Supreme Court Rules Presumptively Mooted Individual Claim Precludes Named Plaintiff From Pursuing Collective Action Under FLSA -- But Expressly Fails To Address the Predicate Question Whether An Unaccepted OJ For Full Relief Moots An FLSA Claim

Today, the United States Supreme Court ruled that a named plaintiff in a purported FLSA collective action cannot continue to litigate the collective action after her claim is resolved/mooted.  See Genesis Healthcare Corp. et al. v. Symczyk, 2013 U.S. LEXIS 3157, No. 11-1059 (April 16, 2013).  While that might make sense if the plaintiff voluntarily elected to conclude the litigation; that is not what happened in the underlying litigation.  In Symczyk, the plaintiff did not agree to resolve her claim.  To the contrary, the employee-plaintiff did not accept the employer-defendant's offer of judgment pursuant to Fed. R. Civ. P. 68.  However, because the plaintiff-employee, in the lower courts, appears to have accepted as true the unresolved legal principle -- that an unaccepted offer that fully satisfies a plaintiff's claim is sufficient to render the claim moot -- the United States Supreme Court "assume[d], without deciding that petitioners' Rule 68 offer mooted respondent's individual claim."    

The puzzling part, of course, is that the Supreme Court expressly declined to address this critical predicate question -- whether an unaccepted offer of judgment pursuant to Fed. R. Civ. P. 68 for full relief of an individual's FLSA claim could moot the claim and collective action. 

The four-Justice dissent, penned by Justice Kagan, sharply criticized the majority decision's blind acceptance of the lower court's assumption that an unaccepted OJ for full relief moots an FLSA claim.  Justice Kagan expressed incredulity at the Court's majority decision -- "[t]he Court today resolves an imaginary question, based on a mistake the courts below made about this case and others like it."  Justice Kagan noted further: 

When a plaintiff rejects such an offer -- however good the terms -- her interest in the lawsuit remains just what it was before.  And so too does the court's ability to grant her relief.  An unaccepted settlement offer -- like any unaccepted contract offer -- is a legal nullity, with no operative effect.  As every first-year law student learns, the recipient's rejection of an offer 'leaves the matter as if no offer had ever been made.'  Nothing in Rule 68 alters that basic principle; to the contrary, that rule specifies that 'an unaccepted offer is considered withdrawn'  Fed. R. Civ. P. 68(b). 

While the Majority decision may be true -- an individual who resolves her individual claim may not continue to press a collective action under the FLSA -- its decision to "assume, without deciding, that petitioners'  [unaccepted] Rule 68 offer mooted respondent's individual claim" results in that predicate and critical issue being left unresolved and with the Circuit Courts remaining in conflict or without binding precedent.  Compare Weiss v. Regal Collections, 385 F.3d 337, 340 (3rd Cir. 2004) with McCauley v. Trans Union, LLC, 402 F.3d 340, 342 (2nd Cir. 2005).  See also Zinni v. ER Solutions, Inc., 692 F.3d 1162 (11th Cir. 2012) ("We need not decide whether an offer of full relief, even if rejected, would be enough to moot a plaintiff's claims.")

Eleventh Circuit Addresses Undocumented Alien, Individual Liability, and Damages Issues Under FLSA

On March 6, 2013, the Eleventh Circuit Court of Appeals in Lamonica et al. v. Safe Hurricane Shutters, Inc. et al., 2013 U.S. Dist. LEXIS 4599 (11th Cir. Mar. 6, 2013), addressed three critical issues pertaining to FLSA claims.  Each of the three rulings provided greater coverage and damages than those argued by the employer-appellant. 

First, the Court ruled (again) that undocumented aliens are "employees" within the meaning of the FLSA.  Citing Patel v. Quality Inn S., 846 F.2d 700, 706 (11th Cir. 1988).   In so doing, the Court rejected the employer-appellant's contention that an intervening U.S. Supreme Court decision, Hoffman Plastic Compunds, Inc. v. NLRB, 535 U.S. 137 (2002) (holding that the NLRB cannot award backpay to undocumented aliens terminated in violation of the NLRA) overruled Patel and barred FLSA claims by undocumented aliens.  The Court reasoned that the NLRA and FLSA had materially different purposes and a ruling as to the NLRA could not be applied to FLSA claims.

