Tag Archives: Set-off

5th Cir.: Severance Payment Not A Set-off To FLSA Damages for Unpaid Overtime

Martin v. PepsiAmericas, Inc.

Plaintiff sued her former employer, to recover unpaid overtime wages allegedly due under the Fair Labor StandardsAct (“FLSA”), 29 U.S.C. § 201 et seq.  The district court granted Defendant’s motion to dismiss for lack of subject matter jurisdiction after finding that Plaintiff’s maximum potential recovery was less than the value of her severance package received from Defendant, which the district court determined should be set-off against anypotential damages awarded to Plaintiff.  Holding that such a set-off was improper, the Fifth Circuit vacated the district court’s dismissal and remanded the case for further proceedings.

The court reasoned:

“At issue is whether Pepsi can set-off the value of benefits it paid to Karen Martin under her severance agreement against Martin’s FLSA claim for overtime wages. The district court found that Pepsi was entitled to the set-off and, consequently, dismissed the case for lack of subject matter jurisdiction. We review a court’s ruling on a FED. R. CIV. P. 12(b)(1) motion to dismiss de novo. See Budget Prepay, Inc. v. AT&T Corp., 605 F.3d 273, 278 (5th Cir.2010) (citing Ramming v. United States, 281 F.3d 158, 161 (5th Cir.2001)). When challenging a 12(b)(1) motion, the party asserting jurisdiction bears the burden of proof. Id.

Pepsi initially contends that our opinion in Singer v. City of Waco, 324 F.3d 813 (5th Cir.2003), should be read broadly to allow set-offs in FLSA cases so long as they do not result in sub-minimum wages. Generally speaking, courts have been hesitant to permit an employer to file counterclaimsFN1 in FLSA suits for money the employer claims the employee owes it, or for damages the employee’s tortious conduct allegedly caused. See Brennan v. Heard, 491 F.2d 1, 4 (5th Cir.1974), rev’d on other grounds by McLaughlin v. Richland Shoe Co., 486 U.S. 128, 108 S.Ct. 1677, 100 L.Ed.2d 115 (1988); see also Donovan v. Pointon, 717 F.2d 1320, 1323 (10th Cir.1983) (“[T]he purpose of the present action is to bring Pointon into compliance with the Act by enforcing a public right. To permit him in such a proceeding to try his private claims, real or imagined, against his employees would delay and even subvert the whole process. Pointon is free to sue his employees in state court ….”).

In Heard, we said that set-offs and counterclaims are inappropriate in any case brought to enforce the FLSA’s minimum wage and overtime provisions. In that case, the Secretary of Labor sued an employer to enjoin it from withholding base and overtime wages from employees. Heard, 491 F.2d at 2. After finding a willful FLSA violation, the district court ordered the employer to pay its employees back wages, but permitted a set-off for the value of goods the employer had furnished to its employees. Id. This court reversed, stating that “[t]he federal courts were not designated by the FLSA to be either collection agents or arbitrators for an employee’s creditors.” Id. at 4. Noting that the only function of the federal judiciary under the FLSA “is to assure to the employees of a covered company a minimum level of wages,” we said that “[a]rguments and disputations over claims against those wages are foreign to the genesis, history, interpretation, and philosophy of the Act.” Id. And we observed that “[t]he only economic feud contemplated by the FLSA involves the employer’s obedience to minimum wage and overtime standards. To clutter [FLSA] proceedings with the minutiae of other employer-employee relationships would be antithetical to the purpose of the Act.” Id.; see also Pointon, 717 F.2d at 1323 (declining to address employer’s counterclaim for tortious sabotage in employee’s FLSA suit); Hodgson v. Lakewood Broad. Serv., 330 F.Supp. 670, 673 (D.Colo.1971) (declining to allow set-off or counterclaim against Secretary for employee’s breach of employment contract).

This language notwithstanding, in Singer v. City of Waco, 324 F.3d 813 (5th Cir.2003), we allowed an employer to set-off certain wage overpayments against the employees’ overall damages award. Singer involved a class of municipal fire fighters whose hours varied among pay periods. The city’s method for calculating their regular rate of pay under the FLSA resulted in an underpayment of the fire fighters’ overtime pay during some pay periods. Id. at 817, 824-25. When calculating how much money the city owed the fire fighters in unpaid overtime wages, “the district court found that the City’s method of calculating overtime compensation resulted in small deficiencies … in the work periods in which the fire fighters worked 120 hours,” but “the City’s method resulted in considerable overpayments ($126.20) in the work periods in which the fire fighters worked 96 hours.” Id. at 826. Because of this incongruity, the district court allowed the employer to set-off overpayments in some work periods against shortfalls in others. Id. at 826. We viewed these overpayments as akin to pre-payments, not prohibited by the Code of Federal Regulations or the FLSA, and affirmed. Id. We reconciled our holdings in Singer and Heard by observing that “the offsets permitted by the district court [in Heard] caused the final awards of many of the defendants’ workers to drop below the statutory minimum.” Id. at 828 n. 9 (quoting Heard, 491 F.2d at 3) (internal quotation marks omitted). Meanwhile, in Singer, “no party contend[ed] that the offset might cause the fire fighters’ wages to fall below the statutory minimum wage.” 324 F.3d at 828 n. 9.

