Opinion ID: 566011
Heading Depth: 1
Heading Rank: 3

Heading: MANDATORY LIQUIDATED DAMAGES UNDER SECTION 16(b)

Text: 61 When an employer violates the overtime wage provisions of section 7 of the Act, section 216(b) provides for payment of both unpaid wages and an equivalent amount of mandatory liquidated damages. 62 Any employer who violates the provisions of ... section 207 ... shall be liable to the employee or employees affected in the amount of ... their unpaid overtime compensation, ... and in an additional equal amount as liquidated damages.... 63 29 U.S.C. Sec. 216(b) (emphasis added). Under the Act, liquidated damages are compensatory, not punitive in nature. Congress provided for liquidated damages to compensate employees for losses they might suffer by reason of not receiving their lawful wage at the time it was due. Marshall v. Brunner, 668 F.2d 748, 753 (3d Cir.1982). 64 Despite the mandatory language of the Act, Congress has provided courts with some discretion to limit or not award liquidated damages. Section 11 of the Portal-to-Portal Act provides: 65 In any action ... to recover ... unpaid overtime compensation, or liquidated damages, under the [FLSA] ... if the employer shows ... 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 [FLSA] ... the court may, in its sound discretion, award no liquidated damages or award any amount thereof not to exceed the amount specified in [29 U.S.C. 216]. 66 29 U.S.C. Sec. 260. We have stressed that employers must show good faith and reasonable grounds before a court may exercise sound discretion to deny or limit liquidated damages. 67 [The Portal-to-Portal Act] provides that the district court has discretion to award no liquidated damages, or to award an amount of liquidated damages less than the amount provided by section 216(b) of the FLSA, if, and only if, the employer shows that he acted in good faith and that he had reasonable grounds for believing that he was not violating the Act. 68 Brunner, 668 F.2d at 753 (emphasis in original). Furthermore, before a district court exercises discretion it must make findings ... that the employer acted in good faith and with reasonable grounds. Williams v. Tri-County Growers, Inc., 747 F.2d 121, 129 (3d Cir.1984) (emphasis added, quoting from Guthrie v. Lady Jane Collieries, Inc., 722 F.2d 1141, 1149 (3d Cir.1983)). Simply quoting from the provisions of the Act is not enough. Claridge Hotel and Casino, 846 F.2d at 187-88. 69 We have also said a defendant employer bears the plain and substantial burden of proving he is entitled to discretionary relief from the FLSA's mandatory liquidated damages provision. Tri-County Growers, Inc., 747 F.2d at 128-29. An employer must prove, 70 that his failure to obey the statute was both in good faith and predicated upon such reasonable grounds that it would be unfair to impose upon him more than a compensatory verdict.... 71 The good faith requirement is a subjective one that requires that the employer have an honest intention to ascertain and follow the dictates of the Act. ... The reasonableness requirement imposes an objective standard by which to judge the employer's conduct ... Ignorance alone will not exonerate the employer under the objective reasonableness test.... 72 If the employer fails to come forward with plain and substantial evidence to satisfy the good faith and reasonableness requirements, the district court is without discretion to deny liquidated damages. 73 Id. at 129 (citations omitted). See similarly Claridge Hotel and Casino, 846 F.2d at 187. 74 To carry his burden, a defendant employer must show that he took affirmative steps to ascertain the Act's requirements, but nonetheless, violated its provisions. 75 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. Moreover, the employee need not establish an intentional violation of the Act to recover liquidated damages. Instead, the employer must affirmatively establish that he acted in good faith by attempting to ascertain the Act's requirements. 76 Tri-County Growers, Inc., 747 F.2d at 129 (citation omitted). A defendant employer's burden of proof is a difficult one to meet, Brock v. Wilamowsky, 833 F.2d 11, 19 (2d Cir.1987). Double damages are the norm, single damages the exception.... Walton v. United Consumers Club, Inc., 786 F.2d 303, 310 (7th Cir.1986).
