Tag Archives: Liquidated Damages

S.D.N.Y.: Where Defendant Asserted “Good Faith” Defense, It Waived Attorney Client Privilege, Despite Lack of “Reliance on Counsel” Defense

Scott v. Chipotle Mexican Grill, Inc.

This case was before the court on the defendant’s motion for a protective order under Federal Rule of Civil Procedure 26(c) to prohibit plaintiffs from discovery of defendant’s attorney-client communications regarding the decision to classify certain employees as “executives” and thus exempt from overtime pay. As part of its affirmative defenses, the defendant invoked 29 U.S.C. § 259 to claim that it relied on administrative authority in classifying the plaintiffs and is thus free from liability (the “Eleventh Affirmative Defense”), and 29 U.S.C. § 260 for the proposition that it did not act willfully and thus should not be subjected to FLSA’s liquidated damages provision (the “Twelfth Affirmative Defense”). Specifically, the defendant claimed to have relied on state and federal regulations, “but not upon advice of counsel.” Rejecting the defendant’s contention that it preserved the attorney-client privilege notwithstanding its assertion of “good faith,” the court held that attorney-client communications regarding the exempt nature (or lack thereof) of the position at issue were discoverable. After a discussion of the “at-issue” waiver of the attorney-client privilege, in cases where a party places its knowledge (or lack thereof) and good faith at issue, and a discussion of the general principles behind the FLSA’s good faith defense, the court determined that the defendant in this FLSA case had waived the attorney-client privilege by placing its mental state at issue here by claiming a good faith defense:

Chipotle affirmatively invokes § 259 in its Eleventh Affirmative Defense [stating “Pursuant to 29 U.S.C. § 259 and other applicable law, Chipotle’s alleged failure to pay Plaintiffs or any putative class or collective member any of the wages on which Plaintiffs’ claims are based, if at all, was in conformity with and in reliance on an administrative regulation, order, ruling, approval, interpretation, administrative practice, and/or enforcement policy of the United States Department of Labor and any Department of Labor in any of the states in which Plaintiffs allege claims under state law, but not upon advice of counsel.”]. Though it does not specifically name § 260 in its Twelfth Affirmative Defense, Chipotle claims an affirmative defense to FLSA’s liquidated damages, which is necessarily governed by § 260, and therefore its Twelfth Affirmative Defense falls under that provision. See Northrop v. Hoffman of Simsbury, Inc., 134 F .3d 41, 45–46 (2d Cir.1997) (a party need not cite a specific statute in order to invoke it in a pleading).

Despite defendant’s attempt to plead around an “advice of counsel” defense, the court held that they could not, because it was clear that defendant did have the advice of counsel on the very issues for which it claimed good faith, regardless of whether they claimed reliance on same or not:

