Maryland US District Court: Restaurant May Invoke Equitable Defense to Bar FLSA Claims | Practical Law

Maryland US District Court: Restaurant May Invoke Equitable Defense to Bar FLSA Claims | Practical Law

In Jackson v. Egira, LLC, the US District Court, D. Maryland held that a restaurant may pursue an equitable defense, also known as in pari delicto, to bar a Fair Labor Standards Act (FLSA) minimum wage and overtime action.

Maryland US District Court: Restaurant May Invoke Equitable Defense to Bar FLSA Claims

by Practical Law Labor & Employment
Published on 26 Apr 2016 • USA (National/Federal)
In Jackson v. Egira, LLC, the US District Court, D. Maryland held that a restaurant may pursue an equitable defense, also known as in pari delicto, to bar a Fair Labor Standards Act (FLSA) minimum wage and overtime action.
On April 18, 2016, in Jackson v. Egira, LLC, the US District Court, D. Maryland held that a restaurant that allegedly compensated its servers only in tips could argue in its defense of a Fair Labor Standards Act (FLSA) minimum wage and overtime action that those servers requested an off-the-books arrangement to avoid federal and state income taxes. The District of Maryland denied the servers' motion for partial summary judgment, concluding that the credibility dispute between the employers and the servers is a determination best left for trial. ( (D. Md. Apr. 18, 2016).)

Background

Defendant Egira owns and operates the Speakeasy Saloon (Speakeasy) in Maryland. Defendant Gus Vasilakopoulos is the sole owner of Egira. Defendant Bill Vasilakopoulos acted as the General Manager of Speakeasy. Mrs. Vasilakopoulos, the mother of Gus and Bill, was not an employee of Egira.
The plaintiffs worked as servers at Speakeasy. The plaintiffs state that while employed:
  • They did not receive an hourly wage or overtime pay.
  • Their compensation stemmed solely from customer tips.
The plaintiffs moved for partial summary judgment against only defendants Gus and Mrs. Vasilakopoulos arguing that:
  • The named defendants have offered no evidence to rebut the plaintiffs' claims of unpaid hourly wages and overtime compensation.
  • Under the burden-shifting analysis of Anderson v. Mt. Clemens Pottery Co., plaintiffs have sufficiently demonstrated that they were denied the hourly wages and overtime compensation required to be paid by the FLSA. Therefore compensatory damages should be awarded "even though the results [may] be only approximate." (328 U.S. 680, 687-88 (1946).)
  • Mrs. Vasilakopoulos and Gus are "employers" within the meaning of the FLSA, as they were directly involved in the day-to-day operations of Speakeasy.
Defendants Mrs. Vasilakopoulos and Gus:
  • Dispute that they are "employers" under the FLSA.
  • Argue that:
    • the plaintiffs requested to remain off the books to avoid federal and state income taxes, and that their claims are therefore barred under the in pari delicto defense; and
    • genuine issues of material fact remain so that partial summary judgment is inappropriate.

Outcome

The District of Maryland denied the plaintiffs' Motion for Partial Summary Judgment under the FLSA, holding that genuine issues of material fact remain as to:
  • The plaintiffs' claimed denial of unpaid hourly wages and overtime compensation.
  • Whether Gus and Mrs. Vasilakopoulos are "employers" under the FLSA.
The District of Maryland found that:
  • The defendants' assertion that the plaintiffs have offered no evidence of willfulness is not sufficient to negate the plaintiffs' alleged evidence of willfulness. The issue of willfulness is an issue of material fact to be determined at trial.
  • For the in pari delicto defense to bar recovery under the FLSA:
    • the plaintiff must bear at least substantially equal responsibility for the violations he seeks to address;
    • preclusion of the suit would not substantially interfere with the FLSA's policy goals; and
    • the plaintiff must be an active, voluntary participant in the unlawful activity that is the subject of the suit.
    (Lamonica v. Safe Hurricane Shutters, Inc., 711 F.3d 1299, 1308 (11th Cir. 2013) (citing Bateman Eichler, Hill Richards, Inc. v. Berner, 472 U.S. 299, 310-11 (1985); Official Comm. of Unsecured Creditors of PSA, Inc. v. Edwards, 437 F.3d 1145, 1154 (11th Cir. 2006); and Pinter v. Dahl, 486 U.S. 622, 636 (1988).)
  • A genuine issue of material fact therefore remains with respect to whether the plaintiffs were "active, voluntary participant[s]" in the alleged unlawful activity.
  • The plaintiffs have not shown sufficient evidence to find that no genuine issues of material fact remain as to Gus and Mrs. Vasilakopoulos's roles at Speakeasy. Instead they have simply presented conflicting accounts of the payroll and supervisory policies.
  • The defendants' evidence that Speakeasy schedules servers for single shifts per day, never for a double shift, and never on every single day of the week is sufficient to raise a genuine issue of material fact as to the hours and days worked by the plaintiffs.

Practical Implications

This decision suggests that employers may be able to employ the equitable defense of in pari delicto to bar FLSA claims where employees have actively and voluntarily requested to be paid "off the books" or in "cash only" in order to avoid tax liabilities.