Category Archives: Willfulness

9th Cir.: Finding of Willfulness Affirmed Where Defendant Involved in Prior Related Litigation; Offsets Applied on a Workweek-By-Workweek Basis

Haro v. City of Los Angeles

This case was on appeal by the Defendant, City of Los Angeles, following an order granting the plaintiffs summary judgment on their claims. Specifically, city fire department dispatchers and aeromedical technicians brought action challenging city employer’s classification of them as employees “engaged in fire protection,” for purpose of standard overtime exemption under Fair Labor Standards Act (FLSA). As discussed here, in addition to finding—as a matter of law—that the defendant has misclassified the employees at issue as exempt from the FLSA’s overtime provisions, the court below also held that such misclassification was willful and that any offsets claimed were limited in application to the weeks in which the monies paid for the alleged offsets were paid to plaintiffs.

Addressing the facts relevant to the willfulness issue, the Ninth Circuit explained:

In 1985, the Supreme Court held that FLSA overtime requirements apply to governmental functions. Garcia v. San Antonio Metro. Transit Auth., 469 U.S. 528, 531, 105 S.Ct. 1005, 83 L.Ed.2d 1016 (1985). That same year, the City sent the Department of Labor a letter with twenty questions regarding application of the FLSA to City employees, including Fire Department paramedics. The City did not inquire as to dispatchers or aeromedical technicians.

In 1997, in Acrich v. City of Los Angeles, single-function paramedics (those paramedics not also trained as firefighters) sued the City, asserting they were improperly classified under § 207(k). In 1999, the City again contacted the Department of Labor regarding whether single-function paramedics were “fire protection” employees under the FLSA. The City settled Acrich in 2000, after which it began paying single-function paramedics the standard overtime rate of time and a half for hours worked over forty in a workweek.

In 1999, in Cleveland v. City of Los Angeles, dual-trained paramedics (those trained as both paramedics and firefighters) and Quality Improvement Analysts sued the City, asserting that they too had been improperly classified under § 207(k). After a bench trial, the district court held that the City had improperly classified these employees. The district court also ruled that the City had not acted reasonably or in good faith, and awarded liquidated damages equal to the plaintiffs’ back pay. The City appealed as to the paramedics, but not as to the Quality Improvement Analysts. This court affirmed the district court’s ruling in August 2005. See Cleveland v. City of Los Angeles, 420 F.3d 981 (9th Cir.2005) (Pregerson, J.), cert. denied, 546 U.S. 1176, 126 S.Ct. 1344, 164 L.Ed.2d 58 (2006).

Citing these facts, and the fact that the defendant itself never considered the plaintiffs to be exempt until they attempted to raise an exemption defense in the course of the litigation of the case, the Ninth Circuit held that the court below had properly deemed the defendant’s FLSA violations to be willful:

The City’s conduct in this case was willful, thus entitling Plaintiffs to a three-year statute of limitations. The City has extensively litigated the meaning of § 207(k). In 2002, the district court in Cleveland ruled that the City was in violation of § 207(k) as to dual-trained paramedics and those who held desk job positions as Quality Improvement Analysts. The City did not appeal as to the Quality Improvement Analysts, and lost on appeal as to the paramedics. Yet at no time thereafter did the City take any steps to obtain an opinion letter from the Department of Labor regarding Plaintiffs’ positions, although it had done so as to other employees. Ignoring these red flags and failing to make an effort to examine the positions at issue in this case show willfulness.

Also, the City itself appears not to have viewed dispatchers as “engaged in fire protection” until this case was underway. When this lawsuit began, the City had assigned dispatchers to the Bureau of Support Services, which included the Supply and Maintenance Division, Fire Facilities Division, and Operations Control Division. The Fire Department’s Manual of Operations states that the primary objectives of the Bureau of Support Services include “the dispatching of resources and equipment to the scene of emergencies; operation of the Department’s … Dispatch Center … and the development, maintenance and repair of Fire Department Facilities.” Three months before the parties entered into their mutual stipulation of facts, however, the City reassigned the dispatchers to the Bureau of Emergency Services, which, according to the Manual of Operations, includes “[a]ll personnel normally engaged in fire fighting …” The timing of this reassignment provides further evidence that the City’s behavior was willful.

