Employment Law

Court Shoots Down Officers’ FLSA Claim for Off-Duty Work

Why it matters

Chicago police officers seeking compensation for work performed using their mobile devices while the officers were off duty could not recover when their employer did not know the overtime work was not being reported or paid, the U.S. Court of Appeals, Seventh Circuit has ruled. A group of officers in the Bureau of Organized Crime filed a collective action under the Fair Labor Standards Act (FLSA) against the City of Chicago, alleging they were not compensated for work they performed on their mobile electronic devices while off duty. Following a bench trial, a district court judge found in favor of the city. The officers appealed, but the federal appellate panel affirmed the decision, holding that while the employer knew about at least some of the off-duty work, it did not know that such work was not being reported or paid. Further, nothing prevented or discouraged the employees from submitting paperwork in order to be paid for their time pursuant to the established department process, the court said. The opinion provides a valuable reminder for employers that a formal policy or process for reporting overtime can provide some protection from suit, particularly if the employer doesn’t prevent or discourage accurate reporting.

Detailed discussion

Fifty-two current and former members of the Chicago Police Department’s Bureau of Organized Crime (Bureau) filed a Fair Labor Standards Act (FLSA) action seeking compensation for work they performed on their mobile electronic devices while off duty. Although members of the Bureau had assigned shifts, the nature of their work sometimes required them to work outside their shifts during what would otherwise be off-duty time.

The police department issued the officers mobile electronic devices, which were the focus of the lawsuit. For overtime compensation, the department had a process whereby the officers could complete “time due slips” (that do not ask how the work was done), submit them to supervisors and then receive payment for their time.

During the relevant period, although the officers used the police department process to obtain overtime—reporting and receiving pay for 3,000-4,000 overtime hours per year—many plaintiffs did not submit slips for off-duty work done on their mobile electronic devices.

A federal court judge held a bench trial and sided with the City of Chicago, finding that the employer did not prevent the plaintiffs from requesting payment for the nonscheduled overtime work and did not know that the officers were not reporting or being paid for such work.

The officers appealed, arguing that the district court misapplied the knowledge standard for employers, but the U.S. Court of Appeals, Seventh Circuit affirmed the bench verdict.

Employers must “pay for all work they know about, even if they did not ask for the work, even if they did not want the work done, and even if they had a rule against doing the work,” the federal appellate panel explained, but the FLSA “stops short of requiring the employer to pay for work it did not know about, and had no reason to know about.”

Although the plaintiffs told the court the Bureau could have discovered the officers’ uncompensated mobile device work by comparing the time slips to call and email records generated by the mobile electronic devices, resulting in constructive knowledge of the unpaid work, the panel said the reasonable diligence standard asks what an employer should have known, not what it could have known—not to mention that the officers’ suggestion was “extremely impractical,” the court added.

The district court did find that the Bureau knew about at least some off-duty mobile device work, but it also found that the employer did not know that such work was not being reported and paid, the panel said. The officers knew the procedures for claiming overtime pay and used them with regularity during the relevant period.

Did Bureau supervisors discourage officers from seeking overtime for their off-duty mobile device usage, or did a culture exist not to ask for this compensation? The panel acknowledged conflicting evidence on this point, with one plaintiff testifying that he was told by a supervisor that others “might frown” on such slips and referencing a “General Order” from the department which announced that employees would not be compensated for mobile device work except under certain circumstances.

But other evidence supported the Bureau, with witnesses unable to provide evidence of discipline or reprimands for filing slips or pinpoint the reason for employee reluctance to do so. “Some officers did submit slips for [mobile device] work, and the Bureau paid them,” the court said. “As for the General Order, the district court found that no plaintiff stopped submitting slips and no supervisor refused to approve slips because of it. Plaintiffs point to no contrary evidence on appeal. As unfortunate as the Bureau’s phrasing was in the General Order, we are not ‘left with the definite and firm conviction that a mistake has been committed.’”

To read the opinion in Allen v. City of Chicago, click here.