Relying on this distinction, Pepsi contends that Singer should be read to limit Heard, to stand for the proposition that set-offs are appropriate in FLSA cases so long as they do not cause an employee’s wages to fall below the statutory minimum. Pepsi has cited, as did the district court, several lower court decisions from outside this circuit that have given Singer such a broad construction. See, e.g. Hanson v. ABC Liquors, Inc., No. 3:09-cv-966, 2009 U.S. Dist. LEXIS 108954, at *7-8 (M.D.Fla. Nov. 9, 2009) (collecting cases); see also Docket Entry No. 110, Memorandum Order at 5 n.3. These cases, however, predate our opinion in Gagnon v. United Technisource, Inc., 607 F.3d 1036 (5th Cir.2010), where we clarified that Heard’s longstanding prohibition of set-offs in FLSA cases is the rule in this circuit and Singer an exception.

In Gagnon, the district court found an FLSA overtime violation and awarded damages to the plaintiff. 607 F.3d at 1040. The defendant-employer counterclaimed and sought a set-off in the amount equal to the damages caused by the plaintiff’s breach of contract (i.e., his failure to notify the employer of his new address, as he was contractually obligated to do). Id. The district court did not address the employer’s counterclaims, and this court gave them short shrift likewise, holding that “our precedent suggests that such claims should not be addressed in an FLSA action.” 607 F.3d at 1042 (citing Heard, 491 F.2d at 4).

We specifically addressed the employer’s set-off claim in Gagnon, despite its semblance to the contract counterclaim, to clarify a reasonable uncertainty over Singer’s reach. See 607 F.3d at 1043 (“we nonetheless address the claim because we have previously held that offsets are permissible in FLSA actions”). Gagnon distinguished the set-off allowed in Singer as one that “simply acknowledged that the City had already paid the bulk of its overtime obligations.” Id. (citing Singer, 324 F.3d at 828) (emphasis in original). Gagnon (the employee), by contrast, was not paid “any additional sums that could be characterized as advanced or inappropriate amounts subject to an offset against the overtime owed to him,” id., and thus, a set-off was inappropriate.

In Gagnon, we rejected the employer’s argument, which Pepsi renews here, that Singer stands for the proposition that set-offs are allowed in FLSA cases so long as they do not result in sub-minimum wages. Although that reading of Singer may have been plausible at one time, Gagnon clarified that it was the unique character of the set-offs in Singer-that they represented overtime obligations already fulfilled-that allowed for a narrow exception to the bright-line rule spelled out in Heard. We continue to look with disfavor on set-offs unless the money being set-off can be considered wages that the employer pre-paid to the plaintiff-employee.

Pepsi contends, alternatively, that the benefits paid to Martin are similar to the fire fighters’ wages set-off in Singer because, in both cases, the employer paid some extra money or benefits to the employee to which the employee was not otherwise entitled. And in the opinion granting Pepsi’s motion to dismiss, the district court cited several lower court decisions that have allowed employers to plead set-offs as an affirmative defense in FLSA wage cases “where the employer paid the employee funds to which the employee was not entitled.” (Docket Entry No. 110, Memorandum Order at 5 & n.3.) This misconstrues the reciprocal nature of the benefits bargained for in Martin’s severance agreement. Although Martin had no legal entitlement to the benefits included in her severance package, these benefits were not gratuitous. Pepsi paid these benefits in return for Martin’s release of claims. That Martin later sued Pepsi on state law claims simply means that Martin did not keep her end of the agreement. Pepsi’s damages flow from a breach of contract. Pepsi is not entitled to set-off those damages here because unlike Singer, the money and benefits Pepsi paid to Martin were not wage payments, advance or otherwise; they were not related to her labors at all.

Because we find that the district court erred in setting-off the value of Martin’s severance package against her potential recovery at trial, we VACATE the district court’s dismissal of Martin’s FLSA claim for lack of subject matter jurisdiction and REMAND the case for further proceedings.”

Click Martin v. PepsiAmericas, Inc. to read the entire decision.

