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5th Cir.: Defendants’ Purported Day-Rates Were Impermissible Where They Made Deductions For Partial Days Worked
Solis v. Hooglands Nursery, L.L.C.
This is an appeal from the district court’s order granting summary judgment for Plaintiff on behalf of various employees of Defendants. The district court held that the Defendants violated the overtime and record-keeping provisions of the Fair Labor Standards Act (“FLSA”). The Defendants appealed the district court’s order as it relates to its non-salaried employees, arguing that there were genuine issues of fact regarding whether their day rate plan was invalid under the FLSA and whether they acted in good faith. Discussing each basis for summary judgment in turn, the 5th Circuit affirmed.
Briefly discussing Defendants’ purported day-rate methodology, the Court explained:
“Appellants first argue that there remained a genuine issue of fact regarding whether their day-rate method of paying their employees met the standards of 29 C.F.R. § 778.112. However, Appellants concede both before the district court and on appeal that their employees’ wages were reduced when the employees worked less than a full day. Accordingly, Appellants did not have a valid day-rate plan in use, and their failure to pay their employees overtime compensation pay for time worked beyond forty hours per week violated 29 U.S.C. § 207(a)(1).”
Next the Court discussed the issue of unpaid fifteen minute breaks.
“Appellants next concede that they failed to pay their employees for two fifteen-minute breaks per day, in violation of the FLSA. Nevertheless, Appellants argue that their purported overpayment to their employees as part of their day-rate plan compensated for the shortfall, pursuant to 29 C.F.R. § 778.202(a). However, as the district court properly held, Appellants did not employ a valid day-rate plan, because they reduced employees’ pay for hours they did not work. Accordingly, the district court properly concluded that Appellants remain liable for the amounts deducted from their employees’ compensable break periods.”
Last the Court discussed the award of liquidated damages, and the fact that the Court was entitled to award liquidated damages, notwithstanding a showing of both subjective and objective good faith.
“Finally, Appellants argue that even if they violated the FLSA by not implementing a proper day-rate plan and failed to pay proper overtime compensation, there remained a question of fact as to whether Appellants’ failures were in good faith, thus precluding an award of liquidated damages. Liquidated damages are awarded as a matter of course for violations of 29 U.S.C. § 207. See 29 U.S.C. § 216(b). Pursuant to 29 U.S.C. § 260, however, a district court may decline to award liquidated damages if the employer demonstrates that it acted reasonably and in good faith. Heidtman v. County of El Paso, 171 F.3d 1038, 1042 (5th Cir.1999). Nevertheless, even if a defendant shows both subjective good faith and objective reasonableness, an award of liquidated damages remains in the discretion of the district court. See § 260; Heidtman, 171 F.3d at 1042. After reviewing the record, the district court correctly held that Appellants “ha[ve] submitted no evidence that [their] reliance on a bookkeeper with no managerial authority to ensure [their] compliance with the FLSA was reasonable.” Accordingly, Appellants have not carried their burden of showing good faith, and an award liquidated damages was proper.”
E.D.Ky.: “Self-Critical Analysis” Privilege Does Not Shield Employer From Disclosure Of Documents Relating To FLSA Classification; Such Discovery Is Relevant To Issues Of “Good Faith” And Willfulness
Cochran v. National Processing Co.
This matter was before the Court on the Motions to Quash filed by the Defendants. Defendants sought to quash a subpoena issued by the Court and served on one of the Defendants (Hanna), seeking documents relating to the FLSA classification of the Plaintiffs, who were employees of Defendant, National, assigned to work for Defendant, Hanna. Defendants argued that the documents requested in the subpoena are protected under the self-critical analysis privilege and that they are beyond the scope of discovery.