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Connecticut to Permit Medical Marijuana Discrimination Suit

Why it matters

Continuing the recent trend of favoring employees when considering the intersection of employment and state laws permitting the medical use of marijuana, a Connecticut federal court judge determined that an employee could bring suit alleging discrimination against a company for rescinding her job offer after she tested positive for marijuana. Pursuant to Connecticut’s Palliative Use of Marijuana Act (PUMA), Katelin Noffsinger was prescribed medical marijuana to treat her post-traumatic stress disorder. Employed as a recreational therapist, she was recruited by another facility and accepted the new position. Although she informed her prospective employer of her drug use, her offer was rescinded after she failed the drug test. Noffsinger filed suit alleging discrimination in violation of PUMA. In a case of first impression, the court determined that a private right of action existed under PUMA and that federal law—including the Controlled Substances Act—did not pre-empt the state law, moving the suit forward. The Connecticut decision follows similar rulings from Massachusetts and Rhode Island, where courts permitted employees who were legally prescribed medical marijuana to take action against employers.

Detailed discussion

In 2012, Connecticut enacted the Palliative Use of Marijuana Act (PUMA). The statute permits the use of medical marijuana for “qualifying patients” with certain debilitating medical conditions. It also includes a provision that explicitly prohibits discrimination against qualifying patients and primary caregivers by schools, landlords and employers.

Katelin Noffsinger was diagnosed with post-traumatic stress disorder (PTSD) in 2012, and her doctors recommended medical marijuana as treatment in 2015. After receiving her registration certificate pursuant to the law, Noffsinger began taking one capsule of a synthetic form of cannabis each night as prescribed.

A recreational therapist, Noffsinger was recruited by Bride Brook, a nursing facility in Niantic. The administrator of the facility offered her a position and Noffsinger accepted. The administrator then set up a meeting to complete paperwork and instructed Noffsinger to give notice at her current position so she could start sooner. At the meeting to complete her paperwork, Noffsinger showed her registration certificate and explained that she took her medication at night before bed and was therefore never impaired during the workday.

The administrator continued to process her paperwork, and Noffsinger provided a sample for a drug test. One day before she was scheduled to begin work at Bride Brook, the administrator called and rescinded the offer because of her positive drug test. Because Noffsinger had already given her notice at her prior position, she was left unemployed.

Noffsinger filed suit alleging a violation of PUMA’s antidiscrimination provision as well as negligent infliction of emotional distress. Bride Brook moved to dismiss, arguing that federal law pre-empted the state statute and that the law did not contain a private right of action.

In a matter of first impression, U.S. District Court Judge Jeffrey Alker Meyer rejected both arguments and denied the employer’s motion.

The Controlled Substances Act (CSA) makes it a federal crime to use, possess or distribute marijuana. However, the CSA does not make it illegal to employ a marijuana user, nor does it purport to regulate the employment relationship in any manner, the court said. It also contains a savings clause that explicitly states Congress did not intend for the CSA to pre-empt state law “unless there is a positive conflict between that provision of [the CSA] and that State law so that the two cannot consistently stand together.”

Bride Brook’s argument—that PUMA affirmatively authorized the very conduct (marijuana use) that the CSA prohibits—was overbroad, the court said, and overlooks the operative provision of PUMA at issue in the case: the provision that prohibits an employer from discriminating against authorized persons who used medical marijuana.

“PUMA regulates the employment relationship, an area in which States ‘possess broad authority under their policy powers to regulate,’” Judge Meyer wrote. “Given that the CSA nowhere prohibits employers from hiring applicants who may be engaged in illegal drug use, defendant has not established the sort of ‘positive conflict’ between [PUMA] and the CSA that is required for preemption under the very terms of the CSA.”

A similar pre-emption argument relying on the Americans with Disabilities Act and the Food, Drug, and Cosmetic Act also failed for the employer.

