In the last days of the Bush administration, the Department of Labor’s Wage and Hour Division issued a number of opinion letters addressing various issues under the Fair Labor Standards Act (FLSA). The opinion letters can be found here. Click..

One of the opinion letters addressed retroactive payment of overtime compensation pursuant to the Fluctuating Work Week (FWW) method to workers who had been misclassified as exempt from receiving overtime compensation by their employer. 2009_01_14_03_flsa-opinion-letter.pdf. I think this opinion letter is wrong under the law and should be reconsidered and withdrawn. I will explain my reasoning below, but first I’ll briefly explain how the FFW method of overtime compensation works to those who are unfamiliar with this method of overtime payment.

The FWW method of overtime compensation differs from the most widely known of overtime compensation methods, which, of course, is a 1.5 times payment of the employee’s regular hourly rate for each hour worked over 40 in a work week. In contrast, under the FWW method, the non-exempt employee is paid a base salary for all work performed in a work week, whether more or less than 40 hours of work in a week. Then, the employee is paid an additional one-half of his regular rate for all hours worked over 40 in a work week.

Here is an example of the FWW system in action: An employee is paid a salary of $1,000 per week, whether he works more or less than 40 hrs per week. If the employee works 50 hrs in a work week, the employee would be paid an additional $100 in overtime compensation under the FWW method. ($1,000 weekly salary / 50 hrs of work = $20 per hr x .5 = $100). Of course, if the employee received $25.00 per hr for 40 hrs of work ($1,000 / 40 = $25.00), the employee would receive an additional $375 in overtime compensation for working 50 hrs in a work week under the traditional 1.5 times overtime system (10 hrs of overtime x $37.5 = $375). Thus, under this scenario, there is a $275 per week savings to an employer using the FWW overtime system.

Now, the problem I have with DOL’s opinion letter permitting retroactive payment of overtime compensation under the FWW method to misclassified workers is that a properly implemented FWW overtime pay system expressly requires “a clear mutual understanding of the parties that the fixed salary is compensation (apart from overtime premiums) for the hours worked each workweek, whatever their number . . .” 29 C.F.R. 778.114. Thus, based on the plain language of the regulation it seems clear to me that the employee must understand and agree that his fixed salary is for all hours worked in a work week EXCEPT AND APART from for any overtime premium he is entitled to and actually receives. Accordingly, it seems clear to me that a valid FWW pay system absolutely requires that the employee understand that he is affirmatively entitled to receive overtime compensation.

Under the facts set forth in the DOL’s opinion letter, there was not a clear understanding on part of the employees that they would receive any overtime compensation. Indeed, the workers were classified by their employer as exempt from receiving overtime pay. Therefore, no agreement existed between the employer and employee regarding their eligibility for payment of overtime compensation since the employer believed the workers were exempt from receiving overtime compensation.

Of course, the effect of the DOL’s employer-friendly opinion letter is to permit employers who violated the FLSA to enjoy the fruits of the FWW overtime compensation system (see above) when it was not properly implemented in the first instance. Fortunately for misclassified employees, the majority of courts have refused to permit employers to take advantage of the FWW overtime system after-the-fact. See Cowan v. Treetop Ent., 163 F.Supp.2d 930 (M.D. 2001) and Rainey v. American Forest and Paper Association, 26 F.Supp.2d 82 (D.D.C.1998). Notably, the DOL did mention or refer to these cases in its opinion. The DOL’s refusal to squarely address the reasoning in these cases is telling. For those of us who represent employees in FLSA actions, let’s hope that the DOL reconsiders and withdraws this opinion letter.

A recent case from the Eastern District of Tennessee reminds us that while an employee must provide notice and a qualifying reason for requesting leave under the FMLA, the employee need not actually mention the FMLA by name. Treadaway v. Big Red Powersports, LLC, 2009 WL 677892 (E.D. Tenn. Mar. 12, 2009).

In Treadaway, the court determined that a genuine issue of fact existed regarding whether the plaintiff gave adequate notice to her employer that she needed leave under the FMLA. Id. at *11. The plaintiff, who was pregnant, requested leave from work based on the fact that her physician did not want her exposed to carbon monoxide emissions at defendant’s facility.

As noted by the Treadaway court, when determining whether notice is proper under the FMLA, “[t]he critical question is whether the information imparted to the employer is sufficient to reasonably apprise it of the employee’s request to take time off for a serious health condition.” Id. at *8. Specifically, the employee must provide the employer “enough information for the employer to reasonably conclude that an event described in FMLA § [2612(a)(1) (D) ] has occurred.” Id.. According to the court, “[w]hat is practicable, both in terms of the timing of the notice and its content, will depend upon the facts and circumstances of each individual case.” Id.

