Trial News

The Ninth Circuit has affirmed summary judgment against a corporate defendant, agreeing with the district court that the lawsuit was timely because the company willfully violated the Fair Labor Standards Act (FLSA). The court rejected the defendant’s claim that it could not be held liable because only one low-level employee improperly processed overtime pay. The court also upheld the liquidated damages award. (Scalia v. Emp’r Solutions Staffing Grp., LLC, 2020 WL 992564 (9th Cir. Mar. 2, 2020).)

Employer Solutions Staffing Group (ESSG) recruited workers for various jobsites and handled administrative tasks related to those workers, such as payroll processing. In 2012, ESSG contracted with Sync Staffing, which placed workers recruited by ESSG at a grocery store site managed by TBG Logistics. Beginning in November 2012, TBG Logistics sent Sync a spreadsheet every pay period with each worker’s hours. Sync forwarded that document to ESSG.

One ESSG employee—whom ESSG had trained regarding FLSA requirements—processed the TBG Logistics payroll. After receiving the first spreadsheet, she prepared and sent Sync a report showing that people who had worked more than 40 hours per week would receive overtime pay, as required under the FLSA. But after a Sync representative called and told her to log all hours as regular ones, the ESSG employee complied and incorrectly processed all subsequent spreadsheets in this manner. By the time ESSG’s business relationship with Sync and TBG Logistics ended in July 2014, “more than 1,000 violations had occurred in which employees did not receive their earned overtime pay.”

The U.S. Secretary of Labor, Eugene Scalia, sued ESSG, Sync, TBG logistics, and another related company in August 2016 for FLSA violations. After reaching consent judgments with the other defendants, Scalia moved for summary judgment against ESSG. The district court granted the motion, and the defendant appealed.

The defendant conceded that it was an “employer” under the FLSA but argued it could not be held liable under the statute because no ESSG employee at the manager or supervisor level processed the TBG Logistics payroll. Citing United States v. Graf (610 F.3d 1148 (9th Cir. 2010)) and The Restatement (Third) of Agency, the Ninth Circuit rejected this claim, noting that the employee’s lack of a “specific job title or a certain level of seniority” did not mean that ESSG could disavow her actions. Accepting the defendant’s position, the court wrote, would “create a loophole in the FLSA and run counter to the statute’s purpose” of protecting workers. The ESSG employee admitted that she knew workers were not receiving the overtime pay they were entitled to—as a result, the court affirmed that there was no material dispute that ESSG had violated the FLSA.

Moreover, the Ninth Circuit found that ESSG’s violation was willful—meaning the lawsuit, which otherwise would have been barred under the FLSA’s two-year statute of limitations, was viable under an extended three-year statute of limitations. Under McLaughlin v. Richland Shoe Co. (486 U.S. 128 (1988)), an employer behaves willfully under the FLSA when it “either knew or showed reckless disregard for . . . whether its conduct was prohibited.” The court noted that categorizing all the workers’ time as regular hours on the TBG Logistics payroll required the ESSG employee to “dismiss numerous error messages from Defendant’s payroll software,” which she repeatedly did for more than a year. Even though Sync initially instructed her not to pay overtime, she never received an explanation from Sync or ESSG that “justified dismissing” the software warnings for this extended period of time. “Thus, through its agent, ESSG recklessly ‘disregarded the very possibility that it was violating the statute,’” the court said.

The willfulness finding also meant that the defendant was required to pay liquidated damages in an amount equal to the workers' unpaid overtime wages. Under the FLSA, an employer may avoid this requirement if it violated the law but acted in good faith. As established in Chao v. A-One Med. Servs., Inc., (346 F.3d 908 (9th Cir. 2003)), however, a finding that an employer’s violations were willful means “it could not have acted in good faith.” Thus, the Ninth Circuit upheld the liquidated damages award.

Finally, the Ninth Circuit held that the FLSA does not implicitly grant the defendant the right to seek indemnification or contribution from other employers. The court applied the four-factor test from Northwest Airlines, Inc. v. Transportation Workers Union (451 U.S. 77 (1981)), which directs courts analyzing whether Congress intended to create an implied cause of action to review 1) the statute’s text, 2) its “underlying purpose and structure,” 3) the likelihood that Congress intended to supersede existing state remedies, and 4) the statute’s legislative history.

The court noted that the FLSA’s text and legislative history say nothing about a right to indemnification or contribution; that its central purpose is to protect employees, not employers; and that its comprehensive remedial scheme “strongly evidences an intent not to authorize additional remedies.” Joining the “Second Circuit in holding that the FLSA does not imply a right to contribution or indemnification for liable employers,” the Ninth Circuit declined the defendant’s invitation to recognize those rights by creating new federal common law.

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