Sixth Circuit Adopts Estimated Average Damages Calculation and Half-Time Multiplier in Piece-Rate FLSA Collective Action | Practical Law

Sixth Circuit Adopts Estimated Average Damages Calculation and Half-Time Multiplier in Piece-Rate FLSA Collective Action | Practical Law

In Monroe v. FTS USA, LLC, the US Court of Appeals for the Sixth Circuit held, in a Fair Labor Standards Act (FLSA) collective action, that representative testimony was appropriate in proving liability for nontestifying employees, an estimated-average approach was appropriate in calculating damages, and that the district court improperly used a 1.5 multiplier to calculate damages for employees paid on a piece-rate basis.

Sixth Circuit Adopts Estimated Average Damages Calculation and Half-Time Multiplier in Piece-Rate FLSA Collective Action

by Practical Law Labor & Employment
Published on 16 Mar 2016 • USA (National/Federal)
In Monroe v. FTS USA, LLC, the US Court of Appeals for the Sixth Circuit held, in a Fair Labor Standards Act (FLSA) collective action, that representative testimony was appropriate in proving liability for nontestifying employees, an estimated-average approach was appropriate in calculating damages, and that the district court improperly used a 1.5 multiplier to calculate damages for employees paid on a piece-rate basis.
On March 2, 2016, in Monroe v. FTS USA, LLC, an FLSA collective action, the US Court of Appeals for the Sixth Circuit held that representative testimony was appropriate in proving liability for nontestifying employees, an estimated-average approach was appropriate in calculating damages, and that the district court improperly used a 1.5 multiplier to calculate damages for piece-rate workers ( (6th Cir. Mar. 2, 2016)).

Background

FTS employs cable technicians who report to supervisors and project managers at local profit centers. FTS's parent company, UniTek, provides human resources and payroll functions to FTS.
All FTS cable technicians:
  • Share substantially similar job duties and are subject to the same compensation plan and company-wide timekeeping system.
  • Are paid:
    • under a piece-rate compensation plan; and
    • for overtime hours by applying a .5 multiplier to their regular rate.
FTS technicians Edward Monroe, Fabian Moore, and Timothy Williams brought an FLSA claim against FTS USA, LLC and UniTek USA, LLC, alleging that:
  • FTS implemented a company-wide time-shaving policy (originating with its corporate office) which required technicians to systematically underreport their overtime hours.
  • Managers told or encouraged technicians to underreport time or even falsified timesheets themselves.
  • To underreport overtime hours in compliance with FTS policy, they either began working before or after their recorded shift, or recorded lunch breaks they did not take.
The district court:
  • Certified the case as an FLSA collective action, allowing 293 other technicians to opt in.
  • Charged the jury to determine whether the FTS Technicians worked unpaid overtime hours and are therefore entitled to overtime compensation.
  • Upheld the jury's verdict that:
    • FTS Technicians worked in excess of 40 hours weekly without being paid overtime compensation; and
    • FTS and UniTek knew or should have known and willfully violated the law.
(Monroe v. FTS USA, LLC, 257 F.R.D. 634 (W.D. Tenn. 2009).)
FTS and UniTek appealed:
  • The certification of the case as a collective action (under 29 U.S.C. § 216(b)).
  • The sufficiency of the evidence as presented at trial.
  • The district court's calculation of damages.

