Litigation Of Wage And Hour Claims
© Bob E. Lype, 2001
As presented at the NBI Wage & Hour Law in Tennessee Seminar in Chattanooga, Tennessee, in April, 2001.
I. THE FEDERAL WAGE-HOUR LAW: SECTION 16(b)
A. Overview of Enforcement Actions. The Fair Labor Standards Act authorizes five (5) types of enforcement actions – three by the Secretary of Labor, one by the Department of Justice, and one by private plaintiffs. Private plaintiffs may file civil suits under Section 16(b) of the Act, 29 U.S.C. §216(b), which will be discussed in detail below. However, the lawyer representing an employer in connection with wage and hour litigation should also be aware of the other types of enforcement actions.
Injunctive Relief. The Secretary of Labor may seek injunctive relief under Section 17 of the Act, 29 U.S.C. §217, which provides:
The district courts... shall have jurisdiction, for cause shown, to restrain violations of section 215 of this title, including in the case of violations of section 215(a)(2) of this title the restraint of any withholding of payment of minimum wages or overtime compensation found by the courts to be due to employees under this chapter (except sums which employees are barred from recovering, at the time of the commencement of the action to restrain the violations, by virtue of the provisions of section 255 of this title).
Thus, under Section 17 the Secretary may not only seek to restrain and enjoin continuing violations of minimum wage and overtime requirements, but the Secretary may also seek recovery of unpaid compensation on behalf of affected employees. The Secretary may not, however, seek liquidated damages in an action under Section 17. An action under this section may also prohibit the interstate shipment of goods produced in violation of the FLSA, known as the "hot goods" ban found in Section 15(a)(1). Finally, Section 17 actions may address violations of the FLSA's recordkeeping requirements. Proceedings by the Secretary under Section 17 should follow the procedural requirements of Fed. R. Civ. P. Rule 65, as well as any procedural requirements in the local rules of the district court where the action is commenced. Since relief under Section 17 is equitable in nature, there is no right to a jury trial.
Civil Money Penalties. The Secretary of Labor may also impose civil money penalties for repeated or willful violations of the minimum wage and overtime provisions, pursuant to Section 16(e) of the Act, 29 U.S.C. §216(e). The statute provides:
Any person who violates the provisions of section 212 of this title, relating to child labor, or any regulation issued under that section, shall be subject to a civil penalty not to exceed $10,000 for each employee who was subject of such a violation. Any person who repeatedly or willfully violates section 206 or 207 of this title shall be subject to a civil penalty not to exceed $1,000 for each such violation. In determining the amount of any penalty under this subsection, the appropriateness of such penalty to the size of the business of the person charged and the gravity of the violation shall be considered. The amount of any penalty under this subsection, when finally determined, may be –
- deducted from any sums owing by the United States to the person charged;
- recovered in a civil action brought by the Secretary in any court of competent jurisdiction, in which litigation the Secretary shall be represented by the Solicitor of Labor; or
- Ordered by the court, in an action brought for a violation of section 215(a)(4) of this title or a repeated or willful violation of section 215(a)(2) of this title, to be paid to the secretary. Any administrative determination by the secretary of the amount of any penalty under this subsection shall be final, unless within fifteen days after receipt of notice thereof by certified mail the person charged with the violation takes exception to the determination that the violations for which the penalty is imposed occurred, in which event final determination of the penalty shall be made in an administrative proceeding after opportunity for hearing in accordance with section 554 of title 5, and regulations to be promulgated by the Secretary. Except for civil penalties collected for violations of section 212 of this title, sums collected as penalties pursuant to this section shall be applied toward reimbursement of the costs of determining the violations and assessing and collecting such penalties, in accordance with the provisions of section 9a of this title. Civil penalties collected for violations of section 212 of this title shall be deposited in the general fund of the treasury.
The proper amount of the civil money penalty is determined in the first instance by the Secretary. The civil money penalty can only be assessed for violations of minimum wage or overtime requirements which are "repeated" or "willful." A violation is deemed "repeated" where the employer has previously violated the requirements and received notice from the Wage and Hour Division, or where the employee has had a previous adjudication of a violation. 29 C.F.R. §578.3(b). A violation is deemed "willful" where the employee knew that its conduct was prohibited by the Act or showed reckless disregard for the requirements of the Act, taking into account all of the facts and circumstances surrounding the violation. An employer "knows" that its conduct is prohibited when it has received advice from a Wage and Hour Division official to the effect that the conduct in question is not lawful, and an employer's conduct is deemed in "reckless disregard" if the employer should have inquired further into whether its conduct was in compliance with the Act, but failed to make adequate further inquiry. 29 C.F.R. §578.3(c).
