FLSA: Close But No Cigar; Employee Satisfaction Is No Substitute for Compliance

Last month, the Sixth Circuit Court of Appeals affirmed a $112K judgment for unpaid overtime to 28 restaurant employees in a lawsuit brought by the DOL, but affirmed the denial of liquidated damages based on the employer’s good faith attempt to comply with the FLSA by consulting with its CPA.  Acosta v. Min & Kim Inc., No. 18-1190 (6^th Cir. 3/18/19).    The Court also agreed that the employer’s payroll records did not comply with the FLSA for periods under review and the DOL was entitled to estimate the amount of the unpaid overtime.  Finally, the Court rejected the employer’s argument that its wages were generous by industry and minimum wage standards and none of the employees had complained.  “[C]ompliance with the Act turns on dollars-and-cents calculations, not employee-satisfaction surveys.”


According to the Court’s opinion, the restaurant continued the payroll system used by the seller of the business and essentially paid the employees an individually guaranteed amount each week as long as the employee worked each shift over six days each week.  However, that amount paid did not change based on the number of hours each employee worked, which averaged 52.   Accordingly, when employees worked more than 52 hours in a week, they still were not paid enough more to account for overtime pay at 150% of the regular rate of pay.

An employer may lawfully do what Hur and Kim claim they did here, starting with a fixed salary and a shift schedule and working backwards to compute hourly and overtime rates. To double check the employer’s overtime math, a Department of Labor investigator would deduct a baked-in overtime premium like this from the salary before dividing that figure by total hours to figure out the regular rate. 29 U.S.C. § 207(e)(5); see 29 C.F.R. § 778.114 (prescribing total hours, including overtime, as the divisor when employers pay by shift without regard to fluctuating hours).

So where did Hur and Kim go astray? They paid the agreed-upon salary no matter how many hours an employee worked in excess of 52, unless that employee worked a full extra shift. A salary that supposedly includes overtime pay but does not vary with actual hours worked cannot include “overtime” as the Act defines it. See 29 C.F.R. § 778.310.

The employer also failed to maintain payroll records for each employee for at least three years which complied with FLSA.  In light of this, the DOL was permitted to estimate the amount of overtime owed to each employee and was not required to be precise when the employer did not comply with the FLSA recordkeeping requirements:

The Act requires employers to record overtime-eligible employees’ daily and weekly hours, hourly rate of pay, daily or weekly straight-time earnings and overtime pay, and total wages per pay period. Id. § 516.2(a), (c). The Act also requires employers to record each employee’s position, full name, home address, and gender. Id. § 516.2(a).

Hur and Kim have time and payroll records for the years 2013 to 2014 and 2016 to 2017. They have no records for the two-year gap in between. That is not the only omission. Some of the records for 2013 to 2014 contain just employees’ first names and their biweekly pay, nothing more. Although other records contain more details, particularly those following the advent of the restaurant’s time clock, none of Hur and Kim’s documentation contains all of the required information for all employees. Most glaringly, Hur and Kim did not track employees’ hours at all until August 2016. That omission violates the Act by any account.

Hur and Kim try to counter this conclusion on two grounds. They first invoke an exception to the recordkeeping requirements. The Act’s implementing regulations allow employers to record employees’ normal daily and weekly hours, rather than actual hours, if the employees work a fixed schedule. Id. § 516.2(c). But the fixed-schedule exception requires employers to record employees’ “exact number of hours worked each day and each week” for every week in which they work more or less than the fixed schedule. Id. § 516.2(c)(2). Until mid-2016, however, Hur and Kim never recorded actual hours worked.

