Home » Affirmative Defenses
Category Archives: Affirmative Defenses
This case was before the court on the parties’ cross-motions for summary judgment following what appears to be an aborted settlement. As discussed here, plaintiffs sought summary judgment imposing liquidated damages on defendants, and contended that defendants had failed to demonstrate the requisite good faith.
After discussing the well-defined standards regarding an employer’s burden to show “good faith” to avoid an otherwise mandatory imposition of liquidated damages, the court discussed the evidence proffered by defendants:
Defendants assert as “a possible claim of good faith and reasonable grounds” the fact that Central USA Wireless relied on the aforementioned third-party professional employment organization, HUMACare, “to take care of Central’s payroll and employee administrative obligations.” (Doc. 29 at PageID 1091).
Regarding Plaintiffs’ compensation, Chris Hildebrant testified:
A: I didn’t. John, as I said, went to Michigan, Huffman, had conversations
with [Plaintiffs], and told me what they agreed upon.
Q: Did you do any analysis as to whether what they agreed upon was in
compliance with the Fair Labor Standards Act?
Q: Did you ask anybody else to do any analysis?
A: We submitted documentations to our PEO company, and we didn’t think
anything else about it.
Q: What does PEO company mean?
A: Professional Employment Organization.
Q: Did you ask your attorneys to look into whether or not the compensation
structure was in compliance with the –
Mr. Ash: Objection. I’ll allow the question to be answered just the
way you asked, obviously the content of the question from the very beginning.
Mr. Kimble: Sure.
Mr. Ash: Go ahead.
The Witness: No.
(Doc. 15-3, Hildebrant Dep. at PageID 255–56 (39:10–40:7)).
The court held that “[t]his evidence falls far short of creating a question of material fact or meeting the ‘substantial’ burden Defendants shoulder to prove ‘both good faith and reasonable grounds’ for a failure to pay overtime.”
Elaborating, the court explained:
Hildebrant made no special inquiry to HUMACare or legal counsel about whether Plaintiffs were exempt employees. See generally id. at 857 (caselaw usually cites discussion with attorneys or government officials or sometimes accountants as evidence of good faith). Rather, he “didn’t think anything else about it.” This statement concedes negligence, which “is sufficient to support an award of liquidated damages.” Fulkerson v. Yaskawa America, Inc., No. 3:13-cv-130, 2015 WL 6408120 at *2 (S.D. Ohio Oct. 23, 2015) (citing Martin, 381 F.3d at 584).
Thus, the court held that the plaintiffs were entitled to liquidated damages.
11th Cir.: Trial Court Erred in Denying Liquidated Damages Where Sole Evidence of Good Faith Was VP’s Testimony He Researched Alleged Exemption After Plaintiff Commenced Legal Action
This case was before the Eleventh Circuit for a second time. Previously, the plaintiff had successfully appealed the trial court’s decision that he was exempt from the FLSA under the so-called Motor Carrier Exemption. Following remand, plaintiff prevailed at trial and was awarded unpaid overtime wages. The plaintiff then moved for an award of liquidated damages and attorneys’ fees and costs. As discussed here, despite virtually non-existent evidence of any good faith on the part of the defendant to determine its FLSA obligations prior to the lawsuit, the court below denied plaintiff liquidated damages. The Eleventh Circuit reversed reiterating that a defendant (and not plaintiff) bears the burden of proof on this issue and that the burden is a relatively high one.
Discussing the relevant burden of proof, the court explained:
Under the FLSA, liquidated damages are mandatory absent a showing of good faith by the employer. See 29 U.S.C. § 216(b) (2012); Joiner v. City of Macon, 814 F.2d 1537,1538-39 (11th Cir. 1987). Although liquidated damages are typically assessed at an equal amount of the wages lost due to the FLSA violation, they can be reduced to zero at the discretion of [*7] the court. See 29 U.S.C. §§ 216(b), 260. If an 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 . . . the court may, in its sound discretion, award no liquidated damages . . . .
29 U.S.C. § 260.
An employer who seeks to avoid liquidated damages bears the burden of proving to the court that its violation was “both in good faith and predicated upon such reasonable grounds that it would be unfair to impose upon him more than a compensatory verdict.” Reeves v. Int’l Tel. & Tel. Corp., 616 F.2d 1342, 1352 (5th Cir. 1980) (quoting Barcellona v. Tiffany English Pub, Inc., 597 F.2d 464, 468 (5th Cir. 1979)). “Before a district court may exercise its discretion to award less than the full amount of liquidated damages, it must explicitly find that the employer acted in good faith.” Joiner, 814 F.2d at 1539.
The Eleventh Circuit then held that the defendant in this case had not carried its burden of proof:
The district court erred in denying liquidated damages on this record. Aqua Life had the burden of proving good faith and reasonable belief and failed to carry that burden. The only evidence of the alleged good faith was the testimony of its Vice President, [*8] Mr. Ibarra, who ostensibly researched the Motor Carrier Act exception to the FLSA, concluding that Mr. Reyes did not need to be paid overtime hours for his work. Yet, Mr. Ibarra also admitted that he had never heard of the FLSA until legal action was taken by Mr. Reyes. Aqua Life thus did not make a sufficient factual showing upon which the district court could have reasonably relied to deny liquidated damages and the record does not support the district court’s refusal to grant liquidated damages.
We need not reach Mr. Reyes’s alternative arguments against the denial of liquidated damages, as the factual record contains no evidence to support the district court’s denial of liquidated damages. Accordingly, we REVERSE, and direct the district court to assign full liquidated damages in the amount of $14,770.00 to Mr. Reyes.
Click Reyes v. Aqua Life Corp. to read the entire decision.
