Category Archives: Liquidated Damages

S.D.N.Y.: Where Affirmative Defense of “Good Faith,” Asserted, Defendant’s State of Mind at Issue and Communications With Counsel Possibly Subject to Disclosure, Notwithstanding Lack of “Advice of Counsel” Defense

Xuedan Wang v. Hearst Corp.

In the vast majority of FLSA cases, the defendant asserts that its violations of the FLSA, if any, were committed in “good faith,” such that the court may, in its discretion deny the plaintiff otherwise mandatory liquidated damages. In many of these cases, it is hard to imagine that a large corporate defendant who is asserting the “good faith” defense, has not actually sought the advice of counsel as part of the process of determining whether the policies at issue comply with the FLSA. In the past, to the frustration of plaintiffs’ counsel everywhere, most courts have held that the attorney-client privilege protects such communications between the defendant and its counsel, unless the defendant specifically claims that it relied on the advice of counsel in substantiating its “good faith” defense. Recently, Judge Baer in the Southern District of New York recognized that this approach is patently absurd and ordered an FLSA defendant to produce such communications with counsel, notwithstanding its claim that it would not rely upon an advice of counsel defense.

Rejecting the defendant’s assertion that such communications were non-discoverable and protected by the attorney-client privilege, the court reasoned:

According to the Second Circuit, “[i]t is well settled that ‘[t]he burden of establishing the existence of an attorney-client privilege, in all of its elements, rests with the party asserting it,’ ” In re Grand Jury Proceedings, 219 F.3d 175, 182 (2d Cir.2000) (quoting United States v. Int’l Bhd. of Teamsters, 119 F.3d 210, 214 (2d Cir.1997)). In particular, the Second Circuit “has recognized that implied waiver may be found where the privilege holder ‘asserts a claim that in fairness requires examination of protected communications.’ ” In re Grand Jury, 219 F.3d at 182 (quoting United States v. Bilzerian, 926 F.2d 1285, 1292 (2d Cir.1991)) (emphasis added in the original). “The key to a finding of implied waiver … is some showing by the party arguing for a waiver that the opposing party relies on the privileged communication as a claim or defense or as an element of a claim or defense.”   In re County of Erie, 546 F.3d 222, 228 (2d Cir.2008).

Defendant contends that the attorney-client privilege applies because its good faith defense would not rely on “legal advice,” citing court cases from other circuits for the proposition that “[t]here are many ways to establish good faith under the FLSA that do not involve the advice of counsel.” Not so here. In Bilzerian, for instance, the Second Circuit squarely rejected the defendant’s argument that there was no waiver because “the testimony he sought to introduce regarding his good faith … would not have disclosed the content or even the existence of any privileged communications or asserted a reliance of counsel advice.” 926 F.2d at 1291. The Circuit reasoned that the waiver principle was nonetheless applicable because the defendant’s “testimony that he thought his actions were legal would have put his knowledge of the law and the basis of his understanding of what the law required in issue,” and that “[h]is conversations with counsel regarding the legality of his schemes would have been directly relevant in determining the extent of his knowledge and, as a result, his intent.” Id. at 1292. More recently, the Circuit has reaffirmed the position that “the assertion of a good-faith defense involves an inquiry into state of mind, which typically calls forth the possibility of implied waiver of the attorney-client privilege.” In re County of Erie, 546 F.3d at 228–29. See also MBIA Ins. Corp. v. Patriarch Partners VIII, LLC, No. 09 Civ. 3255, 2012 WL 2568972, at *7 (S.D.N.Y. July 3, 2012) (rejecting the contention that the waiver occurs only when a party asserts a claim or defense that he intends to prove by use of the privileged materials); Arista Records LLC v. Lime Group LLC, No. 06 Civ. 5936, 2011 WL 1642434, *3 (S.D.N.Y. Apr. 20, 2011) (“Defendants’ assertion that Bilzerian does not apply because they may not be relying on advice of counsel for their good faith defense misreads the law.”)

Thus, Defendant’s good faith defense in this case undoubtedly raises the possibility of implied waiver, and the question before this Court is “[w]hether fairness requires disclosure” in the “specific context in which the privilege is asserted.” In re County of Erie, 546 F.3d at 229 (quoting In re Grand Jury, 219 F.3d at 183). Here, Plaintiffs have submitted, for the Court consideration, a deposition of Defendant’s human resources personnel indicating that the legal department, not the human resources department, would be able to answer why school credit letters were collected for unpaid interns. This is not exactly, as Plaintiffs represent in their letter, a statement that “the decision not to pay interns and to classify them as non-employees was made by Defendant’s legal department.” Nonetheless, in my view, Defendant’s assurance that it would “limit any good faith defense to one in which the state of mind was not formed on the basis of legal advice” amounts to little more than semantics without any concrete examples provided by Defendants. On the other hand, I find it difficult to imagine that a good faith defense regarding the FLSA raised by a corporation as large and as sophisticated as Hearst would not involve the advice of its legal department, and the section of the deposition provided to me confirms at least that much. The deposition, for instance, suggests that the human resources department may not itself be familiar with the reason why Defendant’s magazines require interns to submit school credit letters, which raises rather than diminishes the possibility of the legal department’s involvement.

Defendant’s argument that an order by this Court at this juncture in the litigation is premature is a valid argument but for the fact that discovery is over next month and later would hardly be better. The other concern is privilege. The emails to be produced are obviously the ones with respect to which the privilege is waived because they bear on Defendant’s state of mind, as discussed above. With respect to those emails, Defendant will produce a privilege log, and I will review the documents in camera, unless, of course, there are too many. In the latter case, I will appoint a special master at the expense of the parties. The material should all be produced by year’s end. Should this create a major problem, the parties should schedule a telephone conference this week.

Click Xuedan Wang v. Hearst Corp. to read the entire Opinion & Order.

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2 Recent Decisions Hold That an Employer-Defendant Cannot Avoid Liquidated Damages By Relying on Involuntary Administrative Governmental Audits

As FLSA cases have proliferated in recent years, among the formally sleepy areas of jurisprudence that has seen a dramatic rise in litigation is the so-called “good faith” defense. Although in its earliest years the FLSA provided for mandatory liquidated damages, a subsequent amendment to the FLSA, through the Portal-to-Portal Act, now allows for a defendant to avoid the imposition of liquidated damages (in addition to the underlying unpaid wages damages) if it can demonstrate that it took affirmative steps to attempt compliance with the FLSA, but violated the FLSA nonetheless. Two recent cases reiterate that a defendant’s burden is not met solely by demonstrating that it had a subjective belief that it was complying.

McLean v. Garage Management Corp.