The court then turned to the question of whether a private right of action existed under the state law. Concluding that Noffsinger “certainly falls within the class for whose benefit the statute was enacted,” and finding no indication of legislative intent to deny a private cause of action, the court said recognizing a private right of action “is not inconsistent with the underlying purposes of the legislative scheme but in fact effectuates the evidence of legislative purpose to prevent employers from discriminating against authorized medicinal users of marijuana.”

Even more importantly, “without a private cause of action, [the antidiscrimination provision] would have no practical effect, because the law does not provide for any other enforcement mechanism,” Judge Meyer wrote.

The court therefore denied the employer’s motion to dismiss Noffsinger’s PUMA claim as well as her claim for emotional distress.

To view the ruling in Noffsinger v. SSC Niantic Operating Company, click here.

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Ninth Circuit Affirms Fine Based on I-9 Failures

Why it matters

In a cautionary tale for employers, the U.S. Court of Appeals, Ninth Circuit affirmed a fine based on failures related to the proper completion of I-9 paperwork. Sheet metal fabrication company DLS Precision Fab experienced a growth spurt and hired a new human resources director to handle the increase. However, the HR director neglected his duties, allegedly “stuffing the government’s correspondence in a drawer and never responding” after failing to properly complete and file the required I-9 forms. In an action brought by U.S. Immigration and Customs Enforcement, an administrative law judge ordered the employer to pay $305,050 in penalties for the numerous violations. DLS appealed to the Ninth Circuit, arguing that issues of fact remained on its good faith defense. Unwilling to disregard the company’s responsibility to hire and supervise its own employees, the court said the HR director acted as the employer’s agent and his failures could properly be imputed to DLS.

Detailed discussion

Section 274A(b) of the Immigration and Nationality Act (INA) requires employers to verify that their employees are legally authorized to work in the United States. Regulations promulgated under the law designate use of the Employment Eligibility Verification Form, colloquially known as the I-9 form.

Employers must retain these forms and provide them for inspection by the Department of Homeland Security upon three days’ notice; the INA also prohibits employers from continuing to employ an alien “knowing the alien is (or has become) an unauthorized alien with respect to such employment.”

DLS Precision Fab provides custom sheet metal fabrication in a variety of industries. The Arizona-based company grew to almost 200 employees in the late 2000s after the Department of Defense (DoD) expanded one of its programs. To deal with the expansion, DLS hired a new human resources director. Despite his credentials, the HR director shirked his responsibility to ensure compliance with the INA.

In 2009, U.S. Immigration and Customs Enforcement (ICE) served DLS with a Notice of Inspection and an administrative subpoena. As the agency’s investigation continued, the DoD program was cut back, resulting in a substantial reduction of DLS’s business, causing the company to reduce the number of its employees to 77 in 2012 and 34 in 2013.

DLS requested a hearing before an administrative law judge (ALJ), and ICE filed a six-count complaint alleging that the employer failed to comply with employment verification requirements and continued to employ 15 individuals despite knowing they were ineligible for employment, all in violation of the INA.

ICE moved for a summary decision, requesting penalties totaling $495,250.75. The ALJ granted the motion, finding DLS liable for 504 of the 508 alleged violations (489 of which related to I-9 paperwork, as well as the 15 continuing employment violations) and ordering the employer to pay $305,050.

DLS—which subsequently filed for Chapter 11 bankruptcy protection—appealed to the U.S. Court of Appeals, Ninth Circuit, asserting that genuine issues of fact remained as to the employer’s good faith defense to the alleged violations.

There are two types of good faith defense under the INA, the panel explained, one of which applies only to a charge of knowingly hiring, recruiting or referring an ineligible alien. This good faith defense did not apply to the violations for which DLS had been cited, the court said.

The second good faith defense provides that “a person or entity is considered to have complied with [the employment verification requirements] notwithstanding a technical or procedural failure to meet such requirement if there was a good faith attempt to comply with this requirement.”

DLS told the court that the “peculiar facts of this case” justified extending the good faith defense to the substantive violations it was accused of because the employer made a good faith effort to comply with the INA’s employment requirements by hiring the HR director, who then exhibited bad faith by neglecting his duty to keep the company compliant.