5th Cir.: General Release Obtained By Defendant in Non-FLSA State Court Case Did Not Waive FLSA Claims
In this appeal, the Fifth Circuit was asked (by the defendant-appellee) to extend its holding in Martin v. Spring Break ′83 Productions, L.L.C., 688 F.3d 247 (5th Cir.2012). In Martin, the Fifth Circuit held that a private settlement reached over a bona fide dispute regarding Fair Labor Standards Act (“FLSA”) claims was enforceable despite the general prohibition against the waiver of FLSA claims via private settlement. Applying Martin, the district court in the instant action enforced a generic, broad release against the plaintiffs’ subsequent FLSA claims, even though the release was obtained through the private settlement of a prior state court action that did not involve the FLSA or any claim of unpaid wages. Because it reasoned that it could not be assured under the facts at bar that the release at issue resulted from a bona fide dispute regarding overtime wages, the Fifth Circuit declined to extend Martin and reversed.
Laying out the relevant facts and procedural history, the court explained:
Plaintiffs–Appellants Ambre Bodle and Leslie Meech (collectively referred to as “the plaintiffs”) filed the instant FLSA action against their former employer TXL Mortgage Corporation (“TXL”) and its president William Dale Couch (collectively referred to as “the defendants”) on May 16, 2012. The plaintiffs alleged that the defendants failed to compensate them for their overtime work as required by Section 207 of the FLSA. The defendants moved for summary judgment asserting res judicata as a basis for dismissal. The defendants also argued that the plaintiffs executed a valid and enforceable waiver in a prior state court action, which released all claims against the defendants arising from the parties’ employment relationship. The district court found the latter contention dispositive.
The defendants in the instant case filed the prior state court action against the plaintiffs on February 3, 2012. The defendants claimed that the plaintiffs, who had resigned from the company about a year prior, had begun to work for a direct competitor and had violated their noncompetition covenants with TXL by soliciting business and employees to leave TXL for the competitor. In connection with these allegations, the defendants asserted nine state law causes of action against the plaintiffs.3In response, the plaintiffs sought a declaration that the non-compete and non-solicitation of client provisions in the employment agreements were unenforceable.
On May 16, 2012, the parties filed with the state court a joint motion for entry of agreed final judgment pursuant to a settlement agreement. The state court granted the parties’ motion and entered an agreed final judgment on May 23, 2012. The private settlement agreement between the parties contained a release by the plaintiffs which stated the following:
In exchange for the consideration identified above, DEFENDANTS hereby fully and completely release and discharge TXL and its agents, representatives, attorneys, successors, and assigns from any and all actual or potential claims, demands, actions, causes of action, and liabilities of any kind or nature, whether known or unknown, including but not limited to all claims and causes of action that were or could have been asserted in the Lawsuit and all claims and causes of action related to or in any way arising from DEFENDANTS’ employment with TXL, whether based in tort, contract (express or implied), warranty, deceptive trade practices, or any federal, state or local law, statute, or regulation. This is meant to be, and shall be construed as, a broad release.
The district court in the instant action granted summary judgment to the defendants on the basis that the plain language of the release from the state court settlement was binding on the plaintiffs and therefore banned their subsequent FLSA claims. The plaintiffs now appeal the dismissal. The defendants contend that the dismissal was proper under the state court settlement release, and in the alternative, that res judicata bars the plaintiffs’ FLSA claims.
After discussing the well-settled authority which holds that generally—absent approval from the DOL or a court of adequate jurisdiction—private settlements of FLSA claims are not binding on employees, the court then examined its prior holding in the Martin case:
We considered this question in Martin v. Spring Break ′83 Productions, L.L.C., 688 F.3d 247 (5th Cir.2012). In Martin, we enforced a private settlement agreement that constituted a compromise over FLSA claims because the settlement resolved a bona fide dispute about the number of hours worked.Id. at 255. In reaching this conclusion, we adopted reasoning from Martinez v. Bohls Bearing Equipment Co., 361 F.Supp.2d 608 (W.D.Tex.2005).Martinez held that “parties may reach private compromises as to FLSA claims where there is a bona fide dispute as to the amount of hours worked or compensation due. A release of a party’s rights under the FLSA is enforceable under such circumstances.”Id. at 631…
In Martin, we approved, as an enforceable compromise of a bona fide dispute, a settlement between a union representative and a movie production company. 688 F.3d at 249. After an investigation, the union representative concluded it would be impossible to validate the number of hours claimed by the workers for unpaid wages. Id. The parties’ settlement of the union members’ complaints read as follows:
The Union on its own behalf and on behalf of the IATSE Employees agrees and acknowledges that the Union has not and will not file any complaints, charges, or other proceedings against Producer, its successors, licenses and/or assignees, with any agency, court, administrative body, or in any forum, on condition that payment in full is made pursuant to the terms of this Settlement Agreement.
Id. at 254. In reaching the conclusion that a bona fide dispute existed, we emphasized the union representative’s inability to “determine whether or not Appellants worked on the days they claimed they had worked[.]”Id. at 255.
However, the Fifth Circuit held that meaningful facts distinguished this case from Martin and declined to extend Martin’s holding to these facts:
In the instant action, the settlement containing the release of future claims derived from a state court action centered upon a disputed non-compete agreement. Nevertheless, the district court concluded that the release validly barred the plaintiffs’ subsequent FLSA claims because the topic of unpaid wages for commissions and salary arose in the settlement negotiations. The district court found that at the time of the settlement discussions regarding the unpaid wages, the plaintiffs were aware of their claims for unpaid overtime because they had signed consent forms to join the instant lawsuit. However, the plaintiffs chose, at that time, to remain silent about their overtime claims. The district court concluded that the overall “bona fide dispute” as to wages (which focused on wages for commissions and salary), could have included the claims for overtime wages, but for the plaintiffs’ silence. And for that reason, the district court held that the plaintiffs are now barred from claiming that the compromise resulting from their bona fide dispute over wages did not encompass their claim for unpaid overtime.
