Sixth Circuit: Employers Cannot Shorten FLSA/EPA Limitations Periods in Employment Agreements or Waivers

Yesterday, a unanimous Sixth Circuit reversed an employer’s summary judgment in a claim for unpaid overtime and unequal wages under the Fair Labor Standards Act (FLSA) and Equal Pay Act (EPA). Boaz v. FedEx Customer Information Services, Inc, No. 12-5319 (6^th Cir. 8-6-13).  First, the Court found that the employment agreement could not shorten the statutory limitations period from 2-3 years to 6 months because it constituted an invalid waiver of her FLSA and EPA claims.    Unlike other statutory claims, private settlement agreements or waivers of FLSA and EPA claims are not enforceable. Second, the Court found material factual disputes on the merits of her claims for unpaid overtime and unequal pay.  More interestingly, the Court made some observations about the perceived anti-competitive affects of various types of discrimination.

The plaintiff filed suit in April 2009 alleging that she had been paid less than a male co-worker performing the same job and that she had been denied overtime pay for jobs she held more than six months earlier (when she had been promoted to a new job).  “The statute of limitations for the FLSA is two years for non-wilful violations and three years for wilful ones. 29 U.S.C. § 255(a).”   As long ago as 1946, the Supreme  Court had held that “employees may not, either prospectively or retrospectively, waive their FLSA rights to minimum wages, overtime, or liquidated damages. “  The plaintiff’s employment agreement in this case provided in relevant part that:

 

To the extent the law allows an employee to bring legal action against Federal Express Corporation, I agree to bring that complaint within the time prescribed by law or 6 months from the date of the event forming the basis of my lawsuit, whichever expires first.

The employer argued that employers are allowed to shorten the limitations period for claims brought under other statutes, like Title VII, and should be able to shorten the limitations period for claims brought under the FLSA.   However, the Court rejected that argument because, unlike the FLSA, employees are permitted to privately settle and waive their claims under Title VII.  In addition, in a startling observation, the Court stated:

Second—and relatedly—an employer that pays an employee less than minimum wage arguably gains a competitive advantage by doing so. See Citicorp Indus. Credit, Inc. v. Brock, 483 U.S. 27, 36 (1987). An employer who refuses to hire African-Americans or some other racial group does not. The Court’s rationale for prohibiting waiver of FLSA claims is therefore not present for Title VII claims.

The employer next argued that employees are allowed to waive their right to a judicial forum under the FLSA by signing arbitration agreements because the prohibition against private waivers has been held to only apply to substantive rights and not procedural ones.  However, the Court distinguished this precedent by noting that waiving the judicial forum still allows for the effective vindication of the employee’s claim, while the shortened limitations period in the plaintiff’s employment agreement “at issue here does the opposite.”  Therefore, because the limitations provision in the employment agreement operated as a waiver of her claims, “it is invalid.”

The Court held that this reasoning applied with equal force to the plaintiff’s EPA claims because Congress amended the FLSA in 1963 to include the EPA.   Moreover, in contrast to what the Court said (above) about the anti-competitive effects of Title VII, it made the following observation about the EPA:

Second, the Supreme Court’s rationale for barring waiver of FLSA claims appears fully applicable to claims under the Equal Pay Act. An employer who pays women less than a lawful wage might gain the same competitive advantage as an employer who pays less than minimum wage. Indeed the Court has said that “[t]he whole purpose of the [Equal Pay Act] was to require that the[] depressed wages [of women] be raised, in part as a matter of simple justice to the employees themselves, but also as a matter of market economics[.]” Corning Glass Works v. Brennan, 417 U.S. 188, 207 (1974).