Finally, the Court rejected the employer’s argument that the employees were satisfied with their pay:

Hur and Kim note that they pay employees generously relative to the minimum wage and that not one employee complained. But each argument is beside the point. Generosity is in the eye of the beholder, in this instance the eye of the employee, which is why compliance with the Act turns on dollars-and-cents calculations, not employee-satisfaction surveys. The absence of complaints is especially unhelpful. Employees are not apt to complain when they receive the sum they bargained for, particularly when it exceeds minimum wage, and the employer’s records offer no basis for figuring out the correct pay. Recall that Hur and Kim did not know what their recordkeeping responsibilities were, as their ignorance-of-the-law defense makes plain. Still waters tell us nothing in this setting.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Employer’s Evaluation of Inconsistent Witness Accounts Does Not Show Dishonest Belief

Yesterday, the Sixth Circuit Court of Appeals affirmed an employer’s summary judgment on an age and reverse race discrimination claim based on the employer’s honest belief – despite contradictory information produced during its investigation – that the plaintiff had violated company policy.  Hardesty v. Kroger Co., No. 18-3378 (6^th Cir. 1-23-19).   Choosing between inconsistent accounts given during an investigation does not create an issue of fact about the employer’s bad faith.  The investigation was sufficiently diligent to be worthy of credence and the Court refused to second-guess the harshness of the punishment.

According to the Court’s opinion, the plaintiff had been hired six months earlier to conduct telephone interviews with job applicants for a new store.  He was observed by a co-worker hanging up on calls directed to his desk so that he could continue a discussion with another co-worker and this was reported to management as to time, place and witnesses.  There seemed to be a discrepancy whether she saw this happen two or three times.  The company’s “customer first” policy requires applicants to be given excellent customer service.  An investigation was conducted which showed that his average call time was under 2 minutes per call, compared to an average of 5 minutes per call.  The call logs did not track individual calls.  When confronted, the plaintiff explained that he just spoke quicker than his co-workers.  The other co-worker denied noticing the plaintiff hanging up on callers, but this was not mentioned in the investigation report.  Although the plaintiff was given the option of resigning, he chose termination.

The Court rejected the plaintiff’s argument that the failure to mention in the report that another witnesses could not corroborate the allegation showed consciousness of guilt and doubt in the truth of the allegations against him.  It found this argument to require a strained and unreasonable inference to be drawn:

Even assuming that [his co-worker’s] inability to corroborate the accusation can be fairly read to refute it, investigations often produce conflicting evidence, requiring an employer to evaluate credibility and weigh various pieces of information.  Just because an employer must choose between inconsistent accounts “does not mean that there inevitably is a genuine issue of fact concerning the employer’s good faith.

The Court also rejected the plaintiff’s attack on the Company’s reliance on the significant discrepancy in the average call times: “exceptionally short call times could reflect a pattern of dishonest behavior and reveal a practice of failing to properly screen applicants or disconnecting calls.”

While the employer may have left some stones unturned (like checking surveillance footage to see if the reporting employee actually walked by the plaintiff’s cubicle as described),

when we evaluate the honesty of an employer’s belief, we do not require evidence of an optimal decisional process or a scorched-earth investigation.  Smith, 155 F.3d at 807.  “[T]he key inquiry is whether the employer made a reasonably informed and considered decision before taking an adverse employment action.”   

In any event, the evidence showed that the employer conducted a thorough and sufficiently diligent investigation which was worthy of credence:

She spoke to all potential witnesses, scrutinized Hardesty’s call logs for any suspicious patterns, sought advice from her colleagues in human resources and operations, and met with [the plaintiff] to clarify why his logs reflected such short phone calls as compared to his team’s average.  After reviewing all the data she believed available, she concluded that [the plaintiff] likely released at least one incoming call and determined that this warranted immediate termination.  “That [the plaintiff] or the court might have come to a different conclusion if they had conducted the investigation is immaterial.”  Seeger v. Cincinnati Bell Tel. Co., 681 F.3d 274, 287 (6th Cir. 2012).

The Court also rejected the plaintiff’s argument that his alleged misconduct did not warrant termination under the employer’s prior administration of its policies.  However, he apparently failed to identify a comparator who was sufficiently similarly-situated who was treated differently (i.e., better) because the alleged comparator’s actions may not have violated the policy.  Unfortunately, the Court did not elaborate.