The plaintiffs contend on appeal that the district court erred in extending Martin’s limited holding to the circumstances of this case. The plaintiffs point out that in Martin the settlement was reached in response to the filing of a FLSA lawsuit, as opposed to the state court action concerning a non-compete agreement that is present in this case. The plaintiffs further emphasize that in Martin, the parties specifically disputed the amounts due and the number of overtime hours claimed under the FLSA. The plaintiffs maintain that because they did not receive any FLSA compensation for unpaid overtime in the state court settlement, the rationale set out in Martin, does not apply to this case. The defendants argue that since the state court settlement resolved a bona fide dispute about hours worked and compensation due in a general sense, the release of a claim for unpaid overtime is valid, even if brought under the FLSA. The defendants state that if the plaintiffs wished to bring a subsequent FLSA claim, they should have carved that claim out of the settlement agreement.
The plaintiffs have the stronger argument on this issue. The general rule establishes that FLSA claims (for unpaid overtime, in this case) cannot be waived. See Brooklyn Sav. Bank, 324 U.S. at 706–08. Accordingly, many courts have held that, in the absence of supervision by the Department of Labor or scrutiny from a court, a settlement of an FLSA claim is prohibited. See, e.g., Lynn’s Food Stores, Inc. v. U.S., 679 F.2d 1350, 1355 (11th Cir.1982) ( “Other than a section 216(c) payment supervised by the Department of Labor, there is only one context in which compromises of FLSA back wage or liquidated damage claims may be allowed: a stipulated judgment entered by a court which has determined that a settlement proposed by an employer and employees, in a suit brought by the employees under the FLSA, is a fair and reasonable resolution of a bona fide dispute over FLSA provisions.”) (emphasis added); Taylor v. Progress Energy, Inc., 493 F.3d 454, 460 (4th Cir.2007), superseded by regulation on other grounds as stated in Whiting v. Johns Hopkins Hosp., 416 F. App’x 312 (4th Cir.2011) (“[U]nder the FLSA, a labor standards law, there is a judicial prohibition against the unsupervised waiver or settlement of claims.”).
Nevertheless, we have excepted, from this general rule, unsupervised settlements that are reached due to a bona fide FLSA dispute over hours worked or compensation owed. See Martin, 688 F.3d at 255. In doing so, we reasoned that such an exception would not undermine the purpose of the FLSA because the plaintiffs did not waive their claims through some sort of bargain but instead received compensation for the disputed hours. Id. at 257. The Martin exception does not apply to the instant case because not only did the prior state court action not involve the FLSA, the parties never discussed overtime compensation or the FLSA in their settlement negotiations. Therefore, there was no factual development of the number of unpaid overtime hours nor of compensation due for unpaid overtime. To deem the plaintiffs as having fairly bargained away unmentioned overtime pay based on a settlement that involves a compromise over wages due for commissions and salary would subvert the purpose of the FLSA: namely, in this case, the protection of the right to overtime pay. Under these circumstances where overtime pay was never specifically negotiated, there is no guarantee that the plaintiffs have been or will be compensated for the overtime wages they are allegedly due under the Act.
Thus, the court held as follows:
Accordingly, we hold that the absence of any mention or factual development of any claim of unpaid overtime compensation in the state court settlement negotiations precludes a finding that the release resulted from a bona fide dispute under Martin.The general prohibition against FLSA waivers applies in this case, and the state court settlement release cannot be enforced against the plaintiffs’ FLSA claims.
The court also rejected the Appellee’s alternative argument that the FLSA claims were barred by res judicata due to the plaintiff’s failure to raise them in the unrelated underlying state-law case.
Click Bodle v. TXL Mortg Corp. to read the entire Fifth Circuit Opinion.
11th Cir.: Employer That Knew or Had Reason to Know Employee Underreported Hours Could Not Assert Equitable Defenses Based on Employee’s Conduct in Underreporting Hours
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.
Click Bailey v. TitleMax of Georgia, Inc. to read the entire Decision.
S.D.N.Y.: Where Defendant Asserted “Good Faith” Defense, It Waived Attorney Client Privilege, Despite Lack of “Reliance on Counsel” Defense
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.
9th Cir.: Finding of Willfulness Affirmed Where Defendant Involved in Prior Related Litigation; Offsets Applied on a Workweek-By-Workweek Basis
This case was on appeal by the Defendant, City of Los Angeles, following an order granting the plaintiffs summary judgment on their claims. Specifically, city fire department dispatchers and aeromedical technicians brought action challenging city employer’s classification of them as employees “engaged in fire protection,” for purpose of standard overtime exemption under Fair Labor Standards Act (FLSA). As discussed here, in addition to finding—as a matter of law—that the defendant has misclassified the employees at issue as exempt from the FLSA’s overtime provisions, the court below also held that such misclassification was willful and that any offsets claimed were limited in application to the weeks in which the monies paid for the alleged offsets were paid to plaintiffs.
Addressing the facts relevant to the willfulness issue, the Ninth Circuit explained:
In 1985, the Supreme Court held that FLSA overtime requirements apply to governmental functions. Garcia v. San Antonio Metro. Transit Auth., 469 U.S. 528, 531, 105 S.Ct. 1005, 83 L.Ed.2d 1016 (1985). That same year, the City sent the Department of Labor a letter with twenty questions regarding application of the FLSA to City employees, including Fire Department paramedics. The City did not inquire as to dispatchers or aeromedical technicians.
In 1997, in Acrich v. City of Los Angeles, single-function paramedics (those paramedics not also trained as firefighters) sued the City, asserting they were improperly classified under § 207(k). In 1999, the City again contacted the Department of Labor regarding whether single-function paramedics were “fire protection” employees under the FLSA. The City settled Acrich in 2000, after which it began paying single-function paramedics the standard overtime rate of time and a half for hours worked over forty in a workweek.
In 1999, in Cleveland v. City of Los Angeles, dual-trained paramedics (those trained as both paramedics and firefighters) and Quality Improvement Analysts sued the City, asserting that they too had been improperly classified under § 207(k). After a bench trial, the district court held that the City had improperly classified these employees. The district court also ruled that the City had not acted reasonably or in good faith, and awarded liquidated damages equal to the plaintiffs’ back pay. The City appealed as to the paramedics, but not as to the Quality Improvement Analysts. This court affirmed the district court’s ruling in August 2005. See Cleveland v. City of Los Angeles, 420 F.3d 981 (9th Cir.2005) (Pregerson, J.), cert. denied, 546 U.S. 1176, 126 S.Ct. 1344, 164 L.Ed.2d 58 (2006).