In determining the proper amount of the civil money penalty to be assessed for repeated or willful violations, the Secretary (acting through the Administrator of the Wage and Hour Division) must consider the seriousness of the violations and the size of the employer's business. In addition, the Secretary may also consider other relevant factors, including whether the employer has made efforts in good faith to comply with the Act, the employer's explanation for the violations, whether the violations were the result of a bona fide dispute of doubtful legal certainty, the employer's previous history of violations, the employer's commitment to future compliance, the interval between violations, the number of employees affected, and whether there is any pattern to the violations. 20 C.F.R. §578.4. If the Secretary assesses civil money penalties and the employer does not timely object, then the Secretary may sue "in any court of competent jurisdiction" to recover the penalties. If the employer timely objects to the assessment, the matter is referred to an administrative law judge, and the proceedings follow the Rules of Practice and Procedure for Administrative Hearings Before the Office of Administrative Law Judges established by the Secretary at 29 C.F.R. Part 18. See 29 C.F.R. part 580 ("Civil Money Penalties – Procedures for Assessing and Contesting Penalties").
Civil Suit by Secretary of Labor. The other type of enforcement action authorized to be brought by the Secretary of Labor is a civil action on behalf of affected employees to recover unpaid minimum wages and overtime compensation, plus an equal amount in liquidated damages. This type action is authorized by Section 16(c) of the Act, 29 U.S.C. §216(c), which provides:
The Secretary is authorized to supervise the payment of the unpaid minimum wages or the unpaid overtime compensation owing to any employee or employees under section 206 or section 207 of this title, and the agreement of any employee to accept such payment shall upon payment in full constitute a waiver by such employee of any right he may have under subsection (b) of this section to such unpaid minimum wages or unpaid overtime compensation and an additional equal amount as liquidated damages. The Secretary may bring an action in any court of competent jurisdiction to recover the amount of unpaid minimum wages or overtime compensation and an equal amount as liquidated damages. The right provided by subsection (b) of this section to bring an action by or on behalf of any employee to recover the liability specified in the first sentence of such subsection and of any employee to become a party plaintiff to any such action shall terminate upon the filing of a complaint by the Secretary in an action under this subsection in which a recovery is sought of unpaid minimum wages or unpaid overtime compensation under sections 206 and 207 of this title or liquidated or other damages provided by this subsection owing to such employee by an employer liable under the provisions of subsection (b) of this section, unless such action is dismissed without prejudice on motion of the Secretary. Any sums thus recovered by the Secretary of Labor on behalf of an employee pursuant to this subsection shall be held in a special deposit account and shall be paid, on order of the Secretary of Labor, directly to the employee or employees affected. Any such sums not paid to an employee because of inability to do so within a period of three years shall be covered into the Treasury of the United States as miscellaneous receipts...
Thus, when the Secretary of Labor sues on behalf of an employee or employees, those employees can no longer maintain a private cause of action. If the Secretary recovers unpaid compensation, including liquidated damages, the sums recovered are to be paid to the affected employees, if they can be located. If the employees cannot be located within three years, the money is paid into the United States Treasury.
Criminal Prosecution. Finally, willful violations of the FLSA are criminal acts, pursuant to Section 216(a) of the Act, 29 U.S.C. §216(a), which provides:
Any person who willfully violates any of the provisions of section 215 of this title shall upon conviction thereof be subject to a fine of not more than $10,000 or to imprisonment for not more than six months, or both. No person shall be imprisoned under this subsection except for an offense committed after the conviction of such person for a prior offense of this subsection.
Criminal prosecutions under Section 16(a) are prosecuted by the Department of Justice. The maximum penalties are a fine of not more than $10,000 or imprisonment for not more than six months, or both. Prison sentences may not be imposed for a first conviction.
The enforcement actions referenced above are brought by the Secretary of Labor or by the Department of Justice, but not by private parties. Still, they do involve the "litigation of wage and hour claims," and lawyers representing employers should be aware of these types of litigation. In addition, civil litigation by private plaintiffs is authorized by Section 16(b) of the Act, as discussed below.
B. The Section 16(b) Private Plaintiff Action. Employees may bring an action under Section 16(b) of the Act, 29 U.S.C. §216(b), for unpaid minimum wages and overtime compensation plus an equal amount as liquidated damages. The Fair Labor Standard Act's antiretaliation provision, Section 15(a)(3), may also be enforced through a suit under Section 16(b). Section 16(b) provides:
Any employer who violates the provisions of section 206 or section 207 of this title shall be liable to the employee or employees affected in the amount of their unpaid minimum wages, or their unpaid overtime compensation, as the case may be, and in an additional equal amount as liquidated damages. Any employer who violates the provision of section 215(a)(3) of this title shall be liable for such legal or equitable relief as may be appropriate to effectuate the purposes of section 215(a)(3) of this title, including without limitation employment, reinstatement, promotion, and the payment of wages lost and an additional equal amount as liquidated damages. An action to recover the liability prescribed in either of the preceding sentences may be maintained against any employer (including a public agency) in any Federal or State court of competent jurisdiction by any one or more employees for and in behalf of himself or themselves and other employees similarly situated. No employee shall be a party plaintiff to any such action unless he gives his consent in writing to become such a party and such consent is filed in the court in which such action is brought. The court in such action shall, in addition to any judgment awarded to the plaintiff or plaintiffs, allow a reasonable attorney's fee to be paid by the defendant, and costs of the action. The right provided by this subsection to bring an action by or on behalf of any employee, and the right of any employee to become a party plaintiff to any such action, shall terminate upon the filing of a complaint by the Secretary of Labor in an action under section 217 of this title in which (1) restraint is sought of any further delay in the payment of unpaid minimum wages, or the amount of unpaid overtime compensation, as the case may be, owing to such employee under section 206 or section 207 of this title by an employer liable therefor under the provisions of this subsection or (2) legal or equitable relief is sought as a result of alleged violations of section 215(a)(3) of this title.