In the first case, the defendant sought to avoid liquidated damages by relying on a series of involuntary misinformed DOL audits, which it claimed it reasonably relied upon in establishing their belief that its illegal pay methodology, whereby it treated hourly employees as executive exempt from the FLSA’s overtime provisions. While the DOL has in fact found the defendant’s classification to be proper, the court noted that the DOL’s finding was based on its examination of the employees’ duties alone, because the defendant had misrepresented to the DOL that the employees were paid on a salary basis, at the required rate under the applicable regulations in the initial audit. Subsequent audits simply compounded this initial incomplete investigation, based on the information the defendant provided to the DOL in the initial audit.

Significantly, the court rejected the defendants’ claimed reliance on the DOL audits for 3 separate reasons. First, it found that any informal conversations do not constitute “active steps” to ascertain the dictates of the law. Second, the court noted that the audits were involuntary and defendant had not requested same and thus, giving government investigators access to records and employees did not relieve defendant of its own obligation to determine what the labor laws require. Third, the court noted that defendant had not shown that any government investigator focused with care on its time and payroll records for the employees in question, and thus the DOL had not undertaken a review to see whether the defendant indeed paid a predetermined amount that did not vary, as required to meet the “salary basis” prong of the executive exemption. “Without such full disclosure, [the defendant] cannot reasonably rely on the existence of the investigations and their failure to find any inadequacies in the compensation system for [the employees].”

Finally, the court held that the defendant was not entitled to rely on the fact that it periodically consulted with outside counsel, because it had invoked its attorney-client privilege. The court explained that absent a waiver of the privilege, the defendant could not sustain a defense based on good faith reliance on the advice of counsel.

Click McLean v. Garage Management Corp. to read the entire Opinion and Order.

Solis v. R.M. Intern., Inc.

In the second case- concerning an alleged misclassification of drivers under the Motor Carrier Act (MCA) exemption- the defendant sought to avoid the imposition of liquidated damages, by relying on a prior involuntary Department of Transportation (DOT) audit/citations and the advise of counsel it received as part of the audit process. As in McLean above, the court rejected this evidence of “good faith” as insufficient to meet the defendant’s heavy burden.

The court noted:

Defendants maintain they have demonstrated both their subjective good faith and objectively reasonable belief that their failure to pay overtime wages to their drivers did not violate FLSA. To meet their burden, Defendants rely almost exclusively on their compliance with DOT rules and the DOT’s citation of “some” of their intrastate-only drivers. The DOT’s citation of “some” of Defendants’ intrastate-only drivers, however, does not provide a sufficiently reasonable basis for concluding all such drivers were under the DOT’s jurisdiction and, therefore, exempt from FLSA. The objective reasonableness of Defendants’ failure is undermined by the fact that the determination as to whether the Department of Labor or the DOT has jurisdiction is resolved on a driver-by-driver basis, as the Court explained at length on summary judgment, and, in any event, DOT jurisdiction for a driver who only occasionally drives in interstate commerce lasts only 4 months from the last such trip. See Reich v. Am. Driver Serv., Inc., 33 F.3d 1153, 1155–56 (9th Cir.1994). Furthermore, exemptions to FLSA, such as the Motor Carrier Exemption relied on by Defendants, are to be construed narrowly and only apply to employees who “plainly and unmistakably” fall within their terms. See Solis v. Washington, 656 F.3d 1079, 1083 (9th Cir.2011). Thus, the Court concludes Defendants’ generalizations about entire classes of their drivers on the basis of DOT citations of some of its drivers are insufficient to establish the objective reasonableness of Defendants’ failure to comply with FLSA. Similarly and in light of the lack of testimony in this regard, the fact that Defendants required both their interstate and intrastate drivers comply with DOT regulations neither establishes Defendant’s subjective belief nor its objective reasonableness.

Defendants also maintain their belief that their drivers were exempt from FLSA is reasonable in light of the fact that they hired counsel to assist with the November 2009 DOT compliance audit. Although there is not any direct evidence as to the purpose of counsel’s representation, the Court concludes it is fair to infer that counsel was hired to ensure Defendants’ compliance with DOT regulations rather than to ensure Defendants were compliant with FLSA. In any event, there is not any evidence on this record from which the Court can find that Defendants took “the steps necessary to ensure [its] practices complied with [FLSA].” Alvarez, 339 F .3d at 910 (“Mistaking ex post explanation and justification for the necessary affirmative ‘steps’ to ensure compliance, [the defendant] offers no evidence to show that it actively endeavored to ensure such compliance.”). Thus, the Court concludes on this record that Defendants did not satisfy their “difficult” burden to show their subjective good faith failure to comply with FLSA or the objective reasonableness of their actions, and, therefore, the Court concludes Plaintiff is entitled to liquidated damages in the amount equal to the unpaid overtime wages.

Click Solis v. R.M. Intern., Inc. to read the entire Supplemental Findings of Fact and Conclusions of Law and Verdict.

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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.”

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N.D.Cal.: Undocumented Worker’s Submission Of False Documents To Obtain Employment Has No Bearing On FLSA Claims For Unpaid Wages Or Liquidated Damages

Ulin v. Lovell’s Antique Gallery

This case was before the Court on the parties’ cross motions for summary judgment on a variety of issues.  As discussed here, the Defendants asserted that the Plaintiff, an undocumented immigrant, was not entitled to recover unpaid overtime wages and/or liquidated damages under the FLSA, because he fraudulently obtained his job by providing false documents to the Defendants.  The Court roundly rejected this assertion, ruling that neither Plaintiff’s immigration status nor how he obtained his job had any impact on his FLSA claims.

Discussing these issues, the Court reasoned:

“Defendants argue that Plaintiff’s submission of false documents at the time of his employment precludes any recovery of overtime pay. Defendants point to the declaration of immigration attorney Jason Marachi, who reviewed the documents that Plaintiff submitted to Defendants at the time of his employment, performed an independent investigation, and concluded that Plaintiff submitted false work authorization documents to his employer and was not working legally in the United States while he worked for Defendants. See generally Marachi Decl. Plaintiff has not raised any factual dispute on this issue, but disagrees that his recovery of damages is affected.

Defendants rely primarily on Reyes v. Van Elk, Ltd., 148 Cal.App. 4th 604, 611 (2007), where the court stated that:

Thus, as presented to this court, this case does not involve a situation where undocumented workers submitted false work authorization documents to a prospective employer. (See e.g., Ulloa v. Al’s All Tree Service, Inc. (Dist.Ct.2003) 2 Misc.3d 262, 768 N.Y.S.2d 556, 558 [“The Court also notes in passing that, if there had been proof in this case that the Plaintiff had obtained his employment by tendering false documents (activity that is explicitly unlawful under IRCA), Hoffman would require that the wage claim [for unpaid wages] be disallowed in its entirety.”].) However, the issue of whether Hoffman requires that a wage claim be denied if an employee submitted false authorization documents is not before this court.