The underlying action was pending in the United States District Court for the Southern District of Texas. National was the Defendant in the Texas action. The Plaintiffs in that action are current and former National employees. They asserted a claim against National under the Fair Labor Standards Act, alleging that National had improperly classified them as “exempt” employees under the Act and has, thus, improperly failed to pay them overtime. Hanna, which is located in Lexington, Kentucky, was not a party to the Texas action. However, the subpoena required Hanna to produce certain documents relating to work performed by Hanna for National regarding National’s policies and procedures for paying overtime.
Discussing the lack of “self critical analysis” privilege, the Court stated:
“National argues that the documents sought by the Plaintiffs are protected by the ‘self-critical analysis privilege.’
As an initial matter, it is not clear that the privilege exists. As support for its argument that the Sixth Circuit has adopted the self-critical analysis privilege, the Plaintiffs cite ASARCO, Inc. v. N.L.R.B., 805 F.2d 194 (6th Cir.1986). In that case, the Sixth Circuit determined that the employer should not have to disclose self-critical reports prepared after serious accidents in order to improve safety and prevent similar mishaps. Id. at 199. The court determined that “[t]he practice of uninhibited self-critical analysis, which benefits both the union’s and employer’s substantial interest in increased worker safety and accident prevention, would undoubtedly be chilled by disclosure.” Id. at 200.
However, that case involved a company’s duty to turn over certain information in collective bargaining efforts with the employee’s union. The Sixth Circuit specifically noted that items subject to discovery in litigation may not be subject to disclosure “in the collective bargaining context” and that any duty to disclose in that context must be evaluated in light of the rights and obligations created by the National Labor Relations Act. Id. at 199.
Even after ASARCO, district courts have found that the Sixth Circuit has never explicitly adopted the self-critical analysis privilege. See United States v. Allison Engine Company, Inc., 196 F.R.D. 310, 313-14 (S.D.Ohio 2000); Hickman v. Whirlpool Corp., 186 F.R.D. 362, 363 (N.D.Ohio 1999).
One district court has summarized the status of the privilege as follows:
Furthermore, “no circuit court of appeals has explicitly recognized the self-critical analysis privilege.” Johnson v. United Parcel Serv., Inc., 206 F.R.D. 686, 689-90 (M.D.Fla.2002). Most important, the validity of the self-critical analysis privilege is highly doubtful in light of the Supreme Court’s decision University of Pennsylvania v. EEOC, 493 U.S. 182, 110 S .Ct. 577, 107 L.Ed.2d 571 (1990), which declined to recognize a common law privilege against disclosure of confidential peer review materials.Granberry v. Jet Blue Airways, 228 F.R.D. 647, 650 (N.D.Cal.2005).
In Allison Engine, the court considered a claim of self-critical analysis privilege regarding internal audits of quality control for products supplied to the United States Navy. It applied a four-part test from Bredice v. Doctors Hosp., Inc., 50 F.R.D. 249 (D.D.C.1970):
(1) the information must result from self-critical analysis undertaken by the party seeking protection; (2) the public must have a strong interest in preserving the free flow of the type of information sought; (3) the information must be of the type whose flow would be curtailed if discovery were allowed; and (4) no documents should be accorded the privilege unless it was prepared with the expectation that it would be kept confidential.
Allison Engine, 196 F.R.D. at 312.
The court rejected the privilege in that case, noting that the privilege had rarely been applied and that its very rationale had been called into doubt. Id. at 313.See also Wade v. Washington Metropolitan Area Transit Authority, 2006 WL 890679 at * 5 (D.D.C.2006)(the privilege is “rarely recognized.”)