Yet despite the good faith requirements of both statutory defenses, Chipotle attempts to plead around them by avoiding mention of the advice of counsel, except to disclaim it in the Eleventh Affirmative Defense. Chipotle claims to have invoked only the portions of §§ 259–60 relating to reliance on administrative guidance, rather than any standard of good faith. See Def’s. Br. at 1–2 (“Chipotle does not assert a generalized ‘good faith’ defense … Chipotle set out its affirmative defense, as it is entitled to, in such a way as to remove its ‘state of mind’ from being at issue….”); Answer to Second Am. Compl. at 23. Such artful pleading cannot negate an element of a statutory defense, especially here, where it is evident that Chipotle did in fact have the advice of counsel on the very topic at issue. A defendant may not succeed on an affirmative defense by pleading only some of the necessary elements. As explained supra, Chipotle has invoked two affirmative defenses that require showings of good faith. Here, plaintiffs have shown that Chipotle did in fact have the advice of counsel regarding the classification of apprentices. And knowing whether Chipotle had been advised not to classify the apprentices as exempt is necessary to evaluate the validity of the Eleventh and Twelfth Affirmative Defenses. Thus, the advice of Chipotle’s counsel regarding that classification is plainly “at issue” within the meaning of Bilzerian. Because at-issue waiver is to be “decided by the courts on a case-by-case basis, and depends primarily on the specific context in which the privilege is asserted,” In re Grand Jury Proceedings, 219 F.3d at 183, the Court will examine the specific factual context of this case. Given the substantial similarities between the good faith defenses in §§ 259–60, this analysis will encompass both the Eleventh and Twelfth Affirmative Defenses. At the deposition of David Gottlieb, Chipotle’s corporate representative and Director of Compliance and Field People Support, the witness testified that Chipotle consulted with attorneys in making the classification decision. When asked about the existence of communications regarding the apprentice classification, Mr. Gottlieb admitted that “there were communications. They were in the context of communications and discussions with our lawyers.” Gottlieb Dep. 65:2–4. In fact, Mr. Gottlieb testified that he had “no recollection” of ever communicating with anyone at Chipotle regarding the apprentice classification other than in the presence of his attorneys. Id. at 65:11–15.F In addition, during Mr. Gottlieb’s deposition, Chipotle repeatedly objected on attorney-client grounds and instructed Mr. Gottlieb not to answer questions related to Chipotle’s decision to classify the apprentice position as exempt. For example, Chipotle asserted the attorney-client privilege and directed Mr. Gottlieb not to answer questions about whether Mr. Gottlieb participated in any evaluations regarding the exempt classification position. There are numerous other such examples from the transcript of Mr. Gottlieb’s deposition. See, e.g., Gottlieb Dep. 42:6–16 (refusing to answer question on the research behind the classification after being advised not to disclose any attorney-client communications); id. at 61:18–62:2 (same); id. at 87:14–88:1 (acknowledging counsel were consulted on decision to reclassify apprentices in California). In addition, Chipotle’s privilege log confirms that it received legal advice concerning the apprentice exemption decision. See Ex. D (Def’s Second Am. Privilege Log), No. 2 (February 18, 2011 email from outside counsel to Mr. Gottlieb on the subject of “Legal advice regarding Chipotle’s Apprentice Position.”) Finally, Chipotle’s discovery responses indicate reliance on advice of counsel. Chipotle asserted attorney-client privilege in response to plaintiffs’ document requests and interrogatories that sought information on the decision to classify apprentices as exempt. See, e.g., Ex. C (Def.’s Resps. Pls.’ Fourth Req. Produc. Docs.), No. 28 (asserting privilege in response to request for documents relied upon by Chipotle as basis for decision to classify apprentices as exempt), No. 31 (same for request for documents relied upon by Chipotle as basis for its good faith defenses), No. 32 (same for documents pertaining to or evidencing Chipotle’s decision to classify apprentices as nonexempt under FLSA, NYLL, and Missouri Labor Law) & No. 33 (same for documents related to Chipotle’s contention that apprentices are exempt under administrative or executive exemption).

In light of the clear record demonstrating defendant received legal advice on the very issue on which they claimed good faith, the court held that they could not shield communications with their attorneys about the issue from disclosure:

This evidence overwhelmingly demonstrates that Chipotle did receive legal advice on the apprentice classification decision. And Chipotle does not dispute that it did. Instead, it argues that it is entitled to define its affirmative defense narrowly and in such a way as to remove its state of mind from being at issue. In this regard, Chipotle contends that this case is distinguishable from Wang v. The Hearst Corp., where the same legal question was presented, and the district court found an at-issue waiver of the attorney-client privilege. 12 Civ. 0793(HB), 2012 WL 6621717 (S.D.N.Y. Dec. 19, 2012). In Wang, a sophisticated corporate defendant asserted a § 260 defense to allegations of FLSA wage and hour violations, but invoked attorney-client privilege to block the plaintiff’s discovery of the defendant’s in-house counsel e-mails, claiming that its defense “would ‘not rely, directly or indirectly, on legal advice for its good-faith defense in this case’ and that it had offered to so stipulate.” Id. at *1 (internal citations omitted). A witness from the defendant’s human resources department, however, had indicated in a deposition that questions regarding the collection of school credit letters for unpaid interns (who were allegedly misclassified as such) would be better posed to the legal department. Id. at *2. The court soundly rejected the defendant’s attempt to plead around the requirements of § 260, which it found “amount[ed] to little more than semantics without any concrete examples provided by Defendants. On the other hand, [it found] 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.” Id. Chipotle attempts to distinguish Wang on two grounds: there, (1) the defendant’s affirmative defense explicitly invoked good faith, and (2) testimony was introduced that the legal department, not the human resources department, had responsibility for making the classification decisions at issue. These are not distinctions. As discussed above, Chipotle’s affirmative defenses carry a good faith component even if none is so stated. And Mr. Gottlieb, himself an attorney and responsible for Chipotle’s wage and hour determinations, testified that he was unaware of any communications regarding the apprentice determination that did not involve attorneys, and otherwise refused to answer relevant questions on attorney-client privilege grounds. All told, there is far more evidence here than in Wang that the defendant had, and perhaps ignored, the advice of counsel in classifying its employees as exempt. Given the circumstances in this particular case, “legal advice that [the defendant] received may well demonstrate the falsity of its claim of good faith belief,” Leviton, 2010 WL 4983183, at *3, putting Chipotle’s state of mind at issue. The plaintiffs are therefore “entitled to know if [the defendant] ignored counsel’s advice.” Arista Records, 2011 WL 1642434, at *3 (internal citations and quotation marks omitted).