The Court also rejected other potential bases to affirm the summary judgment.  For instance, the Court refused to credit the plaintiff’s deposition admission that she had been an exempt employee:

An employee’s subjective belief that her position was exempt from the FLSA, however, does not mean the position was exempt as a matter of law. Cf. Tony & Susan Alamo Found. v. Sec’y of Labor, 471 U.S. 290, 300–01 (1985) (witnesses’ testimony that they were volunteers was not dispositive of whether they were actually employees under the FLSA). Were it otherwise, an employer could obtain waivers of FLSA  claims  merely by having its employees sign a form stating that they are exempt. FedEx is therefore not entitled to summary judgment on this ground.

The Court found material factual disputes in the employer’s remaining arguments about comparative employees and affirmative defenses.  Therefore, the case was remanded back to the trial court.

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 change or be 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.

Franklin County Appeals Court: Structure of Employment Agreement Implied Non-Compete Clause Into Founder’s Retirement Clause.

Last month, the Franklin County Court of Appeals affirmed summary judgment in favor of an east-side dental practice in a declaratory judgment action involving its obligation to make retirement, or deferred compensation, payments under an employment agreement to its founder who retired after a serious illness and then opened up a competing dental practice after his recovery. Drs. Kristal & Forche, D.D.S., Inc. v. Erkis, 2009-Ohio-5671. The dispute centered on the meaning of “retirement,” which was not defined in the agreement. The Court implied the non-competition obligation from the fact that the Professional Services Agreement signed by the defendant dentist contained a resignation clause which permitted him to leave the practice for any reason upon 90 days notice, but, unlike the retirement clause, did not obligate his remaining partners to provide him with deferred income during his retirement. Therefore, the Court concluded that “retirement” meant from the profession, not just the dental practice, or the resignation clause would be rendered superfluous.

According to the Court’s opinion, the defendant dentist formed the practice, which was ultimately joined by two additional dentists. They formed a professional corporation and each signed professional services agreements. The agreements provided that each dentist could resign upon 90 days notice. The agreement also provided that the defendant dentist could retire at any time and at any age and be entitled to over $1.1M in deferred compensation paid out in monthly installments of $40,000. Retirement was not defined in the agreement. The only other clauses where a dentist was entitled under the agreement to deferred compensation was when the dentist died or became disabled, which also involved leaving the profession, rather than just the practice.

In early 2003, the defendant dentist became seriously ill, accepted disability payments under the agreement and retired in May 2003. The practice purchased back his shares and paid him $306,000 in retirement compensation through May 2005. He then made a remarkable recovery and opened his own competing practice in October 2004, which involved soliciting some of his former employees and clients. The practice then filed a declaratory judgment action in August 2005 concerning its obligation to continue making retirement payments to the defendant dentist on the grounds that the defendant dentist had breached his agreement by competing against it and, by soliciting clients and referral sources, had decreased its revenue to the point that it could no longer afford to fund his “retirement.”

The practice argued that “retirement” meant from the profession, not just the practice. As a result, by the defendant-dentist’s competition against them, he breached the agreement by returning to the profession and relieved them of their obligation to make retirement payments to him. Thus, under the practice’s interpretation, the agreement’s retirement clause imposed an implied non-compete obligation upon the defendant dentist. In turn, the dentist argued that “retirement” meant any and all retirements and did not require him to remain unemployment or to leave the profession permanently.

The Court agreed with the practice’s argument because (1) the voluntary and involuntary termination provisions permitted the dentist to leave the practice without requiring the practice to provide deferred compensation and (2) deferred compensation was only required if the dentist left because of death, disability or retirement. Therefore, the Court could infer the parties’ intent from the structure of the agreement to define “retirement” as meaning from the profession, rather than just the practice.

Insomniacs can read the full opinion at http://www.sconet.state.oh.us/rod/docs/pdf/10/2009/2009-ohio-5671.pdf.

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 change or be 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.

NLRB Snags Another Non-Union Employer with Confidentiality Provision in Employment Agreement.

