The U.S. Department of Labor, Wage and Hour Division, issued its second Administrator’s Interpretation on June 16, 2010. Interpretation 2010-2

The AI concerns application of 29 U.S.C. 203(o).

In my opinion, this AI may very well have a significant impact in donning and doffing cases brought under the Fair Labor Standards Act (FLSA). In these cases, workers seek to be paid for time spent donning and doffing protective/sanitary gear, for example, and for time spent walking to the worksite.

In some circumstances, however, 29 U.S.C. 203(o) permits employers to not pay workers for time spent donning and doffing protective/sanitary gear and for time spent walking to the worksite.

Specifically, an employer can avoid paying for donning and doffing time, if the employer establishes that the workers are changing into “clothes” and that the employer and the workers’ union have expressly agreed to exclude such time as being compensable or a custom or practice exists between the employer and the union regarding the non-payment of time.

Many court cases recently have discussed what constitutes “clothes” as that term is defined at § 203(o).

AI 2010-2 defines the term “clothes” as used in § 203(o) in a narrow fashion as intended by Congress and rejects Opinion Letters issued by the DOL during the Bush Administration, which had greatly expanded the definition of “clothes”. Before the Bush Administration, the DOL had interpreted the term “clothes” in a narrow, pro-worker fashion that is consistent with the purpose and remedial scope of the FLSA. Thus, in my opinion AI 2010-2 restores the status quo.

Also, AI 2010-2 further states that clothes changing activity, which is covered by § 203(o), may constitute a principal activity under the FLSA. Accordingly, for example, walking time, which follows clothes changing activity covered under § 203(o), may be compensable even if the time spent changing clothes is not compensable.

A recent case from the Eastern District of Tennessee discusses the enforcement of settlement agreements in a FLSA case. See Solis v. Magana, 2010 WL 1257859 (E.D. Tenn. Mar. 26, 2010).

In this case, the defendant agreed to settle a FLSA case brought by the U.S. Department of Labor. The amount of the settlement was agreed upon, as well as a payment schedule. Some months later, before the Court had approved the final settlement, the defendant sought to modify the payment schedule. The DOL refused and sought to enforce the parties’ agreement. The defendant argued that not all material terms had been agreed on by the parties, but the court rejected that argument.

As an initial matter, the court agreed with the defendant that before enforcing a settlement agreement, a court must conclude that the parties have agreed on all material terms. The court found, however, that all material terms had indeed been agreed upon.

The defendant’s change in financial circumstances, which caused the defendant to seek modification to the settlement agreement’s payment schedule, was not a sufficient basis for the court to find that an agreement had not bee reached in the first instance. The court noted that an employer’s economic hardship is not a valid ground for opposing the entry of an order relating to FLSA violations.

A friend, who owns a small business recently asked me if he could terminate one of his employees should the employee refuse to take a drug test. My friend suspects that the employee is illegally obtaining and using prescription pain medicines and believes that use of these medicines is affecting his job performance.

The answer is pretty clear. Under a drug testing program, which properly complies with Tennessee’s drug free workplace act, see generally T.C.A. 50-9-101 et seq., “[i]f an employee or job applicant refuses to submit to a drug or alcohol test, the covered employer is not barred from discharging or disciplining the employee or from refusing to hire the job applicant.” See T.C.A. 50-9-108(f)

For general history on Tennessee’s drug free workplace act, see Interstate Mechanical Contractors, Inc. v. McIntosh, 229 S.W.3d 674, 679-80 (Tenn. 2007). This case, which involved a claim for workers’ compensation benefits by an injured worker who tested positive for marijuana, also generally discusses the statutory incentives to employers who implement a drug free workplace program.

April 15, 2010 is not far away and as most folks know that is the deadline for filing your federal income tax return. I have been busy lately dealing with a number of tax issues affecting my employment clients. One issue in particular is worth mentioning.

First, as an initial matter, monies received in the settlement of an employment case are almost always taxable. The exception is monies that can be said to have been paid on account of personal injuries. These monies are not taxable. See 26 U.S.C. 104(a)(2). Click here. Accordingly, unless monies are paid to the client on account of personal injuries, the monies received will be subject to income tax.

When one of my employment clients settles a case and receives money in exchange for dismissing the case, a portion of the money is generally allocated as payment of back wages and a portion of the money is generally allocated as compensatory damages or liquidated damages. When money paid to the client represents back wages, a Form W-2 is issued by the company to my client. When money paid to the client represents compensatory or liquidated damages, a Form 1099 is issued by the company to my client.

