Employees of the County of San Diego sued the County of San Diego ("County"), claiming it failed to pay overtime compensation in accordance with the Fair Labor Standards Act ("FLSA"). 29 U.S.C. Secs. 201-219. The district court issued three orders granting partial summary judgment for plaintiffs. See Service Employees Int'l Union, Local 102 v. County of San Diego, 784 F. Supp. 1503 (S.D.Cal.1992). The court held that plaintiffs were not exempt from FLSA coverage and that, as a matter of law, plaintiffs were entitled to overtime compensation for on-site back-up duty. The County appeals, arguing the FLSA exemption should have precluded liability and that the employees' on-site stand-by time was not "work" as a matter of law.

We hold that the version of the "salary test" in existence prior to September 6, 1991 was invalid in its entirety as applied to the public sector. Thus, we reverse and remand to the district court for further proceedings consistent with this opinion.

* County assistant deputy probation officers ("ADPOs"), nurses, and park rangers filed this suit against the County, claiming the County violated the FLSA by failing to pay them overtime for "on-site back-up duty," or "stand-by," time. The County defended by claiming plaintiffs were exempt from FLSA coverage.

The district court issued three orders granting partial summary judgment. On April 23, 1991, the court granted partial summary judgment for plaintiffs on their claim that ADPOs were eligible for overtime during their on-site back-up time. On February 11, 1992, the district court granted partial summary judgment concluding: 1) the three year statute of limitations applied because the County's violations were wilful; 2) the employees were entitled to liquidated damages; and 3) the County improperly exempted the ADPOs as salaried employees. On August 5, 1992, the court granted partial summary judgment, concluding: 1) liquidated damages and the three year statute of limitations should also apply to the nurses and park rangers; and 2) the court's holding in the April 1991 order should apply to nurses and park rangers.

The piecemeal nature in which this case was decided creates a jurisdictional question: whether the district court decision is final for purposes of 28 U.S.C. Sec. 1291. "Under the final judgment rule embodied in 28 U.S.C. Sec. 1291, parties may appeal only the final decisions of the district courts. A final judgment ... is a decision by the District Court that ends the litigation on the merits and leaves nothing for the court to do but execute the judgment." Dannenberg v. Software Toolworks Inc., 16 F.3d 1073, 1074 (9th Cir.1994) (quotation omitted). Partial summary judgment is not an inherently final order, id.; Cheng v. Commissioner, 878 F.2d 306, 309 (9th Cir.1989), and the orders in the instant case are not final because the district court has not yet calculated damages.

The Supreme Court has held that the requirement of finality is to be given a practical construction. Gillespie v. United States Steel Corp., 379 U.S. 148, 152-53, 85 S. Ct. 308, 311-12, 13 L. Ed. 2d 199 (1964). In In re Subpoena Served on the California Public Utilities Commission, 813 F.2d 1473, 1479-80 (9th Cir.1987), however, we observed that the "exercise of appellate jurisdiction in Gillespie was based upon the unique circumstances of the case" and noted that the decision should be applied "only sparingly." To satisfy the practical finality rule, the following factors must be satisfied:

(1) the [decision appealed] was a "marginally final order," (2) [which] "disposed of an unsettled issue of national significance," (3) review "implemented the same policy Congress sought to promote in Sec. 1292(b)," and (4) the finality issue was not presented to the [appellate court] until argument on the merits, thereby ensuring that policies of judicial economy would not be served by remanding the case with an important unresolved issue.

Id. at 1480 (quoting Coopers & Lybrand v. Livesay, 437 U.S. 463, 477 n. 30, 98 S. Ct. 2454, 2462 n. 30, 57 L. Ed. 2d 351 (1978)); accord Wabol v. Villacrusis, 958 F.2d 1450, 1454 (9th Cir.1990), cert. denied, --- U.S. ----, 113 S. Ct. 675, 121 L. Ed. 2d 598 (1992).

The challenged orders are "marginally final" because the calculation of damages "will not affect the potentially dispositive and obviously central issue" in this case: whether the County employees were exempt from the FLSA. See Wabol, 958 F.2d at 1454. Moreover, deciding the merits will dispose of an unsettled issue of national significance. See id. at 1455. "Though the remaining [damages calculation] could eventually ascend to this court, this alone should not prevent our adjudication of important and potentially dispositive questions which have been fully briefed and argued." Id. Remanding would not promote judicial economy and would "therefore frustrate the very purpose of the final judgment rule." Id. Consequently, we have jurisdiction to consider this appeal.