Thus, we affirm the district court’s finding that the City’s conduct was willful and justifies a third year of withheld overtime pay.

The Ninth Circuit then went on to discuss the proper methodology for calculating damages, where a defendant claims an offset for monies already paid to the employees and claims same as partial payment for overtime wages, an issue of first impression in the Ninth Circuit and one in which the Circuits are in conflict. Framing the issue, the Court explained:

The district court issued an order selecting Plaintiffs’ calculation method. The district court first noted that circuits are split over whether a workweek-by-workweek method must be used, and the Ninth Circuit has not yet addressed the issue. While the Sixth and Seventh Circuits have ruled that a week-by-week offset must be used, the Fifth and Eleventh Circuits have held that offsets may be applied cumulatively over longer periods of time. The district court was persuaded by the reasoning of the Sixth and Seventh Circuits.

Holding that the FLSA mandates a workweek-by-workweek application of any applicable offsets, the Court explained:

There is still, however, a split of authority over how to calculate offsets, and the Ninth Circuit has not yet decided the matter. The reasoning from circuits supporting a week-by-week offset is persuasive. In Howard v. City of Springfield, 274 F.3d 1141 (7th Cir.2001), the Seventh Circuit disagreed with the defendant that offsetting on a workweek basis would create an undeserved windfall. Id. at 1148. The court noted that

if the City were able to use premium payments [in a cumulative fashion], the City would be the recipient of the windfall, and in fact would be placed in a substantially better position than if it had complied with the overtime requirements of the FLSA all along…. It is contrary to the language and the purpose of the statute. Id.

Likewise, in Herman v. Fabri–Centers of America, Inc., 308 F.3d 580 (6th Cir.2002), the Sixth Circuit extensively reviewed the FLSA’s plain language, caselaw, and § 207(h)‘s legislative history to find in favor of a workweek restriction. Id. at 586–90.

Both the Seventh Circuit in Howard and the Sixth Circuit in Herman note that the Department of Labor’s regulations implementing the FLSA support prompt payment of overtime, suggesting that overtime payments should be credited within the same workweek in which they were paid:

The general rule is that overtime compensation earned in a particular workweek must be paid on the regular pay day for the period in which such workweek ends. When the correct amount of overtime compensation cannot be determined until some time after the regular pay period, however, the requirements of the Act will be satisfied if the employer pays the excess overtime compensation as soon after the regular pay period as is practicable. Payment may not be delayed for a period longer than is reasonably necessary for the employer to compute and arrange for payment of the amount due and in no event may payment be delayed beyond the next payday after such computation can be made. Howard, 274 F.3d at 1148 (citing 29 C.F.R. § 778.106); Herman, 308 F.3d at 589.

The City cites alternative, yet unpersuasive, caselaw supporting a cumulative approach. In Kohlheim v. Glynn County, 915 F.2d 1473 (11th Cir.1990), the Eleventh Circuit held that previously-paid overtime can be cumulatively offset against the damages calculated. Yet the court summarily decided the issue, citing no supporting authority. Id. at 1481.

Likewise, in Singer v. City of Waco, 324 F.3d 813 (5th Cir.2003), the Fifth Circuit affirmed the district court’s cumulative offset calculation. Yet that case is inapposite, as the court explicitly stated that ” § 207(h) does not apply in this case,” and that ” § 207(h), and the cases interpreting it, are inapplicable.” Id. at 827.

We thus affirm the district court’s decision that previously-paid overtime should be offset using a week-by-week calculation.

Click Haro v. City of Los Angeles to read the entire Opinion.

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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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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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W.D.Va.: Dollar General “Store Manager” May Have Been Misclassified As Executive Exempt; Defendant’s Motion For SJ Denied

Hale v. Dolgencorp, Inc.

This case was before the Court on Defendant’s Motion for Summary Judgment.  Defendant asserted the Plaintiff, the “Store Manager” of its Dollar General store was properly classified as exempt from the Fair Labor Standard Act’s (“FLSA”) overtime provisions, under the executive exemption.  Citing factual issues, that needed to be resolved by a jury, the Court denied Defendant’s Motion however.

