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Clarifying murky law regarding when FLSA settlements require judicial versus when they are self-effectuating, a divided Second Circuit panel recently held that settlement proposals in the form of accepted offers of judgment under Federal Rule of Civil Procedure 68 are not subject to judicial review and approval. Although FLSA settlements generally require judicial or U.S. Department of Labor (DOL) approval to be enforceable, the Second Circuit held that the statutory language of Rule 68 overrides that conventional wisdom and thus are an exception to the general rule.
In this case, the plaintiff sued his restaurant-employer on behalf of himself and similarly situated employees for overtime violations under the FLSA and New York Labor Law (NYLL). During the pendency of his lawsuit, the defendant-restaurant sent the plaintiff, an offer of judgment (OJ) pursuant to FRCP 68(a), which the plaintiff accepted. Per FCRP 68, the clerk of the court was required to “enter judgment” once the offer and notice of acceptance had been filed with the court.
Notwithstanding the clear dictates of FRCP 68, the district court sua sponte ordered the parties to submit the settlement offer to the court for fairness review, relying on the Second Circuit’s opinion in Cheeks v. Freeport Pancake House, Inc., 796 F.3d 199 (2d Cir. 2015), in which, the Second Circuit previously held that stipulated dismissals of FLSA claims under FRCP 41(a) require judicial approval notwithstanding the self-effectuating nature of that rule. The district court read Cheeks to stand for the proposition that parties to an FLSA claim could not “evade the requirement for judicial (or DOL) approval by way of Rule 68.”
In a 2-1 decision, the Second Circuit held that Cheeks does not extend to FRCP 68 offers of judgment, and that accepted OJs are an exception to the general rule requiring approval of private FLSA settlements. The majority distinguished FRCP 68(a)’s mandatory dismissal language from FRCP 41(a), which contains an exception to the self-executing nature of the dismissal where a federal statute governing the claim requires court approval. Because FRCP 68(a) contains no such exception to mandatory entry of judgment, the majority declined to read one into the rule.
The majority recognized the Cheeks court’s concern about “private, secret settlements and waivers of an employee’s FLSA rights that the Supreme Court [has] refused to endorse.” However, the Court reasoned that FRCP 68(a) requires public disclosure of the terms of FLSA settlements—unlike FRCP 41(a) stipulated dismissals—because the accepted offers must be publicly filed on the court’s docket. Furthermore, the majority reasoned that settlement agreements reached during the course of ongoing litigation in this manner are distinguishable from “private, back‐room compromises that could easily result in exploitation of the worker and the release of his or her rights,” the latter of which are more likely to be tainted by pressure applied by the employer.
The decision, which was the first from any Court of Appeals on this issue resolves a split among district courts in the Second Circuit. It also provides a blueprint for employees and employers who wish to avoid judicial scrutiny of their settlements reached in arm’s length negotiations during litigation.
Click Mei Xing Yu v. Hasaki Restaurant Inc. to read the entire decision.
This case was before the Eleventh Circuit on the defendant-employer’s appeal of the district court’s denial of its motion to compel arbitration. Specifically, the district court held that the parties’ agreement to arbitrate was unenforceable because the arbitration clause required each party to bear its own attorneys’ fees and costs. The Eleventh Circuit affirmed in part and vacated and remanded in part, so that the district court could decide whether the offending provision could be severed, which the lower court had already held it could not.
Describing the relevant arbitration clauses at issue, the court explained:
Those arbitration clauses provide:Any dispute arising out of this agreement shall be resolved by mediation or arbitration, each party agrees, the parties will equally divide cost of mediation. Each party to any arbitration will pay its own fees and expense, including attorney fees and will share other fees of arbitration. The arbitrat[or] may conduct the hearing in absence of either party. After notified of such hearing. [sic](Emphasis added).
In his R&R, the magistrate judge determined the language of the arbitration provisions plainly prohibited Appellees from recovering their fees and costs, and thus the fees and costs clauses were unenforceable as they contravened the FLSA. The magistrate judge went on to note the arbitration provisions did not contain severability clauses, and that in the absence of a severability clause, the objectionable language could not be severed. Accordingly, the magistrate judge determined the arbitration provisions were unenforceable in their entirety. PIP filed objections to the R&R, arguing the fees and costs clauses merely required the parties to “pay their own way” while the arbitration is proceeding, and that nothing in the ECAs prohibited the arbitrator from shifting the fee if and when the Appellees were determined to be prevailing parties. And, even if the fees and costs clauses were unenforceable, the magistrate judge erred in concluding the “objectionable language could not be severed solely because the arbitration clauses do not contain a severability provision.” PIP asserted that Eleventh Circuit case law does not hold that any arbitration agreement that contains an unenforceable remedial restriction is completely null and void in the absence of a severability clause. Instead, the court is required to determine whether the unenforceable clauses are severable, which is decided as a matter of state law, here the law of Florida. PIP claimed Florida law allowed an unenforceable clause to be severed as long as the unenforceable clause does not go to the essence of the agreement. Thus, PIP asserted, even if the court were to sever the offending clause, there would still be a valid agreement to resolve employment-related disputes through arbitration.The district court adopted the magistrate judge’s R&R and denied PIP’s motion to compel arbitration after concluding the arbitration provisions in the relevant contracts were unenforceable because they denied the Appellees a substantive right under the FLSA—the right to recover fees and costs pursuant to 29 U.S.C. § 216(b). Furthermore, the court concluded that because the arbitration provisions did not provide for severability, the arbitration provisions were unenforceable in their entirety.