Not a single Kroger employee involved in [this] investigation ever questioned whether hanging up on a customer merited termination.  And “disputes about the interpretation of company policy do not typically create genuine issues of material fact regarding whether a company’s stated reason for an adverse employment action is only a pretext designed to mask unlawful discrimination.”

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Promise of Commissions Was Too Vague and Indefinite to Be Enforced

In November, the Franklin County Court of Appeals affirmed an employer’s summary judgment on an employee’s claim for unpaid commissions on the grounds that the employee’s agreement failed to specify when the commissions were earned, thus making them entirely discretionary.  Dolder v. Auto Boutique Collision, Ltd., 2018-Ohio-4508.  While the agreement specified the percentage range of the commission, it did not indicate when the commission would be earned, leaving them to the employer’s unfettered discretion.  Because the parties never had a meeting of the minds as to what would trigger the payment of the promised commission, the promise to pay a commission was illusory and unenforceable.

According to the Court’s decision, the plaintiff worked approximately 14 months for the defendant employer as the shop manager.  In addition to his salary, his employment agreement provided that he would receive “commission payments  . . . based on 10-25% OF SALARY of $57,000. This commission will be paid monthly on the thirtieth day of the following month.”  Although the plaintiff had been paid all of the salary which he had been promised, he had never been paid any commission as provided in his employment agreement.

The Court rejected the plaintiff’s argument that his agreement required that he be paid this “commission” every month on top of his salary.  The employer argued that the term was too ambiguous and indefinite to be enforced.  Because the agreement failed to define “commission,” the court relied on its commonly understood meaning: “compensation earned by an employee based on a percentage of revenue generated from the employee's services.”  This is contrasted with a salary which is a fixed compensation paid on a regular basis and which is not dependent on the revenue generated.

In view of these definitions, a salary payment is fixed and not tied to any numerical performance variable, whereas a commission payment is based on a defined calculus relating to the employee's performance in generating revenue.  Thus, the parties' use of the term commission here indicates a general intent to somehow link the payment to Dolder's revenue generating performance.  The commission payment provision sets forth how a commission is calculated, at least within a certain range, and when an earned commission is paid.  However, this provision does not define how a commission is earned, such as by meeting a certain revenue benchmark.  Because the contract contains no language addressing how the commission is earned, the commission payments were entirely at the employer's discretion, making the provision illusory. . . .

In sum, the contract's commission payments provision contains no indication the parties reached any agreement in defining the circumstances under which a commission would be due to Dolder.  Therefore, in the absence of a meeting of the minds as to what triggers the earning of a commission, this provision is indefinite and uncertain, rendering the promise illusory.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Sixth Circuit Dismisses Claim When Plaintiff Was Fired Six Weeks After Returning from FMLA Leave

On Monday, the Sixth Circuit Court of Appeals affirmed an employer’s summary judgment on an FMLA retaliation claim when the plaintiff had been terminated after nineteen years of employment only six weeks after he returned from FMLA leave.    Nieves v. Envoy Air, Inc., No. 18-1127 (6^th Cir. 1-14-19). The Court found that the plaintiff failed to show that his termination – for permitting his mother’s boyfriend to use his free flying privileges many years earlier in violation of policy – was causally related to his use of FMLA leave.  The plaintiff had admitted that he should not have identified the flier as his father.  Accordingly, the plaintiff could not prove his prima facie case of showing that his termination was causally related to his recent use of FMLA leave.   Interestingly, there was no discussion of temporal proximity satisfying the plaintiff’s burden of showing causation even though his termination on March 30 was merely six weeks after he returned to work on February 19.