The Court conducted a detailed factual inquiry in reaching its holding, as is typical in most exemption cases:

“Dollar General operates a chain of discount retail stores located around the country. Hale was hired as a full-time clerk in one of the stores in 1996. Initially, she earned $4.75 per hour and worked as a clerk until January 1997, when she was promoted to a position known as “third key.” A third key worker is a clerk who can open and close the store, and may take deposits to the bank. A year later, in 1998, Hale was promoted to assistant store manager. During this period she transferred from her original store to several different Dollar General stores in Southwest Virginia. With each promotion Hale also received a pay raise. She was promoted to the position of store manager in November 1999, and she worked in this position until July 2003, when she left the company for a new job.

During her tenure as a store manager, Hale was paid a weekly salary and she was eligible for bonuses based upon her store’s profitability. In the four years that she managed a store, Hale received one bonus for $1,182.02. Her salary as a manager ranged from $313 per week to $431 per week. As a manager Hale estimated that she averaged between sixty to seventy hours of work per week. In her management position, Hale was not required to punch a time clock and the company did not pay her overtime.

The parties in this case agree that Hale made more than $250 and her work included the regular direction of two or more employees. The central issue thus is whether Hale’s primary duty consisted of management.

Contrary to the defendant’s assertion, it is not particularly helpful to compare Hale’s situation to that of other discount store managers, such as the one described in Grace v. Family Dollar Stores Inc., No. 3:08 MD 1932, 2009 WL 2045784 (W.D.N.C. July 9, 2009). The question here centers upon the facts of Hale’s employment. I must, therefore, perform a fact-intensive inquiry as to each prong of the five-factor test as applied to Hale in order to determine whether the management issue can be decided as a matter of law.

Although the plaintiff’s estimate of time spent on managerial tasks is important, it has been held that “ ‘when non-management duties are performed simultaneous to the supervision of employees or other management tasks” this supports a finding “ ‘that the employee’s primary duty is managerial.’ “ Jones, 69 F. App’x at 637 (quoting Horne v. Crown Cent. Petroleum, Inc., 775 F.Supp. 189, 190 (D.S.C.1991)).

Hale stated she spent ten percent of her time, about six hours each week, performing management duties such as ordering supplies and scheduling workers. The remainder of her time was spent performing menial labor: cleaning restrooms, scrubbing floors, checking out customers, and stocking shelves.

Hale’s district manager determined how many labor hours each store was allotted. As a store manager, Hale was responsible for scheduling employees according to the district manager’s allotment of labor hours. Hale’s primary concern was making certain she had enough staff to unload supply trucks and place merchandise on the store floors on “truck day.” (Hale Dep. 274.) Dollar General required stores to place stock on the floor within twenty-four hours of a supply truck’s arrival. The store referred to this as their “door-to-store in 24” strategy. (Hale Dep. 278.) Hale would save her staff’s hours for truck day so merchandise could be placed in the store within twenty-four hours. During the rest of the week, Hale had to run the store with a skeleton crew.

To save labor hours for truck day, Hale worked alone in the store for about four hours every day during her ten-hour shift. During this time she manned the cash register, which could not be left unattended. When staff was in the store with her, Hale would have the other individual man the register while she stocked merchandise on shelves according to the company’s “Plan-O-Grams.” A Plan-O-Gram was a chart that instructed employees where to place specific merchandise within a store. Typically, ninety percent of Hale’s store was organized according to the Plan-O-Gram, with the remaining ten percent stocked according to rules prescribed by Dollar General and Hale’s discretion. (Hale Dep. 125-128.)

In response to questions from defense counsel in her deposition, Hale admitted that she was always thinking about how to manage her store even when she performed menial labor such as stocking shelves or cleaning. (Hale Dep. 205-207.) Hale’s answer, however, did not indicate that she actively managed the store while performing menial labor. Rather, she performed menial tasks and at the same time she pondered ways to clean the store or organize merchandise.

