10th Cir.: FLSA Defendant Who Simultaneously Relied Upon and Rejected Advice of Counsel Committed Willful Violation of FLSA; 3 Year SOL Applied

Mumby v. Pure Energy Services (USA), Inc.

Following an award of summary judgment to the plaintiffs, which held that defendant’s violation of the Fair Labor Standards Act (FLSA) was willful, for both liquidated damages and statute of limitations purposes, the defendant appealed.  The crux of defendant’s argument on appeal was that, due to partial reliance on attorney advice, it was entitled to reject portions of the attorney’s advice that were not relevant to its inquiry of the attorney, without a finding that its FLSA violations were willful.  The lower court disagreed and granted plaintiffs summary judgment, holding that a three (3), rather than two (2) year statute of limitations was applicable, due to defendant’s willful violation of the FLSA.  The Tenth Circuit agreed and affirmed.

Explaining the issue the Tenth Circuit stated: “[t]he thrust of Pure Energy’s argument is that it should be allowed to both rely on and disregard advice of counsel in order to avoid a three-year statute of limitations and liquidated damages.”

Laying out the general law regarding attorney consults as a defense to willfulness in cases brought under the FLSA, the court stated:

“Although consultation with an attorney may help prove that an employer lacked willfulness, such a consultation is, by itself, insufficient to require a finding in favor of the employer. The court’s operative inquiry focuses on the employer’s diligence in the face of a statutory obligation, not on the employer’s mere knowledge of relevant law. See McGlaughlin, 486 U.S. at 134-35; see also Trans World Airlines, Inc. v. Thurston, 469 U.S. 111, 129-30 (1985) (airline did not recklessly disregard the Age Discrimination in Employment Act where it sought legal advice, negotiated with union representatives, and then finally implemented a new retirement policy). We have also stated the inverse in our unpublished decisions: that failure to consult with a lawyer is equally insufficient to prove recklessness. See Fowler v. Incor, 279 F. App’x 590, 602 (10th Cir.2008). These principles are consistent with similar “advice-of-counsel” rules in other contexts. See, e.g., United States v. Wenger, 427 F.3d 840, 853 (10th Cir.2005) (in the securities fraud context, “[g]ood faith reliance on counsel … is merely one factor a jury may consider when determining whether a defendant acted willfully”); Takecare Corp. v. Takecare of Oklahoma, Inc., 889 F.2d 955, 957 (10th Cir.1989) (in a trademark infringement action, absent a showing of other factors, “counsel’s advice alone will not shield the actor from the consequences of his act”) (internal quotation marks omitted).”

Rejecting the defendant’s argument, the court explained:

“In 2005, after one year of U.S. operations, Pure Energy began transferring management of its U.S. operations from Canada to the United States. When it transferred payroll functions to its new domestic management team, it hired a new manager, Cindy Rucker, to run payroll operations in compliance with U.S. labor standards. At the time of her hiring, Ms. Rucker was aware of the FLSA, but she was unfamiliar with day rates. When she expressed concerns about the company’s compensation policy, Pure Energy’s management referred Ms. Rucker to a Colorado attorney, Paul Hurcomb.

In January 2006, after speaking with Ms. Rucker and reviewing some of Pure Energy’s employment offer letters, Mr. Hurcomb advised Ms. Rucker that Pure Energy’s day rate policy complied with the FLSA so long as the company itemized regular and overtime rates and did not have its field employees work more than twelve hours per day. Mr. Hurcomb also discussed with Ms. Rucker that any weekly hours over forty had to be paid as overtime, regardless of the day rate. Mr. Hurcomb did not perform any legal research regarding day rates or the FLSA. Although he essentially stated the forty-hour overtime requirement correctly, his other advice was incorrect.

After receiving Mr. Hurcomb’s advice, Ms. Rucker confirmed with management that Pure Energy was paying its employees correctly so long as it broke down the day rate into regular and overtime hourly rates and did not exceed twelve-hour shifts. However, until it changed its compensation policies in late 2007 to finally comply with the FLSA, Pure Energy continued to underpay its field employees for overtime. Field employees also continued to occasionally work more than twelve hours per day without additional compensation, in violation of Mr. Hurcomb’s advice…

In sum, Mr. Hurcomb and Ms. Rucker discussed day rates, but they also discussed the weekly overtime requirement for employees working more than forty hours per week. Mr. Hurcomb further advised-and Ms. Rucker communicated to her counterparts within the company-that employees must not work more than twelve hours per day. Yet, Pure Energy made no real changes to its compensation policy, nor did it investigate whether its employees were working shifts longer than twelve hours. Indeed, without tracking the number of hours worked by each field employee, it was virtually impossible for Pure Energy to determine whether it was complying with Mr. Hurcomb’s advice, let alone the requirements imposed under the FLSA. It is of no consequence that Mr. Hurcomb’s advice proved incorrect. Pure Energy did not rely in good faith on its counsel’s advice, and thus cannot raise an advice-of-counsel defense.