According to the Court’s opinion, the plaintiff had worked in at the counter for nineteen years.  His relatively new supervisor did not like him and blamed him unfairly for a number of issues.  In April 2015, the plaintiff (along with several other employees) was selected by the corporate office for a random audit of his flying privileges to investigate potential abuse.  He was required to send proof of eligibility (i.e., familial or legal relationship) of the individuals listed on his travel log.  He only sent documentation of two people (his wife and one daughter) who were actively using his privileges instead of all of the individual who had used his privileges over the past 19 years (and included other children as well as a half-brother, a friend’s son who stayed with them on an extended basis and his mother’s 20-year boyfriend that he had once listed as father/step-father).   The audit stalled until January 2016 when the plaintiff was hospitalized for approximately a month for kidney failure and took FMLA leave.  Three weeks after he returned to work on February 19, he was interviewed on March 9 by telephone without prior notice about the individuals he failed to document and answered all of the questions truthfully. He was given nine days to produce documentation substantiating the legal/familial relationship with all of the individuals, which he later explained was impossible when some of the documentation had to be obtained from the Dominican Republic.  The corporate office – which was never told about the plaintiff’s FMLA leave -- determined quickly that the plaintiff should be terminated on March 30 because that was the recommended penalty for violation of the travel policy.  On appeal, the decision was upheld because the plaintiff admitted that his mother’s boyfriend should never have been listed as his father on the travel log.

The Court concluded that the plaintiff could not show that his termination was related to his FMLA leave.  It rejected the plaintiff’s argument that the investigator’s note in her files about the plaintiff’s FMLA leave was proof of retaliation because she explained that it was merely a reminder of why she had not yet interviewed him when she got to his file in January 2016.  The note explained his unavailability when she attempted to schedule his interview.  There was nothing in the investigator’s report to corporate about the plaintiff taking FMLA leave.

The Court also dismissed stray comments by his supervisor about him and suggesting that he retire.  Some comments were made more than a year before he took FMLA leave.  The supervisor was not the decisionmaker.  One comment followed the explanation of the plaintiff’s wife that his physician wanted him to do less lifting (which was a big part of his job).

The Court also rejected the allegation that his travel log was given more scrutiny following his FMLA leave because the employer documented each step of the investigation process and explained each of its steps and delays.

There is no discussion in the Court’s decision of the temporal proximity -- six weeks between the end of his FMLA leave in February and his termination on March 30 – being sufficient to infer a causal relation. Because there was no evidence linking the termination for a clear violation of the travel policy to his use of FMLA leave, the Court found that he could not prove his prima facie case and there is no discussion of pretext or honest belief defenses.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Supreme Court: Court Decides FAA Exemptions for Workers in Interstate Commerce, Not Arbitrator

This morning, the Supreme Court affirmed a Federal Arbitration Act decision and held that a court – not the arbitrator --  should decide whether a §1 exemption for “contracts of employment of . . . workers engaged in foreign or interstate commerce” applied to negate FAA enforcement of the arbitration clause in the plaintiff trucker’s independent contractor agreement.   New Prime, Inc. v. Oliveira, No. 17-340 (1-15-19).   Further, the Court held that the common meaning of “worker” and “contract of employment” at the time the FAA was enacted in 1925 would control its interpretation of those terms instead of the contemporary understanding of those terms in order to protect the reasonable reliance of the public.  In 1925, “employment” was broadly understood to encompass workers and independent contractors and not just employees. 

According to the Court’s opinion, the plaintiff was hired under an “operating agreement” to work as an independent contractor truck driver for the defendant interstate trucking firm.  The operating agreement contained an arbitration clause which provided that the arbitrator should decide questions of arbitrability. The plaintiff filed a class action claiming that he and his fellow drivers had been misclassified as independent contractors and were entitled to minimum and overtime wages.   The defendant company moved to compel arbitration.  The plaintiff argued that he and his fellow drivers were exempt from FAA enforcement under §1, but the company argued that this decision should be made by the arbitrator and, if not, “contracts of employment” referred to common law and statutory employees, not independent contractors like the plaintiff and his fellow drivers.

The Court observed that the FAA only compels arbitration of disputes when the FAA applies.  Among other things, the FAA requires an “agreement in writing” between the parties and applies to disputes which arise from a “written provision in any maritime transaction or a contract evidencing a transaction involving commerce.”  The FAA also specifically exempts certain agreements from enforcement.  Section 1 of the FAA defines the terms “maritime transactions” and commerce,” and then provides:

but nothing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.