Citing these facts, and the fact that the defendant itself never considered the plaintiffs to be exempt until they attempted to raise an exemption defense in the course of the litigation of the case, the Ninth Circuit held that the court below had properly deemed the defendant’s FLSA violations to be willful:
The City’s conduct in this case was willful, thus entitling Plaintiffs to a three-year statute of limitations. The City has extensively litigated the meaning of § 207(k). In 2002, the district court in Cleveland ruled that the City was in violation of § 207(k) as to dual-trained paramedics and those who held desk job positions as Quality Improvement Analysts. The City did not appeal as to the Quality Improvement Analysts, and lost on appeal as to the paramedics. Yet at no time thereafter did the City take any steps to obtain an opinion letter from the Department of Labor regarding Plaintiffs’ positions, although it had done so as to other employees. Ignoring these red flags and failing to make an effort to examine the positions at issue in this case show willfulness.
Also, the City itself appears not to have viewed dispatchers as “engaged in fire protection” until this case was underway. When this lawsuit began, the City had assigned dispatchers to the Bureau of Support Services, which included the Supply and Maintenance Division, Fire Facilities Division, and Operations Control Division. The Fire Department’s Manual of Operations states that the primary objectives of the Bureau of Support Services include “the dispatching of resources and equipment to the scene of emergencies; operation of the Department’s … Dispatch Center … and the development, maintenance and repair of Fire Department Facilities.” Three months before the parties entered into their mutual stipulation of facts, however, the City reassigned the dispatchers to the Bureau of Emergency Services, which, according to the Manual of Operations, includes “[a]ll personnel normally engaged in fire fighting …” The timing of this reassignment provides further evidence that the City’s behavior was willful.
Thus, we affirm the district court’s finding that the City’s conduct was willful and justifies a third year of withheld overtime pay.
The Ninth Circuit then went on to discuss the proper methodology for calculating damages, where a defendant claims an offset for monies already paid to the employees and claims same as partial payment for overtime wages, an issue of first impression in the Ninth Circuit and one in which the Circuits are in conflict. Framing the issue, the Court explained:
The district court issued an order selecting Plaintiffs’ calculation method. The district court first noted that circuits are split over whether a workweek-by-workweek method must be used, and the Ninth Circuit has not yet addressed the issue. While the Sixth and Seventh Circuits have ruled that a week-by-week offset must be used, the Fifth and Eleventh Circuits have held that offsets may be applied cumulatively over longer periods of time. The district court was persuaded by the reasoning of the Sixth and Seventh Circuits.
Holding that the FLSA mandates a workweek-by-workweek application of any applicable offsets, the Court explained:
There is still, however, a split of authority over how to calculate offsets, and the Ninth Circuit has not yet decided the matter. The reasoning from circuits supporting a week-by-week offset is persuasive. In Howard v. City of Springfield, 274 F.3d 1141 (7th Cir.2001), the Seventh Circuit disagreed with the defendant that offsetting on a workweek basis would create an undeserved windfall. Id. at 1148. The court noted that
if the City were able to use premium payments [in a cumulative fashion], the City would be the recipient of the windfall, and in fact would be placed in a substantially better position than if it had complied with the overtime requirements of the FLSA all along…. It is contrary to the language and the purpose of the statute. Id.
Likewise, in Herman v. Fabri–Centers of America, Inc., 308 F.3d 580 (6th Cir.2002), the Sixth Circuit extensively reviewed the FLSA’s plain language, caselaw, and § 207(h)‘s legislative history to find in favor of a workweek restriction. Id. at 586–90.
Both the Seventh Circuit in Howard and the Sixth Circuit in Herman note that the Department of Labor’s regulations implementing the FLSA support prompt payment of overtime, suggesting that overtime payments should be credited within the same workweek in which they were paid:
The general rule is that overtime compensation earned in a particular workweek must be paid on the regular pay day for the period in which such workweek ends. When the correct amount of overtime compensation cannot be determined until some time after the regular pay period, however, the requirements of the Act will be satisfied if the employer pays the excess overtime compensation as soon after the regular pay period as is practicable. Payment may not be delayed for a period longer than is reasonably necessary for the employer to compute and arrange for payment of the amount due and in no event may payment be delayed beyond the next payday after such computation can be made. Howard, 274 F.3d at 1148 (citing 29 C.F.R. § 778.106); Herman, 308 F.3d at 589.
The City cites alternative, yet unpersuasive, caselaw supporting a cumulative approach. In Kohlheim v. Glynn County, 915 F.2d 1473 (11th Cir.1990), the Eleventh Circuit held that previously-paid overtime can be cumulatively offset against the damages calculated. Yet the court summarily decided the issue, citing no supporting authority. Id. at 1481.
Likewise, in Singer v. City of Waco, 324 F.3d 813 (5th Cir.2003), the Fifth Circuit affirmed the district court’s cumulative offset calculation. Yet that case is inapposite, as the court explicitly stated that ” § 207(h) does not apply in this case,” and that ” § 207(h), and the cases interpreting it, are inapplicable.” Id. at 827.
We thus affirm the district court’s decision that previously-paid overtime should be offset using a week-by-week calculation.
Click Haro v. City of Los Angeles to read the entire Opinion.
6th Cir.: Employment Contract That Purported to Shorten FLSA Statute of Limitations to 6 Months Invalid
Boaz v. FedEx Customer Information Services Inc.
Employers continue to include language in employment contracts which purports to shorten the statute of limitations applicable to FLSA claims. By law, the statute of limitations is 2 years on such claims if the employee is unable to show the employers violations are willful, and 3 years if the employee can make such a showing. Recently, the Sixth Circuit reviewed FedEx’s contract that purported to reduce that time to 6 months. As discussed below, it struck down the employers’ attempts to shorten the statute of limitations. Reasoning that same was an impermissible waiver of rights under the FLSA, the court agreed that such a limitation was unenforceable. In so doing, the Sixth Circuit reversed the trial court, which had held that such an abridgement of FLSA rights was permissible.
