From the Courts

September 1, 2015 | Appeals | Insurance Coverage

Oral Complaints to Employer Alleging FLSA Violations Could Serve as Basis for Retaliation Claim, Court Rules

For more than 15 years, the plaintiff in this case worked as a truck driver for William C. Wernicki Trucking Co., a Connecticut company owned by Ena Wernicki that provides mail-hauling services pursuant to several contracts with the U.S. Postal Service (USPS). By virtue of these contracts, Wernicki Trucking was required to comply with obligations imposed by federal law, including providing its workers with certain minimum wages, vacation pay, holiday pay, and other fringe benefits.

In October 2011 and in early 2012, the plaintiff requested that the company compensate him for unpaid vacation and work hours. The company paid the plaintiff all the money that he claimed he was owed. Over the next several months, however, it reduced his work hours and assigned the plaintiff “forced vacation” time.

The plaintiff felt that this mandated vacation time as well as the reductions in his work hours were retaliation for his complaints about unpaid vacation and work hours, and he filed a retaliation complaint with the Wage and Hour Division of the U.S. Department of Labor (DOL). The plaintiff did not tell the company about his DOL retaliation complaint and the company did not know of its existence at that time.

Eventually, the plaintiff was fired, allegedly due to the plaintiff causing “excessive clutch damage” to a mail truck.

After his termination, the plaintiff sued the company and Wernicki, its owner. His complaint alleged, among other things, retaliation in violation of the federal Fair Labor Standards Act (FLSA).

The defendants moved to dismiss the plaintiff’s FLSA retaliation claim on the ground that his complaint did not allege that he had participated in an FLSA-protected activity that was known to the defendants before they terminated the plaintiff’s employment. The defendants conceded that the plaintiff’s filing of his DOL complaint was a protected activity, but contended that his retaliation claim could not stand absent some basis to believe that the company was aware (or at least had reason to be aware) of the DOL complaint.

The U.S. District Court for the District of Connecticut denied the defendants’ motion to dismiss the plaintiff’s FLSA retaliation claim.

In its decision, the court explained that the FLSA’s anti-retaliation provision prohibits an employer from “discharg[ing] or in any other manner discriminat[ing] against any employee because such employee has filed any complaint or instituted or caused to be instituted any proceeding under [the FLSA].” The court added that a prima facie case of FLSA retaliation requires:

  • participation in protected activity known to the defendant;
  • an employment action disadvantaging the plaintiff; and
  • a causal connection between the protected activity and the adverse employment action.

The court then observed that, to permit a plaintiff’s FLSA retaliation claim to  move forward, there had to be “some plausible inference,” gleaned “from the factual allegations in the complaint, the posture of the litigation, or other relevant circumstances,” that the employer had knowledge of the plaintiff’s participation in a protected activity.

The court then ruled that there was “no plausible basis” to infer that the defendants had any knowledge of the plaintiff’s formal complaint to the DOL prior to terminating the plaintiff’s employment. It observed that the plaintiff’s complaint did not allege that the plaintiff had told the defendants about his DOL complaint, or that he had told them that he even had communicated at all with the DOL. Moreover, the court pointed out, the plaintiff’s counsel had conceded at oral argument that the plaintiff in fact had not told the defendants about the DOL complaint.

The court also said that there were no other circumstances suggesting that the defendants would have learned of the complaint within the few weeks between its filing and the plaintiff’s termination or that the DOL would have told the defendants that the complaint had been filed.

In short, the court ruled, insofar as the plaintiff based his retaliation claim on his engaging in the protected activity of filing a complaint with the DOL, there was “no plausible grounds for relief” because of the absence of “any indication or reasonable inference that defendants were aware of the DOL complaint prior to plaintiff’s termination.”

The court then continued its analysis by noting that the plaintiff also sought to base his retaliation claim on the fact that he had lodged internal complaints directly with the defendants about their failure to comply with the FLSA’s compensation requirements.

