Liquidated Damages not mandatory for cases of FLSA retaliation

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Delivery Truck-FDP-10041872-photostockThe federal appeals court over Florida recently made new law for Florida by holding that an award for liquidated damages is not necessarily mandatory in cases involving FLSA retaliation.  The FLSA (Fair Labor Standards Act or the federal Wage/Hour law) provides strict rules requiring employers to pay employees fair wages, and stiff penalties for any employer who retaliates against an employee seeking legal help to claim unpaid wages.  One such penalty is the award of liquidated damages, which essentially doubles any award for unpaid wages granted by a jury. 

Liquidated damages are mandatory in cases of unpaid wages unless an employer can meet the additional burden of proving that he or she acted in good faith and did not willfully violate the federal wage laws.  Up until this recent ruling, there has been no clear-cut answer as to whether a liquidated damage award is automatically imposed upon an employer accused of retaliation.  This ruling seems to display some leniency towards employers.

A Restructuring

Leonard Moore, Jason Evers, and Christopher Lungrin worked as delivery drivers for Appliance Direct, Inc. (“Appliance Direct”) and sued Appliance Direct as well as the owner and CEO of the company, Sei Pak, as their former employers, for violations of the Fair Labor Standards Act (“FLSA”).  The employees alleged that they were not properly compensated for overtime work.  Prior to the filing of the overtime lawsuit, Appliance Direct began to restructure the employment status of its drivers from that of employees to independent contractors.  The employees involved in the overtime lawsuit claimed that other drivers for Appliance Direct received offers to become independent contractors while the drivers involved in the overtime lawsuit did not.  The employees alleged that their employment was terminated and their jobs were outsourced.

Taking it to the next level

The employees who initially sued for overtime wages now found themselves with no job at all.  None too pleased with this development, the employees took their lawsuit to the next level and sued both Appliance Direct and Mr. Pak for retaliation.  The employees alleged that Appliance Direct and Mr. Pak retaliated against them by not giving them the same opportunity as other employees to enter into subcontracts for delivery services and by interfering with their ability to be hired by other subcontractors of delivery services for Appliance Direct.  The employees alleged that the loss of their jobs and the denial of certain opportunities to take work as independent contractors for Appliance direct was a direct result of their filing of the overtime lawsuit.

With the retaliation lawsuit looming, Appliance Direct elected to settle the employees’ overtime suit.  At some point after the settlement of the overtime suit, Appliance Direct filed for bankruptcy.  The retaliation lawsuit was stayed against Appliance Direct because of their bankruptcy, however, the retaliation suit against Mr. Pak proceeded as scheduled.  Mr. Pak, in a valiant attempt to have the claims against himself dismissed, argued that the employees could not prove that Mr. Pak met the legal definition of an “employer” and therefore could not be held accountable for retaliation.  The judge and jury did not agree with Pak.

The law takes a subjective approach when deciding whether an individual qualifies as an “employer” under the FLSA. Courts have held that a corporate officer can be held personally liable as an “employer” under the FLSA if he has operational control over the corporation’s covered enterprise. Such control may include involvement in the day-to day operations of the company or direct supervision of the employee involved in the lawsuit. The legal status of an employer is determined by observing the totality of the circumstances surrounding the employment relationship. Here the court observed that, not only was Mr. Pak the CEO and 75% owner of Appliance Direct, Mr. Pak also guided company policy, as well as instructed managers, and was the ultimate decision maker for the company.  The court also found there was sufficient evidence presented to prove that Mr. Pak ordered that the employees involved in the overtime suit should not be given subcontracts for delivery services.

At trial it was determined that Mr. Pak was, in fact, an employer for purposes of the FLSA. The jury found in favor of the employees and awarded each employee $30,000 for their claims of retaliation!  But the case did not end there!  Neither Mr. Pak nor the employees appeared to be satisfied with the trial verdict.  Mr. Pak immediately filed to have the verdict thrown out, and the employees appealed claiming they were entitled to more!  The employees claimed that the FLSA provides for liquidated damages in addition to an award for what the employees were rightfully owed.

You owe me more.  It’s the law, isn’t it?

The employees were correct to a certain extent.  The FLSA does entitle employees to liquidated damages equal to the amount awarded in unpaid wages.  Prior case law has made it clear that, under the FLSA an award for liquidated damages is mandatory absent any showing by the employer that the employer’s failure to pay the wages owed was an honest mistake.  The law states that an employer must make a showing of a good faith effort at compliance with federal wage laws, or in other words, that they did not intentionally refuse to pay the employees what they were owed, in order to avoid the liquidated damages penalty.

It’s clear that this is the case for an overtime violation, but the jury verdict against Mr. Pak was for retaliation.  The law was not settled as to whether an award for liquidated damages is absolute in cases of FLSA retaliation.  In fact there has been conflicting case law with different federal appeals courts having different outcomes on the issue.  Well, it appears that Mr. Pak’s case may have changed all of that for Floridians.

On appeal, the court held that the lower court got it right the first time.  There was sufficient evidence to hold Mr. Pak accountable for retaliation, however, the employees were not legally entitled to an automatic award of liquidated damages.  The appellate court was faced with a matter of first impression.  The court had to answer whether the FLSA requires the imposition of an award for liquidated damages after a finding of liability for retaliation, without a showing of good faith by the employer, as it does after a finding of liability for wage/hour violations. The court had to take a stand on whether liquidated damages for FLSA retaliation are mandatory or discretionary.

It was undisputed that Mr. Pak failed to prove a showing of “good faith” at the trial level. This is important because if the employees were able to persuade the court that liquidated damages were automatic for retaliation cases when no good faith attempt is been shown by the employer, the employees would legally be entitled to double the amount awarded at the trial level.  Both sides presented evidence of conflicting case law in an effort to argue whether the liquidated damages provision of the FLSA applies to cases of retaliation.  The court ultimately sided in favor of the employer and denied an award for liquidated damages to the employees.  The court decided it was time for a clear answer on the issue.  The court concluded that the retaliation provision of the FLSA gives trial courts the discretion on whether or not to award liquidated damages after determining whether or not to do so would be appropriate based on the facts of any given case.  Moore v. Appliance Direct, Inc., No. 11-15227, 2013 U.S. App. LEXIS 3047 (11th Cir., February 13, 2013).

TakeawayDecision_Dice-FDP-10069219-Stuart Miles

This holding by the appellate court provides some leniency for employers under the FLSA.  This is not to be confused with any notion that employers are getting off the hook here.  Mr. Pak was still required to pay each employee in the suit the initial award of $30,000.  However, it could have been twice as bad.  Had the court held that liquidated damages are mandatory in cases of FLSA retaliation when an employer fails to prove a good faith violation, Mr. Pak would have owed each employee a total of $60,000 when accounting for the liquidated damages.  It is always important to ensure that you pay your employees properly and on time, and under no circumstances should you as an employer take any action that may be viewed by a jury as retaliatory if your employee seeks legal advice.

The holding gives employers the knowledge that liquidated damages are merely discretionary as opposed to being mandatory in retaliation cases.  This may provide some leverage for employers when negotiating settlements in future cases of retaliation.  However, it is important to remember that courts still have the discretion to enter such awards.  Any FLSA violation can be costly for an employer, but fighting an allegation of retaliation can be a much bigger problem.

Article sourced from the Florida Employment Law Letter May 2013, written and edited by Tom Harper, Esq.

Delivery Truck image courtesy of © photostock | FreeDigitalPhotos.net

Maybe/Yes/No Die image courtesy of © Stuart Miles | FreeDigitalPhotos.net

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