Tag Archives: Good Faith

E.D.Pa.: Late Payment of Wages Constitutes Non-Payment of Wages, Subjecting Employer to Liquidated Damages Under FLSA

Gordon v. Maxim Healthcare Services, Inc.

This case was before the court on the defendant’s motion to dismiss plaintiff’s complaint for failure to state a claim. The issue before the court was whether a defendant/employer who makes payment to its employee of his or her wages, but does so 1 week after such wages are due, is nonetheless liable for liquidated damages under the FLSA. Answering the question in the affirmative, the court held that late payment (in this case 1 week after the regular payday) constituted non-payment under the FLSA, and therefore liquidated damages were due under the FLSA notwithstanding the fact the employer had ultimately made payment of the wages due.

As a starting point for deciding the issue, the court examined the purpose of liquidated damages, as stated previously stated by the Third Circuit:

[t]hese liquidated damages … compensate employees for the losses they may have suffered by reason of not receiving their proper wages at the time they were due.” Id. at 1299 (emphasis added). Our Court of Appeals clearly contemplated that injury from lost wages under the FLSA is to be measured from the payday on which wages are ordinarily to be paid.

Explaining that the Third Circuit had not spoken on the issue subsequent to the 1991 case, Selker, that it quoted, the court turned to the case law from other circuits for guidance on the issue:

[t]he Court of Appeals for the Ninth Circuit cited the Selker decision favorably in Biggs v. Wilson, 1 F.3d 1537, 1542 (9th Cir.1993). There the court undertook a detailed analysis of whether late payment constitutes nonpayment under the FLSA. The issue in that case was whether the State of California, in paying its highway maintenance workers 14–15 days late as a result of a budget impasse, violated the FLSA. Drawing on the language of the statute, mandatory and persuasive authority from other federal courts including Selker, the opinion of the Department of Labor, and policy considerations, the court concluded that payment at a point after payday is tantamount to nonpayment under the FLSA.   Id . at 1539–44. Invited by the state to craft a balancing test to distinguish late payment from nonpayment, the court found that any such line drawing would be unworkable under the statutory scheme and detrimental to employees seeking the statute’s protection. Id. at 1540.

Squaring Third Circuit jurisprudence with that of the Ninth Circuit, the Court held “that late payment of wages is the equivalent of nonpayment for purposes of the FLSA.

The court also rejected the argument that this was an overly harsh result, especially because of the FLSA’s remedial purpose:

This may appear to be a harsh result, causing an otherwise diligent employer who misses payday by a day or two to be subject to liability under the statute. Nonetheless, it must be remembered that the FLSA is to be liberally construed to achieve its purpose. Mitchell v. Lublin, McGaughy & Assocs., 358 U.S. 207, 211, 79 S.Ct. 260, 3 L.Ed.2d 243 (1959). The law is there to protect those who are receiving a minimum wage and are living from paycheck to paycheck. A delay of a few days or a week in the remittance of wages may only be a minor inconvenience to some, but for those at the lower end of the economic scale, even a brief delay can have serious and immediate adverse consequences.

Thus, the court denied the defendant’s motion to dismiss.  

Click Gordon v. Maxim Healthcare Services, Inc. to read the entire Memorandum Opinion.

Editor’s Note:  Within weeks of this decision, the Court of Federal Claims was called upon to rule upon the same issue and agreed with the Gordon court’s analysis and holding.  In the context of government workers, whose paychecks were delayed approximately 2 weeks, by the government’s shutdown in the fall of 2013, the court held that late payment constitutes non-payment, such that the FLSA’s liquidated damages provisions were triggered.  Click Martin v. United States to read the Opinion and Order in that case.

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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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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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M.D.Fla.: Applying Twombly, Defendant’s Assertion of Generalized Affirmative Defense of “Good Faith” Struck, Due to Insufficient Facts

Drzik v. Haskell Co.

This case was before the court on Plaintiff’s motion to strike several affirmative defenses pled by Defendant as factually insufficient under FRCP 8 and Twombly.  Significantly, the court struck Defendant’s two affirmative defenses asserting that liquidated damages were not due to Plaintiff because Defendant had acted in “good faith” in committing violations, if any, of the FLSA.  The case is significant, because the affirmative defenses struck are asserted in the majority of FLSA defendants’ answers, typically with identical language to that pled here.  Noting that such bare bones allegations do not satisfy the pleading requirements of Rule 8, the court struck the Defendant’s affirmative defense(s) of good faith, with leave to replead with additional facts.

Holding that the Defendant’s allegations of good faith were insufficient as pled, the court explained:

“[Defendant’s] Third and Fifth Affirmative Defenses respectively claim that Plaintiff’s claims are barred because Haskell has acted in good faith, and because of the existence of exceptions, exclusions, or exemptions provided in the FLSA. (Doc. 6 at 6). These affirmative defenses correctly state that a “good faith” defense and exceptions exist under the FLSA. See 29 U.S.C. §§ 207, 260. However, the affirmative defenses, as drafted, are lacking in sufficient details and fail to provide the requisite notice of the theory of the defense. See Twombly, 550 U.S. at 556 (explaining the need for factual support to give defendant fair notice of claims, but equally applicable to defenses). The requirement to include factual support to provide fair notice of claims is also applicable to affirmative defenses. Therefore, if Haskell intends to pursue these defenses it will need to plead some factual basis to give the Plaintiff fair notice of its defense. Therefore, Plaintiff’s Motion is granted as to the Third and Fifth Affirmative Defenses and those defenses are stricken with leave to amend.”

As the trend of defendants filing more and more motions to dismiss based on Twombly continues, it will be interesting to see if we begin seeing an uptick in motions like this, which seek to apply the pleading standards equally to the other side of the “v.”

Click Drzik v. Haskell Co. to read the entire 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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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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