Under the FLSA, employees must ordinarily be paid overtime compensation if they work more than forty hours in one week. 29 U.S.C. Sec. 207(a)(1). However, the FLSA exempts from its overtime rule "any employee employed in a bona fide executive, administrative, or professional capacity." 29 U.S.C. Sec. 213(a)(1). The County claims the employees who filed this case fall under this exemption.

"To fit within the overtime-exempt category for administrative or executive employees, an employee must meet both parts of a two-part test. The first part is a 'duties test.' The second part is a 'salary test.' " Barner v. City of Novato, 17 F.3d 1256, 1259-60 (9th Cir.1994) (citations omitted). At issue in the instant case is the salary test promulgated by the Department of Labor ("DOL") in 1954. In essence, such a test provides that, to qualify as an executive, administrator, or professional subject to the exemption, an employee must be compensated on a genuine salary basis. See 29 C.F.R. Sec. 541.118(a). Failure to satisfy the salary test alone ordinarily will result in the loss of the exemption. See Abshire v. County of Kern, 908 F.2d 483, 484-85 (9th Cir.1990), cert. denied, 498 U.S. 1068, 111 S. Ct. 785, 112 L. Ed. 2d 848 (1991). The district court concluded that the County did not satisfy the salary test and therefore could not claim the executive or administrative exemption.

"An employee is compensated on a salary basis only if his compensation is not subject to reduction based on the 'quality or quantity of the work performed.' "1 Hurley v. Oregon, 27 F.3d 392, 394 (9th Cir.1994); see 29 C.F.R. Sec. 541.118(a). Exemptions to the FLSA are to be narrowly construed, and the employer bears the burden of proof to show "the employees fit 'plainly and unmistakenly within [the exemption's] terms.' " Abshire, 908 F.2d at 485-86.

The County argues for the first time on appeal that the history of the salary test indicates that the version of that test in existence prior to its revision in 1991 and 1992 by the Department of Labor should not apply to public employees, a claim that has not yet been addressed by this circuit. We generally will not consider an argument for the first time on appeal, except if "the issue on appeal is purely one of law that is both central to the case and important to the public." Yuckert v. Heckler, 774 F.2d 1365, 1367 (9th Cir.1985), rev'd on other grounds, 482 U.S. 137, 107 S. Ct. 2287, 96 L. Ed. 2d 119 (1987). The D.C. Circuit refused to consider a similar issue for the first time on appeal in Kinney v. District of Columbia, 994 F.2d 6, 9-10 (D.C.Cir.1993). However, because "consideration of the issue will not require the parties to develop new facts" and the validity of the regulation "presents a significant question of general impact," we will consider the argument. See Yuckert, 774 F.2d at 1367.

The County contends that the regulation adopting the relevant "salary test" is invalid because it is contrary to the FLSA and congressional intent. The Administrative Procedure Act ("APA") reflects the familiar principle that courts reviewing agency action will "hold unlawful and set aside agency action, findings, and conclusions found to be ... arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." 5 U.S.C. Sec. 706(2)(A). In Chevron U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837, 842-43, 104 S. Ct. 2778, 2781, 81 L. Ed. 2d 694 (1984), the Supreme Court further defined this test. It stated that if Congress has directly spoken to a precise question and the intent of Congress is clear, "the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress." Id. If the "statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency's answer is based on a permissible construction of the statute." Id. at 843, 104 S.Ct. at 2781. Thus, we must first determine whether Congress directly addressed whether the salary test should apply to the public sector.