However, Reyes expressly did not reach the issue raised by Defendants, and therefore is of little help to them. Hoffman Plastic Components, Inc. v. National Labor Relations Board, 535 U.S. 137 (2002), cited by Reyes, foreclosed an award of backpay under the National Labor Relations Act to a worker who had submitted false documents to his employer because the Court found that an award of backpay “for years of work not performed, for wages that could not lawfully have been earned, and for a job obtained in the first instance by criminal fraud” would run counter to immigration policy. Id. at 149, 151. Hoffman did not involve a case such as this, where Plaintiff claims to have already performed the work in question and seeks payment for that work, and so it is also not directly on point.

Plaintiff argues that regardless of whether he presented false documents and was working illegally, he is entitled to recover his earned wages. Plaintiff notes that the cases interpreting Hoffman have not applied it to bar recovery of wages already earned. See, e.g., Singh v. Jutla & C.D. & R’s Oil, Inc., 214 F .Supp.2d 1056, 1061 (N.D.Cal.2002) (Breyer, J.) (quoting Flores v.. Albertsons, Inc., 2002 WL 1163623 (C.D.Cal.2002) (“Hoffman does not establish that an award of unpaid wages to undocumented workers for work actually performed runs counter to IRCA.”); Opp. at 19 (citing cases).

The case cited in Reyes, Ulloa v. Al’s All Tree Service, Inc., 768 N.Y.S.2d 556, 558 (Dist.Ct.2003), does not mandate a contrary result. Ulloa is New York small claims court decision where the Court limited an undocumented worker’s recovery of unpaid wages to the minimum wage, and then noted “in passing that, if there had been proof in this case that the Plaintiff had obtained his employment by tendering false documents (activity that is explicitly unlawful under IRCA), Hoffman would require that the wage claim [for unpaid wages] be disallowed in its entirety.” No case has followed this portion of Ulloa, or otherwise affirmatively held than an undocumented worker is precluded from recovering wages for work already performed simply because he submitted false documents at the time of employment. Indeed, a higher New York court has expressly rejected Ulloa ‘s dicta, and instead held that: “If federal courts ban discovery on immigration status in unpaid wages cases, the use of fraudulent documents on immigration status to gain employment in unpaid wages cases is likewise irrelevant. The only crucial issue is whether the undocumented worker performed services for which the worker deserves compensation. If so, public policy requires payment so that employers do not intentionally hire undocumented workers for the express purpose of citing the workers’ undocumented status or their use of fraudulent documents as a way to avoid payment of wages.” Pineda v. Kel-Tech Const., Inc., 832 N.Y.S.2d 386, 396 (N.Y.Sup.2007).

At oral argument, Defendants contended that, even if Plaintiff’s employment status does not require that all of his claims be disallowed, Hoffman precludes an award of liquidated damages under the FLSA. Defendants’ argument appears to be that FLSA liquidated damages are akin to the backpay for work not performed due to wrongful termination at issue in Hoffman, in that they go beyond simply compensating for past work, and therefore federal immigration policy makes this remedy unavailable to Plaintiff because it would reward violation of immigration laws while punishing the employer. There is no case expressly addressing the issue of whether FLSA liquidated damages are available to a plaintiff who presented false documents to his employer. While a close question, and one that pits important governmental policies relating to labor and immigration against each other, the Court’s interpretation of the statute and the caselaw runs counter to Defendants’ position.

First, the plain language of the FLSA mandates liquidated damages in an amount equal to the unpaid wages unless the employer “shows to the satisfaction of the court that the act or omission giving rise to such action was in good faith and that he had reasonable grounds for believing that his act or omission was not a violation of the Fair Labor Standards Act of 1938, as amended,” in which case “the court may, in its sound discretion, award no liquidated damages or award any amount thereof …” 29 U.S.C. § 260. “Under 29 U.S.C. § 260, the employer has the burden of establishing subjective and objective good faith in its violation of the FLSA.” Local 246 Utility Workers Union of America v. Southern California Edison Co., 83 F.3d 292, 297-298 (9th Cir.1996). Thus, the plain language of the FLSA’s liquidated damages provision focuses exclusively on the employer’s conduct, not the employee’s conduct. There is nothing in the language of the statute that allows the Court to take Plaintiff’s misconduct into account in determining whether to award liquidated damages. To the contrary, the imposition of liquidated damages is mandatory unless the employer establishes its own good faith.

Second, under the FLSA, “liquidated damages represent compensation, and not a penalty. Double damages are the norm, single damages the exception.” Local 246 Util. Workers Union v. S. Cal. Edison Co., 83 F.3d 292, 297 (9th Cir.1996); see also Overnight Motor Transp. Co. v. Missel, 316 U.S. 572, 584 (1942) (liquidated damages compensate for damages too obscure and difficult of proof), superceded by statute on other grounds; Herman v. RSR Sec. Services Ltd., 172 F.3d 132, 142 (2d Cir.1999) (“Liquidated damages are not a penalty exacted by the law, but rather compensation to the employee occasioned by the delay in receiving wages due caused by the employer’s violation of the FLSA”). Congress provided for liquidated damages because it recognized that those protected by federal wage and hour laws would have the most difficulty maintaining a minimum standard of living without receiving minimum and overtime wages and thus “that double payment must be made in the event of delay in order to insure restoration of the worker to that minimum standard of well-being.” See Brooklyn Sav. Bank v. O’Neil, 324 U.S. 697, 707 (1945).

Following Hoffman, “[c]ourts have distinguished between awards of post-termination back pay for work not actually performed and awards of unpaid wages pursuant to the Fair Labor Standards Act (‘FLSA’).” Zeng Liu v. Donna Karan Intern., Inc., 207 F.Supp.2d 191, 192 (S.D.N.Y.2002); see also Widjaja v. Kang Yue USA Corp., 2010 WL 2132068, *1 (E.D.N.Y.2010). In Flores v. Amigon, 233 F.Supp.2d 462 (E.D.N.Y.2002), the court held that Hoffman did not apply to FLSA cases in which workers sought pay for work actually performed, and that, “enforcing the FLSA’s provisions requiring employers to pay proper wages to undocumented aliens when the work has been performed actually furthers the goal of the IRCA” because if the FLSA did not apply to undocumented aliens, employers would have a greater incentive to hire illegal aliens with the knowledge that they could not be sued for violating minimum wage requirements. While the interest in deterring employers from knowingly hiring undocumented workers in order to avoid lawsuits for wage violations does not apply when an employee uses false documents to successfully deceive an unknowing employer who attempted to comply with immigration law, the interest in deterrence does apply when the employer had reason to suspect or knew that the employee was not authorized to work in the United States but hired him anyway, colluding in the use of false documents. The record here is silent as to whether Defendants were successfully deceived as to Plaintiff’s authorization to work or instead knew or suspected that his documents were falsified.

