Employer Aware of Underreported Hours Cannot Invoke Employee Conduct Equitable Defense to Bar FLSA Claim: Eleventh Circuit | Practical Law

Employer Aware of Underreported Hours Cannot Invoke Employee Conduct Equitable Defense to Bar FLSA Claim: Eleventh Circuit | Practical Law

This wage and hour update addresses Bailey v. TitleMax of Georgia, Inc., in which the US Court of Appeals for the Eleventh Circuit reversed the district court's grant of summary judgment to the employer in a Fair Labor Standards Act (FLSA) matter. The Eleventh Circuit held that where an employer has knowledge that an employee underreported hours, it cannot invoke equitable defenses based on employee conduct to totally bar his FLSA claim.

Employer Aware of Underreported Hours Cannot Invoke Employee Conduct Equitable Defense to Bar FLSA Claim: Eleventh Circuit

by Practical Law Labor & Employment
Published on 20 Jan 2015 • USA (National/Federal)
This wage and hour update addresses Bailey v. TitleMax of Georgia, Inc., in which the US Court of Appeals for the Eleventh Circuit reversed the district court's grant of summary judgment to the employer in a Fair Labor Standards Act (FLSA) matter. The Eleventh Circuit held that where an employer has knowledge that an employee underreported hours, it cannot invoke equitable defenses based on employee conduct to totally bar his FLSA claim.
On January 15, 2015, in Bailey v. TitleMax of Georgia, Inc., the US Court of Appeals for the Eleventh Circuit reversed the district court's grant of summary judgment to the employer in an FLSA matter. The Eleventh Circuit held that where an employer has knowledge that an employee underreported hours, it cannot invoke equitable defenses based on employee conduct to totally bar his FLSA claim (No. 14-11747, (11th Cir. Jan. 15, 2015)).

Background

Santonias Bailey was employed by TitleMax of Georgia (TitleMax). His supervisor informed him that the company did not pay overtime. In addition, she instructed Bailey to underreport hours and often changed Bailey's time records herself to report fewer hours worked than were accurate. Bailey regularly worked and underreported overtime hours off-the-clock and was not paid for them. Bailey filed a lawsuit alleging TitleMax's violation of the overtime provision of the FLSA.
TitleMax argued that Bailey's FLSA claim should be barred because his conduct in underreporting his hours should allow the employer to assert the equitable defenses of:
  • Unclean hands.
  • In pari delicto.
TitleMax based its arguments on the following:
  • Bailey violated the company policy of reporting accurate hours by performing, but not reporting, off-the-clock work.
  • Bailey violated a company policy requiring verification of time, by:
    • failing to object to his supervisor changing his time records; and
    • failing to report his inaccurate records.
  • By not reporting any of the alleged issues concerning his overtime or time reporting, Bailey violated a company policy of notifying a supervisor or manager when encountering a work problem.
The district court granted summary judgment for TitleMax. Bailey appealed the district court's decision to the Eleventh Circuit.

Outcome

The Eleventh Circuit reversed the district court's grant of summary judgment for TitleMax.
In reaching that conclusion, the circuit court noted that:
  • The FLSA's goal is to prevent inequality in bargaining power between an employer and its employees.
  • If an employer is aware of an employee's underreporting of hours, it cannot evade liability by invoking equitable defenses based on that employee's underreporting.
  • An unpaid overtime claim under the FLSA has two elements, which, when established, should typically allow an employee to survive summary judgment:
    • the employee worked unpaid overtime; and
    • the employer knew or should have known about the overtime work performed by the employee.
  • To assert an unclean hands defense, a defendant must show that:
    • the wrongdoing by the plaintiff relates directly to the claim; and
    • the defendant was personally injured by the plaintiff's wrongdoing.
  • To assert an in pari delicto defense, a defendant must show that:
    • the plaintiff is at least substantially equally responsible for the alleged violations; and
    • barring the plaintiff's lawsuit would not cause substantial interference with the statute's policy goals.
  • The FLSA's deterrent purpose would be undermined by barring an FLSA wage or overtime violation claim, when the employer was aware of the employee's underreporting of hours.
  • The Supreme Court has held that an employer raising a defense to an ADEA claim based on employee misconduct may be relevant to deciding remedies, but would undermine the statute if resulting in a total bar of the employee's claim.
  • In Bailey, the employee met both required elements of an unpaid overtime claim, since his supervisor was aware of and encouraged Bailey to underreport his overtime hours.
  • In two previous circuit court cases, arguments similar to those made by TitleMax were rejected because in both cases, a supervisor's knowledge of the employees' underreporting of hours could be imputed (Allen v. Bd. of Pub. Educ. for Bibb Cnty., 495 F.3d 1306, 1314–15 (11th Cir. 2007); Brennan v. Gen. Motors Acceptance Corp., 482 F.2d 825, 828 (5th Cir. 1973)).
  • By asserting its equitable defenses, TitleMax attempted to make the same arguments that were rejected in Allen and Brennan under a different name.
  • Bailey differs from Brumbelow v. Quality Mills, Inc., because in Brumbelow, there was no evidence that the superior knew that the employee underreported her hours (462 F.2d 1324 (5th Cir. 1972)).
  • TitleMax pointed to no case on the circuit court or US Supreme Court level that approved an employer's use of equitable defenses to bar an employee's FLSA claim when the employer was aware of the employee's underreporting of hours worked. This lack of precedential support was evidence that TitleMax's argument was misapplied.

Practical Implications

TitleMax unsuccessfully attempted to use a novel argument in defending against an FLSA claim, by placing blame on the employee for the alleged overtime pay violations. The court emphasized that the purpose of the FLSA is to provide aid to employees by evening their bargaining power with their employers. The court recognized that an employer cannot reap the benefits of refusing to pay its employees overtime or instructing them to underreport their hours in violation of the law. If granted, some employers may abuse such power. Employers should be sure to follow federal, state and local wage and hour laws and be aware that altering, or instructing employees to alter, time records could lead to unwanted legal action.