The court pointed out that, until recently, case law in the U.S. Court of Appeals for the Second Circuit holding that oral complaints and intracompany complaints did not qualify as activities protected under the FLSA’s anti-retaliation provision would have foreclosed such an argument. The court added that recent decisions by the U.S. Supreme Court and the Second Circuit Court of Appeals made it clear that the FLSA’s anti-retaliation provision protects both oral and written complaints; that a complaint need not be made to a government agency to fall within the protections of the FLSA anti-retaliation provision; and that “an employee may premise [an FLSA] retaliation action on an oral complaint made to an employer.”

The court then ruled that the plaintiff’s complaint alleged several internal communications that “easily” satisfied this new standard. For example, the court said, the plaintiff alleged that he wrote letters to Wernicki asking about the defendants’ “compensation obligations under the FLSA,” and observing that it looked as if “[Wernicki] was retaliating against [him]” for having to pay him wages that he was owed. Moreover, the court continued, the plaintiff alleged making numerous verbal complaints to Wernicki regarding non-payment of work hours and vacation time. In the court’s opinion, these complaints “were sufficiently definite to put defendants on notice that he was asserting his rights under the FLSA.”

Accordingly, although the court found that the plaintiff could not base his FLSA retaliation claim on his formal complaint to the DOL because he had not alleged facts to show that the defendants knew or had reason to know of that complaint, the plaintiff could base his retaliation claim on the oral and written complaints that he had made directly to company management because the defendants “had knowledge of these complaints, and the complaints were detailed and definite enough to qualify as protected activities” under the FLSA’s anti-retaliation provision. [Trowbridge v. Wernicki, 2015 U.S. Dist. Lexis 76690 (D. Conn. June 15, 2015).]

Court Decides that Plan Administrator Did Not Err in Limiting Long-Term Disability Benefits to 15 Months for 68 Year Old Employee

In this case, the plaintiff worked as a vice president for JP Morgan Chase Bank, N.A., and participated in the JP Morgan Chase Long-Term Disability Plan. The plan, which provided certain disability insurance benefits to eligible employees, was administered by Prudential Disability Insurance Company.

On August 15, 2011, the plaintiff, who was then 68 years old, discontinued his employment because of a serious medical condition. He applied for long-term disability (LTD) benefits from the plan in December 2011.

On January 13, 2012, the plaintiff’s claim for LTD benefits was approved. The plaintiff began receiving benefits on February 13, 2012.

The benefits were terminated on May 12, 2013. In a letter dated January 11, 2013, Prudential informed the plaintiff of the following:

Under the terms of the plan, benefits are payable up to a maximum duration, and our records indicate that the maximum duration of your LTD claim is May 12, 2013. Therefore, your claim is terminated effective May 13, 2013 with no further benefits payable.
Please note that your claim is not being closed on the basis of an evaluation of your medical status but rather on the contractual maximum duration of benefits payable under the terms of the policy.

The plaintiff twice appealed the termination of his LTD benefits, but Prudential denied his appeals, explaining that under the terms of the plan, an employee who was 68 years old on the date disability began could receive LTD benefits for a maximum duration of 15 months.

The plaintiff sued Prudential under the Employee Retirement Income Security Act of 1974 (ERISA), seeking an award of LTD from Prudential.

Prudential moved for summary judgment, contending, in sum, that the plaintiff’s benefits were limited to the 15 month term that Prudential had paid and that the plaintiff was not entitled to further benefits under the plan.

The district court granted Prudential’s motion.

In its decision, the court found that the plan provided that a claimant who was 68 years old at the time of his or her disability would receive benefits for a period of 15 months. According to the court, the plan’s provision was “unambiguous.”

The court then ruled that because the plaintiff was 68 years old on the date his disability began, the term of his benefits was 15 months. It noted that he had begun receiving benefits on February 13, 2012 and that the benefits had continued for 15 months, until May 12, 2013. Accordingly, the court concluded, Prudential’s decision to terminate the plaintiff’s LTD benefits after the maximum duration was “neither arbitrary nor capricious” and the plaintiff’s ERISA claim failed. [Gamble v. Prudential Disability Ins. Co., 2015 U.S. Dist. Lexis 65331 (M.D. Tenn. May 18, 2015).]