The DOL enacted the regulation that formulated the salary test twenty years before Congress amended the FLSA to apply to public employers. In 1974, Congress extended the FLSA's coverage to all public sector employees. Fair Labor Standards Amendments of 1974, Pub.L. No. 93-259, Sec. 6, 88 Stat. 55, 59-63. Two years later, the Supreme Court held that the FLSA could not be applied to state and local government employees. National League of Cities v. Usery, 426 U.S. 833, 96 S. Ct. 2465, 49 L. Ed. 2d 245 (1976). The Supreme Court overruled this holding in 1985. Garcia v. San Antonio Metro. Transit Auth., 469 U.S. 528, 105 S. Ct. 1005, 83 L. Ed. 2d 1016 (1985). Congress then amended the FLSA in an effort to accommodate "the particular needs and circumstances of the States and their political subdivisions," S.Rep. No. 159, 99th Cong., 7 (1985), reprinted in 1985 U.S.C.C.A.N. 651, 655, but did not specifically address whether the salary test should apply to the public sector, see Fair Labor Standards Amendments of 1985, Pub.L. No. 99-150, 99 Stat. 787.

The legislative history of the 1974 amendments indicates that Congress intended the executive and administrative exception to apply to the public sector. It stated that "the bill extends minimum wage and overtime coverage to about 5 million non-supervisory employees in the public sector." H.R.Rep. No. 913, 93d Cong., 2d Sess. (1974), reprinted in 1974 U.S.C.C.A.N. 2811, 2837 (emphasis added) [hereinafter House Report]. The 1974 amendment did not otherwise define "non-supervisory employees," so we assume Congress must have been referring to those not exempt under the executive and administrative exception. When Congress again amended the FLSA in 1985, it did not make reference to the executive and administrative exception. It therefore must have intended the executive and administrative exception to continue to apply to the public sector. Congress, however, was silent as to whether the 1954 salary test should apply to the public sector, so we must determine "whether the agency's answer is based on a permissible construction of the [FLSA]." Chevron, 467 U.S. at 843, 104 S. Ct. at 2781.

Unfortunately, the agency's "answer" has been entirely unclear. In 1987 the DOL realized that its 1954 salary test conflicted with state and local statutory provisions prohibiting employees from being paid for time not actually worked, so it announced it would not enforce the salary test with respect to public employers, pending revision of its regulations. See 57 Fed.Reg. 37,668 (1992). However, the DOL did not bar employees' claims against public employers. See id. ("This nonenforcement policy is not intended to affect any employee's rights under section 16(b) of FLSA."). As a result, the issue continued to be debated in the courts. On September 6, 1991, the DOL passed an interim final regulation, suspending application of the salary test to public sector employees "paid according to a pay system that requires the use of paid leave and, absent the use of paid leave, reduces the employee's pay for absences of less than one work-day." 56 Fed.Reg. 45,824 (1991). This permitted local governments to continue to use pay systems based on public accountability "without incurring liability for overtime pay under FLSA." 57 Fed.Reg. 37,670 (1992). On August 19, 1992, the DOL published its final regulation which states:

An employee of a public agency who otherwise meets the requirements of Sec. 541.118 shall not be disqualified from exemption under Secs. 541.1, 541.2, or 541.3 on the basis that such employee is paid according to a pay system established by statute, ordinance, or regulation, or by a policy or practice established pursuant to principles of public accountability....

Id. at 37,677 (codified at 29 C.F.R. Sec. 541.5d (1993)). It issued the final regulation because "certain aspects of the 'salary basis' test for distinguishing exempt from nonexempt employees did not serve their intended purpose when applied to the public sector." Id. at 37,670.

At the time the County allegedly incurred liability, the DOL had not yet issued the 1991 regulation amending application of the salary test to the public sector. It had merely adopted its non-enforcement policy. Appellant argues the salary test, as it existed prior to September 6, 1991, is invalid as applied to the public sector because it was not reasonably related to the underlying purpose of the statute. See American Paper Inst., Inc. v. American Elec. Power Serv. Corp., 461 U.S. 402, 423, 103 S. Ct. 1921, 1933, 76 L. Ed. 2d 22 (1983) (to determine whether an agency complied with the APA, courts "need only conclude that [a regulation] is a reasonable interpretation of the relevant [statutory] provisions"); Mourning v. Family Publications Serv., 411 U.S. 356, 369, 93 S. Ct. 1652, 1660, 36 L. Ed. 2d 318 (1973). This argument has merit.