Late last month, the NLRA concluded that a temporary agency twice violated the National Labor Relations Act when it discharged an employee for breaching an unlawful term in his employment agreement requiring him to maintain the confidentiality of the terms of his compensation. Northeastern Land Services, Ltd. d/b/a The NLS Group and Jamison John Dupuy, Case 1–CA–39447 (NLRB 6/27/08).

The employer temporary agency leased employees to third parties. There is no indication that either the temporary agency employer or its client employers were unionized. The temporary agency employer allegedly violated Section 8(a)(1) of the NLRA “by maintaining in its employment contracts an overbroad confidentiality provision and by terminating [the complaining] employee . . . for breaching that confidentiality provision.” In particular, the temporary agency required its employees to sign an employment which contained the following clause: “Employee also understands that the terms of this employment, including compensation, are confidential to Employee and the NLS Group. Disclosure of these terms to other parties may constitute grounds for dismissal.” The clause did not limit the confidentiality obligation to disclosing the information to competitors or clients, and thus, could unlawfully encompass unions.

After he began work, the employee began to experience problems with getting paid in a timely manner. After complaining to the temporary agency, he also complained to the leasing employer. In addition, the leasing employer had promised him a daily stipend for using his personal laptop at work, but when the temporary agency indicated that it planned to reduce this stipend, the employee objected to both the leasing employer and the HR Coordinator of the temporary agency. He also asked the leasing employer to retain him through another temporary agency if these problems could not be resolved and then refused to bring his laptop to the job site any longer.

The temporary agency CEO then notified the employee that they felt that they had done enough to accommodate him, that nothing would make him happy and that he was being terminated. When he objected (on the grounds he had engaged in protected conduct by filing a complaint with a state agency), the CEO responded that the employee had “not lived up to [his] end of the bargain” in that he had failed “to comply with his contractual agreement—i.e., the confidentiality provision in the temporary employment agreement—not to disclose the terms of his employment to outside parties.”

The NLRB articulated its standard for determining the validity of work rules under the NLRA. “If the rule explicitly restricts Section 7 activity, it is unlawful. If the rule does not explicitly restrict Section 7 activity, it is nonetheless unlawful if (1) employees would reasonably construe the language of the rule to prohibit Section 7 activity; (2) the rule was promulgated in response to union activity; or (3) the rule has been applied to restrict the exercise of Section 7 rights. In applying these principles, the Board refrains from reading particular phrases in isolation, and it does not presume improper interference with employee rights.” (citations omitted).

In this case, the confidentiality provision in the temporary agency’s employment agreement “is unlawful because employees reasonably would construe it to prohibit activity protected by Section 7. Specifically, . . . the provision, by its clear terms, precludes employees from discussing compensation and other terms of employment with ‘other parties.’ Employees would reasonably understand that language as prohibiting discussions of their compensation with union representatives.” Therefore, “the confidentiality provision is unlawfully overbroad at least in this respect, in violation of Section 8(a)(1).”

“Under extant Board precedent, an employer’s imposition of discipline pursuant to an unlawfully overbroad policy or rule constitutes a violation of the Act.” Because the employee was fired to violating “an unlawfully overbroad” rule, his termination was also a separate violation of the NLRA.

The Board then ordered the temporary agency to rescind the confidentiality provision from its employment agreements and other publications, to re-hire the employee to the same or substantially similar job with full back pay and benefits, to eliminate any references in its records to the discharge of the employee, to post a standard notice of its NLRA violation and to mail a notice “to all current and former employees employed by the [temporary agency] under its temporary employment agreement (including but not necessarily limited to its right-of-way agents) since July 23, 2001, the date from which the complaint alleged and we have found that the [temporary agency] maintained the overbroad confidentiality provision in its temporary employment agreement.”

Insomniacs can read the full decision at http://www.nlrb.gov/research/decisions/board_decisions/template_html.aspx?file=http://www.nlrb.gov/shared_files/Board%20Decisions/352/v35289.htm&size=147.

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 change or be 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.