Plan Administrator Could Not Recover Bulk of Long-Term Disability Benefit Overpayments Paid in Error, Court Decides

The plaintiff in this case was the former president and chief executive officer of CIBT Inc., a McLean, Virginia, multinational travel document expediting company with hundreds of employees in the United States and abroad. The plaintiff held his position from 2003 until his resignation, due to disability, on August 31, 2010.

While employed at CIBT, the plaintiff participated in an employee benefit plan sponsored by the company and insured by Sun Life Assurance Company of Canada. After he resigned as CEO, the plaintiff timely filed a claim for long-term disability (LTD) benefits with Sun Life.

After an initial denial, Sun Life rendered a favorable decision on the plaintiff’s LTD benefits claim on July 28, 2011, granting him benefits retroactively as of December 1, 2010.

Sun Life ceased paying benefits to the plaintiff on August 29, 2013, informing him that as of January 1, 2012, the amount of his “Disability Earnings” (defined in the Sun Life policy as “the employment income an Employee receives while Partially Disabled or income an Employee receives while participating in an approved Rehabilitation program”) rendered him ineligible for monthly LTD benefits.

Sun Life asked the plaintiff to return $203,121.01 to account for the LTD benefits he had received from January 2012 through August 2013 (a total of 20 months).

Instead, the plaintiff sued Sun Life under the Employee Retirement Income Security Act of 1974 (ERISA), seeking a declaration that he was entitled to past and future LTD benefits. In response, Sun Life filed a one-count counterclaim to recover the alleged overpayment of $203,121.01. Specifically, Sun Life requested that the plaintiff “be required to make restitution to Sun Life” or, alternatively, that he “be disgorged of any assets wrongfully acquired with the overpaid LTD benefits, and/or a constructive trust should be imposed on [the plaintiff’s] assets up to the amount of the overpaid LTD benefits.”

The parties filed cross-motions for summary judgment.

The court first ruled that Sun Life had not abused its discretion by determining that the plaintiff’s Disability Earnings had exceeded the maximum earnings threshold for 2012, which disqualified him for benefits effective January 1, 2012.

The court then considered whether Sun Life could recoup any of the amount it paid to the plaintiff after January 1, 2012 and ruled that, except for $9,943.61 (amounting to the remaining funds in the account into which the plaintiff had deposited the payments he had received from Sun Life), it could not do so.

The court emphasized that there was “no provision” in the policy that provided Sun Life with the authority to recover erroneously paid benefits. The court also ruled that, in the absence of a policy provision permitting rescission to recover overpayments, Sun Life was not entitled to rescission of its monthly payments to the plaintiff after January 1, 2012. Finally, it decided that Sun Life could not adequately trace the overpayments to property owned by the plaintiff that would allow it to assert an equitable lien on that property. [Fine v. Sun Life Assurance Co. of Canada, 2015 U.S. Dist. Lexis 44729 (E.D. Va. April 6, 2015).]

Ninth Circuit Upholds Decision Rejecting Challenge to Los Angeles’ Living Wage Ordinance

The City of Los Angeles’ Living Wage Ordinance (LWO) requires contractors who operate at the city’s airports to pay their employees $14.80 per hour, or $10.30 per hour if the contractor provides health benefits. Los Angeles’ Office of Contract Compliance found that Calop Business Systems, Inc., had violated the LWO over a 12 day period in January 2010, in which Calop had paid its employees only $11.55 per hour and had made no health benefit contributions.

Calop sued the city, asserting, among other things, that the LWO was preempted by the Employee Retirement Income Security Act of 1974 (ERISA), the federal Airline Deregulation Act, and the federal Railway Labor Act.

The district court granted summary judgment for the city, and Calop appealed to the U.S. Court of Appeals for the Ninth Circuit.

