This case was before the Eleventh Circuit on the plaintiff’s appeal of an order from the trial court granting the defendant-employer summary judgment. Specifically, the court below held that the plaintiff-employee was barred by equitable doctrines from maintaining his claims under the FLSA, because he had underreported his hours, notwithstanding the defendant’s knowledge of the actual hours worked. Reversing the trial court’s order, the Eleventh Circuit held that “[w]here, as here, an employer knew or had reason to know that its employee underreported his hours, it cannot invoke equitable defenses based on that underreporting to bar the employee’s FLSA claim.”
The court described the relevant facts and procedural history below as follows:
Santonias Bailey was an employee of TitleMax of Georgia who worked overtime hours for which he was not paid. At the direction of his supervisor, who told him that TitleMax did not pay overtime, he regularly worked off the clock. The same supervisor also repeatedly edited Mr. Bailey’s time records to report fewer hours than he worked. Mr. Bailey eventually brought suit under the Fair Labor Standards Act, which requires employers to pay their employees for overtime.
This appeal presents the question of whether TitleMax may defeat Mr. Bailey’s FLSA claim by deflecting the blame for the unpaid overtime onto him. TitleMax insists that Mr. Bailey is responsible for any unpaid overtime, because he could have complained about his supervisor, but did not. Neither did he follow TitleMax’s policies for ensuring accurate time records. In legal terms, the question is this: if an employer knew its employee underreported his hours, can it still assert equitable defenses based on the employee’s own conduct in underreporting as a total bar to the employee’s FLSA claim? We have heard oral argument, read the parties’ briefs, and examined the record in considering the question. Our answer is no. Because the District Court answered yes, we reverse its grant of summary judgment for TitleMax.
Mr. Bailey worked at a TitleMax store in Jonesboro, Georgia for about a year. We assume, as the District Court did, that Mr. Bailey worked overtime hours for which he was not paid. He was not paid because his time records were not accurate. They reflected an artificially low number of hours worked. This inaccuracy came from two sources: first, Mr. Bailey underreported his own hours by working off the clock. Second, Mr. Bailey’s supervisor changed his time records to decrease the number of hours he reported.
Mr. Bailey’s supervisor told him that TitleMax “does not allow overtime pay,” and that “[t]here [would] be days that [they] [would] be working off the clock.” To that end, Mr. Bailey would, “for the most part,” clock in and out when his supervisor told him to, even though that sometimes did not match up with the hours he actually worked. For example, on some Saturdays, he would work from 8:30 A.M. to 5:30 P.M. But his supervisor would tell him: “your hours are … high, so make sure that you clock in at 9:00 and clock out at 4:00.” And so he would, logging only seven hours despite working nine.
Second, Mr. Bailey’s supervisor herself edited Mr. Bailey’s time records. To take two examples: on September 9, 2011, Mr. Bailey clocked in at 10:57 A.M. and clocked out at 7:17 P.M., without recording any lunch break. His supervisor later changed his clock-out time to 7:00 P.M. and added a lunch break from 1:00 P.M. to 2:00 P.M. And on September 12, his supervisor edited Mr. Bailey’s clock-out time, changing it from 8:03 P.M. to 7:03 P.M. After he resigned from TitleMax, Mr. Bailey filed suit. He claims that TitleMax violated the FLSA by failing to pay overtime as the statute requires.
For its part, TitleMax emphasizes that Mr. Bailey’s conduct violated its policies. When he worked off the clock, he violated a policy requiring accurate reporting of hours. Also, by neither objecting to his supervisor changing his time records nor reporting inaccuracies in his records, Mr. Bailey violated a policy requiring regular verification of time. Finally, by not reporting any of this, he violated a policy instructing employees who had a problem at work to notify a supervisor, or if the supervisor was part of the problem, to inform a higher-level manager or call an anonymous employee hotline. Mr. Bailey was aware of each of these company policies.
In the face of Mr. Bailey’s law suit, TitleMax moved for summary judgment. It pointed to Mr. Bailey’s violation of its policies and argued that he was responsible for any unpaid overtime. It said that because Mr. Bailey bore responsibility, two equitable defenses—unclean hands and in pari delicto—barred his claim. The District Court agreed, and granted summary judgment. This appeal followed.