The defendant argues that a reasonable jury “could only” conclude that these facts demonstrate Hale’s primary duty was management. (Def.’s Individual Reply Br. 6.) But, in fact, a reasonable juror could reach the opposite conclusion. Based upon these facts, a juror could decide that Hale spent very little time managing the store. Hale spent forty percent of her time alone in the store, during which she supervised no one and she performed tasks typically done by a clerk. A juror could conclude that her mental management of the store, such as spotting empty shelves while performing menial labor, did not constitute management or supervision of others. Further, a reasonable juror could determine that the company’s strict policies and stringent allocation of staff labor hours resulted in Hale forgoing true management duties in order to perform menial tasks so the store could simply remain open. Thus, a genuine issue of material fact exists as to whether Hale’s primary duty was management, or, whether Hale essentially performed a clerk’s duties under a different title and pay scale.

Dollar General argues that it principally valued Hale’s management abilities. This is evidenced, the defendant asserts, by the fact that Hale had to take a test to become a manager and that Hale’s district manager transferred Hale to two different locations to “rescue” the troubled stores. (Id.) Further evidence of the store’s emphasis on Hale’s management duties was Hale’s salary-she earned more than any other employee in the store-and the fact that she could receive a bonus based upon the profitability of her store. The defendant also notes that Hale was subject to very little supervision because the district manager only visited Hale’s location once every few months for twenty to thirty minutes. The company asserts that this shows that it trusted Hale’s management abilities and that she was the individual responsible for the store’s overall performance.

Although Dollar General asserts that these facts indicate Hale’s management duties were the most important tasks that she performed, a reasonable juror could reach a different conclusion.

Hale’s deposition testimony emphasizes that she spent a significant amount of time alone in the store manning the cash register. Further, the company frequently sent Hale to a store in nearby West Virginia where she spent the day stocking shelves. While Hale testified that her district manager, Judy Spangler, never interfered with her ability to perform her duties, a possible reason for this was that Spangler did not have enough time to frequently visit Hale’s store or to spontaneously review Hale’s work. As Hale testified, Spangler served as the district manager for twenty to thirty stores within in a 200-mile radius. In addition, Spangler worked from an office located three hours away from Hale’s store. Hale testified that Spangler left frequent voice mails for her, which included detailed instructions on running the store. Under Dollar General’s policies, the company expected store managers to immediately report issues to district managers, which Hale did. The company’s policies did not instruct store managers to wait for a district supervisor’s visit to discuss issues or problems.

Based upon these facts, a reasonable juror could conclude that Dollar General valued Hale’s ability to quickly stock shelves, man a cash register, and serve as an employee who promptly informed her superior about problems. Hale’s testimony could lead a juror to conclude that what Dollar General truly valued was Hale’s unquestionable compliance with company rules and her ability to promptly report problems to a supervisor who could then decide how to proceed.

As a store manager, Hale interviewed and recommended candidates for hiring, trained employees, conducted employee performance evaluations, created employees’ work schedules, and recommended employees for raises, promotions and terminations. While Dollar General permitted Hale to perform these tasks, she did so under rules that a reasonable juror could interpret as severely limiting the frequency with which Hale truly exercised discretion.

Although Hale created work schedules, she had no control over the amount of labor hours allotted to the store. Given the company’s emphasis on its “door-to-store in 24” policy, Hale had almost no discretion with scheduling staff because her primary focus was to make sure she had enough staff for truck day. Hale was unable to discipline or terminate employees unless the district manager directed her to do so. While Hale could recommend that employees receive raises or promotions, the district manager decided whether to adopt such recommendations. Further, the company’s standard operating procedures dictated, with step-by-step directions, how Hale should respond to numerous issues, such as angry customers, answering the phone, and store operations during possible weather emergencies.

Hale testified that the true amount of discretion she exercised depended upon the specific task at hand. When it came to general staff issues on a day-to-day basis, things were “pretty open.” (Hale Dep. 280.) But, when she made decisions about inventory, procedures, and stocking shelves, Hale “didn’t feel like [she] had that much discretion….” (Id.)