By making the FLSA applicable to the public sector, Congress intended the public sector to pay its employees overtime, but it also intended the executive and administrative exception to apply to the public sector. See House Report, supra. However, because virtually all public employers are constrained by pay systems based on public accountability,2 public employees could not satisfy the salary test as it existed prior to September 6, 1991.3 And because public employees failed to satisfy the salary test, none could qualify for the executive and administrative exemption. The significance of this is that the test deprived public entities of the white collar exemption created by Congress. Thus, the 1954 salary test clearly conflicted with congressional intent that public sector employers be able to claim the administrative and executive exception.4

The DOL's August 1992 regulation is evidence that the pre-1991-92 salary test is not reasonably related to the executive and administrative exemption, as applied to the public sector. In enacting the 1992 regulation, the DOL stated:

[I]t is clear from a plain reading of FLSA's legislative history in 1974 ... that Congress intended for the section 13(a)(1) exemption to be available for public sector employees. Congress presumably was unaware that, because many public sector compensation systems preclude payment for hours not worked, these systems would, solely for that reason, be found to fail to meet the regulatory "salary basis" component of the exemption. In light of public accountability principles prevalent in public sector pay systems, the regulatory requirements adopted before Congress extended the FLSA coverage to State and local governments simply could not operate in a manner that effectively distinguished exempt from non-exempt public employees. The regulations were thus out of harmony with the intent of the statute because State and local governments could not practically avail themselves of the exemption intended by Congress, and thus were inappropriate as applied in the public sector.

57 Fed.Reg. 37,672 (1992). The 1992 regulation properly amends the salary test as applied to the public sector, so that the salary test now takes into account long-standing and reasonable state and local ordinances predicated on public accountability.

The D.C. Circuit has suggested the DOL's "statements cannot be taken to mean ... that DOL declared its own regulation contrary to the statute and invalid ab initio." Kinney, 994 F.2d at 10. We disagree. The DOL initially intended the 1992 amendment to the salary test to apply retroactively, see 57 Fed.Reg. 37,678, but the DOL withdrew the regulation because it concluded that such a change would have constituted invalid retroactive rulemaking under Bowen v. Georgetown University Hospital, 488 U.S. 204, 208, 109 S. Ct. 468, 471, 102 L. Ed. 2d 493 (1988).5 We believe the DOL's interest in applying the new salary test retroactively is indicative of its firm conviction that its earlier iteration of the salary test conflicted with congressional intent. We share this conviction.

We therefore conclude that the salary test, 29 C.F.R. Sec. 541.118(a), as it existed before the DOL suspended its application to public employers on September 6, 1991, was invalid in its entirety as it applied to the public sector. No part of that test remains valid in this context. It is not possible to salvage parts of it given its basic infirmity. Thus, through September 6, 1991, for public sector employees to qualify for the executive and administrative exception to the FLSA, they need only have satisfied the duties test.

Appellees argue that our decision to invalidate a portion of the salary test as applied to public employers is inconsistent with Abshire v. County of Kern, 908 F.2d 483 (9th Cir.1990) cert. denied, 498 U.S. 1068, 111 S. Ct. 785, 112 L. Ed. 2d 848 (1991), "and innumerable other federal court decisions applying the test in the public sector." Abshire and the other cases to which appellees refer dealt with various questions relating to the proper interpretation of the salary test regulation. See Barner v. City of Navato, 17 F.3d 1256 (9th Cir.1994); Hurley v. Oregon, 27 F.3d 392 (9th Cir.1994). None of these cases considered or decided the validity of the regulation as applied to the public sector. They do not conflict in any way with our conclusion that application of a portion of the regulation to the public sector is contrary to the statute and therefore invalid.

We remand to the district court to determine whether plaintiffs were exempt from the FLSA under the duties test.

Also at issue in this case is whether assistant deputy probation officers, nurses, and park rangers are entitled to overtime pay for standby time. The County says they are not. The district court disagreed with the County and granted summary judgment on this issue to the employees.