Initially the court briefly reiterated longstanding black-letter law regarding the non-waivable nature of FLSA rights:
Shortly after the FLSA was enacted, the Supreme Court expressed concern that an employer could circumvent the Act’s requirements—and thus gain an advantage over its competitors—by having its employees waive their rights under the Act. See Brooklyn Savs. Bank v. O’Neil, 324 U.S. 697, 706–10, 65 S.Ct. 895, 89 L.Ed. 1296 (1945). Such waivers, according to the Court, would “nullify” the Act’s purpose of “achiev[ing] a uniform national policy of guaranteeing compensation for all work or employment engaged in by employees covered by the Act.” Jewell Ridge Coal Corp. v. Local No. 6167, United Mine Workers of Am., 325 U.S. 161, 167, 65 S.Ct. 1063, 89 L.Ed. 1534 (1945); see also O’Neil, 324 U.S. at 707. The Court therefore held that employees may not, either prospectively or retrospectively, waive their FLSA rights to minimum wages, overtime, or liquidated damages. D.A. Schulte, Inc. v. Gangi, 328 U.S. 108, 114, 66 S.Ct. 925, 90 L.Ed. 1114 (1946); O’Neil, 324 U.S. at 707; see also Runyan v. Nat’l Cash Register Corp., 787 F.2d 1039, 1041–42 (6th Cir.1986) (en banc).
The issue here is whether Boaz’s employment agreement operates as a waiver of her rights under the FLSA. Boaz accrued a FLSA claim every time that FedEx issued her an allegedly illegal paycheck. See Hughes v. Region VII Area Agency on Aging, 542 F.3d 169, 187 (6th Cir.2008). She filed suit more than six months, but less than three years, after her last such paycheck—putting her outside the contractual limitations period, but within the statutory one.
An employment agreement “cannot be utilized to deprive employees of their statutory [FLSA] rights.” Jewell Ridge, 325 U.S. at 167 (quotation omitted). That is precisely the effect that Boaz’s agreement has here. Thus, as applied to Boaz’s claim under the FLSA, the six-month limitations period in her employment agreement is invalid.
In so doing, the court rejected FedEx’s reliance on what it deemed inapposite case law:
FedEx (along with its amicus, Quicken Loans) responds that courts have enforced agreements that shorten an employee’s limitations period for claims arising under statutes other than the FLSA—such as Title VII. And FedEx argues that the discrimination barred by Title VII (i.e., racial discrimination) is just as bad as the discrimination barred by the FLSA, and hence that, if an employee can shorten her Title VII limitations period, she should be able to shorten her FLSA limitations period too. But that argument is meritless for two reasons. First, employees can waive their claims under Title VII. See, e.g., Alexander v. Gardner–Denver Co., 415 U.S. 36, 52, 94 S.Ct. 1011, 39 L.Ed.2d 147 (1974). Second—and relatedly—an employer that pays an employee less than minimum wage arguably gains a competitive advantage by doing so. See Citicorp Indus. Credit, Inc. v. Brock, 483 U.S. 27, 36, 107 S.Ct. 2694, 97 L.Ed.2d 23 (1987). An employer who refuses to hire African–Americans or some other racial group does not. The Court’s rationale for prohibiting waiver of FLSA claims is therefore not present for Title VII claims.
FedEx also relies on Floss v. Ryan’s Family Steak Houses, Inc., 211 F.3d 306 (6th Cir.2000). There, we held that an employee asserting an FLSA claim can waive her right to a judicial forum, and instead arbitrate the claim. Id. at 313, 316. From that holding FedEx extrapolates that employees can waive their “procedural” rights under the FLSA even if they cannot waive their “substantive” ones. But the FLSA caselaw does not recognize any such distinction. That is not surprising, given that the distinction between procedural and substantive rights is notoriously elusive. See Sun Oil Co. v. Wortman, 486 U.S. 717, 726, 108 S.Ct. 2117, 100 L.Ed.2d 743 (1988). More to the point, Floss itself said that an employee can waive his right to a judicial forum only if the alternative forum “allow[s] for the effective vindication of [the employee’s] claim.” 211 F.3d at 313. The provision at issue here does the opposite.
Click Boaz v. FedEx Customer Information Services Inc. to read the entire Opinion. Click DOL Amicus Brief, to read the amicus brief submitted by the Department of Labor in support of the Plaintiff-Appellant.
N.D.Cal.: Agreement to Shorten Statute of Limitations to Six Months Procedurally and Substantively Unconscionable Under California Law
Bowlin v. Goodwill Industries of Greater East Bay, Inc.
This case was before the court on the plaintiff’s motion for partial summary judgment as to the defendant’s twenty-sixth affirmative defense, which asserted that the claims were barred based on the six-month limitations provision contained in an agreement between the parties that the plaintiff was required to sign as part of his employment with the defendant. The plaintiff argued that the clause in the agreement between the parties shortening the time in which the plaintiff had to bring his claims was unconscionable, rendering the agreement unenforceable, and his claims timely. The court granted the plaintiff’s motion holding that the six-month limitations period was in fact unconscionable under California law.