Thus, so long as the Secretary of Labor has not commenced an action, and aggrieved employee may sue the offending employer for unpaid compensation owed, plus a like amount as liquidated damages, plus attorneys' fees and costs.
A private plaintiff claiming entitlement to minimum wages or overtime pay has the burden of proving that the claimant either is or was employed by the defendant, Warren-Bradshaw Drilling Co. v. Hall, 317 U.S. 88, 63 S.Ct. 125, 87 L.Ed. 83 (1942), and that the claimant is covered by the FLSA, Englert v. S. Birch & Sons Construction Company, 163 F.2d 34 (9th Cir. 1947), cert. denied, 332 U.S. 816, 68 S.Ct. 154, 92 L.Ed. 392. If there is a question whether the employer is engaged in interstate activities, the private plaintiff must show at least some interstate activities. See Mitchell v. Warren, 213 F.2d 273 (5th Cir. 1954). As is discussed in more detail below, the private plaintiff must also show that he or she was not properly compensated under minimum wage or overtime requirements.
If the private plaintiff establishes his claim, he is entitled to various types of damages, including compensatory damages, an additional equal amount as liquidated damages, attorneys' fees and costs, post-judgment interest, and possibly pre-judgment interest. No punitive damages may be recovered in a suit under the Fair Labor Standards Act. See King v. J.C. Penney Co., 58 F.R.D. 649 (N.D. Ga. 1973); Skrove v. Heiraas, 303 N.W.2d 526 (N.D. 1981).
Compensatory damages are amounts representing unpaid minimum wages and overtime compensation. In order to obtain such damages, an employee must prove that he has performed work for which he has been improperly compensated, by producing sufficient evidence to show the amount and extent of that work as a matter of just and reasonable inference. The standards and burden of proof are discussed in more detail below.
Successful private plaintiffs are also entitled to recover an additional equal amount as liquidated damages. 29 U.S.C. §216(b). The provision for liquidated damages is read into and becomes part of every employment contract subject to the FLSA. Roland Electrical Co. v. Black, 163 F.2d 417 (4th Cir. 1947), cert. denied, 333 U.S. 854, 68 S.Ct. 729, 92 L.Ed. 1135. Such liquidated damages are intended to compensate for the delay in payment of wages owing, and not as a penalty or punishment by the government. Liquidated damages are due as soon as the employer has violated the FLSA, and thus an aggrieved employee may file a suit for liquidated damages, even though the employer has acknowledged and paid the actual overtime compensation. See Rigopoulos v. Kervan, 140 F.2d 506 (2nd Cir. 1943). Certain "good faith" affirmative defenses may be available to the employer under appropriate circumstances, which can negate the liability for liquidated damages. These are discussed in detail below.
In addition to compensatory and liquidated damages, a successful private plaintiff will be awarded reasonable attorneys' fees and costs. This award is mandatory, not discretionary. In enacting the FLSA, Congress intended that a wronged employee should not incur any expenses for legal fees or costs. The amount of the attorneys' fee is also discretionary with the trial court, but is should be reasonable on the basis of the time necessarily spent and the nature of the effort required. Further, an additional amount may be awarded for services in an appellate court. As with a reasonable attorneys' fee, the award of costs is mandatory.
Post-judgment interest is recoverable in FLSA suits. Clougherty v. James Vernor Co., 187 F.2d 288 (6th Cir. 1951), cert. denied, 342 U.S. 814, 72 S.Ct. 28, 96 L.Ed. 616; see also "Recovery of Interest in Fair Labor Standards Act Suits," 17 A.L.R. Fed. 343, 351 §4. In FLSA private plaintiff suits where liquidated damages are awarded, pre-judgment interest is not recoverable, but in such suits where liquidated damages are not awarded, some circuits hold that pre-judgment interest is recoverable.