When explaining the categories of damages available to a client in a Title VII or Tennessee Human Rights Act claim, I generally state that economic damages are available, as well as non-economic damages. With respect to economic damages, the starting point is back pay.

In the 6th Circuit, the seminal case discussing back pay is Rasimas v. Michigan Dept. of Mental Health, 714 F.3d 614, 626 (6th Cir. 1983). It’s a must read for any attorney practicing in employment law in Tennessee. Here are 17 – that’s right! – important back principles established by the Rasimas decision:

1. A back pay award should make the plaintiff whole, that is, to place him in the position he would have been in but for discrimination.

2. Back pay awards should completely redress the economic injury the plaintiff has suffered as a result of discrimination; therefore, a plaintiff should receive the salary, including any raises, which he would have received but for discrimination.

3. In the absence of exceptional circumstances, back pay should always be awarded when a Title VII violation is found.

4. The special factors which would constitute exceptional circumstances and prevent back pay awards are exceedingly rare.

5. Neither the arguable good faith of the defendant employer nor the difficulty in calculating the back pay award constitute exceptional circumstances

6. Sick leave, vacation pay, pension benefits and other fringe benefits the claimant would have received but for discrimination should also be awarded.

7. Back pay awards should not be reduced by the amount of income and social security taxes which would have been deducted from the wages the plaintiff would have received but for discrimination.

8. Unemployment benefits also should not be deducted from back pay awards.

9. Back pay should be awarded even where the precise amount of the award cannot be determined.

10. Any ambiguity in what the plaintiff would have received but for discrimination should be resolved against the discriminating employer.

11. A plaintiff has a duty to mitigate damages.

12. Once a plaintiff establishes a prima facie case and presents evidence on the issue of damages, the burden of producing sufficient evidence to establish the amount of interim earnings or lack of diligence shifts to the defendant.

13. A defendant may satisfy its burden only if it establishes that: 1) there were substantially equivalent positions which were available; and 2) the plaintiff failed to use reasonable care and diligence in seeking such positions.

14. The substantial equivalent of the position from which a plaintiff was discriminatorily terminated must afford the claimant virtually identical promotional opportunities, compensation, job responsibilities, working conditions, and status.

15. A plaintiff is only required to make reasonable efforts to mitigate damages, and is not held to the highest standards of diligence, thus, a plaintiff’s burden is not onerous, and does not require him to be successful in mitigation.

16. The reasonableness of the effort to find substantially equivalent employment should be evaluated in light of the individual characteristics of the plaintiff and the job market.

17. A plaintiff cannot be said to have failed to make a reasonable effort to mitigate damages when he refuses to accept employment that is an unreasonable distance from his residence.

The “suffer” or “permit” rule under the Fair Labor Standards Act (FLSA) was recently addressed in a case from the Middle District of Tennessee. Jackson v. Gray’s Disposal Co., Inc., 2009 WL 649795, *9 (M.D. Tenn. Mar. 11, 2009).

Under this rule, an employee must be compensated for the time that he works outside of his scheduled shift, even if the employer does not ask the employee to work during that time, so long as the employer knows or has reason to believe that the employee is working the overtime hours and the work was “suffered” or “permitted” by the employer. Id.

As the Jackson court explained, however, an employer cannot be forced to pay overtime for work that it had no way to know was being performed, or for work that the employer tried to prevent from occurring. Id. Specifically an employee must not “undermine” an employer’s efforts to comply with the FLSA, and an employer is not liable for overtime work that it had “no reason” to know was being performed. Id.

In the Jackson case, the court held that a jury could determine that the defendant employer had actual or constructive knowledge of the plaintiff’s work hours. Id. The court found that the plaintiff started work at the same time every morning and ended the day by being dismissed by his supervisor, which indicated that the defendant employer had a reasonable opportunity to know if the plaintiff was working overtime. Id. Further, the court found no proof that the plaintiff attempted to hide the hours he worked or in any way “undermined” his employer’s efforts to comply with the FLSA. Id.

The Jackson court provides a valuable lesson to employers who want to avoid overtime liability. Employers need to establish a policy forbidding overtime work and enforce the policy. Failure to do so may result in double damages, as well as liability for attorney’s fees and costs. See 29 U.S.C. 216(b).

An argument that may be raised by a defendant in a retaliation case is that the person who made the decision resulting in the adverse action suffered by the plaintiff did not have knowledge of the plaintiff’s protected activity. Thus, the defendant contends that without such knowledge it could not have been motivated to retaliate against the plaintiff.