Even if the Sixth Circuit has or would adopt the privilege, National would not meet all four elements of the test set forth above. National argues that the documents requested from Hanna relate to an evaluation that National hired Hanna to perform of National’s classification of employees as exempt or non-exempt under the FLSA. However, clearly not all the information contained in documents relating to the evaluation are necessarily protected by the privilege:
The privilege is not absolute. It applies only to analysis or evaluation, not the facts on which evaluation is based. See In re: Crazy Eddie Securities Litigation, 792 F.Supp. 197, 205 (E.D.N .Y.1992). Courts have protected analytical or evaluative information but allowed discovery of factual information. See Troupin, 169 F.R.D. at 550. Under the privilege, parties are not required to reveal self-critical analyses, but must produce data or statistical information. See Roberts v. National Detroit Corp., 87 F.R.D. 30, 32 (E.D.Mich.1980). Information, documents or records otherwise available from other sources are not immune from discovery. See Shipes, 154 F.R.D. at 307 (citing Hollowell v. Jove, 247 Ga. 678, 279 S.E.2d 430, 434 (1981)). Additionally, this is a qualified privilege and it can be overcome by showing extraordinary circumstances or special need. See Reichhold Chem. Inc., 157 F.R.D. at 527. The privilege must be balanced against the opposing party’s need for discovery. See In re: Crazy Eddie Securities Litigation, 792 F.Supp. at 205. Allison Engine, 196 F.R.D. at 315.
The subpoena requests “all documents relating or pertaining to any review(s), audit(s), consulting or human resources management-related work performed by you for [National] regarding its policies or procedures concerning payment of overtime and/or classification of employees for overtime purposes,” and “all communications between you and anyone with [National] related to its policies or procedures concerning payment of overtime and/or classification of employees for overtime purposes.”
National has produced no evidence at all regarding the kinds of information contained in the documents requested, i.e., whether the information is “analysis” or “evaluation” or whether the information is “factual.” Thus, the Court has no basis for finding any of the documents are privileged.
Further, the privilege is most often applied in cases involving public health or safety. First Eastern Corp. v. Mainwaring, 21 F.3d 465, 467 n. 1 (C.A.D.C.1994). In fact the privilege was “initially developed to promote public safety by encouraging businesses to voluntarily evaluate their safety procedures. Morgan v. Union Pacific R. Co., 182 F.R.D. 261, 265 (N.D.Ill.1998)(citing Bredice v. Doctors Hosp. Inc., 50 F.R.D. 249, 251 (D.D.C.1970)). “Because production of such documents ‘would tend to hamper honest, candid self-evaluation geared toward the prevention of future accidents,’ the doctrine evolved in order ‘to prevent a ‘chilling’ effect on self-analysis and self-evaluation prepared for the purpose of protecting the public by instituting practices assuring safer operations.’ “ Id. (citing Granger v. National R.R. Passenger Corp., 116 F.R.D. 507, 508-509 (E.D.Pa.1987)).
While the privilege has been applied in other settings, the “essence of the privilege is the value to the public of continuing the free flow of the type of information created by the analysis. Consequently, the inquiry focuses on the public policy requirement, that is, whether disclosure of material generated by a party’s self-critical analysis will discourage or curtail future such studies.” Drayton v. Pilgrim’s Pride Corp., 2005 WL 2094903 at *2 (E.D.Pa.2005).
The assessment at issue in this case involved National’s classification of employees as exempt or non-exempt under the FLSA. National argues that it hired Hanna to develop and implement a compensation structure for the company including an evaluation of National’s classification of employees as exempt or non-exempt under the FLSA. Disclosure of that assessment will not inhibit National from conducting further such assessments. In order to pay its employees, it obviously must continue to classify them as exempt or non-exempt. Thus, to the extent that the Hanna report contained any “evaluation” or “analysis,” National must continue to engage in that analysis in order to pay its employees and avoid liability under the Act.
The privilege has been extended to employment cases to “protect business entities which are legally mandated to critically evaluate their hiring and personnel policies.” Morgan v. Union Pacific R. Co., 182 F.R.D. 261, 265 (N.D.Ill.1998). However, the rationale for the privilege in employment cases is different than it is for tort cases. While, “the justification for the privilege in tort cases is to promote public safety through voluntary and honest self analysis,” id., the privilege in employment cases is meant to “protect those businesses that are required to engage in critical self-evaluation from exposure to liability resulting from their mandatory investigations.” Id. To the extent that Hanna’s assessment contained any “evaluation” or “analysis,” National has pointed to no law requiring such an evaluation.