On appeal, the Eleventh Circuit affirmed the district court’s holding that the fee/cost splitting provision violated the FLSA. However, it remanded for further decision on whether the offending provision could be severed notwithstanding the absence of a severability clause.
Holding the fee/costs splitting provision to be unenforceable, the court explained:
Appellees contend the arbitration provisions improperly deny them their statutory right to recover fees and costs under the FLSA.The district court did not err in concluding that the statement “[e]ach party to any arbitration will pay its own fees and expense, including attorney fees and will share other fees of arbitration,” does not leave any discretion with the arbitrator to award fees and costs. (Emphasis added). We have held the terms of an arbitration clause regarding remedies must be “fully consistent with the purposes underlying any statutory claims subject to arbitration.” Paladino v. Avnet Comput. Techs., Inc., 134 F.3d 1054, 1059 (11th Cir. 1998). Thus, the clause providing that each party will pay its own fees and costs is unenforceable, as the FLSA allows fees and costs as part of a plaintiff’s award. Id. at 1062 (“When an arbitration clause has provisions that defeat the remedial purpose of the statute, … the arbitration clause is not enforceable.”); 29 U.S.C. § 216(b)… Appellees have met their burden of establishing that enforcement of the fees and costs clauses in the arbitration provisions would preclude them from effectively vindicating their federal statutory rights in the arbitral forum. See id. at 1259. Thus, the district court did not err in concluding the fees and costs clauses are unenforceable.
However, the Court rejected the portion of the district court’s opinion which had held–consistent with Florida law–that the absence of a severability clause rendered the arbitration cause unenforceable in its entirety. As such, it reversed and remanded this issue for further consideration, reasoning:
The district court then reasoned that if the arbitration provisions contained a severability clause, the offending clauses could potentially be severed. Because the ECAs did not contain a severability provision, the court stated the objectionable language could not be severed and determined the arbitration clauses were unenforceable in their entirety.However, we have rejected the proposition that an “arbitration agreement that contains an unenforceable remedial restriction is completely null and void unless it also contains a severability clause.” Terminix Int’l Co., LP v. Palmer Ranch Ltd. P’ship, 432 F.3d 1327, 1331 (11th Cir. 2005). Instead, if a provision is “not enforceable, then the court must determine whether the unenforceable provisions are severable. Severability is decided as a matter of state law.” Id.Our law does not support that an arbitration provision is unenforceable in its entirety if it contains an offending clause and lacks a severability provision. Id. The district court did not go on to the next step to address whether the unenforceable clauses were severable as a matter of Florida law, despite PIP arguing this issue in its objections to the R&R. Thus, we remand to the district court to decide in the first instance the issue of whether the offending clauses are severable under Florida law.
Thus, the Eleventh Circuit affirmed the district court’s conclusion the fees and costs clauses of the arbitration provisions were unenforceable, but reversed the district court’s conclusion the arbitration provisions are unenforceable in their entirety solely because they lack a severability provision, and remanded for the district court to determine whether the fees and costs clauses are severable as a matter of Florida law.
Click Hudson v. P.I.P., Inc. to read the entire Opinion.
This case was before the court on the State of Nevada’s interlocutory appeal, following the district court’s denial of its motion to dismiss on jursidictional grounds. Addressing an issue of first impression, the Ninth Circuit held that removal from state court to federal court constitutes a waiver of sovereign immunity as to all federal claims, including the FLSA claims at issue here.
In Walden, state correctional officers alleged that the Nevada Department of Corrections improperly failed to pay them for pre- and post-shift work at state prisons and other facilities. They filed suit in state court, alleging minimum wage and overtime claims under the FLSA, in addition to a minimum-wage claim under Nevada’s Constitution, a overtime claim under Nevada law, and a claim for breach of contract.
Nevada removed the case to federal court and moved for judgment on the pleadings with regard to the FLSA claims, and contended that it was “immune from liability as a matter of law.” Nevada did not explicitly mention state sovereign immunity or the Eleventh Amendment, though.
The district court requested briefing on the question whether state sovereign immunity applies to the FLSA claims against the state following its removal of the case to federal court.
The district court held that Nevada had waived its sovereign immunity as to the officers’ FLSA claim by virtue of its removal of the case to federal court, and denied the state’s motion to dismiss. Nevada filed an interlocutory appeal to the Ninth Circuit.
While the particular issue at bar was one of first impression, the Ninth Circuit looked to other cases in which states had been held to waive soverign immunity when they removed federal claims to federal court, to reach its holding.
The Ninth Circuit noted that the Supreme Court had previously held that a state can waive sovereign immunity with regard to state law claims by removing them to federal court and the Ninth Circuit itself had previously held that, at least in some circumstances a state can waive soverign immunity by removing federal statutory claims to federal court.
