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Eleventh Circuit Court of Appeals Gives Employers New Ammunition to Fight FLSA Claims

by Martin Salcedo, Esq. - The Human Equation on 9/15/2011
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In the past, we have written about why employers should generally fear violations of the Fair Labor Standards Act (FLSA) more than violations of other employment-related laws, such as Title VII of the Civil Rights Act or the Family and Medical Leave Act. The FLSA’s broad applicability, plaintiff-friendly provisions, and technical nature, have made it very popular with plaintiffs’ attorneys. However, a recent ruling by the United States Court of Appeals for the Eleventh Circuit appears to offer employers a way to minimize the damages caused by being sued under the FLSA.

 

The FLSA, which establishes the minimum wage and governs the payment of overtime compensation, has been described as the perfect plaintiffs’ law. The FLSA allows a single employee to file a collective action on behalf of all similarly situated employees, thereby exposing employers to claims involving dozens, or even hundreds, of current and former employees. Moreover, the FLSA’s complex and technical provisions often lead to violations, albeit unintentional ones.

However, the real evil lurking behind most FLSA lawsuits is attorney’s fees. Under the FLSA, an employer who overcomes an employee’s claim is typically not entitled to an award of attorney’s fees. Rather, the FLSA’s attorney’s fee provision generally only benefits prevailing employees.

This is significant because almost immediately after filing the lawsuit, the amount of an employee’s attorney’s fees will likely dwarf the amount due for unpaid wages or overtime compensation. Consider that an employer opting to defend must pay its attorneys. Additionally, should the defense fail, the employer will also have to pay the employee’s attorney’s fees on top of any unpaid wages, interest, and liquidated damages that may be due to the employee. Thus, from a financial standpoint, it made more sense to quickly settle for a relatively low fixed sum that covers the employee’s damages and the employee’s attorney’s fees, than to fight the case—until now.

Enter Dionne v. Floormasters Enterprises, Inc., No. 09-15405 (11th Cir. July 28, 2011), wherein a warehouse clerk sued his employer under the FLSA on behalf of himself and other similarly situated employees. Less than a month later after being sued, the employer filed a pleading in the lower court styled Tender of Full Payment and Motion to Dismiss Complaint with Prejudice, which provided in pertinent part:

although Defendants vigorously deny all of Plaintiff’s allegations,…in the interests of expeditious resolution of Plaintiff’s claim and efficient use of this Court’s time and resources, Defendants hereby tender to Plaintiff payment in full for an overtime wages claim, liquidated damages, and interest, in the total amount of $637.98.

 

Since Dionne responded by claiming that his total damages were $3,000, the court denied the employer’s tender. In response, the employer filed another Tender of Full Payment in the amount of $3,000, which equals the amount Dionne claimed to be damaged.

The lower court granted the employer’s second tender and motion to dismiss because the full payment essentially eliminated any case or controversy requiring the court’s further attention. Despite Dionne’s protestations, the lower court ultimately held that Dionne was not entitled to his attorney’s fees because there was no need for “judicial determination” of Dionne’s allegations since the employer tendered the full amount owed.

On appeal, the Eleventh Circuit agreed with the lower court and held that Dionne was not entitled to his attorney’s fees. The Court relied on the relevant provision of the FLSA, which states that a court “shall, in addition to any judgment awarded to the plaintiff…allow a reasonable attorney’s fee to be paid by the defendant, and costs of the action.” Since a judgment was not awarded in Dionne’s case because the employer tendered the full amount due, the Court held that Dionne did not qualify for an award of attorney’s fees.

The Court spent considerable time explaining its reasoning and support for its decision since this is a fairly significant development under the FLSA. The prospect of paying an employee’s attorney’s fees has benefitted employees for some time. As a result, employers have been trying to find ways to avoid paying the employee’s attorney’s fees by essentially paying off the employee’s claim, just as the employer did in this case. Until now, this tactic was not well-received by the courts.

When drafting the FLSA, Congress understood that the amount in controversy would typically range from a few hundred to a few thousand dollars. Since the cost of litigating a case will often far exceed the amount an employee would be owed, it would almost never make sense for an employee to sue his or her employer. Thus, in the absence of an attorney’s fee provision, the rights and protections afforded by the FLSA would prove illusive.

In response, courts have relied upon various safeguards that generally prohibit the tactic used successfully by the employer in this case, such as requiring judicial approval of any settlements reached between the parties. The Dionne Court, however, was not persuaded by any of the legal arguments, policies, or precedents that historically prohibited employers from forcing employees to file a lawsuit only to undermine their efforts by finally tendering what was previously owed.

Regardless of whether one agrees or disagrees with the Court’s ruling, the result may provide some employers facing FLSA suits with a new strategy to significantly limit the damage by avoiding the obligation of having to pay the employee’s attorney’s fees. Employers who are, or may be facing a lawsuit under the FLSA should discuss the ramifications of the Dionne ruling and its potential applicability with their attorney. However, since it is unclear whether other Circuits will agree with the Dionne opinion, or whether Congress will reject it legislatively, the Dionne strategy may not be available indefinitely.

Importantly, since the Dionne case does not save an employer from having to pay its own attorney’s fees, facing a lawsuit under the FLSA can still prove costly for the employer. One way to limit the risk is with an employment practices liability insurance (EPLI) policy. Although many insurers exclude coverage for FLSA claims, some EPLI policies are now offering defense coverage for FLSA claims, which can be the costliest part of the case. FLSA defense coverage, which may be subject to a sub-limit, is often available at very reasonable premium rates.

FLSA claims can devastate a company. Following the Court’s ruling in Dionne, many employers may have a new way to limit the damage caused by such claims. By obtaining the additional protection afforded by an EPLI policy, employers can enjoy perhaps more protection from FLSA lawsuits than ever before.

If you would like to learn more about your obligations under the FLSA, click here.

If you would like to discuss the option of obtaining an EPLI policy that includes coverage for FLSA claims, contact us.

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