Often, the Form 1099 issued to my clients is incorrectly completed by the company. Form 1099-misc. By this I mean that Box 7 “nonemployee compensation” on the Form 1099 is checked, rather than Box 3 “other income”, which is the correct box that should be checked on Form 1099 for payments of compensatory damages or liquidated damages. Box 7 is for payments made to independent contractors.

The impact of Box 7 being checked is that the client is erroneously subjected to the self-employment tax. Click here. Accordingly, to avoid this negative consequence I try to include language in all settlements agreements that Box 3 “other income” should be checked when monies are being paid as compensatory damages or liquidated damages.

An argument that I see from time to time is the contention by employers that position statements submitted to the EEOC are not admissible at trial. Often, inartfully drafted position statements contain evidence supporting a plaintiff’s claim of discrimination or retaliation.

The two primary bases for this argument is that position statement is inadmissible because it constitutes a settlement communication under Rule 408 of the Federal Rules of Evidence or it is hearsay. In an order issued today, Judge Donald, of the W.D. of Tenn., rejected these arguments. Order Denying Mot in Limine

In a short, to-the-point order, Judge Donald addressed the specifc position statement at issue and held that the position statement did not constitute a settlement communication under Fed. R. Evid. 408.

In addition, addressing the hearsay challenge, Judge Donald held that “position statements cannot be excluded as hearsay as an ‘employer’s position statement in an EEOC proceeding may be admissible to the extent it constitutes an admission, or to show the employer has given inconsistent statements in justifying its challenged decision, which may tend to prove that its stated reasons are pretexts.” (Order at 1-2).

Notably, a position statement submitted by an employer is generally not considered hearsay, but instead is considered an admission by a party opponent, which is admissble at trial under Fed. R. Evid. 801(d)(2)(A) because it is the party’s own statement or Fed. R. Evid. 801(d)(2)(D) because it is a statement by the party’s agent, e.g., attorney. See, e.g., Mugavero v. Arms Acres, Inc., 2009 WL 1904548, *4 (S.D. N.Y. July 1, 2009).

We are preparing to file a case involving a claim for race discrimination. We are going to allege a violation of 42 U.S.C. 1981, which is a federal law enacted by Congress following the Civil War that prohibits race discrimination in the making and enforcement of contracts. Section 1981 specifically provides:

(a) Statement of equal rights

All persons within the jurisdiction of the United States shall have the same right in every State and Territory to make and enforce contracts, to sue, be parties, give evidence, and to the full and equal benefit of all laws and proceedings for the security of persons and property as is enjoyed by white citizens, and shall be subject to like punishment, pains, penalties, taxes, licenses, and exactions of every kind, and to no other.

(b) “Make and enforce contracts” defined

For purposes of this section, the term “make and enforce contracts” includes the making, performance, modification, and termination of contracts, and the enjoyment of all benefits, privileges, terms, and conditions of the contractual relationship.

(c) Protection against impairment

The rights protected by this section are protected against impairment by nongovernmental discrimination and impairment under color of State law.

Here are a number of interesting facts concerning Section 1981 claims:

Private Employment:

In Johnson v. Railway Exp. Agency, Inc., 421 U.S. 454, 460 (1975), the Supreme Court held that 1981 provides a remedy against discrimination in private employment.

Damages:

An individual who establishes a cause of action under Section 1981 is entitled to both equitable and legal relief, including compensatory and, under certain circumstances, punitive damages. Johnson, 421 U.S. at 460. Importantly, unlike Title VII, there are no caps on the amount of compensatory and punitive damages that can be awarded under Section 1981.

Statute of limitations:

Unlike Title VII, which has a detailed adminstrative scheme, no such scheme exists under Section 1981. Thus, no exhaustion is required in order to bring a Section 1981 claim. Furthermore, a four year statute of limitations applies to hostile work environment claims, wrongful termination claims, and failure-to-transfer claims brought under 1981. See Jones v. R.R. Donnelley & Sons Co., 541 U.S. 369 (2004). A failure to promote claim may be governed by a four year statute of limitations or the most analgous state law limitations period depending on whether the promotion amounts to the formation of a new relationship between employee and employer. See, e.g., Malone v. State of Tenn., 2005 WL 2671343, at *6 (W.D.Tenn. Oct. 19, 2005) (holding that where the promotion at issue was best characterized as a mere advancement in the plaintiff’s career path, no new and distinct employment relationship existed and, therefore, the four-year statute of limitations was applicable).