The court then went one step further: “We now hold that a State that removes a case to federal court waives its immunity from suit on all federal-law claims in the case, including those federal-law claims that Congress failed to apply to the states through unequivocal and valid abrogation of their Eleventh Amendment immunity,” it wrote.
As the Supreme Court had observed, it was inconsistent for a state simultaneously to invoke federal jurisdiction, thus acknowledging the federal court’s authority over the case at hand, while claiming it enjoyed sovereign immunity from the “Judicial Power of the United States” in the matter before it.
Thus, the Ninth Circuit held that a state waives soverign immunity as to all federal statutory claims in a case which the state has removed to federal court, including those federal claims that Congress did not apply to the states through unequivocal and valid abrogation of their Eleventh Amendment immunity (like the FLSA).
Click Walden v. State of Nevada to read the entire decision.
Following a court decision which struck down the prior regulations promulgated by the Obama administration, which would have rendered for more employees overtime eligible, the Trump has now increased the salary threshold for white collar exemption. This marks the first increase since 2004.
In addition to limiting the number of workers who will now receive overtime (versus the more expansive Obama-era rule), the current DOL rejected a provision automatically increasing the salary threshold over time, to ensure that another 15-20 years does not pass before the thresholds are re-examined and increased again.
The updated and revised the regulations issued under the Fair Labor Standards Act (FLSA) to allow 1.3 million workers to become newly entitled to overtime by updating the earnings thresholds necessary to exempt executive, administrative or professional employees from the FLSA’s minimum wage and overtime pay requirements.
The DOL has updated both the minimum weekly standard salary level and the total annual compensation requirement for “highly compensated employees” or HCEs to reflect growth in wages and salaries. The new thresholds account for growth in employee earnings since the currently enforced thresholds were set in 2004.
Key Provisions of the Final Rule
The final rule updates the salary and compensation levels needed for workers to be exempt in the final rule:
raising the “standard salary level” from the currently enforced level of $455 to $684 per week (equivalent to $35,568 per year for a full-year worker);
raising the total annual compensation level for “highly compensated employees (HCEs)” from the currently-enforced level of $100,000 to $107,432 per year;
allowing employers to use nondiscretionary bonuses and incentive payments (including commissions) that are paid at least annually to satisfy up to 10 percent of the standard salary level, in recognition of evolving pay practices; and
revising the special salary levels for workers in U.S. territories and in the motion picture industry.
Standard Salary Level
The DOL set the standard salary level at $684 per week ($35,568 for a full-year worker).
HCE Total Annual Compensation Requirement
In addition, the DOL set the total annual compensation requirement for HCEs at $107,432 per year. This compensation level equals the earnings of the 80th percentile of full-time salaried workers nationally. To be exempt as an HCE, an employee must also receive at least the new standard salary amount of $684 per week on a salary or fee basis (without regard to the payment of nondiscretionary bonuses and incentive payments).
Special Salary Levels for Employees in U.S. Territories and Special Base Rate for the Motion Picture Producing Industry
The DOL is maintaining a special salary level of $380 per week for American Samoa. Additionally, the Department is setting a special salary level of $455 per week for employees in Puerto Rico, the U.S. Virgin Islands, Guam, and the Commonwealth of the Northern Mariana Islands.
The DOL also is maintaining a special “base rate” threshold for employees in the motion picture producing industry. Consistent with prior rulemakings, the Department is increasing the required base rate proportionally to the increase in the standard salary level test, resulting in a new base rate of $1,043 per week (or a proportionate amount based on the number of days worked).
Treatment of Nondiscretionary Bonuses and Incentive Payments
The DOL’s new rule also permits employers to use nondiscretionary bonuses and incentive payments to satisfy up to 10 percent of the standard salary level. For employers to credit nondiscretionary bonuses and incentive payments toward a portion of the standard salary level test, they must make such payments on an annual or more frequent basis.
If an employee does not earn enough in nondiscretionary bonus or incentive payments in a given year (52-week period) to retain his or her exempt status, the Department permits the employer to make a “catch-up” payment within one pay period of the end of the 52-week period. This payment may be up to 10 percent of the total standard salary level for the preceding 52-week period. Any such catch-up payment will count only toward the prior year’s salary amount and not toward the salary amount in the year in which it is paid.
When Will the Current Thresholds Be Updated?
Although initially proposed, the Trump DOL inexplicably rejected a provision of the rule, overwhelmingly supported by workers and workers advocates which would have automatically raised the thresholds over time without the necessity of further rulemaking. As a result it is possible if not likely that there will be no further increase to the current thresholds for another 15 years if not more. In its final rule the DOL reaffirms its intent to update the earnings thresholds more regularly in the future through notice-and-comment rulemaking, but given the anti-worker sentiment of the current DOL, including the recent confirmation of a steadfast anti-worker advocate as the head of the DOL, this is most-likely best viewed as lip service.
The DOL’s final rule is available at Final Rule to Update the Regulations Defining and Delimiting the Exemptions for Executive, Administrative, and Professional Employees.