II. STEP-BY-STEP GUIDE THROUGH THE CIVIL COMPLAINT PROCESS
A. Jurisdiction and Venue. Section 16(b) provides that private plaintiff suits to recover unpaid minimum wages or overtime compensation "may be maintained against any employer (including a public agency) in any Federal or State court of competent jurisdiction... ." In Federal courts, such FLSA suits present Federal questions, such that the amount in controversy and the citizenship of the parties will not preclude jurisdiction. For actions brought in State court, the appropriate jurisdictional statutes should be consulted, as well as the applicable State statutes and rules governing practice and procedure. Federal action venue questions are governed by 28 U.S.C. §§1391 et seq. Under Tennessee law, FLSA claims are "transitory actions" and are subject to the venue provisions found in Tenn. Code Ann. §§20-4-101 et seq. There is a split of authority among the Circuits as to whether actions commenced in State court under the FLSA are removable to a Federal District Court under the Federal removal statute.
B. Parties. Section 16(b) provides that private plaintiff actions to recover unpaid minimum wages or overtime compensation may be maintained "by any one or more employees for and in behalf of himself or themselves and other employees similarly situated." However, the statute further provides that "no employee shall be a party plaintiff to any such action unless he gives his consent in writing to become such a party and such consent is filed in the court in which such action is brought."
Therefore, employees' representative or "class suits" under the FLSA are not true class actions within the meaning of Fed. R. Civ. P. Rule 23. A number of individual employees may initiate and prosecute separate suits to recover unpaid compensation, or employees "similarly situated" may join as plaintiffs.
A labor union is not a proper party plaintiff in a suit under the FLSA, nor may an employer sued under Section 16(b) seek contribution or indemnity from a labor organization for "compelling" the employer's violation of the act. See Brennan v. Emerald Renovators, Inc., 410 F.Supp. 1057 (S.D.N.Y. 1975).
C. Pleadings. A private plaintiff complaint under Section 16(b) commences a civil action, subject to the pleading requirements of Fed. R. Civ. P. Rule 8 and Tenn. R. Civ. P. Rule 8. Thus, a sufficient complaint must contain "a short and plain statement of the claim showing that the pleader is entitled to relief," as well as "a demand for judgment for the relief the pleader seeks." It is not necessary for the plaintiff to allege that his employment does not fall under one of the enumerated exceptions under the FLSA, but it is up to the employer to plead and prove the exemption. The employer must file an answer controverting allegations of a FLSA violation, or else the employer will be deemed to have admitted the facts alleged. The employer may respond to an insufficient complaint by filing a motion to dismiss.
D. Discovery. Discovery in private plaintiff FLSA actions is essentially governed by the applicable Federal or State rules of civil procedure pertaining to discovery matters. However, certain discovery-related issues frequently arise in FLSA litigation.
In general, the Federal Rules of Civil Procedure permit discovery of any relevant matter that is not privileged, regardless of whether the information sought would be admissible at trial, so long as it is reasonably calculated to lead to the discovery of admissible evidence. The scope of discovery in FLSA actions is accordingly broad. For example, aggrieved computer systems analysts were permitted to discover the names of all other persons employed as computer system analysts, because the information was deemed relevant to the issue of the employer's intent as well as its asserted good faith under the FLSA. Hodel v. Legacy Health System, 1992 U.S. Dist. LEXIS 1608, 30 BNA WH Cas 1319 (D. Or. 1992). Privileged information may be discovered if a party waives the privilege. For example, one court held that an employer waived attorney-client privilege over documents exchanged between itself and an attorney after the employer submitted an affidavit from the attorney as proof of its good faith in opposition to the Secretary of Labor's motion for summary judgment. McLaughlin v. Lunde Truck Sales, Inc., 1989 U.S. Dist. LEXIS 5873 (N.D. Ill. 1989). On the other hand, discovery has been denied where an employer sought information regarding an employee's citizenship status, because the issue of whether an employee is an alien is irrelevant in an FLSA case. In re Reyes, 814 F.2d 168 (5th Cir. 1987), reh. denied, cert. denied, 108 S.Ct. 2901, 101 L.Ed.2d 934. An employee's request for discovery relating to company branch offices other than those at which she had worked was also denied. Jarmoc v. Consolidated Electrical Supply, Inc., 1993 U.S. Dist. LEXIS 3470 (N.D. Ill. 1993).
Another discovery-related issue pertains to the ability of an employee plaintiff's lawyer to contact other employees of a corporate employer. In Tennessee, DR 7-104(A)(1) prohibits counsel from communicating with an adverse party who is represented in an action. A question frequently arises whether an employee of an adverse corporate party is a "party" within the meaning of DR 7-104(A)(1). The Ethics Committee of Tennessee's Board of Professional Responsibility has addressed this issue in Formal Ethics Opinion 83-F-46, concluding that there is no impropriety in the plaintiff's attorney interviewing non-management or non-administrative level employees of a corporate defendant without the knowledge or consent of the corporation or its attorneys, provided the plaintiff's attorney identifies himself and informs the employee of the controversy and the reason for the inquiry prior to the interview. See also Bouge v. Smith's Management Corp., 132 F.R.D. 560 (D. Utah, 1990).