At times it is difficult to establish that the decision-maker had direct knowledge of the plaintiff’s protected activity. Fortunately, direct evidence is not required to establish that the defendant had knowledge of the plaintiff’s protected activity. I was reminded of this point in reviewing Jones v. Bernanke, which was decided by the D.C. Circuit Court of Appeals on March 6, 2009. click-here.pdf. Specifically, at pages 16-17 of the decision, the court held that circumstantial proof that the decision-maker had knowledge of the plaintiff’s protected activity was sufficient to create a factual issue to be decided by the jury at trial.

Importantly, the Sixth Circuit also permits the use of circumstantial evidence to establish a defendant’s knowledge of protected activity. See Mulhall v. Ashcroft, 287 F.3d 543 (6th Cir. 2002) (holding direct evidence of knowledge of protected activity is not required; a plaintiff may survive summary judgment by producing circumstantial evidence of knowledge of protected activity). This rule make sense because as the U.S. Supreme Court has stated, circumstantial evidence is not only sufficient, but may also be more certain, satisfying and persuasive than direct evidence. See Desert Palace, Inc. v. Costa, 539 U.S. 90, 100 (2003). In other words, circumstantial evidence should be treated the same as direct evidence.

On 3/12/2009, the 6th Circuit issued a soon-to-be published opinion in a run of the mill age discrimination case: Morgan v. New York Life Ins. Co., _____ F.3d _____, 2009 WL 614523 (6th Cir. Mar. 12, 2009). 09a0096p-06.pdf. But what makes the case particularly significant is the court’s treatment of the unusually large punitive damages award.

At trial, the jury found that the plaintiff, who was a highly compensated insurance executive, was the victim of age discrimination and awarded the plaintiff the following damages:

$1,000,000 in past economic damages;
$4,500,000 in future economic damages;
$500,000 in non-economic compensatory damages; and,
$10,000,000 in punitive damages.

The district court affirmed the jury’s finding of age discrimination and upheld the damages awards.

On appeal, the 6th Circuit upheld the 6M compensatory damages award, but vacated the 10M punitive damages award on the basis that it was excessive and did not comport with requirements under the federal Due Process Clause. With respect to punitive damages, the court ordered that on remand the district court should enter an order of remittitur in an amount not to exceed the 6M in compensatory damages awarded. In other words, the court held that a 1:1 punitive damages to compensatory damages ratio was the most that could be awarded without offending the defendant’s due process rights. Citing State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 425 (2003), the court observed that the U.S. Supreme Court has made it clear that when compensatory damages are substantial then a ratio equal to compensatory damages reaches the outermost limit of due process guarantees.

Given that the district court initially found that the 10M punitive damages award did not violate the defendant’s due process rights, I assume that on remand the district court will simply remit the award to 6M. It will be interesting to see if that’s what happens on remand.

A Tennessee attorney who is doing some great work representing plaintiff’s in the area of long term disability benefits is Eric Buchanan is Chattanooga. click here. Most long term disability plans are governed by the federal law known as ERISA, which covers employer provided benefit plans, including long term disability plans. Individually purchased long term disability plans are generally governed by the law of the state where the contract was made and entered into.

Eric and his associate Amanda Scales recently obtained a nice decision concerning an award of attorney’s fees in McKay v. Reliance Standard Life Ins. Co., 2009 WL 537197 (E.D.Tenn. March 03, 2009). In this case, the plaintiff persuaded the court to remand the case to the plan administrator to consider evidence and information not properly considered in the first instance. Thereafter, the plaintiff sought an award of attorney’s fees arguing that success in getting the case remanded to the plan administrator justified an award of attorney’s fees. Over the defendant’s objections, the court agreed.

As an initial matter, the court rejected the defendant’s argument that the plaintiff was not entitled to an award of attorney’s fees merely because he had obtained a remand to the plan administrator. The court held that even though the plaintiff had not yet experienced ultimate success in the sense of winning his benefits claim against defendant, he had received another shot at those benefits by achieving a remand. Therefore, the plaintiff could properly be considered a prevailing party for attorney’s fees purposes because he had succeeded on a significant issue in litigation which achieved some of the benefit he sought in bringing suit. The court found that the plaintiff, even if he ultimately does not receive LTD benefits, had still seen success on the merits because his case was remanded to the plan administrator for further consideration. Id. at **2-5.

The court then applied the five factor test adopted by the 6th Circuit Court of Appeals in determining whether to award attorney’s fees in an ERISA case. The factors considered by the court include: (1) the degree of the opposing party’s culpability or bad faith; (2) the opposing party’s ability to satisfy an award of attorney’s fees; (3) the deterrent effect of an award on other persons under similar circumstances; (4) whether the party requesting fees sought to confer a common benefit on all participants and beneficiaries of an ERISA plan or resolve significant legal questions regarding ERISA; and (5) the relative merits of the parties’ positions. Applying these factors, the court determined that the plaintiff was entitled to an award of attorney’s fees under ERISA’s attorney’s fee provision, 29 U.S.C. 1132(g)(1). Id. at **5-8.