For all these reasons, the Court hold that the Hanna documents are not protected under the self-critical analysis privilege.
Next the Court addressed Defendants’ argument that the documents sought were not relevant. Rejecting this argument, the Court explained, “National objects that the documents sought are not relevant to the Plaintiffs’ action and Hanna has joined in that objection. National argues that the Plaintiffs are IT Support Technicians in Texas but that the subpoena seeks information about every National employee and that it seeks information beyond the classification of those employees under the FLSA.
The Plaintiffs argue that the documents are relevant to the “good faith” defense to the imposition of liquidated damages under the Act and to the extended statutory limitations period for “willful violations” of the Act. National has asserted the good faith defense and has denied any willful violations or purposes of extending the limitations period. The Plaintiffs argue that the defense “delves into the mind of the employer” and, thus, communications with Hanna regarding interpretation and application of the FLSA are relevant.
The Court agrees with the Plaintiffs that National’s communications with Hanna regarding the FLSA classification of its employees for overtime purposes is relevant to National’s “good faith” and “willfulness.” The subpoena is confined to documents regarding “payment of overtime and/or classification of employees for overtime purposes.” Accordingly, the documents requested in the subpoena are discoverable.”
EDITOR’S NOTE: Within days of the issuance of the Order in this case, a court within the Northern District of California held that there is no such thing as the “self-critical analysis” privilege. See Lewis v. Well Fargo & Co., 2010 WL 890183 (N.D.Cal. March 12, 2010).
S.D.Fla.: Where Defendant Demonstrated Subjective Component Of Good Faith, But Failed To Show Objective Good Faith, Liquidated Damages Appropriate
Wajcman v. Investment Corp. of Palm Beach
Following a verdict in favor of Plaintiffs, on their claims that Defendant violated the FLSA, by illegally allowing certain employees to share in the tip pooling, the issue before the Court was whether Defendant had presented sufficient evidence to demonstrate that its violation of the FLSA occurred in good faith and under the reasonable belief that it was compliant with the FLSA. Because, the Defendant were able to show only subjective good faith (consult with an attorney), the Court awarded full liquidated damages.
The Court explained, “To satisfy the good faith requirement, an employer must show that it acted with both subjective and objective good faith ( Rodriguez, 518 F.3d at 1272), and “upon such reasonable grounds that it would be unfair to impose upon [it] more than a compensatory verdict.” Bozeman v. Port-O-Tech Corp., 2008 WL 4371313, * 15 (S.D.Fla. Sept. 19, 2008)(quoting Joiner, 814 F.2d at 1538)). To demonstrate the subjective component, an employer must show that it had “an honest intention to ascertain what the FLSA requires and to act in accordance with those requirements.” Feniger v. Cafe Aroma, 2007 WL 853735, *3 (M.D.Fla. March 16, 2007)(citing Dybach v. State of Fla. Dep’t of Corr., 942 F.2d 1562, 1566 (11th Cir.1991)). Proving the objective component of the good faith defense requires the employer to demonstrate that it had a reasonable belief that its conduct conformed with the FLSA. See Chao v. Tyson Foods, Inc., 568 F.Supp.2d 1300, 1322 (N.D.Ala.2008). If the employer can demonstrate that it had both a subjective belief that it was compliant with the FLSA and that it also had an objectively reasonable basis for its belief, then the Court may apply the safe harbor provision and limit or deny an award of liquidated damages. See Stevenson v. Orlando’s Auto Specialists, Inc., 2008 WL 4371830, *4 (M.D.Fla. Sept. 23, 2008). “Absent a showing of both the subjective and objective elements of the good faith defense, liquidated damages are mandatory.” Dybach v. State of Fla. Dept. of Corrections, 942 F.2d 1562, 566-67 (11th Cir.1991)(citation omitted ).