A discovery issue which arises in actions by the Secretary of Labor is the so-called "informer privilege" regarding employee witnesses and informants. Names of employees who inform the government of violations are generally protected from disclosure to the employer under this privilege, which is based upon the need for confidentiality of informers. However, the privilege is not absolute, and a court enjoys wide discretion in determining when disclosure of the names of informers may be appropriately ordered. The Secretary of Labor must specifically assert the informer's privilege. Even in cases in which the informer's privilege is applied, courts note that an employer is free to depose or interview any current or former employees in the preparation of its defense. Thus, while an employer may not ask employees whether they provided any information to the Department of Labor, it may ask them about their employment during the time when violations allegedly occurred. Further, the privilege generally applies only to the identity of the informer, and not to the information contained in his statement. When the disclosure of the contents of a communication will not tend to reveal the identity of the informer, no privilege applies.
In private plaintiff suits and Secretary of Labor suits, the identity of employee witnesses and employee statements may be subject to claims of the attorney work product privilege.
Confidential government records are generally not subject to subpoena, and an employee may not generally subpoena correspondence between an employer and Department of Labor officials, nor privileged information secured by a Wage and Hour Division inspector. Government memoranda and investigative reports, including the mental impressions and legal theories of attorneys or other governmental representatives, need not be disclosed where the employer make no showing of the need for discovery, although government employees may be deposed on such matters.
E. Evidence and Standards of Proof. The burden of proof is on the employee in an action to recover overtime compensation to establish, by a preponderance of the evidence, the elements of a prima facie case entitling him to recovery, including: that his activities constituted an engagement in interstate commerce or the production of goods for interstate commerce; that an employment relationship exists or has existed on the relevant dates; and that the employee has performed work for which he has received inadequate compensation. After the employee makes out a prima facie case, the burden is cast upon the employer to come forward with evidence tending to prove that the employee's activities were not within the protection of the Act, or that they were excepted from coverage under the Act. The burden of proof is also on the employer to show the "good faith" affirmative defenses (discussed below), which can limit the employee's liability for liquidated damages.
In carrying his burden of establishing a prima facie case, the employee's evidence must be sufficiently definite and certain. See, e.g. Johnson v. Blakenship, 152 F.2d 99 (8th Cir. 1945). If there is a question regarding whether the employee is covered by the Act, some courts require detailed, pertinent facts concerning the employer's business and the employee's duties. See, e.g. Castaing v. Puerto Rican American Sugar Refinery, Inc., 145 F.2d 403 (1st Cir. 1944).
Since the burden is on the employee to show that he has performed compensable work for which he was not properly paid, he must prove the number of hours worked, and that he was not paid according to the Act. In addition, to recover overtime pay, the employee bears the burden to prove that the employer knew or should have known of the employee's uncompensated overtime work. For example, where an employee deliberately concealed the fact that he had worked "off the clock" hours so that he could meet production quotas, the employee could not carry the burden of proving that those hours constituted compensable time worked. Davis v. Food Lion, 792 F.2d 1274 (4th Cir. 1986).
Frequently one of the more difficult issues for private plaintiffs is proof of the actual hours worked. On the one hand, the employee's burden of proof is not satisfied by evidence which is too uncertain or conjectural to permit a finding that the employee worked some definite number of hours or parts of hours. Ciemnoczolowski v. Q.O. Ordnance Corp., 119 F.Supp. 793 (D.Neb. 1954), aff'd, 228 F.2d 929 (8th Cir. 1955), cert. denied, 352 U.S. 927, 77 S.Ct. 226, 1 L.Ed.2d 162 (1956). On the other hand, as a general rule an employee is not required to prove with mathematical precision the exact number of overtime hours he worked. Burrell v. American Industrial Transit, 26 CCH LC 68693 (Tenn. App. 1954). Sometimes employees have kept informal records of time worked, but this raises a question of accuracy. Some courts have been reluctant to consider such informal records sufficient when they have not been compiled at regular intervals. Even absent informal records, it may be possible for an employee to carry his burden of proving the amount of hours worked as a matter of just and reasonable inference through the use of testimonial evidence and earnings projections or similar reports prepared for trial.
It is in this regard that an employer's recordkeeping requirements may come into play. The burden of keeping proper records of wages and hours is upon the employer and not the employee. Norton v. Acone, 192 F. Supp. 46 (D.Mass. 1961). An employer's failure to keep adequate records is a violation of the FLSA. Although the employer's failure to keep proper records of wages and hours worked does not relieve the private plaintiff of the burden of proving improper compensation, where an employer has not kept adequate records, the plaintiff carries out his burden of proof if he demonstrates that the employee has in fact performed work for which he was improperly compensated and produces sufficient evidence to show the amount and extent of that work as a matter of just and reasonable inference. The burden then shifts to the employer to come forward with evidence of the precise amount of work performed, or evidence to negate the reasonableness of the inference drawn from the plaintiff's evidence. If the employer fails to produce this evidence, the court may then award compensation to the employee, even though the result is only approximate. Handler v. Thrasher, 191 F.2d 120 (10th Cir. 1951). Further, even if an employer has kept records regarding hours worked, a court may not depend upon them in determining whether FLSA violations have occurred if they appear to be unreliable. See Mendez v. Brady, 618 F. Supp. 579 (W.D. Mich. 1985).