Second, the Court reiterated the required analysis when determining individual liability under the FLSA.  The Court rejected the employer-appellant's contention that individual liability is limited to corporate officers.  The Court reasoned: "a supervisor's title does not in itself establish or preclude his or her liability under the FLSA . . . "  The Court then reasoned that the occasional, as opposed to consistent, exercise of control over employees may be sufficient to create individual liability under the FLSA.  The key question, the Court noted, is whether the individual exercised substantial control over matters related to the company's FLSA obligations. 

Finally, and significantly, the Court addressed the proper damage calculation for misclassification cases; an issue that has divided the district courts within Florida and the Circuit Courts of Appeals around the country.  The Court provided:

[T]he fluctuating workweek method is not the only or even the default method for calculating damages when an employee is paid a weekly salary.  In fact, it is conceptually subsumed within the broader rule that 'if the employee is employed solely on a weekly salary basis, the regularly hourly rate of pay, on which time and a half must be paid, is computed by dividing the salary by the number of hours which the salary is intended to compensate . . . Consequently, 'where the employee is paid solely on a weekly salary basis, the number of hours the employee's pay is intended to compensate -- not necessarily the number of hours he actually works -- is the divisor.' [citation ommitted] 

The Court then found no error with the jury's finding that the weekly salaries for the plaintiff-employees were intended to compensate them only for fourty hours of work, despite the fact they worked fluctuating hours for the same weekly salary.

The Court's decision makes clear that in every FLSA misclassification case a fact question will need to addressed as to what the salary was intended to compensate (40 hours, some greater number of hours, or any and all hours over 40).  The determination of this fact question will have a profound impact on damage calculations in every FLSA misclassification case. 

Tax Time -- Employment Lawsuit Attorneys' Fees Payments

Tax issues are complicated.  As an employment lawyer, one of the issues that arises in virtually every case (pre or post suit) is whether the payment of attorneys' fees by the employer-defendant directly to the employee-plaintiff's lawyer is income to the employee-plaintiff and, if so, whether the employee may treat such a payment as a below or above the line deduction. 

The IRC and case law, while opaque, seem to provide that: (1) the payment of attorneys' fees directly to employee-plaintiff's lawyer is income to the employee-plaintiff; and (2) the payment, however, may be treated as a dollar-for-dollar above the line deduction. 

While I am not a tax lawyer and don't provide tax advice to my clients, I encourage my clients to consult with their tax advisor and to ask their tax advisor about the 2004 American Job Creations Act of 2004.  Specifically, while attorneys' fees may be included in gross income (and memorialized through a Form 1099), 29 USC § 62(a)(20) and 29 USC § 62(e)(18)(ii) appear to provide a dollar-for-dollar above-the-line deduction for attorneys' fees paid in connection with a claim involving a violation of law: "regulating any aspect of the employment relationship, including claims for wages, compensation, or benefits . . .."   See http://codes.lp.findlaw.com/uscode/26/A/1/B/I/62. 

The November 2006 Journal of Accountancy, discussing the aforementioned provisions provided:

Discrimination claim. Section 62(a)(20) covers many claims. Section 62(e) defines 'discrimination,' but goes beyond traditional discrimination. It applies to any civil rights claim as well as to a broad spectrum of employment-related claims, including any employment-related legal claim under federal, state, common or local law. This includes cases of age, gender or racial discrimination. Section 62(e)(18)(ii) says it includes any actions 'regulating any aspect of the employment relationship, including claims for wages, compensation, or benefits... any other form of retaliation or reprisal against an employee for asserting rights or taking other actions permitted by law.' On its face the statute seems to cover almost any employee vs. employer litigation.

See http://www.journalofaccountancy.com/Issues/2006/Nov/NewRulesNewRuling.htm. 

At least one IRS Revenue Ruling appears to have interpreted this dollar-for-dollar above-the-line deduction as broadly as this author and as contemplated by the Journal of Accountancy and applied the deduction to attorneys' fees incurred in obtaining pension benefits.  See http://www.irs.gov/pub/irs-wd/0550004.pdf.

Well regarded and oft-published tax lawyers have opined that 62(e)(18)(ii) provides a "catchall" for all true employment claims arising out of the employment context.  http://woodporter.com/Publications/Articles/pdf/Attorney_Fee_Deduction_Problems_Remain.pdf. 

With all of this said, we believe that a tax advisor should be utilized in connection with the treatment of income taxes when attorneys' fees are paid in connection with a lawsuit settlement.