Initially the court held the agreement was procedurally unconscionable, because the agreement was a contract of adhesion. Discussing this issue, the court reasoned:
The threshold inquiry in California’s unconscionability analysis is whether the … agreement is adhesive.” Nagrampa v. MailCoups, Inc., 469 F.3d 1257, 1281 (9th Cir.2006) (quoting Armendariz, 99 Cal.Rptr.2d 745, 6 P.3d at 689). A contract of adhesion is “a standardized contract, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it.” Armendariz, 99 Cal.Rptr.2d 745, 6 P.3d at 689. A finding that a contract is adhesive is essentially a finding of procedural unconscionability. Nagrampa, 469 F.3d at 1281;Circuit City Stores, Inc. v. Adams, 279 F.3d 889, 893 (9th Cir.2002) (“The [contract] is procedurally unconscionable because it is a contract of adhesion….); Flores v. Transamerica HomeFirst, Inc., 93 Cal.App.4th 846, 113 Cal.Rptr.2d 376, 382 (Cal.Ct.App.2001). The critical factor for determining both adhesion and procedural unconscionability is whether the contract “was presented on a take-it-or-leave-it basis” and “oppressive due to an inequality of bargaining power that result[ed] in no real negotiation and an absence of meaningful choice.” Nagrampa, 469 F.3d at 1281.
Goodwill’s senior human resources administrator, Grizelda Guzman, states that “all employees were presented with [agreement at issue] in 2008.” Dkt. No. 32–1 ¶ 5. This suggests that the agreement was a standard contract, drafted by Goodwill. As the moving party, however, it is Bowlin’s burden to show that there is no genuine factual dispute that the manner in which the contract was presented to him renders it procedurally unconscionable. To this end, Bowlin submits a declaration and avers that “a manager presented [him] with a copy of the agreement … to initial and sign while [he] was working,” that no one “reviewed the terms or content of the agreement with [him],” and that he “was not able to discuss, negotiate or modify any of the terms or content of the agreement.” Dkt. No. 29–1 ¶¶ 2–4… Accordingly, the Court finds that as a matter of law, the agreement is procedurally unconscionable.
The court then held that the agreement was also substantively unconscionable, holding that, as a matter of law, applying a six-month limitations period to wage and hour claims is unduly harsh.
Because the court held that the agreement was both procedurally and substantively unconscionable, it struck the six-month limitations period from the parties’ agreement and granted the plaintiff’s motion for partial summary judgment.
Click Bowlin v. Goodwill Industries of Greater East Bay, Inc. to read the entire Order Granting Motion for Partial Summary Judgment.
The so-called “secondary” agricultural exemption, is one of the lesser known and litigated exemptions. Two recent cases shed light on how far the exemption actually reaches. Discussing the exemption, 2 courts reached different conclusions regarding whether the employees at issue were in fact exempt as secondary agricultural employees. In the first case, the Eleventh Circuit held that employees of an agricultural business, who were employed in Home Depot retail store locations, solely to care for their employer’s plants prior to sale to third parties, were subject to the exemption. In the second case, a district court in the Eastern District of California held that a truck driver who occasionally transported feed for the dairy cows to his employer’s dairy ranch was not exempt under the agricultural exemption, and held that the transport of milk that had been ultra filtrated might not qualify as “agricultural” work. Notably, each decision turned on a different element of the exemptions requirements as discussed below.
Rodriguez v. Pure Beauty Farms, Inc.
In the first case, the Eleventh Circuit held that employees who worked for their employer, a commercial nursery, and maintained their employer’s plants at Home Depot locations, for ultimate sale to third-party customers were subject to the secondary agricultural exemption. The court reasoned that the plaintiffs’ work caring for plants displayed in stores was incident to or in conjunction with nursery farming operations, and so qualified for secondary agricultural exemption. In so holding, the court rejected the plaintiffs’ contention that the employees were engaged in separate business enterprise of selling plants, since they handled only their employers’ plants, albeit in Home Depot locations, and held that the Home Depots where they performed their work qualified as “farms” within the meaning of the regulation.
Initially the court laid out the three prerequisites for application of the secondary agricultural exemption: (1) the “practice must be performed either by a farmer or on a farm”; (2) it must “be performed either in connection with the farmer’s own farming operations or in connection with farming operations conducted on the farm where the practice is performed”; and (3) it must be “performed ‘as an incident to or in conjunction with’ the farming operations.” 29 C.F.R. § 780.129; see also Sariol, 490 F.3d at 1279–80.
The court quickly disposed of the first two elements, finding that they clearly applied. Turning to the third element, the court held that the work performed by the employees was indeed incident to or in conjunction with the defendant’s farming operations, reasoning:
The parties’ dispute focuses primarily on the third requirement—whether the practices Rodriguez and Hernandez performed for the Farms, but on Home Depot store-sites, were “incident to or in conjunction with” the Farms’ farming operations. See 29 C.F .R. § 780.129. “Generally, a practice performed in connection with farming operations is within the statutory language only if it constitutes an established part of agriculture, is subordinate to the farming operations involved, and does not amount to an independent business.” 29 C.F.R. § 780.144. When, as here, the practice is performed on “agricultural or horticultural commodities,” to determine whether “the practice is conducted as a separate business activity rather than as a part of agriculture,” consideration is given to, among other things: (1) whether “the type of product resulting from the practice” remains in its raw or natural state or changes; (2) “the value added to the product as a result of the practice and whether a sales organization is maintained for the disposal of the product”; and (3) whether the product is “sold under the producer’s own label rather than under that of the purchaser.” 29 C.F.R. § 780.147. A farmer or his employees selling the farmer’s own agricultural commodities is also a practice “incident to or in conjunction with the farming operations” as long as “it does not amount to a separate business.” 29 C.F.R. § 780.158(a).
In addition, the Department of Labor has specific regulations addressing employees of nurseries. If nursery employees are engaged in “[p]lanting, cultivating, watering, spraying, fertilizing, pruning, bracing, and feeding the growing crop,” they are employed in agriculture. 29 C.F.R. § 780.205. “Employees of a grower of nursery stock who work in packing and storage sheds sorting the stock, grading and trimming it, racking it in bins, and packing it for shipment are employed in ‘agriculture’ provided they handle only products grown by their employer and their activities constitute an established part of their employer’s agricultural activities and are subordinate to his farming operations.” 29 C.F.R. § 780.209 (emphasis added). However, if the “grower of nursery stock operates, as a separate enterprise, a processing establishment or an establishment for the wholesale of retail distribution of such commodities, the employees in such separate enterprise are not engaged in agriculture.” Id. (citations omitted). “Although the handling and the sale of nursery commodities by the grower at or near the place where they were grown may be incidental to his farming operations, the character of these operations changes when they are performed in an establishment set up as a marketing point to aid the distribution of those products.” Id.