Independent Contractors:

Unlike Title VII, Section 1981 applies to independent contractors. See, e.g., S.K. Services v. FedEx Ground Package System, Inc., — F.Supp.2d —-, 2009 WL 3241712 (E.D.Tenn. 2009).

Individual liability:

Unlike Title VII, an indvidual can be held personally liable for engaging in race discrimination and/or retaliation arising out of a complaint of race discrimination. See, e.g., Jones v. Continental Corp., 789 F.2d 1225, 1231 (6th Cir. 1986) (noting the law is clear that individuals may be held liable for violations of Section 1981).

Retaliation:

The Supreme Court has explicitly held retaliation claims are cognizable under § 1981. See CBOCS W., Inc. v. Humphries, 128 S.Ct. 1951, 1954-55 (2008).

Jurisdiction:

Unlike Title VII, which applies to employers who employ 15 or more persons, there is no such requirement regarding Section 1981. Thus, a Section 1981 claim can be brought against any person or company regardless of size.

On Friday, November 20, 2009, we (Billy Ryan and Bryce Ashby of Donati Law Firm, LLP and Paul Lukas and Rachhana Srey of Nichols Kaster, PLLP) filed another lawsuit alleging failure to pay overtime as required under the Fair Labor Standards Act (”FLSA”).

The case is styled Bowman et al. v. New Vision Telecommunications, Inc. et al.; M.D. Tenn. Case No. 3:09-cv-01115. We filed the case in U.S. District Court in Nashville, Tennessee. Click here. Our local counsel is Doug Janney.

This is yet another case brought against a cable installation contracting company for not paying overtime compensation to its installers/technicians. The defendant company, New Vision Telecommunications (”NVT”), has operations in Nashville, Tennessee and Atlanta, Georgia and does installation and service work for Comcast.

Prior to January 2009, we allege that NVT intentionally misclassified its installers/technicians as “independent contractors” in an effort to avoid paying the installers/technicians overtime compensation under the FLSA. We allege that the installers/technicians routinely worked more than 40 hours per week so the financial savings in classifying the installers/technicians is believed to be significant.

Since January 2009, we allege that the installers/technicians have been properly classified as “employees”, yet for some unexplained reason NVT has continued to fail to pay overtime compensation to the installers/technicians.

Hopefully, this lawsuit will recover all or some of the overtime compensation that we contend should have been paid to NVT’s installers/technicians over the last 3 years. If you need additional information about the lawsuit or have questions about the lawsuit, please give me a call at 901-278-1004 or 800-521-0578.

In the litigation of employment cases, tax returns filed by the plaintiff, as well as the defendant, are frequently sought by the opposing party.

For example, a plaintiff may seek to discover the tax returns filed by the defendant in an effort to discover the net worth of the defendant. This information is relevant because net worth is a factor to be considered by the jury in determining the amount of punitive damages to be awarded at trial. See, e.g., Westbrook v. Charlie Sciara & Son Produce Co., 2008 WL 839745, at *2 (W.D.Tenn. Mar. 27, 2008) (Pham, Mag. J.).

Likewise, a defendant employer will frequently seek to discover tax returns filed by the plaintiff following the plaintiff’s termination because the income information relates to mitigation of damages. See, e.g., Kumar v. Hilton Hotels Corp., 2009 WL 3681837 (W.D. Tenn. Oct. 30, 2009).

In Kumar, Magistrate Judge Pham rejected the plaintiff’s arguments that tax returns were not discoverable under Fed. R. Civ. P. 26(b)(1) because plaintiff’s wage information was available from other sources. Id. at 2. Judge Pham held that the plaintiff’s income tax returns were relevant to the issues of damages and mitigation. Thus, the plaintiffs tax returns were required to be produced.

Interestingly, in Kumar, the plaintiff also argued that “discovery of his income tax returns should be prohibited because he filed joint income tax returns with his spouse during the relevant period, and therefore the tax returns contain confidential information relating to his spouse and should be privileged.” Id. at 3. Judge Pham agreed finding that the plaintiff’s spouse had a privacy interest in her financial information. Id. Accordingly, Judge Pham ordered that financial information that related solely to the plaintiff’s spouse should be redacted to protect her privacy interest. Id.

