Employer Liability Issues

Update: Soup, Salvation and Overtime – Sixth Circuit Reverses $400,000 FLSA VerdictApparently if you are doing the Lord’s work and seek only treasures in heaven, the Fair Labor Standards Act will not guarantee that you receive an earthly reward as well. In a significant ruling that impacts religious organizations, the Sixth Circuit reversed a nearly $400,000 FLSA verdict based on the fact that the volunteers did not expect payment.

We previously described how Cathedral Buffet and Rev. Ernest Angley cast a wing and prayer to the Sixth Circuit to undo the district court’s verdict. In that order, the district court ruled in favor of the Department of Labor finding that unpaid volunteers were employees entitled to wages.

The Sixth Circuit, however, threw the reverend manna from heaven when it found the district court’s logic wanting. The volunteers at Cathedral Buffet did not expect to receive compensation – a threshold requirement for any FLSA claim — according to the appellate court. Although the common “economic realities” inquiry is used to analyze whether the person was an actual employee entitled to compensation, the court emphasized that binding law “plainly requires us to first ask whether Cathedral Buffet’s volunteers worked in ‘expectation of compensation.’ They did not.” The court went on to chronicle that the volunteers did not expect or receive any wages or in-kind benefits, and were not even allowed to accept tips. The district court had reached a different conclusion on the volunteers’ expectations.

The appellate court also found — in stark contrast to the district court — that there was not a sufficient showing of economic coercion by Cathedral Buffet to warrant FLSA protection. While circumstances can establish that an organization coerced a volunteer to not expect compensation, the court found that was not the case here as the “type of coercion with which the FLSA is concerned is economic in nature, not societal or spiritual.”

Religious and volunteer-based organizations should take special note, and evaluate what their volunteers/employees expect regarding being financially compensated. “[A]lthough the FLSA might aim to curb the societal ills caused by low wages, it does so through a comprehensive system of economic regulations. The Act does not go so far as to regulate when, where, and how a person may volunteer her time to her church. After all, the giving of one’s time and money through religious obligation is a common tenet of many faiths.”

Unless you have been living in a cave for the last month, you have heard about the sexual misconduct allegations against Hollywood mogul Harvey Weinstein. The story has all of the makings of a Hollywood blockbuster, except this time it’s not a movie. Here’s why it should also raise the curtain for employers outside of Tinseltown.

Why the Harvey Weinstein Scandal Should Scare the Pants Off EmployersRising Tide of Allegations Will Result in Increased Scrutiny

The Weinstein allegations have triggered an avalanche of claims against Hollywood stars, celebrity chefs, executives and politicians unlike anything in recent memory. The EEOC has weighed in with renewed interest in harassment claims, seizing upon an opportunity to publicize the issue. Those who use their workplace positions to make unwelcome sexual advances deserve to be called out for their misconduct. To be clear, this post is not for them. However, the sheer number of allegations regarding misconduct that occurred years ago and were never reported poses a real problem for conscientious employers. What does this mean for employers who face fallout for this kind of misconduct?

First, employers will have to deal with increased administrative interest. Undoubtedly, the EEOC will more carefully scrutinize claims of harassment and increase litigation efforts against companies alleged to harbor harassers, especially in the C-suite. Second, litigation could get tougher. Juries and courts may be more inclined to believe that alleged harassment occurred and to disbelieve denials by an accused executive and by extension his or her employer. In short, we will likely see an increase in claims, so what can employers do?

An Ounce of Prevention

You have heard it before but it bears repeating. While employers can’t stop employees from acting badly, they can take steps to try to prevent bad conduct and to properly address it when brought to their attention.

  • Review your policies. Any employer reading this almost certainly has a policy against harassment or discrimination, but far too often we see employers with cut and paste policies gleaned from another company or pulled off the internet that don’t really align with their workplace. You need clear, well-thought-out policies that your employees understand. Be sure the policy explains what harassment is and encourages people to report it.
  • Identify the right person to receive complaints. A policy merely advising employees to report harassment to their immediate supervisor, who has little or no training in how to identify or address harassment, often proves of limited help. Think about who is best to receive allegations about harassment and to properly address them and draft your policy to match. Clear policies with carefully crafted reporting procedures (perhaps supplemented with a third-party hotline option) can help.
  • Distribute the policy. A policy buried in a handbook, with no stand-alone employee acknowledgment, can be portrayed as mere words on the page with no real meaning. Worse still, employees may claim (sometimes truthfully) that they never received or read it. A policy given to employees and acknowledged in writing is critical.
  • Training, training, and more training. The again obvious, but often overlooked or sporadically implemented, additional step is education and training. For those of you in states that require annual training, make sure you do it and document it. For the rest of the country, have annual training of management in EEOC matters and trends. Add training of HR staff in how to identify, investigate and address allegations. Make sure your supervisors can identify harassment and know what to do when they see it or get a complaint. Educate employees in the company’s reporting procedures and make sure they understand that the company will not tolerate retaliation for a complaint. Finally, implement the training in a manner that avoids the holes created by employee and supervisory turnover.