After briefly discussing similar cases, the court explained:
Here, the Farms handles and sells only its own plants, and Rodriguez and Hernandez watered, pruned, and cared for only the Farms’ plants situated at the Home Depot stores. Unlike the employees in Mitchell, Rodriguez and Hernandez did not work in a wholesale distribution center for other growers’ horticultural products. Cf. Mitchell, 267 F.2d at 290–91; see also Adkins v. Mid–American Growers, Inc., 167 F.3d 355, 357 (7th Cir.1999) (explaining that when an employer “buys plants and then resells them without doing significant agricultural work it is operating as a wholesaler rather than as a grower, and wholesalers of agricultural commodities are not exempt from the Act”); Wirtz v. Jackson & Perkins Co., 312 F.2d 48, 51 (2d Cir.1963) (stating that “[w]ere any significant portion of the stock handled in defendant’s storages purchased from … independent sources” the agricultural exemption would not apply because it “is inapplicable to services performed by employees of mere distributors of agricultural products”). Rodriguez and Hernandez are more akin to the flower shop employees in Walling, who handled and sold only their employer’s own nursery stock. See Walling, 132 F.2d at 6.
In any event, the kind of work Rodriguez and Hernandez performed on the Farms’ plants is explicitly identified in the regulations as “agricultural,” such as watering them, pruning away dead limbs, leaves and buds and preparing them for market by handling, inspecting and sorting them. See 29 C.F.R. § 780.205. Nothing Rodriguez and Hernandez did to the plants changed them from their natural state, such that they could be said to be engaged in the separate enterprise of processing or manufacturing. Cf. Mitchell v. Budd, 350 U.S. 473, 480–82, 76 S.Ct. 527, 532, 100 L.Ed. 565 (1956) (concluding that workers at tobacco-bulking plant, where a lengthy fermentation process substantially changed the tobacco’s physical properties and chemical content, were not exempt as agricultural workers). Indeed, by ensuring that the Farms’ plants continued to receive adequate water and light and were pruned and insect-free while in the staging areas, Rodriguez and Hernandez’s work was directly connected with and subordinate to the Farms’ own nursery-farming operations.
Click Rodriguez v. Pure Beauty Farms, Inc. to read the entire Opinion.
Williams v. Hilarides
In the second case, there were three issues regarding the application of the agricultural exemption before the court: (1) whether the fact that Plaintiff occasionally transported feed for the dairy cows to Defendant’s dairy ranch has any effect on the court’s determination of Plaintiff’s exempt status; (2) whether Plaintiff’s usual activity of hauling milk from the farm constituted agricultural work within the meaning of the exemption; and (3) whether application of the agricultural exemption is appropriate where the product shipped by Defendant to the cheese plant was a product which Plaintiff characterizes as being manufactured from raw milk by a process of ultrafiltration which removes significant amounts of water.
The court quickly disposed of the first issue, noting that the amount of time that an employee spends on so-called “agricultural” activities each week is determinative of whether the exemption applies (week-to-week):
The first issue—whether the fact that Plaintiff occasionally hauled feed for the dairy cows to Defendant’s farm—requires little discussion. Put simply, exemption from overtime pay entitlement under FLSA is an all-or-nothing proposition. If any portion of the employee’s workweek is spent in work that is not agricultural and therefore not exempt, no exemption may be claimed by the same employer for any amount of work that is agricultural under FLSA. Wyatt v. Holtville Alfalfa Mills, Inc., 106 F.Supp. 624, 629 (S.D.Cal.1952). In other words, an employee’s hours worked in a given workweek are not exempt under the agriculture exemption unless all the work performed that week was exempt agricultural work. Thus, it is of no import to the court’s determination of Plaintiff’s overtime exemption status that Plaintiff may have spent some small amount of time hauling hay for feed for the cattle if it is determined that Plaintiff’s trips to the Hilmar Cheese Plant are determined to be not agricultural in nature.
Discussing the second issue, the court analyzed the CFR regulations and case law pertaining to employees engaged in hauling agricultural goods and concluded that the hauling of such goods necessarily constitutes secondary agricultural work falling within the scope of the exemption.
Turning to the final issue, whether the transport of the raw milk that had been subject the ultra filtration process constituted agricultural work, the court held that issues of fact precluded a finding of same:
Plaintiff’s opposition to Defendant’s motion for summary adjudication raises the issue of whether the product that Plaintiff transported from Defendant’s farm to the cheese plant was a “dairy product” or was an industrial product such that the agriculture exemption was inapplicable. Defendant’s reply to Plaintiff’s contention is essentially limited to the claim that the product hauled by Plaintiff to the cheese plant was milk destined to be made into cheese and the fact that it was treated by ultrafiltration is of no consequence. Plaintiff cites two cases, Mitchell v. Budd, 350 U.S. 473, 76 S.Ct. 527, 100 L.Ed. 565 (1956) and N.L.R.B. v. Tepper, 297 F.2d 280 (1961), to support the contention that the hauling of a dairy product that is the result of the application of a process that removes the dairy product from its raw, natural state does not constitute employment in agriculture for purposes of the FLSA. As the court previously noted, at the time these cases were decided, the overtime provisions of section 7 of the FLSA contained a subsection that exempted those employed in agriculture from overtime but providing that the exemption applied only to activities carried out with respect to commodities in their “raw or natural state.” 29 U.S.C. §§ 207(c), (d) (repealed 1972); Hodgson v. Twin City Foods, Inc., 464 F.2d 246, 250 n. 3 (9th Cir.1972).