Frequently, a defendant will move to strike all or portions of a post deposition affidavit submitted by a plaintiff in response to a motion for summary judgment. The defendant will argue that the statements in the affidavit are inconsistent with prior deposition testimony and should be disregarded by the court because the plaintiff is attempting to create a “sham” issue of fact.

Whether the court strikes the affidavit will depend on whether the court finds the statements set forth in the affidavit are inconsistent with prior deposition testimony or whether the statements in the affidavit merely fill in gaps not covered or addressed during the deposition. Stated another way, the court must distinguish between legitimate efforts to supplement the summary judgment record from attempts to create a sham issue of material fact.

In the 6th Circuit, “[a] party may not create a factual issue by filing an affidavit, after a motion for summary judgment has been made, which contradicts her earlier deposition testimony.” Reid v. Sears, Roebuck & Co., 790 F.2d 453, 460 (6th Cir.1986). Therefore, when determining whether to strike a post-deposition affidavit, the district court “must first determine whether the affidavit directly contradicts the nonmoving party’s prior sworn testimony.” Aerel, S.R.L., v. PCC Airfoils, L.L.C., 448 F.3d 899, 908 (6th Cir.2006). If so, then the court must strike the affidavit “unless the party opposing summary judgment provides a persuasive justification for the contradiction.” Id.

Importantly, however, a party who is not directly questioned about an issue is not prevented from supplementing incomplete deposition testimony with a sworn affidavit. As the 6th Circuit has noted, “[s]uch an affidavit fills a gap left open by the moving party and thus provides the district court with more information, rather than less, at the crucial summary judgment stage.” Aerel, 448 F.3d at 907. This is because a deponent is under no obligation to volunteer information not fairly sought by the questioner. Id. Put another way, a deponent has no duty to volunteer relevant information during the deposition absent a question seeking that information. Id.

In sum, the 6th Circuit rules on this issue as set forth by the Aerel court can be summarized as follows:

1. The district court deciding the admissibility of a post-deposition affidavit at the summary judgment stage must first determine whether the affidavit directly contradicts the nonmoving party’s prior sworn testimony.

2. A directly contradictory affidavit should be stricken unless the party opposing summary judgment provides a persuasive justification for the contradiction.

3. If, on the other hand, there is no direct contradiction, then the district court should not strike or disregard that affidavit unless the court determines that the affidavit constitutes an attempt to create a sham fact issue.

4. A useful starting point for this inquiry is the following nonexhaustive list of factors: where the court noted that the existence of a sham fact issue turns on whether the affiant was cross-examined during his earlier testimony; whether the affiant had access to the pertinent evidence at the time of his earlier testimony or whether the affidavit was based on newly discovered evidence; and whether the earlier testimony reflects confusion that the affidavit attempts to explain.

Finally, the 6th Circuit has stated that courts should use a scalpel, not a butcher knife, in striking portions of affidavits that contradict prior deposition testimony. Upshaw v. Ford Motor Co., 576 F.3d 576, 593 (6th Cir. 2009). Thus, a court should carefully consider whether specific portions of the affidavit are truly in conflict with deposition testimony rather than striking the entire affidavit because an inconsistency in one are is found.

I am posting a couple of questions recently asked of me by an attorney friend, as well as my responses:

What’s the statute of limitations for retaliatory discharge cases brought under Tennessee law? One year. According to Weber v. Moses, 938 S.W.2d 387, 393 (Tenn. 1996), a claim for retaliatory discharge is a tort action and is governed by Tenn. Code Ann. § 28-3-104, which requires that a lawsuit be “commenced within one (1) year after the cause of action accrued…”

A more nuanced questions is when does the cause of action accrue in a retaliatory discharge case?

Under Tennessee law, which tracks federal law, see, e.g., Delaware State College v. Ricks, 449 U.S. 250 (1980), the statute of limitations begins to run in retaliatory discharge case (as well as discriminations cases) “when the employee is given unequivocal notice of the employer’s termination decision.” Fahrner v. S.W. Mfg., Inc., 48 S.W.3d 141, 143 (Tenn. Ct. App. 2001).

Thus, an employee who receives unequivocal notice of termination on January 1, 2010, but who works until January 15, 2010, must file suit by January 1, 2011 to have timely filed a retaliatory dischareg case under Tennesse law.