Resolution of these issues depends in turn on whether the employees were "engaged to wait," or whether they were "waiting to be engaged." Skidmore v. Swift & Co., 323 U.S. 134, 137, 65 S. Ct. 161, 163, 89 L. Ed. 124 (1944). In this respect, employees are "engaged to wait," or working, only if standby and night duty are "primarily for the benefit" of the County. Armour & Co. v. Wantock, 323 U.S. 126, 132, 65 S. Ct. 165, 168, 89 L. Ed. 118 (1944). The factors to be determined in making this determination are:

(1) whether there was an on-premises living requirement; (2) whether there were excessive geographical restrictions on employee's movements; (3) whether the frequency of calls was unduly restrictive; (4) whether a fixed time limit for response was unduly restrictive; (5) whether the on-call employee could easily trade on-call responsibilities; (6) whether the use of a pager could ease restrictions; and (7) whether the employee had actually engaged in personal activities during call-in time....

and the agreement between the parties. Owens v. Local No. 169, 971 F.2d 347, 351, 354 (9th Cir.1992) (footnotes omitted). No one factor is dispositive.

a. ADPO's

Undisputed evidence shows ADPOs are assigned to on-site back-up duty, during which they "stand by at the work site before or after [their] normal work period and [are] ready to return to work." Their Memorandum of Agreement (MOA) with the County indicates they are paid $18 for each such shift, and if called to active duty they are additionally paid the overtime rate (time and one-half). While on back-up, ADPOs must remain in camp unless they obtain prior permission of the supervisor on shift, and (not surprisingly) they cannot bring alcoholic beverages, nonprescription drugs or marijuana onto the premises.

ADPOs assigned to back-up duty can exchange shifts, are given sleeping quarters and shower facilities, and have access to weight-lifting equipment, a pool table, a satellite TV and a staff lounge. From 1988 through 1990, ADPOs were called back to work on 8, 5, and 10 occasions respectively. Appellant presents evidence that ADPOs consider these shifts a benefit.

This is a closer case than Owens. During the shift, there is an on-premises living requirement and strict geographical restrictions on employees' movements. However, the record shows the actual calls are infrequent, the on-call employee can trade on-call responsibilities, and employees do engage in personal activities. The employment agreement between the parties suggests they envisioned on-site night duty as work. Construing the evidence in the light most favorable to appellant, we affirm the district court's grant of summary judgment in favor of the ADPOs: their back-up duty was work.

b. nurses

After working a shift, a nurse is appointed stand-by duty at a probation facility from 8:00 pm to 6:00 am. The nurses must remain at the facility, abide by rules governing staff at the facility, and keep their supervisor informed of their whereabouts. The nurses are paid for one hour at the regular rate, unless called to full duty, and they are provided sleeping, living, bath and kitchen facilities. Using the relevant test, we affirm the district court's summary judgment in favor of the nurses: their stand-by duty was work.

c. park rangers

The rangers work regular shifts, four or five days a week, and then are assigned to night duty, but they perform this duty in their own homes. During this time they cannot leave the park, must remain ready to respond to inquiries and enforce park rules, and abide by rules governing employee conduct. They are given two hours of pay, unless called to perform tasks beyond those normally associated with night duty. Of the seven rangers in this suit, five reside on County property. Because rangers are on stand-by at their residence, they most certainly engage in personal activities during the periods in dispute.

DOL regulations state that because it is difficult to determine the exact hours worked when an employee resides on his or her employer's premises, "any reasonable agreement of the parties which takes into consideration all of the pertinent facts will be accepted." 29 C.F.R. Sec. 785.23. The district court held the regulation was "not necessarily applicable where ... there are restrictions upon the individuals' freedom," which suggests an employee is engaged in work if an employer places any restrictions on the employee. The flexibility of the test established by the Supreme Court suggests the district courts' approach was improper. See Skidmore, 323 U.S. at 137-40, 65 S.Ct. at 163-64. The record does not demonstrate that night duty time was so restricted that it could not be used for personal activities. Accordingly, on this issue we reverse the district court's summary judgment.

Appellants argue that if stand-by time is work time, then sleep time and meal periods should be excluded from the work period pursuant to 29 C.F.R. Sec. 785.22 (1992). That regulation states that if "an employee is required to be on duty for 24 hours or more, the employer and the employee may agree to exclude bona fide meal periods and a bona fide regularly scheduled sleeping period...." 29 C.F.R. Sec. 785.22 (emphasis added). Appellant argues appellees implicitly agreed to exclude sleep and meal time in their MOAs. The regulation does not say such an agreement may be implied, and there is nothing in the MOAs to suggest time was deducted for meal periods or "regularly scheduled sleeping periods." Accordingly, meal and sleep time should not be deducted from the relevant work periods.

REVERSED and REMANDED.