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2 Recent Decisions Discuss Successor Liability in FLSA Cases

When an employee is employed by a company, as long as that company is an enterprise covered by the FLSA, it is subject to the wage and hour requirements of the FLSA.  But what about when the company alleged to have violated the FLSA changes hands before its employees have initiated a lawsuit or claim for their unpaid wages.  Does the successor company, who acquires the assets of the alleged violator have successor liability under the FLSA?  Two recent decisions discuss this very issue. However, given the factually intensive nature of the inquiry, as discussed below, both courts denied the respective defendants’ motions based on issues of fact.

Paschal v. Child Development Inc.

In the first case, Paschal v. Child Development, Inc., the plaintiffs’ subsequent employer (“CDIHS”) sought judgment as a matter of law at the pleading stage of the case, asserting that it could not be plaintiffs’ employer under the FLSA, because it was not in existence when the plaintiffs’ claims arose. In denying the subsequent employer’s motion as premature, the court explained the parameters for successor liability in FLSA cases.

The court explained that the test for liability of a successor company under the FLSA requires the examination of several elements:

The doctrine of successor liability has [ ] been recognized to apply to FLSA violations.” The question of successor liability is difficult based on the “myriad [of] factual circumstances and legal contexts in which it can arise;” therefore, the court must give emphasis on the facts of each case as it arises. A finding of successorship involves two essential inquiries: (1) whether there is continuity of the business; and (2) did the successor know of the violations at the time it took over the business. A court may also consider whether: (a) the same plant is being used; (b) the employees are the same; (c) the same jobs exist; (d) the supervisors are the same; (e) the same equipment and methods of production are being used; and (f) the same services are being offered.

Applying these factors, the court addressed the parties respective positions:

In their Reply, CDIHS argues that Plaintiffs failed to plead any facts that put them in the category of being a successor in interest. Specifically, they argue that “[t]he business was not transferred, nor were employees or property transferred. There was no purchase of the business in any sense.” However, Defendants fail to address the two essential questions of whether they had notice of the violations and whether there was continuity of the business… Plaintiffs argue that “[s]ubstantial continuity of operations between CDI and CDIHS is a given.” They point to CDIHS’s website that indicates all of the efforts on CDIHS’s behalf to maintain the continuity of program. They also argue that based on CDIHS’s intervention, they were “aware of CDI’s potential liability for FLSA and ERISA violations.”

Ultimately, the court denied CDIHS’ motion as premature.

Click Paschal v. Child Development Inc. to read the entire Order Denying Motion to Dismiss.

Battino v. Cornelia Fifth Ave., LLC

In the second case, Battino v. Cornelia Fifth Ave., LLC, a different court applied a similar test to that discussed above. However, because the Battino case was before the court on the defendants’ motion for summary judgment (rather than a motion to dismiss at the pleading stage), it provides a greater insight into how courts apply the multi-factor test in ascertaining whether there is successor liability under the FLSA. In Battino, the court denied the subsequent employers’ motion for summary judgment holding that issues of fact precluded a finding in the defendants’ favor on this issue. As discussed here, the court primarily focused its inquiry on the second factor enunciated above, whether the successor knew of the violations at the time it took over the business.

Regarding the specific test applied by the Battino court, the court explained:

The substantial continuity test in the labor relations context looks to “whether the new company has acquired substantial assets of its predecessor and continued, without interruption or substantial change, the predecessor’s business operations.” Fall River, 482 U.S. at 43 (citation and quotation marks omitted). Courts applying this test typically look at the nine factors enunciated by the Sixth Circuit in the Title VII discrimination context in EEOC v. MacMillan Bloedel Containers, Inc., 503 F.2d 1086, 1094 (6th Cir.1974): (1) whether the successor company had notice of the charge or pending lawsuit prior to acquiring the business or assets of the predecessor; (2) the ability of the predecessor to provide relief; (3) whether there has been a substantial continuity of business operations; (4) whether the new employer uses the same plant; (5) whether he uses the same or substantially the same work force; (6) whether he uses the same or substantially the same supervisory personnel; (7) whether the same jobs exist under substantially the same working conditions; (8) whether he uses the same machinery, equipment, and methods of production; and (9) whether he produces the same product. Musikiwamba, 760 F.2d at 750 (paraphrasing MacMillan Bloedel ). “No one factor is controlling, and it is not necessary that each factor be met to find successor liability.” EEOC v. Barney Skanska Const. Co., 99 Civ.2001, 2000 WL 1617008, at *2 (S .D.N.Y. Oct. 27, 2000) (citation omitted).

In denying the defendants’ motion, the court held that there were issues of fact precluding same, because the successor company could not be said to be an “innocent purchaser,” inasmuch as one of its principals was also a principal in the prior company.

The court explained:

This is not a case of an “innocent purchaser” who “exercised due diligence and failed to uncover evidence” of any potential liability. Musikiwamba, 760 F.2d at 750, 752. Rather, SCFAL was fully aware of the potential liabilities to the unpaid employees and attempted to negotiate the APA accordingly. Thus, the Court is unable to conclude as a matter of law that Canizales cannot be liable as a successor to Cornelia Fifth because of a lack of notice of the claim to SCFAL.