Dollar General argues that Hale had the discretion to manage inventory and to mark down items, but Hale testified that she never discounted an item unless she had express permission from her district manager. The defense asserts that Hale had discretion as to what she placed within the “flex-space” that constituted ten percent of the store’s floor area. But, even within this space, Hale had to adhere to company policies such as placing related items near one another.

Given these facts, it would be rational for a juror to conclude that in reality, the company’s policies left little for Hale to decide and therefore, she did not frequently exercise her discretion.

Hale testified that Spangler, the district manager, spent relatively little time inside Hale’s store. Hale testified that Spangler was in the store for eight to ten hours during inventory visits. Outside of inventory days, Spangler was in the store for about twenty minutes every two to three months.

Clearly, the record demonstrates that Hale had little face-to-face contact with her supervisor. This factor weighs in favor of the exemption. But the record does not show that Hale was genuinely free from supervision. Rather, Hale’s testimony indicates that she knew she did not have the freedom to make unfettered decisions about employee pay, promotions, terminations, or punishment. Further, Hale was constantly reminded by Spangler’s frequent voice mails or in-store visits that she had to closely adhere to Dollar General’s rules regarding placement of merchandise, store cleanliness, and other customer relations policies such as greeting customers within ten feet of entry.

Viewing the evidence at this stage most favorably to Hale, it appears that her decisions about merchandise and store procedures were dictated by company policies, from which she could not deviate. So while Spangler did not personally supervise Hale on a day-to-day basis, Hale had little freedom from the supervisory rules and regulations outlined in Dollar General’s corporate publications and ultimately enforced by Spangler.

Hale testified that on average, she worked sixty to seventy hours. Prior to her departure from Dollar General, Hale earned $431 per week. When she started as a manager, her pay was $313 per hour. Converted to an hourly rate, Hale’s salary ranged from $4.47 to $5.21 when she began as a manager, and between $6.16 and $7.19 per hour when she left the company. The actual hourly rate depends upon whether Hale’s salary is based upon her minimum work week, sixty hours, or the higher end of her average work week, seventy hours.

During the time Hale worked as a manager, the federal minimum wage was $5.15. When Hale left the company in 2003, the lowest paid clerk earned $5.60 per hour. (Hale Dep. 112). At that same time, assistant managers earned about $7 per hour.

Hale was also eligible for bonuses and during her tenure as a manager she received one for $1,182. The bonus paid to Hale weighs against a finding that Hale’s salary was similar, or close to, the salary of an hourly worker because Hale earned a ten percent bonus based upon the store’s profit while the remainder of the profit was pro-rated among lower-paid employees.

The analysis of Hale’s salary, however, when converted to an hourly rate, weighs toward a finding that Hale essentially earned the same as a clerk. For example, had a clerk earning $5.60 per hour, the lowest paid salary in Hale’s store, worked a sixty-hour week, she would have earned $224 for the first forty hours, and time and a half, or $168, for the next twenty hours. If this clerk worked a sixty-hour week she would earn $392 to Hale’s $431. If the same clerk worked seventy hours, she would earn $476 to Hale’s salary of $431. Thus, only when Hale worked a sixty-hour week would she earn slightly more than an hourly employee. Given these facts, a reasonable juror could determine that this factor weighs in favor of Hale and demonstrates that her primary duty was not management.

Whether Hale’s primary duty consisted of management is a question which must be answered by a jury. Based upon the applicable five-prong test, a reasonable juror could determine that Hale’s primary duty was not management. Thus, summary judgment in favor of the defendant is inappropriate.”

Similarly, the Court denied the branch of Defendant’s Motion seeking summary judgment regarding the alleged willful nature of its FLSA violations.

The Court’s analysis and holding was starkly similar to another case, recently discussed here, where another Court held that issues of fact required a jury determination of whether a Dollar General “Store Manager” was exempt under the executive exemption.

EDITOR’S NOTE:  On July 8, 2010, another Court reached virtually the same decision, regarding another claim alleging that a Dollar General “Store Manager” was improperly denied overtime.  In that case, Kanatzer v. Dogencorp, Inc., No. 4:09CV74 CDP (E.D. Mo. July 8, 2010), the Court denied Defendant’s motion for summary judgment, citing to factual issues regarding the applicability of the executive exemption.

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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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