M.D.Fla.: Plaintiffs Entitled to Irrebuttable Presumption That Their Damage Calculations Are Correct Where Defendant Spoliated Payroll Records
This case was before the court on the plaintiffs’ motion for sanctions. Specifically, plaintiffs sought sanctions as a result of the defendant-employers intentional destruction of the relevant payroll records pertaining to plaintiffs’ employment. While the court denied plaintiffs’ motion to the extent that it sought a default judgment, the court ordered that—to the extent plaintiffs prevailed on liability at trial—their calculation based on payroll records available from a third-party would be deemed irrebuttably correct, subject to the court’s approval.
The court provided the following history of the defendants’ egregious discovery misconduct:
This case arises under the Fair Labor Standards Act of 1938 (“FLSA“), as amended, 29 U.S.C. § 201 et seq. Plaintiff alleges that Defendants mischaracterized their licensed practical nurse and registered nurse employees as independent contractors. (Compl., Doc. 1, at 3). On December 3, 2015, this Court entered a scheduling order directing the parties to exchange all documents germane to this case by January 15, 2016. (FLSA Scheduling Order, Doc. 29, ¶ 1). Defendants failed to timely comply with the disclosure of documents and, as a result, an Order to Show Cause why sanctions should not be imposed was issued. (Feb. 25, 2016 Order, Doc. 32, at 1-2). After a hearing on the matter, this Court found that sanctions were warranted against Defendants and Defendants’ counsel for their failure to comply with the Court’s order, but held the sanctions in abeyance so long as Defendants produced all relevant documents in their possession, custody, or control by March 21, 2016. (Mar. 7, 2016 Order, Doc. 37, ¶¶ 1-3).
On March 11, 2016, Plaintiff filed a motion for sanctions against Defendants. (Mot. for Sanctions, Doc. 38). Therein, Plaintiff alleged that Defendants willfully destroyed, or negligently allowed to be destroyed, payroll records prior to May 2015, despite an ongoing investigation by the Department of Labor (“Department”). (Id. at 12-13). Additionally, Plaintiff asserted that since May 2015, an administrative employee had been deleting payroll records on a weekly basis by writing [*3] over them at the end of each work week. (Id. at 15-16). Defendants acknowledged that an employee was writing over the payroll week-to-week but claimed that the records prior to May 2015 were destroyed by a disgruntled former employee, Karen Reyes. (Id. at 7). On September 22, 2016, this Court entered an order denying the motion for sanctions because there was a factual dispute regarding whether Reyes deleted the payroll records and because Plaintiff had not yet determined what, if any, prejudice Plaintiff had suffered. (Sept. 22, 2016 Order, Doc. 55, at 6-7, 9). Nevertheless, the Court was troubled by Defendants’ actions and ordered Defendants to “immediately halt the destruction of any Current Payroll Records” and produce all payroll records to Plaintiff on a bi-weekly basis. (Id. at 10). Now, Plaintiff again seeks sanctions against Defendants and Defendants’ counsel pursuant to Federal Rule of Civil Procedure 37(b), 28 U.S.C. § 1927, and this Court’s inherent authority.
Following a discussion of the relevant standards for sanctions under Fed. R. Civ. Proc. 37, the court determined that the appropriate “punishment to fit the crime” in this case was to order that plaintiffs’ damages calculations would be subject to an irrebuttable presumption of correctness. Specifically, the court explained that plaintiffs could not show the extreme prejudice to warrant a default judgment, because they were apparently ultimately able to obtain the payroll records at issue from defendants third-party payroll company, notwithstanding defendants’ destruction of the copies in defendants’ possession.
Thus, the court held:
Plaintiff represented at the evidentiary hearing that he was able to obtain a sampling of nurses’ paychecks from Caring First’s bank. From these paychecks, which contain the hours worked by the nurses and their pay rate, Plaintiff claims he will be able to accurately calculate back wages. Therefore, as a sanction the Court will order the production of the nurses’ paychecks from Caring First’s bank. In addition, the Court will allow Plaintiff to recalculate potential back wages based on these paychecks. If Plaintiff prevails as to liability at trial, this calculation will be irrebuttably presumed to be correct, subject to Court approval.
This is definitely a case for all wage and hour practitioners to hold on to, because the circumstances of this case are unfortunately far from unique.
Click Sec’y of Labor v. Caring First, Inc. to read the entire Opinion of the court.
DOL Issues Final Overtime Rule, Expanding Overtime Pay for Over 4 Million Workers; New Rule to Go Into Effect Dec. 1, 2016
The United States Department of Labor (DOL) Announced its long-awaited final rule regarding the update to the existing overtime rules. The new rule is set to take effect on December 1, 2016.
Most significantly, whereas the previous rule employees who met certain duties tests under the so-called “white collar” exemptions had to make at least $455 per week on a “salary basis,” the new rule brings that threshold to $913 per week (or $47,476 annually). This is approximately $3,000 less on an annual basis that an estimated $50,440 per year that a proposed version of the rule promulgated by the DOL had set last year, but over two times the current threshold amount.
The new salary basis threshold equates with the 40th percentile of weekly earnings for a full-time, salaried work in the United States’ lowest income region.
The final rule also raises the overtime eligibility threshold for highly compensated employees from $100,000 to $134,000.
While the rule raises the applicable thresholds for various exemptions, it also allows employers to count earnings paid to employees as bonuses and commissions toward meeting the salary threshold. Specifically, the rule permits employers to meet up to ten (10%) of the salary threshold with amounts paid to employees as bonus and commission payments.
