N.D.Ill.: FLSA Defendant May Not Assert Counterclaim Against Plaintiff On Theory Of Indemnification

Villareal v. El Chile, Inc.

The Corporate and Individual Defendants filed answers and affirmative defenses to the Third Amended Complaint, and both sets of defendants filed the same two counterclaims. The first counterclaim, the “indemnity counterclaim,” was brought against plaintiffs Rosa Camarena, Jorge Garcia, Tomas Jacinto, Javier Jimenez, Bernardo Linares, Marco Ocampo, and Pedro Magos. Defendants alleged that those seven plaintiffs were employed in “bona fide executive and administrative capacities” and “exercised control over hirings and firings, work schedules, … and the number of hours worked by Plaintiffs,” and thus their “actions … provide the factual basis for vicarious liability of [defendants] as alleged in the Third Amended Complaint.” The Defendants claimed that those plaintiffs owed defendants implied indemnity under Illinois law should plaintiffs prevail on any claim brought under the Third Amended Complaint.

Citing the unanimous holdings of Circuit Court’s to have taken up the issue previously, the Court dismissed Defendants’ counterclaim stating:

While the Seventh Circuit has not yet addressed the issue, other courts of appeals have rejected claims seeking indemnity or contribution for FLSA liability. See, e.g., LeCompte v. Chrysler Credit Corp., 780 F.2d 1260, 1264 (5th Cir.1986) (affirming dismissal of employer’s cross-claim against supervisory personnel for indemnity of plaintiffs’ claims under FLSA, and stating, “No cause of action for indemnity by an employer against its employees who violate the Act appears in the statute, nor in forty years of its existence has the Act been construed to incorporate such a theory.”) Defendants have not presented, and this court’s research has not disclosed, any decision by a federal court to date recognizing a claim for indemnity or contribution by an employer against an employee in the employee’s action under the FLSA.

In LeCompte, the Fifth Circuit stated that the district court had properly dismissed the indemnity claim notwithstanding the employer’s evidence that the supervisory personnel regularly ignored the employer’s policy prohibiting unauthorized overtime. Id. at 1264. The court explained that a claim for indemnity would frustrate Congress’ purpose in enacting the FLSA, since an employer who believed that any violation of the statute’s overtime or minimum wage provisions could be recovered from its employees would have a diminished incentive to comply with the statute. Id. at 1264. “To engraft an indemnity action upon this otherwise comprehensive federal statute would run afoul of the Supremacy Clause of the Constitution, would undermine employers’ incentive to abide by the Act, and would differentiate among employees entitled to receive overtime compensation in a way which does not otherwise exist in the statute.” Id. The court also rejected the application of state-law indemnity principles, stating that creating a state-law-based indemnity remedy on behalf of employers would not serve the purpose of national minimum standards and would diminish employer incentive to comply with the FLSA, as well as deprive the supervisory employees of the overtime compensation to which they are entitled under the FLSA. Id.

The other courts of appeals that have considered the issue have agreed with the Fifth Circuit’s decision in LeCompte. See Lyle v. Food Lion, 954 F.2d 984, 987 (4th Cir.1992) (affirming dismissal of employer’s counterclaim and third-party complaint for indemnity against plaintiff-supervisor for plaintiffs’ FLSA claims); Martin v. Gingerbread House, Inc., 977 F.2d 1405, 1408 (10th Cir.1992) (holding employer’s third-party complaint seeking indemnity from employee for alleged FLSA violations was preempted); Herman v. RSR Sec. Services Ltd., 172 F.3d 132, 144 (2d Cir.1999) (affirming dismissal of corporation chairman’s claims for contribution and indemnification against his co-owner and corporation’s manager and vice president).

Therefore, the Court dismissed Defendants’ counterclaim seeking indemnification from Plaintiffs.

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