Here, with regard to the subjective component, the Court finds that Defendant has demonstrated that it had “an honest intention to ascertain what the FLSA requires and to act in accordance with those requirements.” Feniger v. Cafe Aroma, 2007 WL 853735, *3 (M.D.Fla. March 16, 2007)(citing Dybach v. State of Fla. Dep’t of Corr., 942 F.2d 1562, 1566 (11th Cir.1991)). This finding is based on Ms. Lampman’s testimony that she consulted with attorneys, familiarized herself with the law, and ascertained the tip pooling practices of other cardrooms in the local area before implementing Defendant’s tip pool. These activities are sufficient to show that Defendant made some effort to “investigate potential liability under the FLSA.” Feniger, 2007 WL 853735 at *3 (quoting Barcellona v. Tiffany English Pub., Inc., 597 F.2d 464, 469 (5th Cir.1979)). Additionally, Ms. Lampman’s decision to include the floor supervisors in the tip pool, based on what she perceived to be their sufficient level of customer interaction, while excluding other positions that she believed did not have the requisite level of interaction with the patrons, demonstrates an intent to comply with the FLSA.
However, the Court finds that Defendant’s belief regarding its FLSA compliance was not objectively reasonable. First, there are a number of cases which suggest that an employee’s level of customer interaction is the most significant factor in evaluating whether he qualifies as a “tipped employee” under the FLSA. See Roussell v. Brinker Intern., Inc., 2008 WL 2714079 at *7, * 10 (S.D.Tex. July 9, 2008)(agreeing with the Sixth Circuit that the level of customer interaction is “highly relevant ” and that the extent of an employee’s interaction with customers is “critical ” in determining whether an employee may participate in a valid tip pool)(emphasis added)(citing Myers v. Copper Cellar Corp., 192 F .3d 546, 550 (6th Cir.1999); Kilgore v. Outback Steakhouse of Florida, Inc., 160 F.3d 294, 300-02 (6th Cir.1998)). See also Morgan v. SpeakEasy, LLC, 2007 WL 2757170, * 18 (N.D.Ill. Sept. 20, 2007)(court focused on employees’ customer related activities to determine whether they were properly included in tip pool); Townsend v. BG-Meridian, Inc., 2005 WL 2978899, *7 (W.D.Okla. Nov. 7, 2005)(same).
Here, however, the bulk of the evidence before this Court suggests that the floor supervisors in Defendant’s cardroom had only de minimus customer interaction. Although the written job description mentions that floor supervisors will have “[d]aily contact with customers,” the evidence demonstrates that such contact did not rise to the level of customer interaction usually associated with a tipped employee. Indeed, the testimony at trial indicated that the floor supervisors’ interaction with customers was sporadic and only on an as-needed basis for dispute resolution or when hosts, chip runners or waitresses were unavailable. As their job description sets forth, the floor supervisors’ primary responsibility was to supervise the employees on the cardroom floor, which included assigning the dealers’ table rotations, their break times and ensuring employees’ compliance with the dress code.
Based on this testimony, the Court finds that Defendant overstated the customer interaction component of the floor supervisors’ duties to justify their inclusion in the tip pool. The Court further finds that Defendant underestimated the significance of the “customer interaction” test, relying too heavily on industry practice to support its decision to include the floor supervisors in the tip pool. This combination of errors resulted in Defendant’s grossly miscalculated conclusion that the floor supervisors were proper participants in the tip pool. Indeed, the jury’s verdict suggests that an average person outside the gaming industry would not agree with Defendant’s characterization of the floor supervisors as having significant customer interaction and such a skewed perception cannot be construed by this Court as objectively reasonable. See Kennedy v. Critical Intervention Services, Inc., 199 F.Supp.2d 1305, 1307-08 (M.D.Fla.2002)(although court found employer to have satisfied subjective good faith based on its investigation of the FLSA in an effort to avoid violating it, court found employer’s belief that it was compliant with the FLSA was not supported by the evidence and was not objectively reasonable; in reaching this conclusion court relied on jury’s verdict that plaintiff was not an exempt employee). See also Brandt v. Magnificent Quality Florals Corp., 2009 WL 899922, *3 (S.D.Fla. March 31, 2009) (even though employer was aware of FLSA overtime requirements, his belief that his employees never worked more than 40 hours was not supported by the evidence and, thus, was not objectively reasonable).”