Although the DOL had also asked for input on a proposed rule which would have tracked the California white collar exemptions and created a more bright-line test requiring that a worker spend at least 50 percent of his or her time on exempt duties each week to qualify for an exemption, the final rule abandoned any such change to the duties’ portions of the executive, administrative, professional, outside sales, and computer employee exemptions.
In a lesser publicized 2nd final rule, the DOL carved out certain employers from the new rule. Specifically, the 2nd rule announced a non-enforcement policy with regard to the 1st rule, for providers of Medicaid-funded services for individuals with intellectual or developmental disabilities in residential homes and facilities (i.e. group homes) with 15 or fewer beds. Under the 2nd final rule announced, from December 1, 2016 to March 17, 2019, the DOL will not enforce the updated salary threshold of $913 per week for this subset of employers covered by the non-enforcement policy.
For further information on all things pertaining to the new rules, visit the DOL’s website.
9th Cir.: Employers May NOT Retain Employee Tips Even Where They Do Not Take a Tip Credit; 2011 DOL Regulations Which Post-Dated Woody Woo Due Chevron Deference Because Existing Law Was Silent and Interpretation is Reasonable
In a case that will likely have very wide-reaching effects, this week the Ninth Circuit reversed 2 lower court decisions which has invalidated the Department of Labor’s 2011 tip credit regulations. Specifically, the lower courts had held, in accordance with the Ninth Circuit’s Woody Woo decision which pre-dated the regulations at issue, that the DOL lacked the authority to regulate employers who did not take a tip credit with respect to how they treated their employees’ tips. Holding that the 2011 regulations were due so-called Chevron deference, the Ninth Circuit held that the lower court had incorrectly relied on its own Woody Woo case because the statutory/regulatory silence that had existed when Woody Woo was decided had been properly filled by the 2011 regulations. As such, the Ninth Circuit held that the lower court was required to give the DOL regulation deference and as such, an employer may never retain any portion of its employees tips, regardless of whether it avails itself of the tip credit or not.
Framing the issue, the Ninth Circuit explained “[t]he precise question before this court is whether the DOL may regulate the tip pooling practices of employers who do not take a tip credit.” It further noted that while “[t]he restaurants and casinos [appellees] argue that we answered this question in Cumbie. We did not.”
The court then applied Chevron analysis to the DOL’s 2011 regulation at issue.
Holding that the regulation filled a statutory silence that existed at the time of the regulation, and thus met Step 1 of Chevron, the court reasoned:
as Christensen strongly suggests, there is a distinction between court decisions that interpret statutory commands and court decisions that interpret statutory silence. Moreover, Chevron itself distinguishes between statutes that directly address the precise question at issue and those for which the statute is “silent.” Chevron, 467 U.S. at 843. As such, if a court holds that a statute unambiguously protects or prohibits certain conduct, the court “leaves no room for agency discretion” under Brand X, 545 U.S. at 982. However, if a court holds that a statute does not prohibit conduct because it is silent, the court’s ruling leaves room for agency discretion under Christensen.
Cumbie falls precisely into the latter category of cases—cases grounded in statutory silence. When we decided Cumbie, the DOL had not yet promulgated the 2011 rule. Thus, there was no occasion to conduct a Chevron analysis in Cumbie because there was no agency interpretation to analyze. The Cumbie analysis was limited to the text of section 203(m). After a careful reading of section 203(m) in Cumbie, we found that “nothing in the text of the FLSA purports to restrict employee tip-pooling arrangements when no tip credit is taken” and therefore there was “no statutory impediment” to the practice. 596 F.3d at 583. Applying the reasoning in Christensen, we conclude that section 203(m)‘s clear silence as to employers who do not take a tip credit has left room for the DOL to promulgate the 2011 rule. Whereas the restaurants, casinos, and the district courts equate this silence concerning employers who do not take a tip credit to “repudiation” of future regulation of such employers, we decline to make that great leap without more persuasive evidence. See United States v. Home Concrete & Supply, LLC, 132 S. Ct 1836, 1843, 182 L. Ed. 2d 746 (2012) (“[A] statute’s silence or ambiguity as to a particular issue means that Congress has . . . likely delegat[ed] gap-filling power to the agency[.]”); Entergy Corp. v. Riverkeeper, Inc., 556 U.S. 208, 222, 129 S. Ct. 1498, 173 L. Ed. 2d 369 (2009) (“[S]ilence is meant to convey nothing more than a refusal to tie the agency’s hands . . . .”); S.J. Amoroso Constr. Co. v. United States, 981 F.2d 1073, 1075 (9th Cir. 1992) (“Without language in the statute so precluding [the agency’s challenged interpretation], it must be said that Congress has not spoken to the issue.”).
In sum, we conclude that step one of the Chevron analysis is satisfied because the FLSA is silent regarding the tip pooling practices of employers who do not take a tip credit. Our decision in Cumbie did not hold otherwise.
