Opinion ID: 3011011
Heading Depth: 2
Heading Rank: 1

Heading: New Jersey's Good-Faith Defense

Text: The statutory provision that permits a good-faith defense to a violation of the overtime statute provides as follows: [N]o employer shall be subject to any liability or punishment for or on account of . . . the failure of the employer to pay minimum wages or overtime compensation under this act, if he pleads and proves that the act or omission complained of was in good faith in conformity with and in reliance on any written administrative regulation, order, ruling, approval or 20 interpretation by the Commissioner of the Department of Labor and Industry or the Director of the Wage and Hour Bureau, or any administrative practice or enforcement policy of such department or bureau with respect to the class of employers to which he belonged. Such a defense, if established, shall be a complete bar to the action or proceeding, notwithstanding, that after such act or omission, such administrative regulation, [etc.] . . . is modified or rescinded or is determined by judicial authority to be invalid or of no legal effect. N.J. Stat. Ann. S 34:11-56a25.2 (1988). The case law on New Jersey's good-faith defense is sparse. The one case relied on by the District Court, a Law Division case, appeared to ignore the requirement that good faith be based on a written regulation, order, etc., and found that the defendant's reliance on unrelated statutes and industry practice constituted good faith. See State v. Frech Funeral Home, 448 A.2d 1037, 1041-43 (N.J. Super. Ct. Law Div. 1982).9
The federal wage and overtime statutes also include a good-faith defense, and we believe that our precedents interpreting the federal good-faith law are helpful in our task of interpreting the state provision. The federal law includes two good-faith provisions.10 One of these is _________________________________________________________________ 9. The District Court inadvertently cited Frech as a New Jersey Supreme Court case. See Keeley, 42 F. Supp. 2d at 452. Were Frech actually a state supreme court case, we would obviously adhere to its interpretation of the state good-faith defense, even though the court appeared to ignore a requirement of that defense. However, as Frech is actually a trial court decision, it is at most persuasive but nonbinding authority and we look to the plain language of the statute and our own interpretation of the good-faith defense in predicting how the state supreme court would apply the defense to the facts of this case. 10. The two good-faith defenses offer different protections. The first, 29 U.S.C. S 259, provides a complete defense to an action for unpaid wages, while the second, id. S 260, gives a court discretion to award less than the statutory amount of liquidated damages, but still requires the defendant to pay compensatory damages for unpaid wages. 21 identical in all material respects to the New Jersey goodfaith statute. See 29 U.S.C. S 259(a) (1994); cf. Dole v. Odd Fellows Home Endowment Bd., 912 F.2d 689, 696 (4th Cir. 1990) (noting that the good-faith defense in S 259 requires a written regulation, order, ruling, approval, or interpretation that could have been relied on). The second federal provision is less strict,11 requiring only that the employer [show] to the satisfaction of the court that the act or omission giving rise to such action was in good faith and that he had reasonable grounds for believing that his act or omission was not a violation of the Fair Labor Standards Act. 29 U.S.C. S 260 (1994). While S 260 requires simply good faith andreasonable grounds, as opposed to the New Jersey law's requirement of reliance on an administrative regulation, order, practice, or policy, cases involving S 260 are still informative for their interpretation of the good faith requirement. For example, in Williams v. Tri-County Growers, Inc., this court held: The fact that an employer has broken the law for a long time without complaints from employees does not demonstrate the requisite good faith required by the statute. . . . [T]he employer must affirmatively establish that he acted in good faith by attempting to ascertain the Act's requirements. 747 F.2d 121, 129 (3d Cir. 1984). Under Williams, Loomis Fargo's longstanding practice of not paying overtime and its union's apparent acquiescence in this practice are insufficient to establish good faith--even leaving aside the existence (or lack thereof) of a regulation, order, practice, or policy on which defendant relied. More recently, we discussed the good-faith defense in S 260 in Martin v. Cooper Electric Supply Co., 940 F.2d 896 (3d Cir. 1991). In Martin, we held that the district court erred in finding that the employer had proved the goodfaith defense, citing three factors in particular. First, _________________________________________________________________ 11. Cf. 29 C.F.R. S 790.17(i) n.110 (1998) (noting that the fact that an employer has no defense under S 259 would not preclude a court from finding that the employer had met the requirements for the defense in S 260). 