77 Assuming a district court has first properly made the required preliminary findings of an employer's subjective good faith and objectively reasonable grounds for violating the Act, we will review its exercise of substantial discretion to deny or limit an award of liquidated damages only for abuse of discretion. Furthermore, while we must apply the clearly erroneous standard of Fed.R.Civ.P. 52(a) when reviewing both the district court's historical findings of fact which underlie its good faith and reasonableness determinations, Icicle Seafoods, 475 U.S. at 714, 106 S.Ct. at 1530, and the finding of subjective good faith itself, we exercise plenary review of the district court's legal conclusion that Cooper had reasonable grounds for believing that its violative conduct was not a violation of the FLSA. 11 78 Thus, we must decide first whether the district court erred by finding that Cooper violated the FLSA's overtime provisions in reasonable good faith. Only if the district court did not err making this preliminary determination, will we review with deference its refusal to award liquidated damages.
79 We hold that the district court erred as a matter of law by concluding that Cooper violated FLSA overtime requirements in reasonable good faith. Cooper failed to take affirmative steps to ascertain the Act's requirements before the onset of Labor's Wage and Hour Investigation, and this failure precludes a finding of reasonable good faith. Accordingly, we must remand for an award of liquidated damages equivalent to Cooper's employees' unpaid overtime wages, and will vacate the district court's award of prejudgment interest. 80 The district court reasoned that although Cooper did not attempt to ascertain the Act's overtime pay requirements, it violated the Act reasonably and in good faith because the company's illegal pay practices conformed to industry customs, and there was no evidence Cooper willfully violated the Act. The district court said: 81 [Cooper] acted in good faith and had reasonable grounds for believing that the subject employees were exempt from the overtime and record keeping provisions of the Act. It is true, as [Labor] notes, that prior to the Wage and Hour Investigation conducted by the Department of Labor, [Cooper] did not do any analysis or conduct any inquiry to determine whether the subject employees qualified for an exemption. Instead, since the inception of its business in 1961, defendant followed the well-established and widely accepted industry practice of compensating these employees on the basis of salary plus bonus where appropriate. The testimony is uncontroverted in this regard. Reliance on such an industry standard is reasonable and necessary if a company is to remain competitive in the market for qualified employees. [Cooper] cannot be faulted for its admitted lack of diligence in determining the applicability of the Act's requirements as to these employees. 82 Moreover, there is no evidence in the record to suggest that [Cooper] knowingly and willfully intended to avoid compliance with the requirements of the Act. In fact, the evidence indicates that as soon as actual non-compliance was brought to the attention of the defendant, the company voluntarily changed the pay structure for computer operators, assistant warehouse managers and purchasing agents. This voluntary compliance clearly is indicative of defendant's good faith. Finally, defendant's refusal to alter the compensation package for inside salespersons was based on a legitimate, good faith dispute as to whether these employees did, in fact, qualify for an exemption from the requirements of the Act. Indeed, the litigation of this case and the close factual determinations necessary for its ultimate resolution give credence to the reasonableness and good faith of the defendants actions. The record is clear that the defendant employer did not callously disregard its responsibility. Accordingly, the Court concludes that an award of liquidated damages is not appropriate in this case. 83 App. 23-25 (emphasis added). 84 We have quoted at length because we will discuss why the district court's reasoning does not support its findings of reasonable, good faith violations. First, that Cooper did not do any analysis or conduct any inquiry to determine whether [its] ... employees qualified for an exemption and it admitted [a] lack of diligence in determining the applicability of the Act's requirements, are dispositive of the liquidated damages issue. These facts are not clearly erroneous and upset the district court's legal conclusion that Cooper violated the Act in reasonable good faith. An employer must affirmatively establish that he acted in good faith by attempting to ascertain the Act's requirements. Tri-County Growers, Inc., 747 F.2d at 129. Cooper's failure to inquire into the Act's overtime pay requirements before Labor's Wage and Hour Investigation precludes a determination that the company's subjective good faith was reasonable. Accordingly, the district court's reasonableness finding was legal error, and that alone requires reversal and remand. 