Unlike the backpay for hours not worked at issue in Hoffman, here the liquidated damages are a form of compensation for time worked that cannot otherwise be calculated. See also Singh v. Jutla & C.D. & R’s Oil, Inc., 214 F.Supp.2d 1056 (N.D Cal.2002) (Breyer, J.) (stating that Hoffman did not address remedies of compensatory and punitive damages, and holding that undocumented employee could proceed with FLSA retaliation claim); Galdames v. N & D Investment Corp., 2008 WL 4372889 (S.D.Fla. Sept. 24, 2008) (finding that Hoffman did not overrule previous rule that an “undocumented worked may bring claims for unpaid wages and liquidated damages” for work already performed); Renteria v. Italia Foods, Inc., 2003 WL 21995190, *5-6 (N.D.Ill.2003) (striking FLSA backpay and frontpay claims in light of Hoffman /IRCA, but allowing claim for compensatory damages).

While none of the cases cited above involve an employee who affirmatively presented false documents, as opposed to simply being undocumented, Hoffman did not preclude compensatory damages for time already worked on the basis that the employee presented false documents. While the Hoffman Court was certainly concerned about the fact that the plaintiff had criminally violated IRCA by presenting false documents and was therefore never authorized to work in the United States, it also focused on the facts that: (1) the plaintiff had not actually performed the work for which he was seeking backpay, (2) he was only entitled to the backpay award by remaining in the country illegally, and (3) he could not mitigate damages as required without triggering further a IRCA violation. Here, by contrast, no further employment by Plaintiff is at issue as he only seeks compensation for work performed before his termination by Defendants and the issue of mitigating damages is not present, unlike in Hoffman. Further, as the Hoffman Court held, the NLRB’s other “ ‘traditional remedies’ [were] sufficient to effectuate national labor policy regardless of whether the ‘spur and catalyst’ of backpay accompanies them.” In contrast, FLSA liquidated damages are not a “spur and catalyst,” but instead numerous courts have found that they are intended as compensation for unpaid wages already earned but too difficult to calculate. Therefore, Defendants’ Motion is DENIED on this issue.”

Click Ulin v. Lovell’s Antique Gallery to read the entire opinion.

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E.D.Pa.: Where Plaintiff Received Partial Liquidated Damages, Prejudgment Interest Due On The Remaining Unpaid Wages

Gonzalez v. Bustleton Services, Inc.

This case was before the Court on Plaintiffs’ Motion for an Award of Prejudgment Interest, subsequent to the Court’s holding that Defendant had violated the FLSA.  In its Order regarding liability, the Court awarded liquidated damages as to one aspect of Plaintiffs’ claim and denied liquidated damages as to a second component.  The Plaintiffs’ Motion sought prejudgment interest solely on the unpaid wages that the Court had not awarded liquidated damages upon.  The Court held that Plaintiffs were entitled to prejudgment interest on the unpaid wages for which they were not awarded liquidated damages.

After discussing the general presumption in favor of prejudgment interest, the Court addressed each of the Defendant’s arguments in turn:

“In response to Plaintiffs’ motion for prejudgment interest, Defendant first argues that Plaintiffs are not entitled to prejudgment interest because they have already received liquidated damages. It is well-settled in FLSA jurisprudence that a plaintiff cannot recover both liquidated damages and prejudgment interest because both serve the same purpose, namely to compensate employees for losses caused by delayed receipt of wages they are due. See Brooklyn Sav. Bank v. O’Neil, 324 U.S. 697, 715, 65 S.Ct. 895, 89 L.Ed. 1296 (1945) (recovery of liquidated damages and prejudgment interest is “double compensation for damages arising from delay in the payment of the basic minimum wages”); see also Martin v. Cooper Elec. Supply Co., 940 F.2d 896, 910 (3d Cir.1991) (describing similar purpose of liquidated damages and prejudgment interest); Starceski v. Westinghouse Elec. Corp., 54 F.3d 1089, 1102 (3d Cir.1995) (contrasting punitive nature of liquidated damages in ADEA case with non-punitive liquidated damages in FLSA case). Thus, there is no dispute that the court cannot award prejudgment interest on wages for which liquidated damages have been awarded.

Defendant takes the argument a step further and asserts that any award of liquidated damages prohibits any award of prejudgment interest, I disagree. The cases upon which Defendant relies merely stand for the proposition that the court cannot award both liquidated damages and prejudgment interest on the same unpaid wages. See Bowers v. Foto-Wear, Inc., No. 03-1137, 2007 WL 4086339, at *6 (M.D.Pa. Nov.15, 2007) (declining to award prejudgment interest where court awarded liquidated damages on all unpaid wages); Friedrich, 1995 WL 412385, at *4 (awarding prejudgment interest when liquidated damages were denied); Signora v. Liberty Travel, Inc., 886 A.2d 284, 286-87 (Pa.Super.2005) (finding award of liquidated damages would be duplicative where prejudgment interest was granted on same award of unpaid wages).

As previously discussed, the purpose of prejudgment interest is to compensate the plaintiff for losses resulting from the delayed payment of wages. See Brooklyn, 324 U.S. at 715; Martin, 940 F.2d at 910. Here, Plaintiffs received an award of liquidated damages under the FLSA for two years of unpaid wages owed for the credited overtime for which they had not been properly compensated. They have not received any compensation for the delayed payment of the third year of credited overtime or any of the uncompensated morning and evening time. The equities favor an award of prejudgment interest for these unpaid wages. See Brock v. Richardson, 812 F.2d 121, 127 (3d Cir.1987) (explaining the “usual equities favor” award of prejudgment interest in FLSA case).

Defendant also argues that the court’s denial of liquidated damages for the uncompensated morning and evening time under the FLSA precludes an award of prejudgment interest. See Def.’s Memo. at 4. This is incorrect. Although liquidated damages and prejudgment interest both seek to compensate the plaintiff for the delay in receiving his wages in the FLSA context, the denial of liquidated damages does not dictate the denial of prejudgment interest. In fact, in some of the cases cited by Defendant, the court awarded prejudgment interest while denying liquidated damages. See, e.g., Frie drich. In order to avoid liquidated damages, the burden is on the defendant to show that it was acting in good faith and “had reasonable grounds for believing that his act or omission was not a violation of the [FLSA].” 29 U.S.C. § 260. With respect to prejudgment interest, the Third Circuit has said that prejudgment interest is presumed unless the “usual equities in favor of such interest are not applicable.” Pignataro, 593 F.3d at 273 (citing Brock, 812 F.2d at 126). Here, although I find that Defendant had a reasonable basis for failing to compensate Plaintiffs for the morning and evening time, this does not change the fact that Plaintiffs were denied wages they were owed. The purpose of prejudgment interest is served by such an award in this case.