Discussing the FLSA’s remedial purpose and prior case law from the Eleventh Circuit, the court explained:
This Court has, in the decades since O’Neil, echoed the same principle: the goal of the FLSA is to counteract the inequality of bargaining power between employees and employers. See, e.g., Walthour v. Chipio Windshield Repair, LLC, 745 F.3d 1326, 1332 (11th Cir.2014) (quoting O’Neil ); Hogan v. Allstate Ins. Co., 361 F.3d 621, 625 (11th Cir.2004) (same); Lynn’s Food Stores, Inc. v. United States, 679 F.2d 1350, 1352 (11th Cir.1982) (“Recognizing that there are often great inequalities in bargaining power between employers and employees, Congress made the FLSA’s provisions mandatory.”); Mayhue’s Super Liquor Stores, Inc. v. Hodgson, 464 F.2d 1196, 1197 n. 1 (5th Cir.1972) (quoting O’Neil ).
In the broadest sense, this principle has guided the rulings of this Circuit, and it compels our holding here. If an employer knew or had reason to know that its employee underreported his hours, it cannot escape FLSA liability by asserting equitable defenses based on that underreporting. To hold otherwise would allow an employer to wield its superior bargaining power to pressure or even compel its employees to underreport their work hours, thus neutering the FLSA’s purposeful reallocation of that power.
After noting that the plaintiff had proffered evidence to meet his prima facie burden in this FLSA case, it then evaluated the defendant’s equitable defenses at issue: It insists that, while Mr. Bailey may have established the elements of his claim, TitleMax is nevertheless entitled to summary judgment unclean hands and in pari delicto:
These two defenses are similar. See Greene v. Gen. Foods Corp., 517 F.2d 635, 646–47 (5th Cir.1975) (discussing in pari delicto and other “closely related equitable defenses such as … unclean hands”). Broadly speaking, proof of either of these defenses may operate to bar a plaintiff’s claim in an appropriate case if he bears responsibility for his own injury. Each gives force to the well-worn maxim: “[h]e who comes into equity must come with clean hands.” See Keystone Driller Co. v. Gen. Excavator Co., 290 U.S. 240, 241, 54 S.Ct. 146, 146, 78 L.Ed. 293 (1933).
To assert an unclean hands defense, a defendant must show that (1) the plaintiff’s wrongdoing is directly related to the claim, and (2) the defendant was personally injured by the wrongdoing. See Calloway v. Partners Nat’l Health Plans, 986 F.2d 446, 450–51 (11th Cir.1993). Similarly, to assert an in pari delicto defense, a defendant must show that “the plaintiff bears at least substantially equal responsibility for the violations he seeks to redress.” Lamonica v. Safe Hurricane Shutters, Inc., 711 F.3d 1299, 1308 (11th Cir.2013). To invoke in pari delicto to bar a claim brought under a federal statute, the defendant must also show a second element: that barring the suit would not “substantially interfere” with the policy goals of the statute. Id.
The District Court accepted TitleMax’s argument that one or both of these defenses may bar an employee’s FLSA claim, even when the employer knew that the employee was underreporting his hours. In doing so, the District Court did not correctly apply the statute.
Our conclusion in this regard is consistent with two cases previously decided in this Circuit. In Allen and Brennan, we faced similar facts and rejected arguments similar to those made by TitleMax. In both of those cases, employers nominally required employees to accurately report their hours. See Allen, 495 F.3d at 1314; Brennan, 482 F.2d at 827. Despite those requirements, supervisors encouraged employees to underreport, and they did. See Allen, 495 F.3d at 1318 (supervisor told employee “that she could not continue to be paid overtime”); Brennan, 482 F.2d at 827 (supervisors exerted “pressure” and “insisted that reported overtime hours be kept to a stated minimum level”).