Click Battino v. Cornelia Fifth Ave., LLC to read the entire Opinion and Order.

E.D.Ark.: Defendant’s Motion For Summary Judgment, Claiming It Was Unaware Of Overtime Worked, Denied; Question Of Fact Remains Regardless Of Whether Plaintiff Submitted Such Time On Timesheets

Woodman v. City of Hazen, Ark.

This is an action for overtime allegedly due the plaintiff by the City of Hazen pursuant to the Fair Labor Standards Act (“FLSA”), 29 U.S.C. § 201 et seq. Plaintiff worked as a police officer with the Hazen Police Department from 1999 to 2008. Plaintiff alleged that he was not compensated for all of his off-duty care and training of the canine, Arko, that was assigned to him in 2004 under the department’s canine program. The City of Hazen has filed a motion for summary judgment, and Woodman has responded. The Court, denied the motion for summary judgment finding issues of fact precluded same. Namely, despite the Defendant’s denial of knowledge that Plaintiff worked this uncompensated time, Plaintiff provided an affidavit for a non-party who averred he had specifically discussed the issue with Defendant’s mayor.

It was undisputed that Plaintiff failed to document all time worked on his timesheets, although generally had admitted that most time documented was paid to him.

After discussing the FLSA definition of work, the Court discussed whether Defendant had actual or constructive knowledge of Plaintiff’s off-the-clock work, such that it was responsible for paying Plaintiff for same:

“The key issue, then, is whether the City or its agents had actual or constructive knowledge that Woodman was working overtime. Stewart, 121 F.3d at 407;
Davis v. Food Lion, 792 F.2d 1274, 1276 (4th Cir.1986). The fact that Woodman initially did not seek overtime pay is irrelevant to whether the FLSA entitles him to overtime compensation. Stewart, 121 F.3d at 407. “[A]cceptance by an employee of payments of regular and overtime wages will not stop him from suing to recover the amount due him when he proves he actually worked longer.” Robertson v. Alaska Juneau Gold Mining Co., 157 F.2d 876, 879 (9th Cir.1946).

The City argues that it was impossible to know-either actually or constructively-that Woodman was not compensated for all of his overtime because Woodman failed to disclose such overtime on his time sheets. However, that is not the case. Employees may recover unpaid wages for overtime hours that were not recorded on their time sheets if they can prove that the employer knew or should have known about the overtime work through some alternative source. Bailey v.. County of Georgetown, 94 F.3d 152, 157 (4th Cir.1996). “[O]nce an employer knows or has reason to know that an employee is working overtime, it cannot deny compensation even where the employee fails to claim overtime hours.” Holzapfel v. Town of Newburgh, N.Y., 145 F.3d 516, 524 (2d Cir.1998); see also Newton v. City of Henderson, 47 F.3d 746, 748 (5th Cir.1995); Forrester, 646 F.2d at 414;
Caserta v. Home Lines Agency, Inc., 273 F.2d 943, 946 (2d Cir.1959). Failing to include off-duty time spent caring for and training an assigned police canine does not preclude the employee from recovering compensation for such work. Baker v. Stone County, Mo., 41 F.Supp.2d 965, 1000-01 (W.D.Mo.1999). Ultimately, a court need only inquire ” ‘whether the circumstances were such that the employer either had knowledge of overtime hours being worked or else had the opportunity through reasonable diligence to acquire knowledge.’ ” Kautsch v. Premier Communications, No. 06-CV-04035-NKL, 2007 WL 3376711, at *2 (W.D.Mo. Nov. 7, 2007) (quoting Reich v. Dep’t of Conservation and Natural Res., State of Ala., 28 F.3d 1076, 1082 (11th Cir.1994)).

The parties genuinely dispute whether the City of Hazen had actual or constructive knowledge that Woodman was not compensated for the off-duty time he spent caring for and training his assigned canine, Arko. In its motion for summary judgment, the City alleges that it was never aware that Woodman performed canine duties other than those recorded on his time sheets. The City denies that Strong informed Mayor Duch that Woodman was not paid for all of the time he spent working with Arko. Rather, the City contends that Mayor Duch was unaware that Woodman was working overtime and not getting paid. Woodman, on the other hand, alleges that the City knew he was not compensated for all of the overtime he worked. Woodman offers as evidence a signed affidavit in which Strong attests that he personally informed Mayor Duch that Woodman was not compensated for all the time he spent caring for and training Arko. According to Strong, the Mayor said that he did not have to pay Woodman for that work. Whether the Mayor was aware that Woodman was not being compensated for all of his work is a genuine issue of material fact on which the evidence is in conflict. Mayor Duch has sworn in an affidavit that he was unaware that Woodman was not being paid for all the time he spent working for the City, but Strong has sworn in an affidavit that he told Mayor Duch that Woodman was not being paid for all of his time with Arko and that Mayor Duch said it was not necessary to do so. A trial will be necessary to resolve this factual dispute.”