Defendant also seems to argue that because the court did not award liquidated damages on the additional year of credited overtime damages provided by PMWA, Plaintiffs’ are not entitled to now seek prejudgment interest on these additional unpaid wages because it gives Plaintiffs “a second bite at the apple.” See Def.’s Memo. at 9. The main problem with Defendant’s argument is that PMWA does not provide for liquidated damages and caselaw has not extended this remedy to PMWA cases. See 43 P.S. § 333.113 (damages available as civil remedy do not include liquidated damages). Accordingly, Plaintiffs properly did not seek liquidated damages under PMWA, see Pls.’ Proposed Findings and Conclusions at ¶ 96 n. 14, and the court did not award them. There is no bar to Plaintiffs’ request for prejudgment interest.

Next, Defendant argues that Plaintiff’s failure to request prejudgment interest prior to the filing of the current motion precludes such recovery. See Def.’s Memo. at 8. I disagree. In their Complaint, Plaintiffs seek “[c]ompensatory and back pay damages to the fullest extent permitted under federal and state law.” Compl. at Prayer for Relief. At the final pretrial conference, counsel agreed that submissions concerning the calculation of damages would follow the court’s findings and conclusions. In their Proposed Findings and Conclusions, Plaintiffs specifically reference prejudgment interest as an alternative to liquidated damages. See Pls.’ Proposed Findings and Conclusions at ¶ 99 n. 15. I also note that Defendant has suffered no prejudice based on the Plaintiffs’ request for prejudgment interest at this time.

In addition, Defendant argues that the court should decline to award prejudgment interest on the uncompensated morning and evening time because this is not an easily calculable fixed sum, particularly because “it was the Plaintiffs’ lack of credibility which led to the uncertainty.” Def.’s Memo. at 10. Defendant relies on Pennsylvania easel aw which states that interest is due “[w]henever a fixed sum of money is wrongfully withheld from a party to whom it is properly due.” Id. at 9 (quoting Friedrich, 1995 WL 412385, at *3). Here, Defendant argues that the calculation of prejudgment interest is made uncertain by Plaintiffs’ lack of credibility, itself. Thus, the award of prejudgment interest would be inequitable.

At trial, Plaintiffs testified that they arrived at the shop before work and performed work prior to leaving for the jobsite every workday. Defendant presented credible evidence that Plaintiffs left from the shop only 35% of the time and went directly to the jobsite from their homes 65% of the time. In fact, Defendant presented evidence identifying specific jobs for which Plaintiffs traveled directly to the jobsite. Therefore, I found that Plaintiffs were entitled to 35% of the total uncompensated morning and evening time. Although I agree that Plaintiffs are partially to blame for any uncertainty in the calculation of prejudgment interest, Defendant lost the Plaintiffs’ timesheets, see N.T. 10/13/09 at 87-88, and thereby contributed to the uncertainty.

Moreover, considering the purpose of prejudgment interest, I believe the equities favor such an award for the uncompensated morning and evening time. Plaintiffs were not paid the wages they were owed and have not had the use of that money. Thus, an award of prejudgment interest is appropriate.”

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5th Cir.: Defendants’ Purported Day-Rates Were Impermissible Where They Made Deductions For Partial Days Worked

Solis v. Hooglands Nursery, L.L.C.

This is an appeal from the district court’s order granting summary judgment for Plaintiff on behalf of various employees of Defendants.  The district court held that the Defendants violated the overtime and record-keeping provisions of the Fair Labor Standards Act (“FLSA”).  The Defendants appealed the district court’s order as it relates to its non-salaried employees, arguing that there were genuine issues of fact regarding whether their day rate plan was invalid under the FLSA and whether they acted in good faith.  Discussing each basis for summary judgment in turn, the 5th Circuit affirmed.

Briefly discussing Defendants’ purported day-rate methodology, the Court explained:

“Appellants first argue that there remained a genuine issue of fact regarding whether their day-rate method of paying their employees met the standards of 29 C.F.R. § 778.112. However, Appellants concede both before the district court and on appeal that their employees’ wages were reduced when the employees worked less than a full day. Accordingly, Appellants did not have a valid day-rate plan in use, and their failure to pay their employees overtime compensation pay for time worked beyond forty hours per week violated 29 U.S.C. § 207(a)(1).”

Next the Court discussed the issue of unpaid fifteen minute breaks.

“Appellants next concede that they failed to pay their employees for two fifteen-minute breaks per day, in violation of the FLSA. Nevertheless, Appellants argue that their purported overpayment to their employees as part of their day-rate plan compensated for the shortfall, pursuant to 29 C.F.R. § 778.202(a). However, as the district court properly held, Appellants did not employ a valid day-rate plan, because they reduced employees’ pay for hours they did not work. Accordingly, the district court properly concluded that Appellants remain liable for the amounts deducted from their employees’ compensable break periods.”

Last the Court discussed the award of liquidated damages, and the fact that the Court was entitled to award liquidated damages, notwithstanding a showing of both subjective and objective good faith.

“Finally, Appellants argue that even if they violated the FLSA by not implementing a proper day-rate plan and failed to pay proper overtime compensation, there remained a question of fact as to whether Appellants’ failures were in good faith, thus precluding an award of liquidated damages. Liquidated damages are awarded as a matter of course for violations of 29 U.S.C. § 207. See 29 U.S.C. § 216(b). Pursuant to 29 U.S.C. § 260, however, a district court may decline to award liquidated damages if the employer demonstrates that it acted reasonably and in good faith. Heidtman v. County of El Paso, 171 F.3d 1038, 1042 (5th Cir.1999). Nevertheless, even if a defendant shows both subjective good faith and objective reasonableness, an award of liquidated damages remains in the discretion of the district court. See § 260; Heidtman, 171 F.3d at 1042. After reviewing the record, the district court correctly held that Appellants “ha[ve] submitted no evidence that [their] reliance on a bookkeeper with no managerial authority to ensure [their] compliance with the FLSA was reasonable.” Accordingly, Appellants have not carried their burden of showing good faith, and an award liquidated damages was proper.”

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E.D.Ky.: “Self-Critical Analysis” Privilege Does Not Shield Employer From Disclosure Of Documents Relating To FLSA Classification; Such Discovery Is Relevant To Issues Of “Good Faith” And Willfulness

Cochran v. National Processing Co.