The court also rejected defendant’s public policy argument which it urged supported upholding the attorney-client privilege, even where a defendant impermissibly sought to use it simultaneously as a shield and a sword:

Chipotle contends that even if Second Circuit case law favors a waiver in this case, such waiver should be overcome by policy considerations. It claims that, should the Court find a waiver here, “every employer in every FLSA case will have to choose between revealing such communications or forfeiting statutory defenses. This is akin to imposing, as a matter of law, an expanded limitations period and 100% liquidated damages risk on every employer in every FLSA case.” Def’s. Reply at 6. Such concerns are misplaced and overstated. First, as stated by both the Supreme Court and the Court of Appeals, liquidated damages are in fact the norm in FLSA cases. This is not a byproduct of a broad reading of the at-issue waiver doctrine. Rather, this is because, by act of the legislature, “the liquidated damage provision is not penal in its nature but constitutes compensation for the retention of a workman’s pay which might result in damages too obscure and difficult of proof for estimate other than by liquidated damages.” Brooklyn Sav. Bank v. O’Neil, 324 U.S. 697, 707 (1945) (citations omitted); see also Herman, 172 F.3d at 142; Reich, 121 F.3d at 71; Brock v. Wilamowsky, 833 F.2d 11, 19 (2d Cir.1987) ( “ ‘[d]ouble damages are the norm, single damages the exception ….‘ “ (quoting Walton v. United Consumers Club, Inc., 786 F.2d 303, 310 (7th Cir.1986))). It is for this very reason, protection of workers as directed by Congress, that defendants face a high bar to mounting a good faith defense to FLSA wage and hour claims. Second, defendants in such situations are not at all required to waive attorney-client privilege to defend against liability. For instance, defendants may assert defenses on bases other than good faith. See Crawford v. Coram Fire Dist., 12 Civ. 3850(DRH)(WDW), 2014 WL 1686203 (E.D.N.Y. Apr. 29, 2014) (upholding denial of discovery of privileged communications where defendant had separate basis for defense that did not rely on good faith); Leviton, 2010 WL 4983183, at *5 (plaintiff did not waive privilege by filing claim where waiver would be useful but not essential to defendants’ defense). In the case at hand, Chipotle has pled a panoply of defenses aside from the two affirmative defenses at issue. If it does not wish to waive its privilege, it may seek leave to amend its answer under Fed.R.Civ.P. 16(b) so that it can forego its good faith defenses and rely instead on its remaining 30 affirmative defenses. See Bilzerian, 926 F.2d at 1293–94 (defendant need not assert good faith defense, but if he does, he waives attorney-client privilege); Answer to Second Am. Compl. at 21–26 (listing Chipotle’s affirmative defenses). Finally, Chipotle claims that a finding of at-issue waiver will discourage companies from seeking advice from counsel. Chipotle predicts that companies will instead be “incentivized to make important decisions concerning critical issues such as employee pay on their own lest they be forced to reveal their confidential and privileged communications.” Def’s. Br. at 2. The Court sees things differently. To the extent Chipotle is found to be liable for overtime violations (a question that is far from answered), and to the extent Chipotle’s counsel advised it against the classification decision it wrongly made, the decision on this motion will only serve to encourage companies to receive competent legal advice and follow it.

Thus, the court held that the defendant had waived the attorney-client privilege by placing its mental state at issue and pleading a good faith defense. Click Scott v. Chipotle Mexican Grill, Inc. to read the entire Opinion & Order.