22 reiterating the holding in Williams, we held that the employer's failure to inquire into the Act's overtime pay requirements before [the agency's investigation] precludes a determination that the company's subjective good faith was reasonable. Id. at 909. Second, we held that the employer's adherence to customary and widespread industry practices that violate the Act's overtime pay provisions is not evidence of an objectively reasonable good faith violation. Id. at 910. Finally, we rejected the district court's contention that an employer could violate overtime requirements as a  `reasonable and necessary' competitive response[ ] to the `market for qualified employees.'  Id. (quoting district court). We noted that [t]his reasoning tends improperly to favor companies in industries where economic conditions make violations of the Act most attractive or pervasive. Id. Williams and Martin, therefore, provide that reasonable good faith is not shown when an employer does not inquire about the law's requirements, simply follows an industry trend of not complying with the law, or violates the law in order to remain competitive. Although we will not assume that New Jersey's courts would adopt this federal jurisprudence unaltered, we note again that these cases involved the federal good-faith defense with the lower standard, while the language of the New Jersey statute is virtually identical to that of the stricter of the two federal good-faith provisions. The federal jurisprudence also seems eminently sensible. Therefore, these cases likely present the minimum standard that a New Jersey employer must meet in order to enjoy the protections of that state's good-faith defense to a failure to pay overtime.
Although federal wage and hour regulations obviously do not apply to New Jersey's wage law, such regulations contain explanations of each term in S 259 (each of which terms also appears in the New Jersey good-faith provision), and may be helpful in interpreting the New Jersey goodfaith defense. The regulations note that the employer's `good faith' is not to be determined merely from the actual state of his mind. 29 C.F.R. S 790.15(a) (1998). Rather, 23  `good faith' also depends upon an objective test--whether the employer . . . acted as a reasonably prudent man would have acted under the same or similar circumstances. Id. The regulations also state, as we did in Williams and Martin, that an employer has an affirmative duty to inquire about uncertain coverage issues, such as might arise if conflicting court decisions exist. See id. S 790.15(b); id. S 790.15(d) n.99 (It is not intended that this defense shall apply where an employer had knowledge of conflicting rules and chose to act in accordance with the one most favorable to him. (quoting 93 Cong. Rec. 4390 (1947) (statement of Rep. Walter))). Such uncertainty appears to have existed here, before the state regulation was promulgated. See 28 N.J. Reg. at 3799 ([R]ecent court cases have raised an issue as to whether overtime was required in New Jersey.). Finally, the regulations make clear that an employer may not assert the good-faith defense on the basis of the relevant agency's non-action: A failure to act or a failure to reply to an inquiry on the part of an administrative agency is not a regulation, order, ruling, approval, or interpretation within the meaning of [S 259]. . . . . . . . . . . [While t]his should not be construed as meaning that an agency may not have administrative practices or policies to refrain from taking certain action as well as practices or policies contemplating positive acts of some kind . . . , there must be evidence of [the practice or policy's] adoption by the agency through some affirmative action establishing it as the practice or policy of the agency. 29 C.F.R. SS 790.17(f), 790.18(h). In the absence of further guidance from the New Jersey courts, we believe that federal courts faced with a party asserting New Jersey's good-faith defense may consider the above explication of S 259, the requirements of which are, in all material respects, identical to those of the New Jersey statute. In particular, the District Court in this case could 24 properly consider on remand the above discussion ofgood faith and of S 259's practice or policy provision.