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S.D.Fla.: Defendant’s Generalized Affirmative Defenses Struck; FLSA Plaintiff Entitled To Attorneys’ Fees If Prevails

Romero v. Southern Waste Systems, LLC

This case was before the Court pursuant to Plaintiffs Motion to Strike Defendant’s Affirmative Defenses to Plaintiff’s Complaint. Plaintiff moved to strike several affirmative defenses, including a generalized reference to all “white collar” exemptions, a generalized exemption that the Plaintiff was paid pursuant to the parties’ “agreement,” set-off (alleging no facts to support same), and a claim that Plaintiff was not entitled to prevailing attorneys’ fees under the FLSA. Additionally, the Answer had a request for Defendant’s attorney fees without basis. The Court struck all the affirmative defenses, which were the subject of the opinion, some with leave to re-plead and other without.

Addressing each of the Defendant’s disputed affirmative defenses, the Court stated, “Defendant’s Third Affirmative Defense claims that Plaintiff was exempt from overtime compensation pursuant to the 29 U.S.C. § 213(a) (1) exemption to the FLSA. Plaintiff complains that this affirmative defense fails to allege any facts that would put Plaintiff on notice of the basis of Defendant’s claim. This provision encompasses the executive exemption, the administrative exemption, the outside sales exception, the learned professional exemption and the creative professional exemption. Defendant has agreed to amend his defense to state that Plaintiff was exempt pursuant to the executive and/or administrative exemption pursuant to 29 U.S.C. § 216(b). Leave to amend is granted.

The Court notes that 29 U.S.C. § 216(b) prescribes damages under the FLSA and is unrelated to the exemptions to the FLSA. When Defendant amends this affirmative defense, the Court instructs Defendant to be clear regarding the provision of the FLSA that forms the basis for the claimed exemption(s).”

The Seventh Affirmative Defense alleges that Defendant paid Plaintiff “all monies owed per the agreement between them.”Plaintiff takes this defense to be a restatement of the defense of accord and satisfaction. This defense is not appropriate under the FLSA because an individual cannot waive entitlement to FLSA benefits. See Brooklyn Sav. Bank v. O’Neil, 324 U.S. 697, 707, 65 S.Ct. 895, 902 (1945) (“No one can doubt but that to allow waiver of statutory wages by agreement would nullify the purposes of the [FLSA].”). Defendant clarifies that the agreement to which the Seventh Affirmative Defense refers is the agreement that Plaintiff would be paid a salary. The Court requests that Defendant clarify this affirmative defense to make it clear that the “agreement” to which it refers is merely the “agreement” that Plaintiff would receive a salary.

The Tenth Affirmative Defense states that “Defendant is entitled to a credit/set-off for any compensation paid to Plaintiff to which he was not otherwise entitled to the extent such credits/set-off are permissible under the FLSA.”Plaintiff claims that this defense is conclusory in that it fails to allege any facts in support of any sort of set-off. Certain set-off defenses are allowable under the FLSA. Brennan v. Heard, 491 F.2d 1, 4 (5th Cir.1974), for instance, permits district courts to apply a set-off where the set-off would not reduce a plaintiff’s wages to an amount below the statutory minimum. Not all set-offs are permissible, however. This Court has previously ruled that “amounts loaned by an employer to an employee””cannot be applied to offset unpaid wages [under the FLSA].” Morrison, 434 F.Supp.2d at 1322 (citing Donovan v. Pointon, 717 F.2d 1320, 1323 (10th Cir.1983)).See also Hutton v. Grumpie’s Pizza & Subs, Inc., Case No. 07-81228-CIV-MIDDLEBROOKS, 2008 WL 1995091, *4 (S.D.Fla. May 7, 2008) (holding that a set-off defense for money employee allegedly stole from employer was inappropriate in FLSA). The Tenth Affirmative Defense does not state what, if any, compensation Plaintiff received to which he was not otherwise entitled, much less the nature of this compensation. The Tenth Affirmative Defense is stricken, but Defendant shall have leave to amend same.

The Sixteenth Affirmative Defense states that “[t]he Complaint fails to state a claim against [Defendant] upon which attorneys’ fees or costs can be awarded.”The FLSA provides that the Court “shall, in addition to any judgment awarded to the plaintiff or plaintiffs, allow a reasonable attorney’s fee to be paid by the defendant, and costs of the action.”29 U.S.C. § 216(b). The Sixteenth Affirmative Defense is stricken without leave to amend.

Defendant also requests attorneys’ fees pursuant to 28 U.S.C. § 1927, which provides for awards of attorney’s fees where

[a]ny attorney or other person admitted to conduct cases in any court of the United States or any Territory thereof who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys’ fees reasonably incurred because of such conduct.

There is no allegation of such conduct in the Answer. Accordingly, the request for fees pursuant to 28 U.S.C. § 1927 is stricken, but with leave to amend.”

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