "specific in terms" and

16   "describe in reasonable detail . . . the act or acts sought to

17   be restrained"); Phil. Marine, 389 U.S. at 74-76 (reversing
18   contempt based on injunctive decree that did not satisfy the

19   specificity and clarity requirements set forth in Rule 65);

20   Int'l Bhd. of Teamsters, 899 F.2d at 146.

21         We agree with the Secretary that the incorporation into the

22   consent judgment of certain provisions of the FLSA does not, by

23   itself, render the decree ambiguous.   McComb v. Jacksonville

24   Paper Co., 336 U.S. 187, 191-92 (1949).     The proper measure of

25   clarity, however, is not whether the decree is clear in some

26   general sense, but whether it unambiguously proscribes the

                                     23
 1   challenged conduct.   Perez v. Dansbury Hosp., 347 F.3d 419, 424

 2   (2d Cir. 2003).   If, as we believe to be the case here, the law

 3   relied on by the party seeking contempt is ambiguous in its

 4   application to the challenged conduct, contempt will not lie.

 5   See, e.g., Rajah Auto Supply Co. v. Grossman, 207 F. 84 (2d Cir.

 6   1913) (per curiam) (affirming denial of contempt motion where

 7   plaintiff's case was too doubtful on the facts and the law to

 8   warrant contempt); United States ex rel. IRS v. Norton, 717 F.2d

 9   767, 774 (3d Cir. 1983) ("[A]ny ambiguity in the law should be

10   resolved in favor of the party charged with contempt."); Project

11   B.A.S.I.C. v. Kemp, 947 F.2d 11, 16 (1st Cir. 1991) (stating

12   prudential rule that ambiguities in court orders should be read

13   in light favorable to party charged with contempt); cf. Vertex

14   Distrib. v. Falcon Foam Plastics, Inc., 689 F.2d 885, 889 (9th

15   Cir. 1982) (explaining that party should not be held in contempt

16   if his actions appear based on a good faith and reasonable

17   interpretation of the order).
18       It should be apparent that the novel question addressed

19   above, whether employees must be paid overtime wages for work

20   that their employer has prohibited and does not desire, was not

21   the subject of an obvious answer.    On the contrary, when the

22   Secretary brought its petition for contempt to the district

23   court, there was a substantial question as to the legality of

24   Gotham's overtime arrangement and "fair ground of doubt as to

25   the wrongfulness of the defendant's conduct."    Cal. Artificial



                                     24
 1   Stone Paving Co. v. Molitor, 113 U.S. 609, 618 (1885); King, 65

 2   F.3d at 1058.

 3       From another angle, it seems unreasonable that Gotham be

 4   required, on pain of contempt, to arrive at a correct answer to

 5   such a difficult question of first impression.   See Radio Corp.

 6   of Am. v. Cable Radio Tube Corp., 66 F.2d 778, 782-83 (2d Cir.

 7   1933) (noting potential unfairness to defendant where contempt

 8   proceedings used to resolve substantial dispute); United States

 9   v. Acetturo, 842 F.2d 1408, 1416 n.4 (3d Cir. 1988) (suggesting

10   trial court consider relief from contempt in circumstances of

11   case of first impression).   But cf. Apple Computer, Inc. v.

12   Formula Int'l, Inc., 594 F. Supp. 617, 623 (C.D. Cal. 1984)

13   (issuing contempt order despite novel nature of underlying legal

14   issue after finding defendant's alleged interpretation was a

15   "mere pretext" to avoid an injunction).

16      B.   Gotham Was Reasonably Diligent in Attempting to Comply

17       Additionally, Gotham's efforts to comply with the consent
18   judgment were adequate to warrant relief from contempt.   We have

19   noted already that the staffing agency's legal obligations were

20   difficult to discern and its managerial role vis-à-vis the

21   nurses made compliance more challenging than would be the case

22   in an ordinary employment context.   See Dunn, 47 F.3d at 490

23   (affirming trial court's denial of petition for contempt where

24   situation faced by defendant was complex and largely outside its

25   control).   Against that backdrop, Gotham sought the advice of

26   counsel before adopting its overtime policy; it made its nurses

                                     25
 1   aware of the rule; it discouraged its nurses from accepting

 2   overtime shifts without seeking prior approval and discouraged

 3   its clients from offering those shifts; and, when its

 4   instructions were disregarded, it negotiated with the hospitals

 5   to procure an overtime premium retrospectively.   While these

 6   steps did not exhaust all means available to Gotham to ensure

 7   that overtime was not performed (and thus were inadequate to

 8   satisfy the strict standards for compliance with the Act), they

 9   are evidence of Gotham's diligent and energetic efforts to

10   comply in a reasonable manner with the 1994 consent judgment.

11       Consequently, we conclude the district court acted within

12   its discretion in declining to impose contempt under a decree

13   that did not, at the relevant time, unambiguously proscribe

14   Gotham's actions and, one, moreover, with which the employer

15   attempted to comply in a reasonable manner.

16                              CONCLUSION

17       For these reasons, the judgment of the district court
18   denying the Secretary's petition for civil contempt is affirmed.