“We are not persuaded by this argument,” the panel wrote in a per curiam opinion. “For one thing, these facts do not strike us [as] particularly peculiar. DLS is not the first employer to hire an employee with the expectation that he or she will comply with the law only to be disappointed, nor is it likely to be the last.

“More broadly, DLS asks us to disregard the company’s responsibility for hiring and supervising its own employees. The HR director was acting as DLS’s agent, and his failure to perform his responsibility may properly be imputed to DLS. We cannot, in any event, effectively rewrite the statute to extend the good faith defense to substantive violations when the statute explicitly limits this good faith defense to technical and procedural violations.”

The court affirmed the summary decision, with one exception for a violation of knowingly continuing to employ one worker who left the company more than five years before ICE instituted the action, outside the statute of limitations under the INA.

In addition, the Ninth Circuit disagreed that genuine issues of fact remained as to DLS’s ability to pay the penalty amount. “Ability to pay is not, under the statute, one of the factors that must be considered in setting the amount of the penalty,” the court said. “Because it was within the ALJ’s power to decline to consider this factor at all, DLS’s ability to pay was not a material issue of fact that would preclude summary determination of the penalty amount.”

One member of the panel dissented with regard to the ability-to-pay determination, writing that because the ALJ elected to consider the evidence of DLS’s ability to pay in determining the penalty amount, a factual finding as to the actual ability of DLS to pay was something “that might affect the outcome” and was therefore a material issue.

To read the opinion in DLS Precision Fab LLC v. U.S. Immigration & Customs Enforcement, click here.

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Second Circuit: Termination Reversal Can Provide Basis for Suit

Why it matters

Can an employee pursue a Title VII and Family Medical Leave Act (FMLA) action where an allegedly discriminatory employment decision was reversed? Yes, the U.S. Court of Appeals, Second Circuit has decided. Alana Shultz had worked for an employer for approximately 11 years when she informed the executive director, just prior to leaving for her honeymoon, that she was pregnant. When she returned, she was informed of her termination, effective a few weeks in the future. But when Shultz’s lawyer reached out to the employer about pursuing a lawsuit, it reinstated her position. Shultz declined to return to work and filed suit instead. A district court granted the employer’s motion to dismiss, but the federal appellate panel reversed. The termination notice itself was an adverse employment action, the court said, and can provide the basis of the action. “Here, the Congregation [employer] did not attempt to rescind the termination for two weeks,” the Second Circuit said. “Shultz thus had ample time to experience the dislocation of losing her employment at a particularly vulnerable time, undertake the effort of retaining counsel, and inform the Congregation that she was going to file suit.”

Detailed discussion

From 2004 to 2015, Alana Shultz worked as the program director of Congregation Shearith Israel in New York City. She was married in June 2015, and just before leaving for her honeymoon, she told the executive director that she was pregnant. The day after Shultz returned from her honeymoon, she was informed that her employment was terminated, effective Aug. 14, as part of a restructuring.

Shultz, who had never before heard about a planned restructuring, believed that the restructuring was a pretextual excuse to terminate her because of the Congregation’s disapproval of the fact that she was pregnant at the time of her marriage. Shultz contacted a lawyer, who informed the Congregation that Shultz intended to pursue claims stemming from her termination. A few days later, the executive director presented Shultz with a letter stating that the Congregation had “reinstated” her position and thus she would not be terminated.

Contending that she was subject to a “pattern and practice of repeat discrimination” in the ensuing weeks by the leaders of the Congregation, Shultz did not return to work and filed suit, alleging that the employer discriminated against her in violation of the Family and Medical Leave Act (FMLA) and Title VII, among other claims.

A district court judge granted the Congregation’s motion to dismiss, and Shultz appealed to the U.S. Court of Appeals, Second Circuit. The panel reversed with respect to her Title VII and FMLA claims, ruling that the notice of termination she received was itself an adverse employment action, despite its later revocation.