This matter was before the Court on the Motions to Quash filed by the Defendants.  Defendants sought to quash a subpoena issued by the Court and served on one of the Defendants (Hanna), seeking documents relating to the FLSA classification of the Plaintiffs, who were employees of Defendant, National, assigned to work for Defendant, Hanna.  Defendants argued that the documents requested in the subpoena are protected under the self-critical analysis privilege and that they are beyond the scope of discovery.

The underlying action was pending in the United States District Court for the Southern District of Texas.  National was the Defendant in the Texas action. The Plaintiffs in that action are current and former National employees. They asserted a claim against National under the Fair Labor Standards Act, alleging that National had improperly classified them as “exempt” employees under the Act and has, thus, improperly failed to pay them overtime.  Hanna, which is located in Lexington, Kentucky, was not a party to the Texas action. However, the subpoena required Hanna to produce certain documents relating to work performed by Hanna for National regarding National’s policies and procedures for paying overtime.

Discussing the lack of “self critical analysis” privilege, the Court stated:

“National argues that the documents sought by the Plaintiffs are protected by the ‘self-critical analysis privilege.’

As an initial matter, it is not clear that the privilege exists. As support for its argument that the Sixth Circuit has adopted the self-critical analysis privilege, the Plaintiffs cite ASARCO, Inc. v. N.L.R.B., 805 F.2d 194 (6th Cir.1986). In that case, the Sixth Circuit determined that the employer should not have to disclose self-critical reports prepared after serious accidents in order to improve safety and prevent similar mishaps. Id. at 199. The court determined that “[t]he practice of uninhibited self-critical analysis, which benefits both the union’s and employer’s substantial interest in increased worker safety and accident prevention, would undoubtedly be chilled by disclosure.” Id. at 200.

However, that case involved a company’s duty to turn over certain information in collective bargaining efforts with the employee’s union. The Sixth Circuit specifically noted that items subject to discovery in litigation may not be subject to disclosure “in the collective bargaining context” and that any duty to disclose in that context must be evaluated in light of the rights and obligations created by the National Labor Relations Act. Id. at 199.

Even after ASARCO, district courts have found that the Sixth Circuit has never explicitly adopted the self-critical analysis privilege. See United States v. Allison Engine Company, Inc., 196 F.R.D. 310, 313-14 (S.D.Ohio 2000); Hickman v. Whirlpool Corp., 186 F.R.D. 362, 363 (N.D.Ohio 1999).

One district court has summarized the status of the privilege as follows:

Furthermore, “no circuit court of appeals has explicitly recognized the self-critical analysis privilege.” Johnson v. United Parcel Serv., Inc., 206 F.R.D. 686, 689-90 (M.D.Fla.2002). Most important, the validity of the self-critical analysis privilege is highly doubtful in light of the Supreme Court’s decision University of Pennsylvania v. EEOC, 493 U.S. 182, 110 S .Ct. 577, 107 L.Ed.2d 571 (1990), which declined to recognize a common law privilege against disclosure of confidential peer review materials.Granberry v. Jet Blue Airways, 228 F.R.D. 647, 650 (N.D.Cal.2005).

In Allison Engine, the court considered a claim of self-critical analysis privilege regarding internal audits of quality control for products supplied to the United States Navy. It applied a four-part test from Bredice v. Doctors Hosp., Inc., 50 F.R.D. 249 (D.D.C.1970):

(1) the information must result from self-critical analysis undertaken by the party seeking protection; (2) the public must have a strong interest in preserving the free flow of the type of information sought; (3) the information must be of the type whose flow would be curtailed if discovery were allowed; and (4) no documents should be accorded the privilege unless it was prepared with the expectation that it would be kept confidential.

Allison Engine, 196 F.R.D. at 312.

The court rejected the privilege in that case, noting that the privilege had rarely been applied and that its very rationale had been called into doubt.   Id. at 313.See also Wade v. Washington Metropolitan Area Transit Authority, 2006 WL 890679 at * 5 (D.D.C.2006)(the privilege is “rarely recognized.”)

Even if the Sixth Circuit has or would adopt the privilege, National would not meet all four elements of the test set forth above. National argues that the documents requested from Hanna relate to an evaluation that National hired Hanna to perform of National’s classification of employees as exempt or non-exempt under the FLSA. However, clearly not all the information contained in documents relating to the evaluation are necessarily protected by the privilege:

The privilege is not absolute. It applies only to analysis or evaluation, not the facts on which evaluation is based. See In re: Crazy Eddie Securities Litigation, 792 F.Supp. 197, 205 (E.D.N .Y.1992). Courts have protected analytical or evaluative information but allowed discovery of factual information. See Troupin, 169 F.R.D. at 550. Under the privilege, parties are not required to reveal self-critical analyses, but must produce data or statistical information. See Roberts v. National Detroit Corp., 87 F.R.D. 30, 32 (E.D.Mich.1980). Information, documents or records otherwise available from other sources are not immune from discovery. See Shipes, 154 F.R.D. at 307 (citing Hollowell v. Jove, 247 Ga. 678, 279 S.E.2d 430, 434 (1981)). Additionally, this is a qualified privilege and it can be overcome by showing extraordinary circumstances or special need. See Reichhold Chem. Inc., 157 F.R.D. at 527. The privilege must be balanced against the opposing party’s need for discovery. See In re: Crazy Eddie Securities Litigation, 792 F.Supp. at 205Allison Engine, 196 F.R.D. at 315.

The subpoena requests “all documents relating or pertaining to any review(s), audit(s), consulting or human resources management-related work performed by you for [National] regarding its policies or procedures concerning payment of overtime and/or classification of employees for overtime purposes,” and “all communications between you and anyone with [National] related to its policies or procedures concerning payment of overtime and/or classification of employees for overtime purposes.”

National has produced no evidence at all regarding the kinds of information contained in the documents requested, i.e., whether the information is “analysis” or “evaluation” or whether the information is “factual.” Thus, the Court has no basis for finding any of the documents are privileged.

Further, the privilege is most often applied in cases involving public health or safety. First Eastern Corp. v. Mainwaring, 21 F.3d 465, 467 n. 1 (C.A.D.C.1994). In fact the privilege was “initially developed to promote public safety by encouraging businesses to voluntarily evaluate their safety procedures. Morgan v. Union Pacific R. Co., 182 F.R.D. 261, 265 (N.D.Ill.1998)(citing Bredice v. Doctors Hosp. Inc., 50 F.R.D. 249, 251 (D.D.C.1970)). “Because production of such documents ‘would tend to hamper honest, candid self-evaluation geared toward the prevention of future accidents,’ the doctrine evolved in order ‘to prevent a ‘chilling’ effect on self-analysis and self-evaluation prepared for the purpose of protecting the public by instituting practices assuring safer operations.’ “ Id. (citing Granger v. National R.R. Passenger Corp., 116 F.R.D. 507, 508-509 (E.D.Pa.1987)).