This exemption existed because:

Congress had already prescribed alternative employment dispute resolution regimes for many transportation workers.  And it seems Congress “did not wish to unsettle” those arrangements in favor of whatever arbitration procedures the parties’ private contracts might happen to contemplate.

Clearly, a court could not apply the FAA and compel arbitration before deciding for itself whether the FAA even applied:

The parties’ private agreement may be crystal clear and require arbitration of every question under the sun, but that does not necessarily mean the Act authorizes a court to stay litigation and send the parties to an arbitral forum.

This is not a new concept. Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U. S. 395, 402 (1967).

The Court then rejected the defendant company’s argument that “contracts of employment” covered only agreements with common law and statutory employees and not to contacts of employment with workers (like the plaintiff) who might be independent contractors.   The parties agreed that the plaintiff was a worker engaged in interstate commerce and the plaintiff was willing to assume – only for this issue – that he was an independent contractor.   

In deciding whether “contracts of employment” included independent contractor agreements, the Court observed:

“[I]t’s a ‘fundamental canon of statutory construction’ that words generally should be ‘interpreted as taking their ordinary . . . meaning . . . at the time Congress enacted the statute.’” . . . After all, if judges could freely invest old statutory terms with new meanings, we would risk amending legislation outside the “single, finely wrought and exhaustively considered, procedure” the Constitution commands. INS v. Chadha, 462 U. S. 919, 951 (1983).  We would risk, too, upsetting reliance interests in the settled meaning of a statute. . . .

That, we think, holds the key to the case.  To many lawyerly ears today, the term “contracts of employment” might call to mind only agreements between employers and employees (or what the common law sometimes called masters and servants).  Suggestively, at least one recently published law dictionary defines the word “employment” to mean “the relationship between master and servant.” Black’s Law Dictionary 641 (10th ed. 2014).  But this modern intuition isn’t easily squared with evidence of the term’s meaning at the time of the Act’s adoption in 1925.  At that time, a “contract of employment” usually meant nothing more than an agreement to perform work.  As a result, most people then would have understood §1 to exclude not only agreements between employers and employees but also agreements that require independent contractors to perform work.

The Court examined prior law dictionaries and found that “contracts of employment” was not even a term of art or defined term in 1925:

It turns out, too, that the dictionaries of the era consistently afforded the word “employment” a broad construction, broader than may be often found in dictionaries today.  Back then, dictionaries tended to treat “employment” more or less as a synonym for “work.”  Nor did they distinguish between different kinds of work or workers: All work was treated as employment, whether or not the common law criteria for a master-servant relationship happened to be satisfied.

 . . . This Court’s early 20th-century cases used the phrase “contract of employment” to describe work agreements involving independent contractors.  Many state court cases did the same.  So did a variety of federal statutes. . . . We see here no evidence that a “contract of employment” necessarily signaled a formal employer-employee or master-servant relationship.

Further, the §1 of the FAA itself refers to “contracts of employment” with “workers.”  Workers, then as now, refers to a broader class of individual which includes both employees and independent contractors.

The Court rejected the defendant company’s argument that “contracts of employment” must necessarily only cover employees because the words “employment” and “employee,” while derived from a common root did not develop simultaneously and have different understandings and legal meaning with “employment” traditionally having a broader meaning than employee.  While “contracts of employment” clearly included contracts with employees, they could also include contracts with workers or independent contractors who were not employees.

The  Court refused to enforce the purpose of the FAA over the statutory mandates or to utilize the Court’s inherent authority to compel alternative dispute resolution.

Justice Ginsburg agreed with the  Court’s decision and rationale, but not surprisingly, also asserted that Congress could design legislation that should change with the times: sometimes, “[w]ords in statutes can enlarge or contract their scope as other changes, in law or in the world, require their application to new instances or make old applications anachronistic.”

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.