Once the employee has proved his prima facie case, the burden of going forward with the evidence passes to the employer. Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680, 66 S.Ct. 1187, 90 L.Ed. 1515 (1946). If the employer claims that the employee actually reported all overtime worked, and was compensated for that overtime, the burden is on the employer to prove this fact. Brennan v. General Motors Acceptance Corp., 482 F.2d 825 (5th Cir. 1973). If the employer claims that the employee was not covered under the Act because he did not render service in connection with interstate commerce during particular workweeks, the burden of proof is on the employer. Gilreath v. Daniel Funeral Home, Inc., 421 F.2d 504 (8th Cir. 1970).
Most frequently the employer's defense involves an exemption. The employer bears the burden of establishing that it is entitled to the benefit of the exemption. Mitchell v. Kentucky Finance Co., 359 U.S. 290, 79 S.Ct. 756, 3 L.Ed. 2d 815 (1959). Further, since an exemption is to be narrowly construed against the employer, the employer must establish its application affirmatively and clearly, bringing itself within both the letter and the spirit of the exemption. Brennan v. South Davis Community Hospital, 538 F.2d 859 (10th Cir. 1976); Bowie v. Gonzalez, 117 F.2d 11 (1st Cir. 1941). However, the employer's proof of the exemption must be by a preponderance of the evidence, and not beyond a reasonable doubt. Boisseau v. Mitchell, 218 F.2d 734 (5th Cir. 1955); Waialua Agricultural Co. v. Manega, 216 F.2d 466 (9th Cir. 1954), rev'd on other grounds, 349 U.S. 254.
F. Trial. There is a right to a jury trial in FLSA suits to recover minimum wages or overtime pay, but the parties are not entitled to a jury trial on the issues of liquidated damages, attorneys' fees or costs, since those damages are to be awarded by the court. Lewis v. Times Publishing Co., 185 F.2d 457 (5th Cir. 1950); Chilton v. National Cash Register Co., 370 F. Supp. 660 (S.D. Ohio 1974). Likewise, in a suit for injunctive relief brought by the Secretary of Labor, there is no right to a jury trial. Donovan v. Home Lighting, Inc., 536 F. Supp. 604 (D.Colo. 1982). However, if the Secretary seeks both liquidated damages and injunctive relief, several courts have held that the employer has a right to a jury trial to set the amount of unpaid minimum wages or overtime pay. See, e.g. Dole v. Scott-Rice of Texas, Inc., 731 F. Supp. 776 (N.D. Tex. 1990); see also 95 A.L.R. Fed. 861.
While most courts hold that the ultimate question of whether an individual is an "employee" or an "employer" within the meaning of the FLSA is a legal determination for the judge, many subsidiary issues leading to this conclusion are questions of fact for the jury. See, e.g. Donovan v. Brandel, 736 F.2d 1114 (6th Cir. 1984); but cf. Donovan v. Horne and Walston Farms, Inc., No. 82-1546 (4th Cir. 5/1//84) (holding that whether a person is an "employer" within the meaning of the FLSA is a question of fact).
With regard to the applicability of employee exemptions, many questions of fact are involved, such as how the employee spent his working time. See, e.g., Hodgson v. Klags Cole & Ice Co., 435 F.2d 377 (6th Cir. 1970), cert. denied, 402 U.S. 973, 91 S.Ct. 1660, 29 L.Ed.2d 137. However, whether the employee's particular activities exclude him from overtime benefits is a question of law.
When the employer asserts one of the "good faith" defenses to limit liability for liquidated damages (discussed below), while the question of the employer's good faith is one of fact, by statute it has been delegated to the court and not the jury. 29 U.S.C. §260. The determination of good faith and reasonableness is a conclusion of law based upon findings of fact. Likewise, whether an employer's knowledge or intent amounted to willfulness for purposes of the FLSA's three-year statute of limitations is a question of law.
III. DEFENSES AVAILABLE TO THE EMPLOYER
A. Statute of Limitations. The statute of limitations for FLSA actions is two years, or three in cases of "willful" violations. 29 U.S.C. §255 (Section 6 of the Portal-to-Portal Act). Since FLSA violations are classic examples of continuing violations, the statute of limitations often serves to determine the amount of liability rather than the timeliness of the plaintiff's claim. If the employer is subject to a three-year statute of limitations because of "willfulness," then his liability will be significantly increased. As is discussed above, in the case of a willful violation, the employer will not only be liable for three years' of unpaid compensation, but this amount will be doubled as liquidated damages.
The statute of limitations is viewed as an affirmative defense under the FLSA. If the employer does not raise it, the employer may be charged with liability for three years of back-pay, even though the issue of whether the violation was willful is not expressly decided. Hodgson v. Humphries, 454 F.2d 1279 (10th Cir. 1972).