Pure Energy argues that its purpose in seeking Mr. Hurcomb’s advice was to determine the legality of its day rate policy, and with respect to this narrow issue it acted in good faith on Mr. Hurcomb’s advice. However, an employer may not selectively listen to and then, in good faith, rely upon only one of many issues discussed simply because it sought discrete legal advice on one potential FLSA violation and viewed all other advice as irrelevant to its original, limited inquiry.

In this case, it does not matter if Ms. Rucker’s intent was only to narrowly inquire about Pure Energy’s compliance with the FLSA’s day rate requirements and not to inquire about the FLSA’s weekly overtime requirement. The discussion between Mr. Hurcomb and Ms. Rucker essentially put Pure Energy on notice that it must pay weekly overtime for each hour over forty.

Pure Energy failed to compensate Plaintiffs for weekly overtime despite being put on notice. It applied its compensation policy in reckless disregard of FLSA requirements, and is therefore subject to the three-year statute of limitations for damages.”

2 Comments

Filed under Liquidated Damages, Willfulness

2 responses to “10th Cir.: FLSA Defendant Who Simultaneously Relied Upon and Rejected Advice of Counsel Committed Willful Violation of FLSA; 3 Year SOL Applied

  1. Pingback: matter of fact, judgment day, spirituality, sensation, year 2000, doomsday, y2k bug, scare | is 2012 real?

  2. OlderThanDirt

    I simply do not understand Mumby. In light of a significant body of FLSA precedent coallescing around the phrase “intended to compensate” (as in ‘the number of hours of labor for which the fixed salary was intended as compensation) is it possible that the case was wrongly decided?

    From Mumby:
    “…field employees, which include Plaintiffs, work twelve-hour shifts, seven days per week, with one week off for every three weeks worked.”

    AND

    “Pure Energy defined its “day rate” not by the relevant regulation, 29 C.F.R. § 778.112, but rather as a daily rate consisting of a defined regular rate for the first eight hours and an overtime rate for the remaining four hours of the day.” (Mumby, p. 1 of slip op).

    _____________________________________

    Thus it is evident that the Pure Energy employer expressly defined straight time for these employees as eight hours in length, each day. Seven eight-hour straight time days were worked each week, marking a total of 56 hours per week formally identified by the employer as straight time. 28 hours were likewise formally marked as overtime and paid as such.

    ______________________________________

    Typical precedential law, in this case from Crenshaw v. Quarles Drilling Corp., 798 F. 2d 1345 – CA10th (1986) @f/n#5 (p. 1351): “[5] We add to the discussion in Triple “AAA” only because Quarles has misconstrued the formula. Brief of Appellant at 9. The hourly “regular rate” of compensation is determined by dividing the weekly salary by the number of hours of work that the salary was intended to compensate, not the average number of hours Crenshaw actually worked. Quarles has paid Crenshaw the “regular rate” for those hours the salary was intended to compensate. Quarles now owes Crenshaw compensation in the amount of one-half the hourly rate for those overtime hours the salary was intended to compensate and one and one-half the hourly rate for those hours worked beyond what the salary was intended to compensate.”
    [nb:"intended" is emphasized at several points in the original text]. Accord Wirtz v Triple “AAA” and a substantial body of other cases, albeit mostly, as in Crenshaw, within the framework of fixed weekly wages, rather than day rate wages.

    It seems clear that precedent in these matters envisions a three part schema, consisting of straight time up to the 40th hour, “gap time” at a 50% premium supplement for hours from 41 up to the number for which straight time pay was intended compensation, and “regular overtime” at a 150% premium for all hours worked beyond the last “ST-intended” hour.

    Yet I read Mumby as imposing the equivalent of “Fluctuating Workweek” on the day-laborers: “For an employee to be correctly paid under a day rate, a weekly “regular rate” is first calculated “by totaling all the sums received at such day rates . . . and dividing by the total hours actually worked.” 29 C.F.R. § 778.112. The employee “is then entitled to extra half-time pay at this [regular] rate for all hours worked in excess of 40 in the workweek.” [Mumby].

    Although the deep structure of Mumby is somewhat confused by the text of the §112 regulation, the same is no less true of cases decided under the corresponding §114 regulation for weekly wages, is it not? The precise arithmetical formula is subject to modification by exogenous factors such as the intention of the contract, “clear mutual understanding,” etc. Admittedly it has been found that “clear mutual understanding” is not applicable under regulations §§112 & 113 owing to the CMU language not being expressly found within these regulations. Still, I am at a loss to understand Mumby.

    Any suggestions?

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