19

20

21

22

23

24

25

26

                                    26
 1   DENNIS JACOBS, Chief Judge, concurring in part and

 2   concurring in the judgment:

 3

 4       The district court entered a consent decree requiring

 5   Gotham Registry, a staffing agency for healthcare

 6   professionals, to comply with the overtime requirements of

 7   the Fair Labor Standards Act (“FLSA”) for nurses it

 8   “employ[s].”   The only question presented on this appeal is

 9   whether we should affirm the ruling by the district court,

10   which is presumed to know its own injunction, that Gotham is

11   not in contempt.   See JTH Tax, Inc. v. H & R Block Eastern

12   Tax Svcs., Inc., 359 F.3d 699, 705 (4th Cir. 2004).

13       The majority agrees that Gotham is not in contempt.     I

14   concur in that result, because it is obvious to me that

15   Gotham was not in violation of the FLSA when it refused to

16   pay overtime to employees whom it forbid to work overtime,

17   and (when they violated their employer’s instructions) were

18   not acting as employees under the relevant Tennessee Coal

19   test.   I cannot sign the majority opinion because it holds

20   that Gotham’s practice violates the FLSA--though Gotham

21   could not be expected to know this until so advised by the

22   majority’s ambitious, consequential and dubious rulings.

23       The correct test for whether Gotham must pay overtime

24   is set out in Tennessee Coal:        whether the work was

                                     27
 1   “controlled or required by the employer and pursued

 2   necessarily and primarily for the benefit of the employer

 3   and his business.”    Tenn. Coal, Iron & RR. Co. v. Muscoda

 4   Local No. 123, 321 U.S. 590, 598 (1944).     The majority

 5   recites the test, duly records the district court’s findings

 6   as to each prong, and concedes that “we detect no clear

 7   error in these factual findings . . . .”     Maj. Op. at 9,

 8   supra.    It would seem that if this Court were going to

 9   transcend the question presented and gratuitously answer an

10   underlying question (Were the nurses acting as employees

11   when they did what the employer forbid?), it might content

12   itself with the formulation of the Supreme Court and

13   findings of an experienced district judge.     The

14   justification offered by the majority opinion is that

15   “application of the Tennessee Coal test to the facts of this

16   case is something of a red herring.”    Maj. Op. at 10, supra.

17   I do not find this ichthyological approach useful.

18       Tennessee Coal prescribes a two-part definition of

19   “work” under the FLSA:    an employee’s efforts (1) must be

20   “controlled or required by the employer” and (2) “pursued

21   necessarily and primarily for the benefit of the employer

22   and his business.”    Tenn. Coal, 321 U.S. at 598 (emphasis

23   added).



                                    28
 1       As to control:    the district court found that Gotham

 2   lacked control over the nurses’ performance of unscheduled

 3   shifts, that nurses and hospitals decide whether overtime

 4   will be performed based on their own interests, and that

 5   Gotham does not desire the performance of overtime.     Q.E.D.

 6   Though conceding that a nurse’s decision to work overtime is

 7   “unauthorized work” that is “reached by the hospital and

 8   nurse without Gotham’s participation,” Maj. Op. at 12,

 9   supra, the majority argues that such “limited control [sic]

10   . . . does not change the nature of the exertion that

11   follows and thus does not bear on whether such exertion is

12   work.”   Id.   This is an extreme simplification–-and useless,

13   because the necessary analytical tools are readily available

14   in Tennessee Coal and in Labor Department regulations.

15       The applicable regulation requires that an employer

16   “exercise its control and see that the work is not performed

17   if it does not want it to be performed”:    “[t]he mere

18   promulgation of a rule against such work is not enough.”     29

19   C.F.R. § 785.13.    To this we owe Chevron deference.

20   Gotham’s preauthorization rule bars the performance of

21   unauthorized overtime and refuses compensation at overtime

22   rates for such unauthorized hours.    Of course a rule is

23   insufficient unless it is applied and enforced.    But Gotham

24   has enforced this rule conscientiously, as the findings of

                                    29
 1   the district court confirm:   75 percent of preauthorization

 2   requests are turned down, and unauthorized overtime shifts

 3   are reimbursed at the overtime rate only on the rare

 4   occasions (about ten percent of the time) when Gotham

 5   persuades the hospital to agree retroactively to an overtime

 6   rate.   Gotham should not be pressed to more oppressive

 7   measures.   Suspension would be ineffective because the

 8   nurses are professionals in great demand who can (and often

 9   do) work for multiple staffing agencies:   there are at least

10   25 in competition with Gotham in the New York area alone.

11   Gotham should not be required to rely on undercover agents

12   to obtain advance knowledge of an unauthorized overtime

13   shift, or on enforcers to drag nurses from the bedside of

14   the sick.   See Davis v. Food Lion, 792 F.2d 1274, 1277 (4th

15   Cir. 1986) (holding that if required work could be performed

16   within 40 hours, and if the employer enforced its 40-hour

17   rule, employer lacked actual or constructive knowledge of

18   the overtime work).   The nurses’ overtime efforts are

19   therefore neither controlled nor required by Gotham.