The employer argued that no adverse employment action occurs until the job is actually lost, because during the interim period before the firing becomes effective, the employee continues to work in the same position and receive the same pay and benefits.

But the federal appellate panel relied upon the “notice rule” established by the Supreme Court, where a claim becomes actionable on the date the employer notifies the employee he or she is fired—not on the last day of employment.

“The Supreme Court’s conclusion that a discrimination claim accrues upon notice of termination, rather than upon the implementation of that decision, necessarily implies that the notification of termination qualifies as an adverse employment action,” the court wrote. “[T]he conclusion that the notice of termination itself gives rise to a claim follows ineluctably from the Court’s rulings regarding the limitations period, because a limitations period ordinarily commences ‘when the plaintiff has a complete and present cause of action.’”

If the claim accrues at the time of notification, rescission of the notice at a subsequent point “cannot eliminate the adverse employment action that has already occurred, and negate an accrued claim for relief,” the panel added. “Accordingly, we conclude that the notice of termination itself constitutes an adverse employment action, even when the employer later rescinds the termination.”

This does not deprive an employer’s rescission of termination of legal effect, however, with consequences that come into play in the calculation of damages, the court noted. In some cases, the time between a notice of firing and its rescission may be so short as to render the termination de minimis. “An impulsive ‘You’re fired,’ followed immediately by a revocation of the firing, would present different circumstances than those of this case,” the panel wrote.

“Here, the Congregation did not attempt to rescind the termination for two weeks,” the court said. “Shultz thus had ample time to experience the dislocation of losing her employment at a particularly vulnerable time, undertake the effort of retaining counsel, and inform the Congregation that she was going to file suit.”

The court also recognized that its decision applies to a notice of termination and not to less significant employment actions, such as placing a counseling letter in an employee file.

Considering Shultz’s FMLA claim, the panel found “no reason to construe the FMLA differently from Title VII,” similarly reversing dismissal of the claim. The court affirmed dismissal of the plaintiff’s constructive discharge, hostile work environment and retaliation claims, however.

To read the decision in Shultz v. Congregation Shearith Israel, click here.

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New Legislation Would Increase FLSA Penalties

Why it matters

A new bill would make violations of the Fair Labor Standards Act (FLSA) costlier for employers, establishing a $2,000 civil penalty for non-willful violations of the statute and increasing the penalty for willful or repeat violations to $10,000. “While a majority of employers are playing by the rules, wage theft is a real problem,” Sen. Al Franken (D-MN) said about the measure, which he co-sponsored. “Our bill will combat this crooked practice by giving each worker the tools to make sure that employers aren’t shortchanging workers’ hours or overtime pay.” Pursuant to the legislation, employers would be required to provide regular pay stubs to each employee and disclose the terms of employment when the relationship begins. The bill would also extend the time for recovery under the FLSA to four years (and five years for willful violations).

Detailed discussion

Penalties against employers would be increased pursuant to a new bill introduced by a group of Democratic legislators.

The Wage Theft Prevention and Wage Recovery Act, backed by Sens. Patty Murray (D-WA), Sherrod Brown (D-OH) and Al Franken (D-MN), as well as Reps. Rosa DeLauro (D-CT) and Bobby Scott (D-VA), would establish a civil penalty of $2,000 for the failure of employers to pay minimum wage and overtime.

The existing penalty for willful or repeat violations would jump to $10,000.

In addition, the measure would require employers to disclose the terms of employment at the beginning of the relationship and provide regular pay stubs to each employee. Violations of these requirements would cost employers $50 for the first violation and $100 for each subsequent violation.

The statute of limitations under the FLSA would also be extended pursuant to Senate Bill 1652, stretching the time during which workers can recover wages from two years to four years, with an increase in the period for willful violations from three years to five years.

According to the findings in the bill, wage theft “poses a serious and growing problem across industries” in the United States, estimated to cost employees $15 billion per year, with a disproportionate impact on women, immigrants and minorities.

After being read twice, the legislation was referred to the Committee on Health, Education, Labor, and Pensions.

To read Senate Bill 1652, click here.

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