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“But I Didn’t Know He Underreported His Time!”

No OT Cartoon

 

Okay, so the cartoon is facetious.  But employees who bring FLSA lawsuits routinely argue that they were directed or coerced by supervisors to work off-the-clock, without pay.  Indeed, a December 2013 GAO Report (a report that was the subject of our blog’s inaugural post) found that, in 2012, nearly 30% of all FLSA lawsuits contained allegations that workers were required to work “off-the-clock” without compensation.1The GAO report defined “off the clock” claims as those alleging that “an employer did not pay workers for all of the hours they worked within a day.”  Such claims would include, for instance, unrecorded time putting on protective work-gear, or booting up a work-computer.  A common — and often understandable — two-fold reaction by employers is (a) they didn’t know employees were working off-the-clock and that a supervisor was aware of it, or even encouraging it; and (b) an employee performing off-the-clock work violates company policies to record all hours and advise higher-level managers of supervisor misconduct.  Do these defenses work?

In Bailey v. TitleMax of Georgia, Inc., an opinion issued last Thursday, the Eleventh Circuit seems to answer “no.”  In Bailey, an employee claimed his supervisor told him to work off-the-clock because TitleMax “did not pay overtime,” and further claimed the supervisor edited Bailey’s time-records, to make it appear Bailey worked fewer hours than he really did.  In response, TitleMax argued that Bailey violated three company policies: (a) by working off-the-clock, he violated a policy requiring accurate reporting of hours; (b) by not objecting to his supervisor’s abusive behaviors, he violated a policy requiring regular verification of time; and (c) by not reporting any of this, he violated a policy instructing employees who had a problem at work to notify their supervisor or, if the supervisor was part of the problem, notifying a higher-level manager or calling an anonymous employee hotline.  TitleMax framed these arguments as affirmative defenses — unclean hands and in pari delicto 2Unclean hands requires a defendant to prove plaintiff’s wrongdoing is directly related to the claim and defendant was injured by it.  In pari delicto requires a defendant to prove that “plaintiff bears at least substantially equal responsibility for the violations he seeks to redress,” and that barring a lawsuit brought under a federal statute would not “substantially interfere” with the policy goals of the statue.  — thus creating “a somewhat novel argument.”

The Court seemed to appreciate TitleMax’s litigation creativity, but had little sympathy for TitleMax’s arguments.  The Court held that “[w]here, as here, an employer knew or had reason to know that its employee underreported his hours, it cannot invoke equitable defenses based on that underreporting to bar the employee’s FLSA claim.”  In so holding, the Court noted two prior cases, Allen v. Bd. of Pub. Educ. for Bibb Cnty and Brennan v. Gen. Motors Acceptance Corp., which reached similar results.  In both cases, employers technically required employees to accurately report hours; despite these requirements, supervisors encouraged employees to underreport their hours, and they did.  In both cases, the employers argued they lacked actual or constructive knowledge of the off-the-clock work.  In both cases, the employer’s argument was rejected.

The Eleventh Circuit declined TitleMax’s invitation to “contravene those holdings under a different theory.”  The Court noted that TitleMax identified no case supporting its position, although the Court goes out of its way to say that this alone doesn’t defeat TitleMax’s position.  Then the Court drops the hammer.

Congress enacted the FLSA in 1938.  See Fair Labor Standards Act of 1938, Pub. L. No. 75-718, 52 Stat. 1060.  And federal courts are no stranger to FLSA suits: in fiscal year 2012 alone, over eight thousand FLSA lawsuits were filed in the District Courts.  See U.S. Gov’t Accountability Office, Fair Labor Standards Act: The Department of Labor Should Adopt a More Systematic Approach to Developing Its Guidance 6-7 (Dec. 18, 2013). . . . In the context of such a well-worn federal statute, the dearth of precedent supporting TitleMax’s novel argument is persuasive, if not conclusive, evidence that its argument is misguided.

Now, this doesn’t mean that novel arguments aren’t welcome in FLSA lawsuits.  It does mean that grounding your arguments in established case-law is especially important in the context of litigating such a “well-worn” statute.  And that proposition has far-reaching implications, stretching beyond this particular case.

So is there hope, in the Eleventh Circuit, for an employer who truly didn’t know their employee underreported his or her hours, in violation of company policy?  The Court offers a ray of hope, by leaving open the question of whether equitable defenses based on employee misconduct might limit (but not totally bar) remedies in FLSA actions.  Such defenses can limit relief in the context of an age-discrimination lawsuit under the ADEA, but perhaps that’s because the ADEA authorizes courts to grant legal or equitable relief.  By contrast, in FLSA lawsuits, the court is only authorized to grant legal relief.  It’s a critically important issue for employers, one well-worth exploring.  It’ll just have to wait for another day.

 

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