The Ninth Circuit agreed with the district court that ERISA did not preempt the LWO. ERISA preempts any state law that “has a connection with or a reference to” an employee benefits plan. The circuit court acknowledged that the LWO took into account the health benefits employers offered in “calculating the cash wage that must be paid,” but ruled that the LWO did not “have a reference to” to employee benefits plans in a way that would permit ERISA to preempt it.

Second, the circuit court said, the LWO’s provision for collecting reports on employee compensation from employers did not create a “connection with” employee benefits plans sufficient to find preemption because the provision imposed no obligations on plans themselves.

Third, it added, the LWO did not give rise to a “connection with” benefits plans merely by creating economic incentives to offer certain kinds of benefits, again because it imposed no affirmative obligation with respect to those plans.

Similarly, the Ninth Circuit upheld the district court’s decision that the Airline Deregulation Act did not preempt the LWO. The circuit court noted that Calop had produced no evidence that the LWO affected any airline’s “price, route, or service,” and it concluded that Calop had not demonstrated that the LWO “acutely” interfered with the “forces of competition” in the airline industry.

Finally, the Ninth Circuit agreed with the district court that the LWO was not preempted by the Railway Labor Act. According to the circuit court, the Railway Labor Act did “not preempt state and local laws that, like the LWO, impose minimum substantive requirements while permitting employers and unions to bargain around them.” [Calop Business Systems, Inc. v. City of Los Angeles, 2015 U.S. App. Lexis 9168 (9th Cir. June 2, 2015).]

Fifth Circuit Rules that Settlement of State Litigation Did Not Also Settle Plaintiffs’ FLSA Claims

In this case, the plaintiffs filed an action under the federal Fair Labor Standards Act (FLSA) against their former employer, TXL Mortgage Corporation, and its president. The plaintiffs alleged that the defendants had not compensated them for their overtime work as required by Section 207 of the FLSA.

The defendants moved for summary judgment, arguing that the plaintiffs had executed a valid and enforceable waiver in a prior state court action that had released all claims against the defendants arising from the parties’ employment relationship.

The district court agreed with the defendants, and the plaintiffs appealed to the U.S. Court of Appeals for the Fifth Circuit.

The Fifth Circuit reversed the district court’s decision.

In its opinion, the Fifth Circuit explained that the general rule was that FLSA claims (such as for unpaid overtime) could not be waived. Accordingly, it continued, many courts have held that, in the absence of supervision by the Department of Labor or scrutiny from a court, a settlement of an FLSA claim was prohibited.

The Fifth Circuit acknowledged that it has excepted from this general rule unsupervised settlements that were reached due to a bona fide FLSA dispute over hours worked or compensation owed. That exception, the circuit court continued, did not apply to this case because “not only did the prior state court action not involve the FLSA, the parties never discussed overtime compensation or the FLSA in their settlement negotiations.”

Therefore, the circuit court continued, there was no factual development of the number of unpaid overtime hours or of compensation due for unpaid overtime. Thus, it stated, to deem the plaintiffs “as having fairly bargained away unmentioned overtime pay” based on a settlement that involved a compromise over wages allegedly due for commissions and salary “would subvert the purpose of the FLSA: namely, in this case, the protection of the right to overtime pay.” Under these circumstances, the Fifth Circuit ruled, where overtime pay was never specifically negotiated, there was no guarantee that the plaintiffs had been or would be compensated for the overtime wages they allegedly were due under the FLSA.

The Fifth Circuit then concluded that the absence of any mention or factual development of any claim of unpaid overtime compensation in the state court settlement negotiations precluded a finding that the release had resulted from a bona fide FLSA dispute for purposes of the exception to the general prohibition against FLSA waivers, and the state court settlement release could not be enforced against the plaintiffs’ FLSA claims. [Bodle v. TXL Mortgage Corp., 2015 U.S. App. Lexis 9091 (5th Cir. June 1, 2015).]

Reprinted with permission from the September 2015 issue of the Employee Benefit Plan Review – From the Courts.  All rights reserved.

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