The statute of limitations in 29 U.S.C. §255 has been held to operate as a bar to claims for equitable relief such as reinstatement and promotion, as well as monetary claims. Marshall v. American Motors Corp., 475 F. Supp. 875 (E.D. Mich. 1979). The filing of an administrative claim does not toll or otherwise affect the two-year statute of limitations on seeking judicial relief for FLSA violations, but the plaintiff need not choose between pursuing either administrative or judicial relief, but should file the court action and then apply for a stay pending the outcome of administrative remedies. Aguilar v. Clayton, 452 F. Supp. 896 (D.Okla. 1978).
The Supreme Court has clarified the "willfulness" finding for purposes of the FLSA statute of limitations in McLaughlin v. Richland Shoe Co., 486 U.S. 128, 108 S.Ct. 1677, 100 L.Ed.2d 115 (1988). The Supreme Court resolved a three-way split among the Circuits and adopted a "reckless disregard" standard. According to the Court, an employer commits a willful violation if "the employer either knew or showed reckless disregard for the matter of whether its conduct was prohibited by the statute." The Court held that Congress intended to create a two-tiered statute of limitations and to draw a real distinction between willful and ordinary violations. Under Richland Shoe, there are situations in which an employer's actions are not willful, yet are reasonable enough to justify a reduction of liquidated damages. Finally, while an employer's reliance on the advice of counsel concerning compliance with the FLSA may help to insulate the employer from an award of liquidated damages (discussed below), such reliance does not necessarily justify limiting the statute of limitations to two years. See, e.g. Hill v. J. C. Penney Co., 688 F.2d 370 (5th Cir. 1982).
B. Good Faith Defenses. As discussed above, there is an element of good faith in connection with determining the applicable statute of limitations, which requires a determination of the employer's willfulness. However, apart from issues related to the appropriate statute of limitations, there are two (2) other "good faith" defenses for employers found to be in violation of the Act. The first permits the employer to escape liability altogether under appropriate circumstances, while the second permits the employer to escape liability for liquidated damages.
The employer may escape liability altogether for FLSA violations if it shows that it acted in good faith conformity with, and in reliance upon, a written regulation, order, ruling, approval, or interpretation of Department of Labor's Wage and Hour Division, or any administrative practice or enforcement of the Division with respect to the class of employers to which it belonged. 29 U.S.C. §259. This provision is mandatory and a court has no discretion to assess any liability or punishment where the employer proves conformity with and reliance upon such an administrative action. However, the provision does not allow an employer to insulate itself from liability for the consequences of its own mistaken interpretation of the law. The burden is on the employer to plead and prove conformity with and reliance upon the administrative action.
To be completely exempt from liability under 29 U.S.C. §259, the employer must act in good faith, which has both subjective and objective components. That is, the employer must actually have believed that he was acting in conformity with an administrative interpretation, and his belief must be the kind that a reasonably prudent man would have entertained under the same circumstances. 29 C.F.R. §790.15. The rule or policy relied upon must be in writing, and the oral advice of a Wage and Hour compliance officer or other Department of Labor representative cannot form the basis for defense under this section. See, e.g., Usery v. Godwin Hardware, Inc., 426 F.Supp.1243 (W. D. Mich. 1976). The words "administrative regulation, order, ruling, approval, or interpretation" refer to formal interpretative bulletins, rulings, and opinion letters issued by the Department of Labor's Wage and Hour Administrator or his authorized deputies. Further, the employer must not only rely upon the administrative action, but he must act in conformity with it. The defense is not available where the administrative regulation or bulletin in question involves a different factual situation, or sets out examples with factual situations that are not clearly and completely identical to that involved in the case.
A separate good faith defense is found in 29 U.S.C. §260, which relieves the employer for liability for liquidated damages "if the employer shows to the satisfaction of the court that the act or omission giving rise to [the employee's claim] 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." This "good faith" defense requires that the employer rely upon a reasonable, albeit erroneous interpretation of the FLSA. This good faith defense does not include computational mistakes made by the employer in determining overtime compensation, and an employer cannot escape liability for liquidated damages simply because of its good faith belief that the overtime compensation was being properly computed. Thomas v. Howard Univ. Hosp., 39 F.3d 370 (D.C. Cir. 1994).
To assert this defense against liquidated damages, the employer must demonstrate that it had an honest intention to ascertain what the FLSA required and to act in accordance with it. An employer cannot claim this defense if it blindly operates without investigating its responsibilities under the law. This requires an affirmative action by the employer to determine how an employee should be classified, and a consequent classification based on that determination.