Eleventh Circuit Rules: Liquidated Damages Not Mandatory in FLSA Retaliation Cases

In Moore et al. v. Appliance Direct, Inc. et al., 2013 U.S. App. LEXIS 3047 (11th Cir. February 13, 2013), the Eleventh Circuit Court of Appeals addressed the question of first impression -- whether a district court is required to add liquidated damages to the judgment in an FLSA retaliation case where the defendant did not show he was acting in reasonable good faith.  The Eleventh Circuit reviewed the text of 29 U.S.C. 216(b) and concluded that while successful unpaid minimum wage and overtime claims require liquidated damages if a defendant cannot show reasonable good faith, there is no such requirement in retaliation cases.  The Court's reasoning relied on the difference in statutory language between the first sentence of 216(b) -- dealing with unpaid minimum wage and overtime claims -- and the second sentence -- added in 1977 to provide a private right of action for retaliation claims.  Specifically, the Court held: 

In reviewing the cases cited by Plaintiffs and Pak, the briefs and oral argument of counsel, and the clear language of the statute, we join the Sixth and Eighth Circuits in holding that the second sentence in section 216(b), which allows such damages 'as may be appropriate to effectuate the purpose of the retaliation provision', creates a separate, discretionary, standard of damages for retaliation claims.  We therefore hold that the retaliation provision of 29 U.S.C. 216(b) gives the district court discretion to award, or not to award, liquidated damages, after determining whether the doing so would be appropriate under the facts of the case.  

Appliance Direct, 2013 U.S. Dist. LEXIS 3047, at * 23.

The Appliance Direct decision also reminds FLSA litigators of the standard for finding a corporate officer individually liable as an employer in a FLSA case:

A corporate officer is personally liable as an FLSA employer if he has 'operational control of a corporation's 'covered enterprise,' which may be involvement of the day-to-day operation of the company or direct supervision of the employee at issue. 

Appliance Direct, 2013 U.S. Dist. LEXIS 3047, at * 6.

Transitioning Registered Representatives -- Be Wary of Defamation and Tortious Interference

Registered Representatives ("RR") who manage millions of dollars are aggressively pursued and, if and when they depart, invariably attempt to transfer the clients and clients' assets they manage to their new firm.  The departed firms understandably work diligently to retain the assets under management ("AUM").  AUM = $$ for the departing firm, the receiving firm, and the RRs.  During this process, agents of the departing firm sometimes say things to the clients previously serviced by the departing RR in an effort to retain the clients/assets.  Conversely, sometimes departing RRs say things about their former firm or take actions in advance of departure that are inconsistent with common law duties and/or the Borker Protocol.  With regard to the former Firm's coduct, the question is always -- did the prior firm or its agents make untrue, malicious, or anti-competitive statements in an effort to harm the departing RR and/or retain the clients/assets.  If that occurred, the departing RR may have claims for defamation, tortious interference, breaches of contracts, and/or violations of industry standards, rules, and regulations.  These claims, because they involve a RR and a Member Firm, will usually be litigated before a FINRA arbitration panel in the geographic area where the RR last worked for the Member Firm. 

Recently, on February 12, 2013, the NY Post reported that a former RR sued his former employer/Firm, JP Morgan Chase, in NY State Supreme Court because he was allegedly defamed after he departed the firm.  See http://www.nypost.com/p/news/local/manhattan/no_madoff_zsF3i7XcWt6VSrkpQZPsUI.  The allegations of his complaint, Kolta v. JP Morgan Chase & Co., No. 650450/2013, suggest agents for his former employer claimed he was a Madoff-type of RR in an effort to retain clients and client assets.  An allegation that would likely be defamation per se.  While this case was filed in New York Supreme Court, it remains to be seen whether JPMorgan Chase will file a Motion to Compel arbitration before a FINRA arbitration panel.  We'll keep you posted about both the venue and substance of this case as it proceeds.

Damage Calculations In FLSA Misclassification Cases

In Fair Labor Standards Act ("FLSA") misclassification cases, the issue of whether to utilize a 1.5 multiplier to the regular rate for all hours worked over 40 or a .5 multiplier to the regular rate of pay (or Fluctuating Work Week ("FWW") calculation) continues to vex courts and result in divergent results.  The most recent decision on this topic, Blotzer v. L-3 Communications Corp., 2012 U.S. Dist. LEXIS 173126 (D. Az. Dec. 5, 2012), is a pro-employee result.  Blotzer held that a misclassified employee MUST receive 1.5 times the regular rate of pay for each OT hour.  The Blotzer court expressly rejected application of the .5 or FWW calculation, stating: "this Court is persuaded by the reasoning of those courts that have concluded the FWW method should not be applied in a misclassification case in light of the FLSA's remedial purpose."  The Blotzer Court went on to reason:

Application of the FWW method in a misclassification case is contrary to FLSA's rationale. The FWW method requires proof of a "clear mutual understanding" that: (1) the fixed salary is compensation for the hours worked each work week, whatever their number; and (2) overtime pay will be provided contemporaneously such that it fluctuates depending on hours worked per week. See 29 C.F.R. §§ 778.114(a) & (c). In a misclassification case, at least one of the parties initiated employment with the belief that the employee was exempt from the FLSA,

paid on a salary basis, and therefore not entitled to overtime. When an employee is erroneously classified as exempt and illegally being deprived of overtime pay, neither the fourth nor fifth legal prerequisites for use of the FWW method is satisfied. The parties do not have a "clear, mutual understanding" that a fixed salary will be paid for "fluctuating hours, apart from overtime premiums" because the parties have not contemplated overtime pay.

The Blotzer Court articulated the "perverse incentive" and profound and negative consequence of applying the FWW calculation in a misclassification case:

Application of the FWW in a misclassification case gives rise to a 'perverse incentive' for employers, because the employee's hourly 'regular rate' decreases with each additional hour worked. In fact, the difference between the FWW method and the traditional time-and-a-half method can result in an employee being paid seventy-one percent less for overtime over a given year . . .

Blotzer is in accord with several other District Court decisions.  See, e.g., Perkins v. Southern New Eng. Tel Co., 2011 U.S. Dist. LEXIS 109882 (D. Conn. Sept. 27, 2011) ("This court agrees with other district courts that have analyzed this issue and concludes that section 778.114 does not support the use of the fluctuating workweek method in the circumstances presented in this misclassification case."); In re Texas EZPawn FLSA Litig, 633 F. Supp. 395 (W.D. Tx. 2008) (collecting and analyzing cases and rejecting application of FWW calculation as inconsistent with remedial purposes of FLSA).

In Florida, there are two reported decisions that expressly address this issue.  Not surprisingly, and consistent with the split around the country, these two decisions reach diametrically opposed rulings.  Indeed, in Torres v. Bacardi Global Brands Promotions, Inc., 482 F. Supp. 2d 1379 (S.D. Fla. 2007), the Court ruled that the plaintiff, if misclassified, would only be entitled to a .5 premium for all overtime hours because the fixed salary provided to the employee provided his regular rate of pay for all hours worked.  Antithetically, in West v. Verizon Servs. Corp., 2011 U.S. Dist. LEXIS 5952 (M.D. Fla. 2011), the Court rejected application of the .5 calculation by analyzing and concluding the FWW method could not be invoked based on the facts of the case.

An extensive review of the case law suggests that there are no Federal Circuit Court of Appeals decisions rejecting the application of the .5 analysis to misclassification cases.  Conversely, there are several Federal Circuit Court of Appeals decisions (not including the 11th Circuit Court of Appeals) concluding it is proper to apply the FWW calculation to misclassification cases.  See, e.g., Desmond v. PNGI Charles Town Gaming, LLC, 630 F.3d 351 (4th Cir. 2011);  Clements v. Serco, Inc., 530 F.3d 1224, 1230-31 (10th Cir. 2008); Valerio v. Putnam Assocs. Inc., 173 F.3d 35, 40 (1st Cir. 1999); Blackmon v. Brookshire Grocery Co., 835 F.2d 1135, 1138 (5th Cir. 1988).  Similarly, Urnikis-Negro v. Am. Family Prop. Servs., 616 F.3d 665 (7th Cir. 2010), concluded that while the FWW calculation should not be utilized in misclassification cases, the proper calculation in a misclassification case is to provide a .5 multiplier to all hours over 40 that the parties agreed to work based on the United States Supreme Court decision, Overnight Motor Transp. Co. v. Missel, 316 U.S. 572 (1942).

Accordingly, whether to apply a 1.5 or .5 calculation to misclassification cases in Florida remains unclear and will require a factual analysis of the origin/motivation/nuances of the offer of employment and the agreement between the employer and employee as to how many hours the salary was provided to compensate.  For an employer to change a non-exempt position to exempt solely to circumvent the 1.5 multiplier for all hours worked over 40 will likely be met with a conclusion that the FWW and Missel are not applicable.