After-acquired Evidence May Limit FMLA Remedies; Attorneys' Fees Far Exceeding Recovery Reasonable: Seventh Circuit

Practical Law Legal Update 6-582-5625 (Approx. 7 pages)

After-acquired Evidence May Limit FMLA Remedies; Attorneys' Fees Far Exceeding Recovery Reasonable: Seventh Circuit

by Practical Law Labor & Employment

Background

United Airlines (United) contracts with other firms for regional air services under the brand name United Express. Trans State Holdings (Holdings), a supplier to United Airlines, owns two air carriers, Trans States Airlines (Trans States) and GoJet Airlines (GoJet). Darren Cuff, who worked at O'Hare Airport, was the regional manager for Trans States. Cuff represented all three entities in their dealings with United and O'Hare. He worked with Trans States and GoJet daily and his business card featured the logos of all three companies. Cuff was recognized as the contact person for any questions regarding Trans States or GoJet operations at O'Hare, in:

Internal directories for both Holdings and United Express.
Notifications to United and other airlines.

A Holdings executive testified in his deposition that:

Cuff was hired to provide services for Trans States and GoJet.
Cuff's position supported both Trans States and GoJet.

In 2010, Cuff requested FMLA leave and Trans States denied his request. He was fired after taking unapproved leave anyway. Cuff brought a lawsuit against Trans States and GoJet alleging claims for interference and retaliation under the FMLA.

Defendants argued that:

Cuff was not covered by the FMLA because:
- Trans States employed him and had fewer than 50 employees; and
- GoJet, which had enough employees to meet the FMLA 50 employee threshold, was not his joint employer.
The FMLA did not apply to Cuff because Cuff would not have needed medical leave if he had followed his doctor's medical orders more carefully.
Cuff would have been fired anyway based on several alleged incidents of misconduct discovered after his termination, including:
- having a sexual relationship with a subordinate;
- lying about the sexual relationship during an internal investigation;
- failing to report a DWI arrest; and
- taking so many narcotics for his medical conditions, that he was unfit for work.

The district court:

Granted summary judgment for Cuff, holding that Trans States and GoJet were joint employers.
Rejected defendants' argument that Cuff was not qualified for FMLA leave because he would not have needed medical leave if he had followed his doctor's orders.

Regarding defendants' after-acquired evidence argument, the district judge:

Allowed defendants to introduce evidence that Cuff lied during the internal investigation of his sexual relationship.
Excluded some after-acquired evidence regarding Cuff's misconduct because defendants could not show that they fired another worker for the same offenses allegedly committed by Cuff.
Excluded evidence under Federal Rules of Evidence, Section 403, on the ground that it would be used to impeach Cuff.

Cuff was awarded $43,200 in damages and $325,000 in attorneys' fees.

Defendants appealed the district court's decision to the Seventh Circuit, including arguing that the attorneys' fees of $325,000 awarded to Cuff were unreasonable in relation to his recovery of less than $50,000.

Outcome

The Seventh Circuit held that Trans States and GoJet were joint employers of Cuff, for the purposes of FMLA coverage. In reaching this holding, the Seventh Circuit found that:

The FMLA applies if an employer has at least 50 employees within 75 miles of the employee's work station (29 U.S.C. § 2611(2)(B)(ii)). Within 75 miles, Trans States had 33 employees and GoJet had 343. Cuff argued that he worked for both carriers jointly, placing them above the 50 employee threshold to be a covered employer under the FMLA.
The DOL has two regulations which bring an employee within FMLA coverage even if his employer has fewer than 50 employees:
- when a worker is jointly employed by multiple firms that collectively have 50 or more workers (29 C.F.R. § 825.106(a)); and
- when two firms operate a joint business that can be treated as a single employer (29 C.F.R. § 825.104(c)).
The district judge, in granting summary judgment to Cuff, relied on the first of those regulations. Defendants' appeal relied on the second regulation. Defendants argued that the National Mediation Board (NMB) has determined that Trans States and GoJet pilots must negotiate separately because they do not conduct joint business operations governed by the Railway Labor Act. NMB bargaining unit analyses are not coextensive with FMLA joint employer inquiries. The Seventh Circuit held that the joint employer inquiry is person-specific and one person can be employed jointly by two different firms despite distinct labor forces.
Regulation § 825.106(a) has a number of relevant non-dispositive factors in its joint employer inquiry, the most significant of which are:
- whether there is an arrangement between employers to share an employee's services; and
- whether an employer acts in the other employer's interest in relation to the employee.
(29 C.F.R. § 825.106(a).)
In the present case:
- there was an arrangement between Trans States and GoJet to share Cuff's service; and
- Trans States and GoJet acted in each other's interest in relation to Cuff.

Concerning the evidentiary issues addressed by the district court, the Seventh Circuit found that:

After-acquired evidence of employee misconduct may limit the remedy to which the employee would have been entitled under the FMLA (McKennon v. Nashville Banner Publishing Co., 513 U.S. 352 (1995)).
Although McKennon was decided under the ADEA, the courts of appeals that have considered the issue have held that it applies to the FMLA (see Dotson v. Pfizer, Inc., 558 F.3d 284, 298 (4th Cir. 2009) and Edgar v. JAC Products, Inc., 443 F.3d 501, 514 (6th Cir. 2006)).
The proper understanding of McKennon is that a plaintiff employee's damages can be limited if the employer would have fired that individual when learning of his misconduct, regardless of how it would have treated other similarly behaving employees.
The district judge misread Federal Rules of Evidence Rule 403. Under that rule, the proper issue is not whether the evidence presented was prejudicial (all evidence that undermines an opponent's case will be prejudicial), but whether it was unfairly prejudicial (Fed. R. Evid. 403).

When a district judge excludes evidence, the aggrieved party must make an offer of proof in order to raise the issue on appeal (see Fed. R. Evid. 103(a)(2)). Defendants did not make any offers of proof at trial. As a result, the Seventh Circuit found that defendants lost their potential defenses under McKennon.

While the Seventh Circuit acknowledged that $325,000 in attorneys' fees is a large figure when the recovery is less than $50,000, Cuff's lawyers could not have expected to invest such a large amount of legal work into this case. Fee shifting statutes are designed to prevent high litigation costs from stifling valid claims. The Seventh Circuit found that the high fees in this case resulted, in part, from the messy way that defendants conducted their defenses. Defendants were responsible for unnecessary legal work performed by Cuff's attorneys to respond to defendants':

Arguments about Cuff failing to properly follow his doctors' orders.
Attempts to use McKennon as a defense while not making an offer of proof.
Arguments that Plaintiff's attorneys' fees were too high, while not disputing the number of hours worked or the attorneys' hourly rates.

Practical Implications

The Seventh Circuit held that after-acquired evidence of misconduct can be used to reduce remedies granted to a plaintiff under the FMLA. This is not a discrimination issue, so the employer only needs to focus on the conduct of the individual employee and is not required to prove that it treated other employees the same. When challenging an exclusion of evidence, employers must remember that by failing to take the basic step of making an offer of proof at trial they may risk losing potential defenses on appeal.

The court held that it is not unreasonable for attorneys fees to exceed recovered damages, even by a significant margin. Forcing plaintiffs' attorneys to respond to wasteful or poorly-presented defenses may only increase the attorneys' fees awarded to a prevailing plaintiff. In Cuff, the Seventh Circuit admonished defendants for how they conducted their "blunderbuss" defense and ultimately presented them with a substantial financial bill.

After-acquired Evidence May Limit FMLA Remedies; Attorneys' Fees Far Exceeding Recovery Reasonable: Seventh Circuit | Practical Law