Finding no specific regulation directly on point, as to whether the milk that had undergone the ultra filtration was still milk in its “raw” state, the court denied defendant’s motion, noting it had failed to carry its burden of proof on the issue:
As noted above, Defendant has the burden to show that there is no issue of material fact as to whether Plaintiff is exempt from the overtime provisions of 29 U.S.C. § 207(b). Where Defendant fails to carry his burden is in the failure to show the process of transforming milk into the ultrafiltered product that Plaintiff transported to the cheese factory is, in fact, an agricultural, as opposed to manufacturing, function. If the court has no basis upon which it can conclude that the product Plaintiff was hauling to the cheese plant was a “dairy product” (as opposed to a manufactured product), the court cannot conclude that Defendant was engaged in “agriculture” when he shipped his product to the cheese plant or that Plaintiff was correspondingly carrying out an agricultural function. Defendant’s motion for summary adjudication must therefore fail. There is no question that reasonable minds could differ as to both sub-parts (B) and (C) of this opinion. However, the court finds that the application of guidelines established by Congress clearly prevent Defendant from meeting the high burden of production of proof that would allow the court to grant summary adjudication.
Click Williams v. Hilarides to read the entire Memorandum Opinion and Order on Defendant’s Motion for Summary Adjudication.
N.D.Ala.: GM’s Salary Based on Forecast Sales of Store Did Not Qualify As a “Bona Fide Commission Plan;” Retail Exemption Inapplicable
Kuntsmann v. Aaron Rents, Inc.
This case was before the court on the defendant’s motion for summary judgment. The defendant asserted that plaintiff was exempt under either the executive exemption, administrative exemption or the so-called combination exemption of the two. As discussed here, the defendant further argued that even if the plaintiff was not properly deemed exempt under any of the 3 exemptions, he was paid in accordance with 207(i), the “retail exemption” and thus not entitled to overtime compensation. After holding that issues of fact regarding the plaintiff’s primary duties precluded summary judgment, the court addressed the defendant’s final contention regarding the retail exemption and held that it was inapplicable because the plaintiff had not been paid “commissions” as required for application of the retail exemption.
Describing the compensation plan at issue, the court explained:
During his time as GM of that store, Kuntsmann was the highest ranking and only employee in the store whom Aaron classified as exempt from the FLSA’s minimum wage and overtime requirements. Aaron’s compensation scheme for GMs is based on the revenue and operating profits of each individual store. The GM of each store receives a monthly income that approximates the expected financial performance of the store in a month. This approximation, called the “draw,” is compared with the actual earnings of the store on a monthly basis. Then, Aaron adjusts salary upwards when the store performance exceeds the draw and sometimes downward when the store performance does not meet the draw. GMs are also eligible for monthly bonuses based on set financial goals. Aaron reviews each store’s performance twice a year and can increase or decrease the draw according to performance. Aaron also looks at the financial performance of the store at the end of each quarter and provides the GM a bonus if his total monthly commission is greater than the GM’s quarterly draw.
After disposing of the plaintiff’s argument that the retail exemption argument was waived by the defendant’s failure to assert it in its answer (the court reasoned that it wasn’t really an exemption despite referring to it as same, but rather an “exception”), and discussing the elements necessary for the retail exemption, the court explained that it was not applicable, because the plaintiff had not been paid under a “bona fide commission plan.” After noting a lack of authority on the issue, the court distinguished two prior cases from within the Eleventh Circuit.
First, the court noted that time did not play any role in the compensation system at bar, which the court reasoned supported its finding that the plaintiff had not been paid a commission as defendant claimed:
The compensation scheme examined in Klinedinst is distinguishable from the one at issue in the present case. The Eleventh Circuit emphasized the importance of time as a factor in the Klinedinst compensation scheme; time does not play a role in the compensation of an Aaron’s GM. In addition, inherent differences appear between how the auto mechanics in Klinedinst and the GMs at Aaron earn their compensation. The auto mechanics’ compensation derived from each individual job that they performed that was assigned a particular number of “flag hours.” The connection between individual sales and the compensation of an Aaron GM is much more attenuated, however. At Aaron, GMs are neither paid on a “per job basis,” nor an hourly basis but a monthly compensation based on previous quarters’ revenue that could possibly be increased or decreased based on the store’s profits. The payment system in Klinedinst is different enough from the Aaron compensation scheme so that the opinion does not guide this court’s analysis as to whether Aaron’s payment scheme meets the final requirements of § 207(i) at the summary judgment stage—whether its compensation scheme qualifies as a bona fide commission plan.
The court also reasoned that plaintiff’s salary at issue was not a “commission,” because he was not being paid based on total sales attributed to him, but rather based on his store’s overall profits and whether they exceeded the company’s expectations:
A great difference exists between simply adding up total sales attributed to a salesperson each month and then giving the salesperson a certain percentage of those sales in compensation, and awarding a store manager a “bonus” if his store’s profits exceeded the company’s predictions. As Kuntsmann argued, his monthly salary was based on a published rate and did not change based solely on his sales or the store’s sales alone. The payment system in Ethan Allen diverges enough from the Aaron compensation scheme so that the opinion does not direct this court’s analysis as to whether Aaron’s scheme qualifies as a bona fide commission plan under § 207(i).
Thus, the court concluded:
Therefore, this court finds that Aaron has not demonstrated that its compensation scheme qualifies as a “bona fide commission plan.” 29 U.S.C. § 207(i). Although some circuits have doubted the validity of the “clear and affirmative evidence” standard, the Eleventh Circuit has not retreated from this standard, and Aaron has not met it regarding the applicability of the § 207(i) exception. Moreover, regardless of how exacting Aaron’s burden should be when proving the applicability of an FLSA exception, the Eleventh Circuit has also instructed this court to construe FLSA exceptions “narrowly and sensibly.” Klinedinst, 260 F.3d at 1254. After narrowly construing § 207(i), the court has serious doubts as to whether Aaron’ compensation scheme qualifies under the statutory section. While recognizing that determining whether a compensation system qualifies as a bona fide commission plan is a question of law for the court, Aaron has not met its burden of proof at this stage.
Click Kuntsmann v. Aaron Rents, Inc. to read the entire Memorandum Opinion.