Facing FLSA claims, the employers argued they could not be responsible for unpaid overtime because they had neither actual nor constructive knowledge that the employees had worked unpaid overtime. Allen, 495 F.3d at 1318; Brennan, 482 F.2d at 827. This court rejected the argument in both cases, and imputed knowledge to the employers. Allen, 495 F.3d at 1318–19; Brennan, 482 F.2d at 827. The Brennan panel concluded that the supervisors had at least constructive knowledge of unpaid overtime because “they had the opportunity to get truthful overtime reports but opted to encourage artificially low reporting instead.” 482 F.2d at 828. And the Allen panel decided that a supervisor had knowledge based on even more tenuous facts: she “was aware that [the employee] was working overtime hours” and was also “aware that [the employee] had been told that she could not be paid overtime.” 495 F.3d at 1318. Both panels ruled that knowledge on the part of supervisors could be imputed to the employers. See id. at 1319 (“[O]ur predecessor court stated that when an employer’s actions squelch truthful reports of overtime worked, or where the employer encourages artificially low reporting, it cannot disclaim knowledge.” (quoting Brennan, 482 F.2d at 828)).
Ultimately, the court held that the facts here were vitually identical to the prior cases in which it had held that equitable defenses similar to those advanced by the defendant here could not nullify an employee’s claim under the FLSA:
The facts of Mr. Bailey’s case are substantially the same. TitleMax instructed its employees to accurately record their hours and to report problems with their records. Mr. Bailey worked off the clock at the behest (demand) of his supervisor, in violation of those policies. No one disputes that his supervisor knew he was working off the clock. The supervisor’s knowledge may be imputed to TitleMax, making it liable for the FLSA violation. This is the holding of Allen and Brennan. It is true that TitleMax presents its argument in different terms than the employers in Allen and Brennan. TitleMax does not claim that the supervisor did not know that Mr. Bailey was underreporting his hours. See Allen, 495 F.3d at 1318 (“The [employer] claims that even if unpaid hours can be shown, Plaintiffs cannot demonstrate that their supervisors knew that they were working overtime without pay.”); Brennan, 482 F.2d at 827 (“[The employer]’ s principal argument is that it cannot have violated the FLSA because it had no knowledge of the unreported overtime.”). Nor could it. Instead, TitleMax says that Mr. Bailey’s misconduct allows it to assert an equitable defense. Specifically, TitleMax argues that Mr. Bailey’s own misconduct makes Allen and Brennan inapposite. But we see this distinction as one without a difference. TitleMax seeks to skirt the clear holdings of Allen and Brennan by making the same argument under a different name. Whether we consider the employee’s actions in analyzing the knowledge prong of the FLSA or as an equitable defense, the question is the same: is an employee deprived of his FLSA claim because he underreported his time, even if knowledge of the underreporting is imputed to the employer? Allen and Brennan say no. TitleMax asks us to contravene those holdings under a different theory. We cannot oblige.
TitleMax has identified no case in which this Court approved the use of equitable defenses as a total bar to an employee’s FLSA claim when the employer knew the employee underreported his hours. Neither has TitleMax identified any such case from the United States Supreme Court or any of our sister Circuits. We are aware, of course, that the absence of evidence is not necessarily evidence of absence. But the FLSA has been on the books a long time.
Finally, the court discussed the deterrent effect of the FLSA, in the context of a Supreme Court case under the ADEA, and explained that to permit the equitable defenses at bar would negate the FLSA’s deterrent effect:
Like the ADEA, the FLSA has a deterrent purpose. See O’Neil, 324 U.S. at 709–10, 65 S.Ct. at 903 (“To permit an employer to secure a release from the worker … will tend to nullify the deterrent effect which Congress plainly intended that [the FLSA] should have.”); Nall v. Mal–Motels, Inc., 723 F.3d 1304, 1307 (11th Cir.2013) (“Allowing the employer to escape liquidated damages by simply giving an employee the wages she was entitled to earn in the first place—or in some cases, less than that—would undermine the deterrent effect of the [FLSA’s] statutory provisions.”). Cf. McKennon, 513 U.S. at 357, 115 S.Ct. at 884 (“The ADEA … contains a vital element found in both Title VII and the Fair Labor Standards Act: It grants an injured employee a right of action to obtain the authorized relief. The private litigant who seeks redress for his or her injuries vindicates both the deterrence and the compensation objectives of the ADEA.” (citation omitted)).
Barring FLSA actions for wage and overtime violations where the employer is aware that an employee is underreporting hours would undermine the Act’s deterrent purpose. In this case, the District Court applied equitable defenses based on Mr. Bailey’s misconduct to totally and entirely bar his FLSA claim. When it did that, it went beyond what the Supreme Court approved in McKennon, thereby interfering with the FLSA’s statutory scheme.
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