Proceeding to step 2 of Chevron analysis, the court held that the 2011 regulation was reasonable in light of the existing statutory framework of the FLSA and its legislative history. The court reasoned:
The DOL promulgated the 2011 rule after taking into consideration numerous comments and our holding in Cumbie. The AFL-CIO, National Employment Lawyers Association, and the Chamber of Commerce all commented that section 203(m) was either “confusing” or “misleading” with respect to the ownership of tips. 76 Fed. Reg. at 18840-41. The DOL also considered our reading of section 203(m) in Cumbie and concluded that, as written, 203(m) contained a “loophole” that allowed employers to exploit the FLSA tipping provisions. Id. at 18841. It was certainly reasonable to conclude that clarification by the DOL was needed. The DOL’s clarification—the 2011 rule—was a reasonable response to these comments and relevant case law.
The legislative history of the FLSA supports the DOL’s interpretation of section 203(m) of the FLSA. An “authoritative source for finding the Legislature’s intent lies in the Committee Reports on the bill, which represent the considered and collective understanding of those Congressmen [and women] involved in drafting and studying proposed legislation.” Garcia v. United States, 469 U.S. 70, 76, 105 S. Ct. 479, 83 L. Ed. 2d 472 (1984) (citation and internal quotation marks omitted). On February 21, 1974, the Senate Committee published its views on the 1974 amendments to section 203(m). S. Rep. No. 93-690 (1974).
Rejecting the employer-appellees argument that the regulation was unreasonable, the court explained:
Employer-Appellees argue that the report reveals an intent contrary to the DOL’s interpretation because the report states that an “employer will lose the benefit of [the tip credit] exception if tipped employees are required to share their tips with employees who do not customarily and regularly receive tips[.]” In other words, Appellees contend that Congress viewed the ability to take a tip credit as a benefit that came with conditions and should an employer fail to meet these conditions, such employer would be ineligible to reap the benefits of taking a tip credit. While this is a fair interpretation of the statute, it is a leap too far to conclude that Congress clearly intended to deprive the DOL the ability to later apply similar conditions on employers who do not take a tip credit.
The court also examined the Senate Committee’s report with regard to the enactment of 203(m), the statutory section to which the 2011 regulation was enacted to interpret and stated:
Moreover, the surrounding text in the Senate Committee report supports the DOL’s reading of section 203(m). The Committee reported that the 1974 amendment “modifies section 3(m) of the Fair Labor Standards Act by requiring . . . that all tips received be paid out to tipped employees.” S. Rep. No. 93-690, at 42. This language supports the DOL’s statutory construction that “[t]ips are the property of the employee whether or not the employer has taken a tip credit.” 29 C.F.R. § 531.52. In the same report, the Committee wrote that “tipped employee[s] should have stronger protection,” and reiterated that a “tip is . . . distinguished from payment of a charge . . . [and the customer] has the right to determine who shall be the recipient of the gratuity.” S. Rep. No. 93-690, at 42.
In 1977, the Committee again reported that “[t]ips are not wages, and under the 1974 amendments tips must be retained by the employees . . . and cannot be paid to the employer or otherwise used by the employer to offset his wage obligation, except to the extent permitted by section 3(m).” S. Rep. No. 95-440 at 368 (1977) (emphasis added). The use of the word “or” supports the DOL’s interpretation of the FLSA because it implies that the only acceptable use by an employer of employee tips is a tip credit.
Additionally, we find that the purpose of the FLSA does not support the view that Congress clearly intended to permanently allow employers that do not take a tip credit to do whatever they wish with their employees’ tips. The district courts’ reading that the FLSA provides “specific statutory protections” related only to “substandard wages and oppressive working hours” is too narrow. As previously noted, the FLSA is a broad and remedial act that Congress has frequently expanded and extended.
Considering the statements in the relevant legislative history and the purpose and structure of the FLSA, we find that the DOL’s interpretation is more closely aligned with Congressional intent, and at the very least, that the DOL’s interpretation is reasonable.
Finally, the court explained that it was not overruling Woody Woo, because Woody Woo had been decided prior to the enactment of the regulation at issue when there was regulatory silence on the issue, whereas this case was decided after the 2011 DOL regulations filled that silence.
This case is likely to have wide-ranging impacts throughout the country because previously district court’s have largely simply ignored the 2011 regulations like the lower court’s here, incorrectly relying on the Woody Woo case which pre-dated the regulation.
Click Oregon Rest. & Lodging Ass’n v. Perez to read the entire decision.
10th Cir.: Award of Liquidated Damages Under FLSA Does Not Preclude Award of Similar Penalties Under Colorado Law (CWCA)
Following the entry of judgment on his behalf on both his FLSA and Colorado wage and hour claims, plaintiff appealed the district court’s judgment. Specifically, plaintiff appealed the district court’s holding that an award of liquidated damages under the FLSA precluded an award of penalties under the CWCA. Whereas the district court had held that plaintiff was entitled to an award of one or both because awarding both would have constituted a double recovery, the Tenth Circuit disagreed. Rather, the Tenth Circuit held that because liquidated damages under the FLSA and penalties under the CWCA serve different purposes, an employee who prevails on claim under both statutes may be awarded both liquidated damages and penalties.