While the privilege has been applied in other settings, the “essence of the privilege is the value to the public of continuing the free flow of the type of information created by the analysis. Consequently, the inquiry focuses on the public policy requirement, that is, whether disclosure of material generated by a party’s self-critical analysis will discourage or curtail future such studies.” Drayton v. Pilgrim’s Pride Corp., 2005 WL 2094903 at *2 (E.D.Pa.2005).

The assessment at issue in this case involved National’s classification of employees as exempt or non-exempt under the FLSA. National argues that it hired Hanna to develop and implement a compensation structure for the company including an evaluation of National’s classification of employees as exempt or non-exempt under the FLSA. Disclosure of that assessment will not inhibit National from conducting further such assessments. In order to pay its employees, it obviously must continue to classify them as exempt or non-exempt. Thus, to the extent that the Hanna report contained any “evaluation” or “analysis,” National must continue to engage in that analysis in order to pay its employees and avoid liability under the Act.

The privilege has been extended to employment cases to “protect business entities which are legally mandated to critically evaluate their hiring and personnel policies.” Morgan v. Union Pacific R. Co., 182 F.R.D. 261, 265 (N.D.Ill.1998). However, the rationale for the privilege in employment cases is different than it is for tort cases. While, “the justification for the privilege in tort cases is to promote public safety through voluntary and honest self analysis,” id., the privilege in employment cases is meant to “protect those businesses that are required to engage in critical self-evaluation from exposure to liability resulting from their mandatory investigations.” Id. To the extent that Hanna’s assessment contained any “evaluation” or “analysis,” National has pointed to no law requiring such an evaluation.

For all these reasons, the Court hold that the Hanna documents are not protected under the self-critical analysis privilege.

Next the Court addressed Defendants’ argument that the documents sought were not relevant.  Rejecting this argument, the Court explained, “National objects that the documents sought are not relevant to the Plaintiffs’ action and Hanna has joined in that objection. National argues that the Plaintiffs are IT Support Technicians in Texas but that the subpoena seeks information about every National employee and that it seeks information beyond the classification of those employees under the FLSA.

The Plaintiffs argue that the documents are relevant to the “good faith” defense to the imposition of liquidated damages under the Act and to the extended statutory limitations period for “willful violations” of the Act. National has asserted the good faith defense and has denied any willful violations or purposes of extending the limitations period. The Plaintiffs argue that the defense “delves into the mind of the employer” and, thus, communications with Hanna regarding interpretation and application of the FLSA are relevant.

The Court agrees with the Plaintiffs that National’s communications with Hanna regarding the FLSA classification of its employees for overtime purposes is relevant to National’s “good faith” and “willfulness.” The subpoena is confined to documents regarding “payment of overtime and/or classification of employees for overtime purposes.” Accordingly, the documents requested in the subpoena are discoverable.”

EDITOR’S NOTE:  Within days of the issuance of the Order in this case, a court within the Northern District of California held that there is no such thing as the “self-critical analysis” privilege.  See Lewis v. Well Fargo & Co., 2010 WL 890183 (N.D.Cal. March 12, 2010).

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S.D.Fla.: Where Defendant Demonstrated Subjective Component Of Good Faith, But Failed To Show Objective Good Faith, Liquidated Damages Appropriate

Wajcman v. Investment Corp. of Palm Beach

Following a verdict in favor of Plaintiffs, on their claims that Defendant violated the FLSA, by illegally allowing certain employees to share in the tip pooling, the issue before the Court was whether Defendant had presented sufficient evidence to demonstrate that its violation of the FLSA occurred in good faith and under the reasonable belief that it was compliant with the FLSA. Because, the Defendant were able to show only subjective good faith (consult with an attorney), the Court awarded full liquidated damages.

The Court explained, “To satisfy the good faith requirement, an employer must show that it acted with both subjective and objective good faith ( Rodriguez, 518 F.3d at 1272), and “upon such reasonable grounds that it would be unfair to impose upon [it] more than a compensatory verdict.” Bozeman v. Port-O-Tech Corp., 2008 WL 4371313, * 15 (S.D.Fla. Sept. 19, 2008)(quoting Joiner, 814 F.2d at 1538)). To demonstrate the subjective component, an employer must show that it had “an honest intention to ascertain what the FLSA requires and to act in accordance with those requirements.” Feniger v. Cafe Aroma, 2007 WL 853735, *3 (M.D.Fla. March 16, 2007)(citing Dybach v. State of Fla. Dep’t of Corr., 942 F.2d 1562, 1566 (11th Cir.1991)). Proving the objective component of the good faith defense requires the employer to demonstrate that it had a reasonable belief that its conduct conformed with the FLSA. See Chao v. Tyson Foods, Inc., 568 F.Supp.2d 1300, 1322 (N.D.Ala.2008). If the employer can demonstrate that it had both a subjective belief that it was compliant with the FLSA and that it also had an objectively reasonable basis for its belief, then the Court may apply the safe harbor provision and limit or deny an award of liquidated damages. See Stevenson v. Orlando’s Auto Specialists, Inc., 2008 WL 4371830, *4 (M.D.Fla. Sept. 23, 2008). “Absent a showing of both the subjective and objective elements of the good faith defense, liquidated damages are mandatory.” Dybach v. State of Fla. Dept. of Corrections, 942 F.2d 1562, 566-67 (11th Cir.1991)(citation omitted ).

Here, with regard to the subjective component, the Court finds that Defendant has demonstrated that it had “an honest intention to ascertain what the FLSA requires and to act in accordance with those requirements.” Feniger v. Cafe Aroma, 2007 WL 853735, *3 (M.D.Fla. March 16, 2007)(citing Dybach v. State of Fla. Dep’t of Corr., 942 F.2d 1562, 1566 (11th Cir.1991)). This finding is based on Ms. Lampman’s testimony that she consulted with attorneys, familiarized herself with the law, and ascertained the tip pooling practices of other cardrooms in the local area before implementing Defendant’s tip pool. These activities are sufficient to show that Defendant made some effort to “investigate potential liability under the FLSA.” Feniger, 2007 WL 853735 at *3 (quoting Barcellona v. Tiffany English Pub., Inc., 597 F.2d 464, 469 (5th Cir.1979)). Additionally, Ms. Lampman’s decision to include the floor supervisors in the tip pool, based on what she perceived to be their sufficient level of customer interaction, while excluding other positions that she believed did not have the requisite level of interaction with the patrons, demonstrates an intent to comply with the FLSA.