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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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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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S.D.Fla.: Defendants Did Not Moot FLSA Case By Tender of Unpaid Wages and Liquidated Damages Without Attorneys Fees and Costs

Diaz v. Jaguar Restaurant Group,  LLC

In the first post-Dionne II case, a court in the Southern District has denied an FLSA defendants’ motion to dismiss based on tender of unpaid wages and liquidated damages, absent payment of attorneys fees and costs.  The bizarre procedural history involved the defendants “tender” of wages and liquidated damages, only after prevailing at trial, and reversal at the Eleventh Circuit due to the trial court’s order permitting the defendants to amend their answer to assert a previously unpled exemption during the trial.

The Order reads in part:

“To a great extent, the pending motion to dismiss has now been rendered moot by the Eleventh Circuit’s substitute opinion entered in the case of Dionne v. Floormasters Enterprises, Inc., No. 09-15405 (11th Cir. Jan. 13, 2012), which clarified that the Court’s opinion in that case is limited to its very narrow facts and, specifically, requires a concession of mootness and does not apply to the tender of full payment of amounts claimed by the employee in a FLSA case before trial or after judgment. The pending motion is based entirely upon a proposed extension of the Court’s now-withdrawn original opinion. Moreover, other cases that considered the issues raised here rejected attempts to expand the scope of the original opinion. See, e.g., Tapia v. Florida Cleanex, Inc., No. 09-21569 (S.D. Fla. Oct. 12, 2011) (Ungaro, J., D.E. 67, collecting cases). Judge Ungaro’s opinion has now been sustained by the Eleventh Circuit on rehearing. And, even under the original panel opinion, the Court could not possibly find that Defendant’s unilateral actions taken after a trial and an appeal rendered Plaintiff’s claim for damages and attorneys’ fees moot. But, in any event, the entire issue is now moot for purposes of this case.”

Click Diaz v Jaguar Restaurant Group, LLC to read the entire Order (contained in the Docket Sheet for the case at Docket Entry 108).

Thanks to Rex Burch for the head’s up on this Order.

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M.D.Fla.: Defendant Does Not Moot FLSA Case By Tender of Unpaid Wages/Liquidated Damages, Absent Payment of Reasonable Attorneys Fees and Costs

Klinger v. Phil Mook Enterprises

Following the recent 11th Circuit decision Dionne v. Floormasters, the blogosphere has been abuzz with articles positing that the decision gave employers the green light to engage in wholesale wage theft and take a wait and see approach with regard to paying employees their wages.  Several management-side attorneys have even gone as far as to suggest that a thieving employer could tender payment of wages/liquidated damages alone on the courthouse steps on the eve of a jury verdict and simply avoid paying mandatory fees and costs under 216(b).  Not so, holds Judge James D. Whittemore, in the first case on the issue post-Dionne.

In Klinger v. Phil Mook Enterprises, the defendants-employers attempted just this strategy.  After Klinger filed a lawsuit seeking the payment of her unpaid wages and liquidated damages, her former employers tendered what it deemed “full payment” of her unpaid wages and liquidated damages.  However, it denied liability and refused to pay reasonable attorneys fees and costs.  Instead, it filed a Motion to Dismiss, asserting that the case was now moot.  The Court rejected the defendants’ contention that the case was moot absent payment of attorneys fees and costs and denied defendants’ motion.

Significantly, the Court noted:

“Defendants’ mere tender of payment does not provide Plaintiff with all the relief she seeks and would be entitled to as a prevailing party in this action, to wit: an enforceable judgment, attorney’s fees, and costs.  Allowing Defendants to avoid responsibility for Plaintiff’s attorneys fees merely by tendering full payment after litigation has commenced would run counter to the FLSA’s goal of fully compensating the wronged employee.  See Silva v. Miller, 307 Fed. App’x 349, 351 (11th Cir. 2009)(“FLSA requires judicial review of the reasonableness of counsel’s legal fees to assure… that counsel is compensated adquately…”.  Further, Defendants’ tender effectively circumvents the requirements of Rule 68(a), Fed.R.Civ.P.”

As such, the Court denied the defendants’ motion.

Click Klinger v. Phil Mook Enterprises to read the entire Order.

DISCLAIMER:  It is not this author’s assertion that the defendants in this particular case engaged in willful wage theft.  Absent further research into the facts giving rise to the underlying claim, the author makes no representations whatsoever as to the specific facts of this case.  Instead, this post is a commentary on the procedural history of the case once filed.

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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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Filed under Liquidated Damages, Willfulness

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.”

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Filed under Immigration Status, Liquidated Damages