Framing the issue before it, the Tenth Circuit explained:
The court then stated that “these claims give rise to similar and, at least partially, overlapping damages.” Aplt. App. at 15. The court cited Mason v. Oklahoma Turnpike Authority, 115 F.3d 1442, 1459 (10th Cir. 1997) (quoting U.S. Indus., Inc. v. Touche Ross & Co., 854 F.2d 1223, 1259 (10th Cir. 1988)), overruled on other grounds by TW Telecom Holdings Inc. v. Carolina Internet Ltd., 661 F.3d 495 (10th Cir. 2011), for the principle that “‘[i]f a federal claim and a state claim arise from the same operative facts, and seek identical relief, an award of damages under both theories will constitute double recovery.'” Then without evaluating the nature of relief available under FLSA and CWCA, the court further concluded that Mr. Evans could “recover damages only on the statute which provides the greatest relief.” Aplt. App. at 15.
Without explaining why it believed CWCA provided greater relief than FLSA, the district court awarded Mr. Evans $7,248.75 in compensatory damages for unpaid wages under CWCA. Further, after finding that Mr. Evans had made a proper, written demand for payment under CWCA and that the defendants had willfully failed to pay the owed wages, the district court also awarded Mr. Evans a penalty under CWCA of 175% of the unpaid wages: $12,685.31. See Colo. Rev. Stat. § 8-4-109(3). Although noting that Mr. Evans had provided no support for his prejudgment-interest claim, the court nevertheless exercised its discretion and [*4] awarded prejudgment interest—solely on the compensatory damages—in the amount of $1077.18, together with postjudgment interest. In addition, it ruled that Mr. Evans was entitled to his attorney fees and costs.
In reaching its holding that liquidated damages under the FLSA and penalties under the CWCA are not mutually exclusive, the Tenth Circuit differentiated the reasons underlying both types of damages, and explained:
On appeal, Mr. Evans contends that he is entitled to FLSA liquidated damages in addition to the CWCA penalty because the two monetary awards serve different purposes. More specifically, he contends that FLSA liquidated damages are meant to compensate employees wrongly unpaid their wages, but that the CWCA penalty is meant to punish employers that wrongly fail to pay their employees’ earned wages. We agree with Mr. Evans’s position.
In addition to requiring employers to pay wages owed, FLSA authorizes the imposition of an equal amount as liquidated damages unless “the employer shows both that he acted in good faith and that he had reasonable grounds for believing that his actions did not violate the Act.” Doty v. Elias, 733 F.2d 720, 725-26 (10th Cir. 1984); see also 29 U.S.C. §§ 216(b), 260. Liquidated damages awarded under FLSA are compensatory rather than punitive. Brooklyn Sav. Bank v. O’Neil, 324 U.S. 697, 707 (1945). In other words, [*5] they “‘are not a penalty exacted by the law, but rather compensation to the employee occasioned by the delay in receiving wages due caused by the employer’s violation of the FLSA.'” Jordan v. U.S. Postal Serv., 379 F.3d 1196, 1202 (10th Cir. 2004) (quoting Herman v. RSR Sec. Servs. Ltd., 172 F.3d 132, 142 (2d Cir. 1999)); see also Renfro v. City of Emporia, 948 F.2d 1529, 1540 (10th Cir. 1991) (“The purpose for the award of liquidated damages is ‘the reality that the retention of a workman’s pay may well result in damages too obscure and difficult of proof for estimate other than by liquidated damages.'” (quoting Laffey v. Northwest Airlines, Inc., 567 F.2d 429, 463 (D.C. Cir. 1976))).
The relief available under FLSA and CWCA does partially overlap because both laws allow employees to recover unpaid wages as compensatory damages. And Mr. Evans concedes that he can recover his unpaid wages only once. But, as discussed above, FLSA allows for additional compensatory damages as liquidated damages. In contrast, CWCA imposes a penalty on an employer who receives an employee’s written demand for payment and fails to make payment within fourteen days, and it increases the penalty if the employer’s failure to pay is willful. See Graham v. Zurich Am. Ins. Co., 296 P.3d 347, 349-50 (Colo. App. 2012). No Tenth Circuit case directly addresses whether these damages duplicate one another.
Other jurisdictions have concluded that an award of both a state statutory penalty and FLSA liquidated damages does not constitute a double [*6] recovery. See, e.g., Mathis v. Housing Auth., 242 F. Supp. 2d 777, 790 (D. Or. 2002) (“[A]n award of the penalty under [the state law] and an award of liquidated damages under the FLSA do not constitute a double recovery.”); Morales v. Cancun Charlie’s Rest., No. 3:07-cv-1836 (CFD), 2010 WL 7865081, at *9 (D. Conn. Nov. 23, 2010) (unpublished) (allowing recovery of liquidated damages under both FLSA and state law because the provisions “serve different purposes—the FLSA damages are compensatory and the [state law] damages serve a punitive purpose”); Do Yea Kim v. 167 Nail Plaza, No. 05 CV 8560 (GBD), 2008 WL 2676598, at *3 (S.D.N.Y. July 7, 2008) (unpublished) (“New York Labor Law provides separately for liquidated damages in overtime compensation claims, in addition to federal liquidated damages.”). We agree with the rationale of these cases.