Although New Jersey caselaw is virtually nonexistent on the requirements of that state's good-faith defense to a failure to pay statutory overtime rates, we believe that the plain text of the good-faith provision, along with our own caselaw on the similar federal good-faith defenses and the detailed federal regulations interpreting those defenses, provide ample guidance in this area. First and foremost, New Jersey's good-faith defense is clearly unavailable when an employer is not relying on one of the enumerated sources in the statute, such as a regulation, practice, or policy of the state labor agency. Further, like the federal good-faith defenses, New Jersey's law requires good-faith reliance, and we have held that good faith is absent when the employer fails to investigate a law's requirements, or simply relies on a longstanding practice (of either the employer itself or its industry) of failing to pay overtime or on union acquiescence in such failure. We believe that, in the absence of further guidance from New Jersey's appellate courts, these standards should be used by federal courts evaluating an employer's good-faith claims under New Jersey law. B. Defendant's Pre-Regulation Failure to Pay Overtime In finding that defendant had adequately made out a good-faith defense for the period prior to enactment of the trucking industry regulation, the District Court pointed out that defendant's collective bargaining agreement with the relevant employees provided that, with certain exceptions not applicable here, there will be no premium pay for hours worked over forty (40) in a workweek, and all such hours will be paid at the employee's straight-time rate. Keeley, 42 F. Supp. 2d at 452. Further, the court found that there is no indication that any trucking industry employer in New Jersey has been required to pay its employees one and one-half times their regular hourly rate for overtime, either before or after the regulation was 25 issued. Id. Finally, the court relied on a declaration by defendant's counsel that, during contract negotiations, the Company representatives present believed that the Motor Carrier exemption of the [FLSA] preempted state law and that the employees other than vault personnel were exempt from any overtime pay requirements. Id. at 452 n.10 (alteration in original). For a number of reasons, we do not believe that these factors provide sufficient support for a finding that the defendant's failure to pay overtime prior to August 5, 1996, fell under the good-faith defense of the New Jersey statute. First and foremost, the statute clearly requires that the good-faith belief be based on either (1) a written regulation, order, ruling, approval or interpretation from one of the designated state authorities or (2) an administrative practice or enforcement policy of the relevant state agencies. Yet neither the factors cited by the District Court nor anything we can find in the record indicates that, prior to August 5, 1996, defendant relied on a written document, practice, or enforcement policy of the state labor department in not paying its employees time-and-a-half for overtime work. Further, looking to Williams and Martin, and the federal regulations, as providing an interpretative source for the New Jersey statute, it is unclear what affirmative steps the defendant took to ascertain the overtime law's requirements before promulgation of the regulation. It apparently relied primarily on industry practice, but if this is insufficient for the lower standard in S 260, as Williams and Martin held, it would almost certainly be insufficient for the higher standard of S 259--and of New Jersey's good-faith defense. Finally, we note that the good-faith defense was accepted by the District Court at the summary judgment stage, following minimal discovery. Further discovery may (or may not) reveal that the defendant knew that it was violating state law by not paying its employees overtime, but sought to avoid the consequences of its actions by inducing the union to agree to the overtime waiver. Other ramifications of the good-faith defense could emerge in discovery that 26 create issues that need eventual resolution by afinder of fact.12 The defendant argues that plaintiffs may not now contend that discovery is needed on the good-faith defense, as they took the position before the District Court that further discovery was not necessary. See Appellee's Br. at 21 n.18. However, the plaintiffs reasonably believed that the District Court was ruling only on the validity of the trucking industry regulation, and not on defendant's goodfaith defense, when they declined to request further discovery. See J.A. at 51 (Magis. Order of July 1, 1998) (ordering the parties to cross-move for summary judgment on validity of N.J.A.C. 12:56-19.3). We therefore will reverse the District Court's judgment in defendant's favor for the period before the regulation's enactment. We also leave it for the District Court on remand to determine what, if any, discovery is necessary and appropriate for adjudication of defendant's good-faith defense. C. Defendant's Post-Regulation Failure to Pay Overtime Because it found the regulation valid, the District Court did not reach the issue whether the company had demonstrated a good-faith defense for its post-regulation failure to pay overtime. See Keeley, 42 F. Supp. 2d at 451 n.9. It appears that, for its post-regulation conduct, the company was relying on a written regulation to justify its failure to pay overtime. However, the record is silent on this issue, and therefore we will leave it for the District Court on remand to determine whether defendant acted in good faith in not paying its employees overtime following promulgation of the regulation.