Again, all of this sounds obvious but it can mean the difference between preventing harassment in your workplace and being found liable for the bad acts of people who you thought knew better.

Topple of Estoppel? Eleventh Circuit Deals Blow to Bankruptcy Disclosure Defense in Discrimination Suit

Employees who sue their employers must disclose that lawsuit if they file for bankruptcy—right? Maybe not. In Slater v. U.S. Steel Corp., the Eleventh Circuit overruled prior precedent and impaired a valuable defense for early dismissal or settlement with bankrupt plaintiffs. This decision will affect strategy for employers that face litigation from bankrupt plaintiffs.

Legal Background

Judicial estoppel is an equitable defense that bars a plaintiff’s claim when he or she takes differing positions in court cases with an intent to make a mockery of the judicial system. Until now, courts in the Eleventh Circuit (that is federal courts in Alabama, Georgia and Florida) have applied the defense when a plaintiff pursues a lawsuit in one court and then files for bankruptcy without disclosing the employment lawsuit as an asset in the bankruptcy case. Courts apply the judicial estoppel defense in these circumstances to prevent plaintiffs from obtaining a windfall by concealing an asset that could be used to pay creditors (i.e., the potential recovery in the employment lawsuit).

Companies defending claims filed by bankrupt plaintiffs have prevailed on the judicial estoppel defense by reviewing sworn bankruptcy filings to see if their plaintiff failed to disclose the employment claim. If the plaintiff failed to notify the bankruptcy court about the employment claim, the employer could win the case based entirely on that failure to disclose.

The Slater Case

Ms. Slater was pursuing gender discrimination and retaliation claims against her former employer, U.S. Steel. After the company learned that Ms. Slater had filed for bankruptcy but failed to list her employment claim as an asset, U.S. Steel moved for summary judgment based on judicial estoppel. Relying on prior Eleventh Circuit caselaw, the district court granted the motion. Unfortunately, in an en banc decision (which means the entire court participated), the Eleventh Circuit not only overturned the district court’s decision, it overruled prior precedent, changing the law in the circuit. As a result, defendants will be less likely to prevail on this defense at the early stages of litigation.

The Eleventh Circuit reaffirmed that courts may apply judicial estoppel only when the employer can establish two things:

  • First, the plaintiff took a position under oath in the bankruptcy proceeding that was inconsistent with the plaintiff’s pursuit of the lawsuit; and
  • Second, the plaintiff intended to make a mockery of the judicial system.

What evidence is necessary to find that a plaintiff intended to make a mockery of the judicial system? Prior Eleventh Circuit decisions (Barger v. City of Cartersville and Burnes v. Pemco Aeroplex) endorsed a rule that the mere fact of the plaintiff’s nondisclosure is sufficient to show such intent, even if the plaintiff later corrected her bankruptcy disclosures. In the Slater case, the court granted en banc review to reconsider this precedent and overruled the prior Barger and Burnes decisions. Accordingly, courts in the Eleventh Circuit may no longer infer a plaintiff’s intent to misuse the judicial system without considering the individual plaintiff and the circumstances surrounding the nondisclosure of a lawsuit in the bankruptcy schedules. Among other factors, courts may consider the plaintiff’s level of sophistication, her explanation for the omission, whether she subsequently corrected the disclosures, and any bankruptcy court motions or orders concerning the nondisclosure.

According to the en banc panel, overruling prior precedent on judicial estoppel brings the Eleventh Circuit in line with the law in the Sixth, Seventh, and Ninth Circuits. On the other hand, the Fifth and Tenth Circuits still recognize that knowingly omitting a cause of action from bankruptcy schedules is enough to support the “intent to make a mockery of the judicial system” prong of the judicial estoppel defense.

Now What?

In the Eleventh Circuit, winning a case based on judicial estoppel because a plaintiff did not disclose a claim on bankruptcy disclosures just got harder. Merely relying on plaintiffs’ sworn bankruptcy schedules is no longer sufficient to prove the intent element of the judicial estoppel defense. Courts must now undertake a more rigorous inquiry of the plaintiff’s intent. Plaintiffs will be able to present self-serving factual arguments regarding the circumstances surrounding nondisclosure of a cause of action in bankruptcy.

Fortunately for defendants, Chief Judge Carnes wrote a concurring opinion clarifying that the judicial estoppel defense is not eradicated. In spite of the Eleventh Circuit’s new requirement to consider the “surrounding circumstances,” courts are “not required to accept the testimony of the plaintiff that her misstatements . . . were not made with intent to mislead, even if that testimony is uncontradicted.” If a bankrupt plaintiff denies any intent to mislead the court or creditors by not disclosing a cause of action, the court has the “authority and responsibility to find the facts and not blindly accept [such] testimony.”