Outcome

The Sixth Circuit affirmed in part, reversed in part, and remanded, holding that:
  • The employees were similarly situated.
  • The employer's claimed right to present individualized defenses did not warrant decertification.
  • Representative testimony was appropriate in proving liability for nontestifying employees.
  • An estimated-average approach was appropriate in calculating damages.
  • The district court improperly used a 1.5 multiplier to calculate damages for piece-rate workers.
The Sixth Circuit first considered the challenge to certification of the collective action, noting that in O'Brien v. Ed Donnelly Enterprises, Inc., it:
  • Established a three-factor "similarly situated" standard, distinguishing it from a Rule 23–type predominance standard, including:
    • the factual and employment settings of the individual plaintiffs;
    • individualized defenses; and
    • the degree of fairness and procedural impact.
  • Held that:
    • "[s]howing a 'unified policy' of violations is not required"; and
    • employees who "suffer from a single, FLSA-violating policy" or whose "claims [are] unified by common theories of defendants' statutory violations, even if the proofs of these theories are inevitably individualized and distinct," are similarly situated.
(575 F.3d 567 (6th Cir. 2009).)
Considering the O'Brien test, the court noted that:
  • The factual and employment settings of the individual FTS Technicians includes, where relevant, their job duties, geographic locations, employer supervision, and compensation.
  • Regarding FTS Technicians' duties and locations, all FTS Technicians, regardless of location:
    • have the same position, job description, and duties; and
    • are subject to the same recording by hand timekeeping and piece-rate compensation.
  • The record contains ample evidence of a company-wide policy of requiring technicians to underreport hours originating with FTS executives.
  • Like the plaintiffs in O'Brien, FTS Technicians' claims are unified by common theories of defendants' statutory violations, even if the proofs of these theories are inevitably individualized and distinct.
  • Based on the record as to FTS Technicians' factual and employment settings, the district court did not abuse its discretion in finding FTS Technicians similarly situated.
  • Regarding individualized defenses, several circuits, including the Sixth, have held that that alone does not warrant decertification where sufficient common issues or job traits otherwise permit collective litigation (O'Brien, 575 F.3d at 584–85).
  • Using an estimated-average approach, defenses successfully asserted against representative testifying technicians were properly distributed across the claims of nontestifying technicians.
  • Regarding the degree of fairness and the procedural impact of certifying the case. proceeding individually on the small, related claims of employees would be too costly to be practical.
  • Espenscheid v. DirectSat USA, LLC, a Seventh Circuit case affirming the decertification of a collective action seeking unpaid overtime, does not compel decertification here because Espenscheid specifically acknowledges that it is at odds with Sixth Circuit precedent (705 F.3d 770, 772 (7th Cir. 2013), citing O'Brien, 575 F.3d at 584).
The Sixth Circuit next considered the sufficiency of the evidence argument, finding that:
  • Under Anderson v. Mt. Clemens Pottery Co., the evidence as a whole must be sufficient to find that FTS Technicians performed work for which they were improperly compensated (liability) and sufficient to support a just and reasonable inference as to the amount and extent of that work (damages). If the defendants cannot rebut the plaintiffs' liability and damages showing, the court may award the reasonably inferred, though perhaps approximate, damages. (328 U.S. 680 (1946).)
  • FLSA circuit court precedent relies on representative testimony to establish liability, for example, see:
    • Donovan v. Simmons Petroleum Corp., where the Tenth Circuit held that representative testimony "was sufficient to establish a pattern of violations" (725 F.2d 83, 84 (10th Cir. 1983)); and
    • Morgan v. Family Dollar Stores, Inc., where the Eleventh Circuit held that, "[i]f anything, the Mt. Clemens line of cases affirms the general rule that not all employees have to testify to prove overtime violations" (551 F.3d 1233, 1279 (11th Cir. 2008)).
  • The evidence here is sufficient to support the jury's verdict that all FTS Technicians, both testifying and nontestifying, performed work for which they were not compensated.
Finally, the Sixth Circuit considered the calculation of damages argument, finding that:
  • In U.S. Dep't of Labor v. Cole Enterprises, Inc., it addressed a version of the estimated-average approach, concluding that the testimony of representative employees could be the basis for awarding back wages to nontestifying employees (62 F.3d 775, 781 (6th Cir. 1995)).
  • Other circuits and district courts have explicitly approved of an estimated average.
  • Mt. Clemens acknowledges the use of "an estimated average of overtime worked" to calculate damages for nontestifying employees, and reversed the Sixth Circuit's disapproval of that method (328 U.S. 680, at 689).
  • Disapproving of an estimated-average approach simply due to lack of complete accuracy would ignore the central tenant of Mt. Clemens that an inaccuracy in damages should not:
    • bar recovery for violations of the FLSA; or
    • penalize employees for an employer's failure to keep adequate records.
    (328 U.S. 680, at 688.)
  • Mt. Clemens's burden-shifting framework, in conjunction with the estimated-average approach, functioned in this case as envisioned because testifying technicians were similarly situated to and representative of nontestifying technicians, and therefore the average of the average weekly unpaid hours worked applied to nontestifying technicians. The jury found fewer unrecorded hours than testifying technicians claimed, therefore FTS and UniTek partially refuted the inference sought by FTS Technicians and their defenses were distributed to make the damages more exact and precise.
  • In a piece-rate system, "the regular hourly rate of pay is computed by adding together total earnings for the workweek from piece rates and all other sources" and then dividing "by the number of hours worked in the week for which such compensation was paid. The numerical multiplier for overtime hours in a piece-rate system is .5 the regular rate of pay." (29 C.F.R. § 778.111(a).)
  • By failing to recalculate hourly rates to reflect the actual increased number of hours FTS Technicians worked each week, the district court used a higher hourly rate than would have been used if no violation had occurred. This approach overcompensated FTS Technicians and required FTS and UniTek to pay more for unrecorded overtime hours than recorded overtime hours. For the damages calculation to be compensatory (as intended by the FLSA), therefore, hourly rates must be recalculated with the correct number of hours to ensure that FTS Technicians receive the pay they would have received if there had not been a violation.
  • The district court's use of a 1.5 multiplier overcompensated the FTS Technicians and warranted reversal.
  • Reversal of the district court's calculation of damages does not necessitate a new trial on liability.

Practical Implications

The Sixth Circuit's decision in this case provides guidance on proving liability for nontestifying employees in an FLSA collective action and the correct method of calculating damages when plaintiff employees are paid on a piece-rate basis.