C. Other Defenses. In a given case, there may be other defenses to liability which are in the nature of affirmative defenses. For example, an employee may have executed a release agreement to settle FSLA claims without the involvement of the Department of Labor or the courts. However, the FLSA severely restricts the ability of employees to waive, release, or settle their claims. 29 U.S.C. §216(c) provides that the "Secretary is authorized to supervise the payment of the unpaid minimum wages or the unpaid overtime compensation owing to any employee... and the agreement of any employee to accept such payment shall upon payment in full constitute a waiver by such employee of any right he may have under subsection (b) of this section." First, this statute requires "payment in full," so any settlement or release is void and ineffective unless the employee has been fully compensated. Second, such government-supervised settlements under Section 16(c) or settlement of a Section 16(b) lawsuit are now the only ways in which individual employees' FLSA claims may be compromised. See, e.g. Walton v. United Consumers Club, Inc., 786 F.2d 303 (7th Cir. 1986); Lynn's Food Stores, Inc. v. United States, 679 F.2d 1350 (11th Cir. 1982). An agreement between an employer and employee to settle the employee's claim for compensation due is not a defense to a later suit to recover compensation or liquidated damages. The reason the rights of an employee under the FLSA cannot be released is that they are of a public nature, and a release of the payments due an employee contravenes the statutory policy of the FLSA.
Another potential defense is the employer's claim that the employee should be estopped from recovering back pay or liquidated damages. A claim of estoppel may succeed where the employee has deceived or misled the employer to the employer's detriment, as when the employee has falsified his time record without his employer's knowledge. See, e.g. Mortenson v. Western Light & Tel. Co., 42 F. Supp. 319 (D. Iowa 1941). However, estoppel is not available where the employer was aware of the deceit. Burry v. National Trailor Convoy, Inc., 338 F.2d 422 (6th Cir. 1964). See also Duncan v. Brockway Standard, Inc., 1 Wage & Hour Cas. 2d (BNA) 485 (N.D.GA. 1992) (summary judgment precluded under employer's estoppel claim because whether employer knew or should have known employee was working unreported overtime is a question of fact). Estoppel cannot be asserted when the employee has accepted from the employer less than full compensation under the FLSA. Lewis v. Nailling, 36 F.Supp. 187 (W. D. Tenn. 1940). Finally, an employee's agreement to the terms of an illegal contract, in violation of the provisions of the FLSA, cannot be raised as a defense to the employee's suit. Bailey v. Karolyna Co., 50 F.Supp. 142 (S. D. N.Y. 1943).
Finally, recovery of overtime compensation has been denied in some cases even though the court found the activities were compensable, because the amounts involved were so slight as to come within the "de minimis" rule. See, e.g. Frank V. Wilson Co., 172 F.2d 712 (7th Cir. 1949), cert. denied, 337 U.S. 918; Crosby v. Oliver Corp., 9 F.R.D. 110 (S. D. Ohio 1949); see also "Portal-to-Portal Act," 21 A.L.R. 2d 1327, 1336 §13.
IV. PRACTICAL STRATEGIES FOR HANDLING WAGE/HOUR CLAIMS
A. Representing the Employee. The lawyer representing an employee in connection with a wage and hour claim should determine whether the Department of Labor has become involved in some regard; and if not, whether there is some reason to involve the Department. If the DOL is contacted, it is possible that an investigation will result in a resolution of the dispute without litigation. However, DOL investigators generally claim that they are overworked, and there is no way for the employee to formally monitor any investigation, or even tell when it may take place. If anonymity is important to the employee, a DOL investigation should provide such anonymity. If the matter is serious enough, the DOL may impose civil money penalties, and it may commence a lawsuit on behalf of the employee and others. While monies recovered by the DOL in connection with the employee's claims should be paid over to the employee, the employee will have no input or control over the progress of the litigation.
Since attorneys' fees and expenses are recoverable in a private civil suit, a lawyer representing an employee in this regard should keep a log of all related time and expenses.
The lawyer should also determine whether there are any similarly situated employees who might be parties plaintiff. As discussed above, a true class action is not permitted, but multiple employees may consent in writing to join their claims.
The private plaintiff's lawyer should determine the best venue for the suit, determine the relief which the employee is entitled to receive, and after filing suit should pursue aggressive discovery. In particular, discovery should include all relevant time records, as well as all facts supporting any affirmative defense.
B. Representing the Employer. A lawyer representing an employer in connection with a wage and hour claim should first determine whether litigation has been instituted or whether it can be avoided. As is noted above, settlement agreements between an employer and employee must have the DOL's blessing and must pay the employee in full. If litigation has already commenced, the first question is whether it is a suit by a private plaintiff, or whether the DOL is involved.
In DOL suits and administrative proceedings, the employer's lawyer should become familiar with the standards of liability and all available defenses, and the defenses should be properly and timely asserted. Discovery should be fully utilized, particularly when the amount at stake warrants a full defense.
In private plaintiff suits, the employer's lawyer should fully develop all available affirmative defenses. In addition, he should determine at an early stage what documents and records the employer has, and what documents or records may be lacking. Finally, aggressive discovery should be pursued, particularly including evidence supporting the employee's calculation of unpaid wages.