20       As to the second Tennessee Coal consideration--whether

21   the activity is “pursued necessarily and primarily” for the

22   employer’s benefit--the Secretary has demonstrated no error

23   in the trial court’s finding that the additional shifts do

24   not necessarily benefit Gotham.    The district court found

                                   30
 1   that the documented administrative costs alone would wipe

 2   out any remaining profit if Gotham were to pay an overtime

 3   rate on shifts reimbursed at a straight-time rate.     This

 4   finding is amply supported by the record:     Gotham’s CEO

 5   testified that unauthorized overtime triggers additional

 6   costs such as time spent tracking, confirming, and

 7   negotiating rates for overtime hours with hospitals.     No

 8   wonder Gotham forbids overtime.     It cannot be said that such

 9   shifts are “pursued necessarily and primarily” for Gotham’s

10   benefit.

11       Under Tennessee Coal, the shifts in question were not

12   performed in Gotham’s “employ” within the meaning of the

13   FLSA, and Gotham therefore did not violate the consent

14   decree.    In lieu of undertaking the prescribed analysis

15   under Tennessee Coal, the majority announces the tautology

16   that “[w]ork is work, after all.”    Maj. Op. at 9, supra.

17       The majority complains that “Gotham has not persuaded

18   us that it made every effort to prevent the nurses’

19   unauthorized overtime,” Maj. Op. at 21, supra (emphasis

20   added), and goes on to speculate as to how Gotham might

21   (within the law) effectively stop it.    For example, the

22   majority cites Gotham’s supposed failure to explain (though

23   never asked) “why it could not keep a daily, unverified

24   tally of its nurses’ hours and reassign shifts later in the

                                    31
 1   week that would result in overtime.”      Maj. Op. at 20, supra.

 2   I do not understand this formulation and I would be

 3   surprised if Gotham or the nurses did.         Moreover, the

 4   majority ignores the fact that nurses often work for more

 5   than one agency.   The majority also taxes Gotham for its

 6   supposed failure to explain why it does not “refuse to

 7   assign any shifts to nurses who habitually disregard

 8   Gotham’s overtime rule.”   Maj. Op. at 20, supra.        In other

 9   words, Gotham could fire them.      Perhaps:     maybe an employer

10   can discipline an employee for habitually staying in the

11   operating room or on a ward.     I say “maybe” because I don’t

12   know, and the reason I don’t know is because this argument

13   has not been made to us and has not been briefed by the

14   parties and input has not been solicited from the members of

15   the nursing profession who have the largest stake in this

16   question.   I am compelled to add that the majority does not

17   know either, for the same reasons.

18       The majority next posits that “Gotham could simply

19   contract in advance with the hospitals to charge a higher

20   fee when nurses are working overtime.”         Maj. Op. at 21,

21   supra.   That of course begs the (not “simple”) question of

22   what happens when a nurse working for Gotham works at more

23   than one hospital or when a nurse works at one or more

24   hospitals for multiple agencies.

                                    32
 1          Finally, the majority opinion says that an agency can

 2   “entirely disavow overtime hours, announcing a policy that

 3   it does not, under any circumstances, employ a nurse for

 4   more than 40 hours in a week.”        Maj. Op. at 21, supra.   Thus

 5   the majority holds that an employer can enforce its overtime

 6   restriction by paying the employee nothing at all for such

 7   hours.     That may be.   And this certainly will solve Gotham’s

 8   problem and ensure that a staffing agency can comply with

 9   the labor laws (at least those applicable in the Second

10   Circuit) and avoid contempt.      But this holding may come as a

11   surprise to the Secretary of Labor.        And it runs counter to

12   the position of every party; as the majority concedes, “no

13   party disputes that the performance of overtime entitled the

14   nurses to compensation at the regular rate of pay at least.”

15   Maj. Op. at 10, supra.      My strong view is that this

16   appellate panel should affirm the denial of contempt without

17   reaching and deciding large underlying questions of labor

18   law.     Maybe a staffing agency can and should pay nurses zero

19   dollars per overtime hour worked.        But though as a panel-

20   member I am drawn into a critique of the majority’s

21   unnecessary analysis, I would not decide that question on

22   this appeal because we lack the benefit of input from the

23   parties (and amici) and we lack findings by a district judge

24   made on the basis of a developed record.

                                      33
 1       The majority opinion affirms the denial of the contempt

 2   motion, on the ground of the “then unsettled law” prevailing

 3   when Judge Stanton made his ruling.        Maj. Op. at 6, supra.

 4   I agree that the law was then unsettled (though I think it

 5   is little good we have now done in that department).        It is

 6   obvious that the agency system in which Gotham and many

 7   nurses operate is a preferred market mechanism of a

 8   profession whose services are much in demand.        The majority

 9   has upended the way in which many nurses elect to make a

10   living.   Nurses evidently have the bargaining power to sell

11   their services to individual hospitals without becoming

12   employees, without joining unions, and without submitting

13   themselves to the work schedules of wage slaves.        In short,

14   nurses use agencies to create for themselves the freedom and

15   profit opportunities available to other professionals whose

16   services are in great demand.        The majority opinion

17   unsettles these market arrangements.




                                     34