We note further that, like FLSA liquidated damages, prejudgment interest also is meant “‘to compensate the wronged party for being deprived of the monetary value of his loss from the time of the loss to the payment of the judgment.'” Greene v. Safeway Stores, Inc., 210 F.3d 1237, 1247 (10th Cir. 2000) (quoting Suiter v. Mitchell Motor Coach Sales, Inc., 151 F.3d 1275, 1288 (10th Cir. 1998)). It follows that “a party may not recover both liquidated damages and prejudgment interest under the FLSA.” Doty, 733 F.2d at 726. Thus, on remand, if the district court awards FLSA liquidated damages it must vacate its award of prejudgment interest. See Dep’t of Labor v. City of Sapulpa, 30 F.3d 1285, 1290 (10th Cir. 1994) (“If the district court finds that liquidated damages should be awarded it must vacate [*7] its award of prejudgment interest, because it is settled that such interest may not be awarded in addition to liquidated damages.”).
Therefore, we remand to the district court to recalculate the amount of damages in light of our determination that it is permissible for the court to award both FLSA liquidated damages and a CWCA penalty. If the court awards FLSA liquidated damages, it must vacate the award of prejudgment interest.
While this decision is limited in application to cases in which employees make claims simultaneously under the FLSA and CWCA, it’s application and reasoning can certainly be applied to other so-called “hybrid” cases in which FLSA claims are paired with state wage and hour law claims.
Click Evans v. Loveland Auto. Invs. to read the entire decision.
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.
D.D.C.: Revised Regulations re Companionship Exemption Reinstated; DOL Acted Within Its Rulemaking Authority and the New Regulation Grounded in Reasonable Interpretation of the FLSA
This case was before the D.C. Circuit on the Department of Labor’s appeal of a lower court’s decision that held the DOL’s recent amendments to the companionship exemption regulations to be unenforceable. Specifically, in 2 separate decisions, the same lower court judge had invalidated the new regulations, both as they applied to third-party staffing companies and as they revised the definition of companionship duties within the scope of the exemption. The D.C. Circuit reversed the lower court’s decision and reinstated the revised regulation, finding that the DOL acted within its rulemaking authority with regard to the revision pertaining to third-party staffing companies. The D.C. Circuit declined to reach the second issue regarding the definition of companionship services, because it held that the plaintiffs lacked standing to challenge same in light of the fact that the exemption was inapplicable to them under the regulation in the first instance.
Explaining the issue before it, the court stated:
The Fair Labor Standards Act’s protections include the guarantees of a minimum wage and overtime pay. The statute, though, has long exempted certain categories of “domestic service” workers (workers providing services in a household) from one or both of those protections. The exemptions include one for persons who provide “companionship services” and another for persons who live in the home where they work. This case concerns the scope of the exemptions for domestic-service workers providing either companionship services or live-in care for the elderly, ill, or disabled. In particular, are those exemptions from the Act’s protections limited to persons hired directly by home care recipients and their families? Or do they also encompass employees of third-party agencies who are assigned to provide care in a home?
Until recently, the Department of Labor interpreted the statutory exemptions for companionship services and live-in workers to include employees of third-party providers. The Department instituted that interpretation at a time when the provision of professional care primarily took place outside the home in institutions such as hospitals and nursing homes. Individuals who provided services within the home, on the other hand, largely played the role of an “elder sitter,” giving basic help with daily functions as an on-site attendant.
Since the time the Department initially adopted that approach, the provision of residential care has undergone a marked transformation. The growing demand for long-term home care services and the rising cost of traditional institutional care have fundamentally changed the nature of the home care industry. Individuals with significant care needs increasingly receive services in their homes rather than in institutional settings. And correspondingly, residential care increasingly is provided by professionals employed by third-party agencies rather than by workers hired directly by care recipients and their families.
In response to those developments, the Department recently adopted regulations reversing its position on whether the FLSA’s companionship-services and live-in worker exemptions should reach employees of third-party agencies who are assigned to provide care in a home. The new regulations remove those employees from the exemptions and bring them within the Act’s minimum-wage and overtime protections. The regulations thus give those employees the same FLSA protections afforded to their counterparts who provide largely the same services in an institutional setting.
The D.C. Circuit held that the DOL acted within its rulemaking authority when it issued the regulations at issue and that they were not arbitrary and capricious. For these reasons it held the regulations were proper and enforceable:
Appellees, three associations of home care agencies, challenged the Department’s extension of the FLSA’s minimum-wage and overtime provisions to employees of third-party agencies who provide companionship services and live-in care within a home. The district court invalidated the Department’s new regulations, concluding that they contravene the terms of the FLSA exemptions. We disagree. The Supreme Court’s decision in Long Island Care at Home, Ltd. v. Coke, 551 U.S. 158, 127 S.Ct. 2339, 168 L.Ed.2d 54 (2007), confirms that the Act vests the Department with discretion to apply (or not to apply) the companionship-services and live-in exemptions to employees of third-party agencies. The Department’s decision to extend the FLSA’s protections to those employees is grounded in a reasonable interpretation of the statute and is neither arbitrary nor capricious. We therefore reverse the district court and remand for the grant of summary judgment to the Department.
To read the entire decision click Home Care Association of America v. Weil.