85 Second, the district court's finding that there is no evidence in the record to suggest that [Cooper] knowingly and willfully intended to avoid compliance with the Act is not by itself enough to support the finding of reasonable good faith. A showing that an employer did not intentionally violate the Act falls short of satisfying objective component of the good faith requirement. Tri-County Growers, Inc., 747 F.2d at 129. 86 Third, the district court's factual finding that Cooper voluntarily changed the pay structure for some but not all of its affected employees after Labor initiated its investigation is irrelevant to good faith analysis. 12 Section 11 of the Portal-toPortal Act requires retrospective analysis of an employer's conduct with respect to violations of the FLSA, not appraisal of an employer's post-violation conduct. Since Cooper's illegal wage payment practices preceded Labor's investigation, its response to the investigation may show good judgment but does not establish a good faith violation. 87 Fourth, that Cooper's violations conformed to well-established and widely accepted industry practice is not ground for finding a reasonable good faith violation of the Act. In lieu of any affirmative attempt by an employer to determine the legality of its wage payment practices, 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. Wilamowsky, 833 F.2d at 19-20. See similarly Laffey v. Northwest Airlines, Inc., 567 F.2d 429, 465 (D.C.Cir.1976), cert. denied, 434 U.S. 1086, 98 S.Ct. 1281, 55 L.Ed.2d 792 (1978) (That an employer and others in the industry have broken the law for a long time without complaints from employees is plainly not the reasonable ground to which the statute speaks.); Tri-County Growers, Inc., 747 F.2d at 129 (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). 88 The district court's good faith theory that Cooper's violative pay practices were reasonable and necessary competitive responses to the market for qualified employees, App. 23, is also mistaken. This reasoning tends improperly to favor companies in industries where economic conditions make violations of the Act most attractive or pervasive. See similarly Glenn v. General Motors Corp., 841 F.2d 1567, 1573 (11th Cir.), cert. denied, 488 U.S. 948, 109 S.Ct. 378, 102 L.Ed.2d 367 (1988) (in context of liquidated damages award arising under Equal Pay Act, court rejects discredited argument that market forces led defendant-employer to reasonable belief that discriminatory pay practices were in conformity with law). 89 Finally, the circumstances here do not support the district court's conclusion that Cooper's violation resulted from a legitimate, good faith dispute as to whether [inside salespersons] ... did, in fact, qualify for an exemption from the requirements of the Act. While we have considered the closeness of factual or legal questions in a case arising under the Act to be relevant to a liquidated damages decision, see Claridge Hotel and Casino, 846 F.2d at 187, we hold here that in order to assist an employer's case against liquidated damages, legal uncertainty ... must pervade and markedly influence the employer's belief; merely that the law is uncertain does not suffice. Laffey, 567 F.2d at 466. Legal uncertainty must have actually led the employer who violated the Act to believe that it was in compliance at the time of the violation. Here there is no record evidence that Cooper undertook its illegal pay practices reasonably believing them to be legal because of some pervasive legal uncertainty concerning the exemption status of its employees. The legality of its pay practices was never an issue for Cooper until Labor began its Wage and Hour Investigation. 90 We conclude that the district court had no discretion to deny liquidated damages for these employees because, first and foremost, Cooper had not demonstrated that it took affirmative steps to ascertain the legality of its pay practices before Labor's investigation. Accordingly, we will remand for an order awarding mandatory liquidated damages. 91 The purpose of an award of liquidated damages under section 16(b) of the Act, 29 U.S.C. Sec. 216(b), is to compensate employees for any losses caused by delayed receipt of overtime wages they are due. Brunner, 668 F.2d at 753. Since prejudgment interest serves the same purpose, 13 we will vacate that part of the district court's order.