S.D.N.Y.: Despite Evidence Of Good Faith, Court Constrained By Jury’s Finding Of Willfulness As To Defendants’ FLSA Violation; Liquidated Damages Due
Scott v. City of New York
Over fifteen thousand current and former New York City police officers and detectives (Plaintiffs) asserted that the City of New York and the New York City Police Department (“Defendants”) systematically violated plaintiffs’ overtime rights under the Fair Labor Standards Act (“FLSA”). This lawsuit addressed the policies and practices of the nation’s largest police department, and plaintiffs claim hundreds of millions of dollars in damages based on defendants’ alleged failures concerning the accrual, use, and payment of overtime. Before the Court was the issue of whether defendants may be relieved from the FLSA’s liquidated damages provision on account of a good faith attempt to comply with the statute. Although evaluating the evidence presented by the Defendants of good faith, the Court noted that it was bound to find a willful violation, based on the juries prior finding of willfulness:
“If this Court were free to determine independently whether defendants acted in good faith, I would address evidence presented at trial concerning defendants’ consultation of in-house lawyers and outside counsel, along with other compliance efforts. However, the Second Circuit has squarely held-along with the majority of other Circuit that a district court may not find good faith after a jury has concluded that the employer willfully violated the FLSA. Therefore, I decline to find that defendants acted in good faith and hold that plaintiffs are entitled to liquidated damages in equal amount to compensatory damages resulting from the chart claim and the regular rate claim.”
11th Cir.: Employer’s Payment Of Wages 7-8 Days After Pay Period Ended Not FLSA Violation; No Liquidated Damages Due
Benavides v. Miami Atlanta Airfreight, Inc.
Plaintiffs sought liquidated damages for untimely payment of their wages under the FLSA. The crux of Plaintiffs’ complaint was that Airfreight’s policy of paying its employees seven to eight days after the pay-period ended-without justification for the delay-violates the FLSA.
Section 206(b) of the FLSA provides that “[e]very employer shall pay to each of his employees … who in any work week is engaged in commerce or in the production of goods for commerce … not less than the minimum wage rate….”29 U.S.C. § 206(b). Although the FLSA specifies no time within which wages must be paid, liquidated damages may be available if the employer fails to pay wages or overtime on the regular payment date. See Atlantic Co. v. Broughton, 146 F.2d 480, 482 (5th Cir.1945). And we will assume that a “regular payment date” may be so far distant from the pay period to which payment relates to state a violation of the FLSA minimum wage. But we are cited to no cases that have concluded that seven or eights days’ payment in arrears-the time between the end of the pay period and Airfreight’s regular payment date-is actionably unreasonable or untimely. No requirement exists that wages be paid simultaneously with the end of the pay period. We see no support in the FLSA or in case law for Plaintiffs’ conflation of the end of the pay period and the regular pay date.
Olsen v. Superior Pontiac-GMC, Inc., 765 F.2d 1570 (11th Cir .1985), cited by Plaintiffs, is not on point. Olsen addressed whether commissions paid to car salesmen could be carried forward. Olsen concluded that the carry-forward-payment sequence was allowable only if the employee actually received the minimum wage for each pay period. The district court committed no error in granting summary judgment to Airfreight: Plaintiffs failed to show that Airfreight’s practice of paying wages seven to eight days after the wages accrued violates the FLSA.
Overtime Law Blog 