Any attorney that has ever handled a long term disability case governed by ERISA on behalf of a plaintiff knows that the deck is heavily stacked in favor of the employer, plan sponsor and/or plan administrator. Basically, a denial of a claim for LTD benefits is going to be upheld by a reviewing court in the great majority of instances. It is nice to see an attorney who will go to battle for his clients in this area of the law. Great lawyering Buchanan & Associates. It’s an attorney’s fee that is well deserved in my opinion.

I understand that once again a bill has been introduced in the Mississippi state legislature that would make it illegal for an employer to terminate an employee-at-will who is discharged because he or she files a workers’ compensation claim. On multiple occasions the Mississippi Supreme Court has refused to recognize a claim for retaliatory discharge under these circumstances. See, e.g. Kelly v. Mississippi Valley Gas Co., 397 So.2d 874 (Miss. 1981); Buchanan v. Ameristar Casino Vicksburg, Inc., 852 So.2d 25 (Miss. 2003). Fortunately for injured workers employed in Tennessee, it is illegal for an employer to terminate an employee because he made a claim for workers’ compensation benefits. This has been the law since 1984 when the Tennessee Supreme Court decided Clanton v. Cain-Sloan Co., 677 S.W.2d 441 (Tenn. 1984).

The time has arrived for Mississippi to pass a law making it illegal for employers to terminate injured workers who pursue workers’ compensation claims. While I agree that employers should retain the right to terminate employees, even injured employees, for any number of legitimate reasons, there is no good reason to permit Mississippi employers to lawfully retaliate against an employee where the employee has sought the workers’ compensation benefits provided to the employee under Mississippi law. It’s simply bad public policy for Mississippi to continue to fail to hold employers accountable in situations in which they are motivated to retaliate against their injured employees, who are simply pursuing their legal rights. And I submit that such policy can’t rightly be justified. So come on Mississippi, pass the bill and make it illegal for an employer to terminate an employee-at-will who is discharged because he or she files a workers’ compensation claim.

Generally a contract for employment (whether verbal or in writing) for an indefinite term or period of time is considered an “at will” contract that may be terminated by the employer or the employee at any time. An employment contract for a definite term, however, may not be terminated by the employer before the end of the term of the agreement, except “for cause” or as otherwise provided under the agreement.

Indeed, as stated in Nelson Trabue, Inc. v. Professional Management-Automotive, Inc., 589 S.W.2d 661 (Tenn. 1979), Tennessee employers retain the right to terminate an employee at any time for “just cause” even if the employment contract does not expressly set forth the reasons for which the agreement can be terminated.

Assuming an employment contract failed to define the conduct that constituted a “just cause” reason to terminate the agreement, how would a court determine what constituted a “just cause” reason for termination? Curtis v. Reeves, 736 S.W.2d 108 (Tenn. Ct. App. 1987) provides the answer. According to the Curtis case, any act of the servant which injures the master’s business, interests or reputation will justify the dismissal of the servant. Id. at 112. The following case provides a good example of an employee establishing that his termination was without “just cause”:

In Markrue Corp. v. Hunley, 1988 WL 64334 (Tenn. 1988) the employer argued that the employee had been terminated for “dishonesty” relating to a number of checks cashed by the employee. While the court agreed that “dishonesty” was a “just cause” reason to terminate an employment agreement, the court affirmed that the trial court’s ruling that the employer had failed to establish “dishonesty” on the part of the employee. Specifically, the court held that the employee had a good reason for cashing the checks and that the employer had not suffered any injury. Thus, the employee was able to recover the compensation that he was due through the end of his employment agreement because there was no “just cause” reason for terminating the parties’ one (1) year employment agreement.

I have a number of upcoming trials. Preparation for trial is critically important to the success of a case. One of the ways I like to prepare is to present my client’s case to a focus group. A local Memphis firm – Law Media Productions – assists attorneys in getting the focus group together. click here. A focus group is a great opportunity to present your case before real people; the kind that will sit as the jury in your case. Most importantly, you get a chance to see how your case presents so you can learn about the strengths and weaknesses of your case. The manner in which you view your case is never the same as how your case will be seen by the jury. This helps you to correctly focus your case and emphasize the points that must be made to win the case. Another benefit is that presenting before a focus group gives you an idea as to the value of the case. This is particularly true with respect to claims of non-economic damages. These damages compensate for the emotional harm sustained by your client, as opposed to the economic losses sustained such as back pay and benefits. In sum, focus groups give you an edge. And sometimes that edge makes all the difference in winning a case and obtaining a satisfactory resolution for your client.