However, the Court finds that Defendant’s belief regarding its FLSA compliance was not objectively reasonable. First, there are a number of cases which suggest that an employee’s level of customer interaction is the most significant factor in evaluating whether he qualifies as a “tipped employee” under the FLSA. See Roussell v. Brinker Intern., Inc., 2008 WL 2714079 at *7, * 10 (S.D.Tex. July 9, 2008)(agreeing with the Sixth Circuit that the level of customer interaction is “highly relevant ” and that the extent of an employee’s interaction with customers is “critical ” in determining whether an employee may participate in a valid tip pool)(emphasis added)(citing Myers v. Copper Cellar Corp., 192 F .3d 546, 550 (6th Cir.1999); Kilgore v. Outback Steakhouse of Florida, Inc., 160 F.3d 294, 300-02 (6th Cir.1998)). See also Morgan v. SpeakEasy, LLC, 2007 WL 2757170, * 18 (N.D.Ill. Sept. 20, 2007)(court focused on employees’ customer related activities to determine whether they were properly included in tip pool); Townsend v. BG-Meridian, Inc., 2005 WL 2978899, *7 (W.D.Okla. Nov. 7, 2005)(same).

Here, however, the bulk of the evidence before this Court suggests that the floor supervisors in Defendant’s cardroom had only de minimus customer interaction. Although the written job description mentions that floor supervisors will have “[d]aily contact with customers,” the evidence demonstrates that such contact did not rise to the level of customer interaction usually associated with a tipped employee. Indeed, the testimony at trial indicated that the floor supervisors’ interaction with customers was sporadic and only on an as-needed basis for dispute resolution or when hosts, chip runners or waitresses were unavailable. As their job description sets forth, the floor supervisors’ primary responsibility was to supervise the employees on the cardroom floor, which included assigning the dealers’ table rotations, their break times and ensuring employees’ compliance with the dress code.

Based on this testimony, the Court finds that Defendant overstated the customer interaction component of the floor supervisors’ duties to justify their inclusion in the tip pool. The Court further finds that Defendant underestimated the significance of the “customer interaction” test, relying too heavily on industry practice to support its decision to include the floor supervisors in the tip pool. This combination of errors resulted in Defendant’s grossly miscalculated conclusion that the floor supervisors were proper participants in the tip pool. Indeed, the jury’s verdict suggests that an average person outside the gaming industry would not agree with Defendant’s characterization of the floor supervisors as having significant customer interaction and such a skewed perception cannot be construed by this Court as objectively reasonable. See Kennedy v. Critical Intervention Services, Inc., 199 F.Supp.2d 1305, 1307-08 (M.D.Fla.2002)(although court found employer to have satisfied subjective good faith based on its investigation of the FLSA in an effort to avoid violating it, court found employer’s belief that it was compliant with the FLSA was not supported by the evidence and was not objectively reasonable; in reaching this conclusion court relied on jury’s verdict that plaintiff was not an exempt employee). See also Brandt v. Magnificent Quality Florals Corp., 2009 WL 899922, *3 (S.D.Fla. March 31, 2009) (even though employer was aware of FLSA overtime requirements, his belief that his employees never worked more than 40 hours was not supported by the evidence and, thus, was not objectively reasonable).”

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S.D.N.Y.: Despite Evidence Of Good Faith, Court Constrained By Jury’s Finding Of Willfulness As To Defendants’ FLSA Violation; Liquidated Damages Due

Scott v. City of New York

Over fifteen thousand current and former New York City police officers and detectives (Plaintiffs) asserted that the City of New York and the New York City Police Department (“Defendants”) systematically violated plaintiffs’ overtime rights under the Fair Labor Standards Act (“FLSA”). This lawsuit addressed the policies and practices of the nation’s largest police department, and plaintiffs claim hundreds of millions of dollars in damages based on defendants’ alleged failures concerning the accrual, use, and payment of overtime.  Before the Court was the issue of whether defendants may be relieved from the FLSA’s liquidated damages provision on account of a good faith attempt to comply with the statute.  Although evaluating the evidence presented by the Defendants of good faith, the Court noted that it was bound to find a willful violation, based on the juries prior finding of willfulness:

“If this Court were free to determine independently whether defendants acted in good faith, I would address evidence presented at trial concerning defendants’ consultation of in-house lawyers and outside counsel, along with other compliance efforts. However, the Second Circuit has squarely held-along with the majority of other Circuit that a district court may not find good faith after a jury has concluded that the employer willfully violated the FLSA. Therefore, I decline to find that defendants acted in good faith and hold that plaintiffs are entitled to liquidated damages in equal amount to compensatory damages resulting from the chart claim and the regular rate claim.”

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11th Cir.: Employer’s Payment Of Wages 7-8 Days After Pay Period Ended Not FLSA Violation; No Liquidated Damages Due

Benavides v. Miami Atlanta Airfreight, Inc.

Plaintiffs sought liquidated damages for untimely payment of their wages under the FLSA.  The crux of Plaintiffs’ complaint was that Airfreight’s policy of paying its employees seven to eight days after the pay-period ended-without justification for the delay-violates the FLSA.

Section 206(b) of the FLSA provides that “[e]very employer shall pay to each of his employees … who in any work week is engaged in commerce or in the production of goods for commerce … not less than the minimum wage rate….”29 U.S.C. § 206(b). Although the FLSA specifies no time within which wages must be paid, liquidated damages may be available if the employer fails to pay wages or overtime on the regular payment date. See Atlantic Co. v. Broughton, 146 F.2d 480, 482 (5th Cir.1945). And we will assume that a “regular payment date” may be so far distant from the pay period to which payment relates to state a violation of the FLSA minimum wage. But we are cited to no cases that have concluded that seven or eights days’ payment in arrears-the time between the end of the pay period and Airfreight’s regular payment date-is actionably unreasonable or untimely.  No requirement exists that wages be paid simultaneously with the end of the pay period. We see no support in the FLSA or in case law for Plaintiffs’ conflation of the end of the pay period and the regular pay date.

Olsen v. Superior Pontiac-GMC, Inc., 765 F.2d 1570 (11th Cir .1985), cited by Plaintiffs, is not on point. Olsen addressed whether commissions paid to car salesmen could be carried forward. Olsen concluded that the carry-forward-payment sequence was allowable only if the employee actually received the minimum wage for each pay period. The district court committed no error in granting summary judgment to Airfreight: Plaintiffs failed to show that Airfreight’s practice of paying wages seven to eight days after the wages accrued violates the FLSA.

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