Opinion ID: 198264
Heading Depth: 2
Heading Rank: 3

Heading: Willfulness of the Violations

Text: 42 Alternatively, plaintiff-appellants argue that even if the temporary workers were their employees, the Board erred in finding that plaintiffs willfully violated the FLSA's overtime compensation provisions, within the meaning of § 16(e) of the Act. Citing the well-established test of a willful violation articulated in McLaughlin v. Richland Shoe Co., 486 U.S. 128, 133, 108 S.Ct. 1677, 100 L.Ed.2d 115 (1988) (holding that an employer acts willfully for the purposes of the FLSA's statute of limitations if it knew or showed reckless disregard for the matter of whether its conduct was prohibited by the FLSA), 14 the Board concluded that plaintiffs either knew that their conduct was prohibited by the FLSA, or showed a reckless disregard for that possibility. In reaching this conclusion, the Board relied on examples set forth in 29 C.F.R. § 578.3(c), 15 a regulation based on the Richland Shoe standard which defines the term willful violation for the purposes of § 16(e)'s civil penalty provision. See 57 Fed.Reg. 49,128 (1992)(supplementary information) (stating that the regulation's definition of a willful violation is based on the Richland Shoe decision). 43 First, citing 29 C.F.R. § 578.3(c)(2), the Board observed that during the 1989-1990 and 1992 investigations the Wage and Hour Division put plaintiffs on notice that plaintiffs' recordkeeping practices and overtime compensation practices violated the Act, and in fact gave plaintiffs a Wage and Hour Division publication which stated that temporary help companies are the joint employers of the workers they place. The Board reasoned that the Wage and Hour Division's notice to plaintiffs was sufficient under [29 C.F.R. § 578.3(c)(2) ] to find that plaintiffs willfully violated the Act. Second, the Board rejected plaintiffs' contention that their alleged violations were not willful, within the meaning of § 16(e), because they relied on the opinion of Baystate's attorney and accountant that the temporary workers were not covered by the Act. Citing 29 C.F.R. § 578.3(c)(3), the Board found that plaintiffs' reliance on such opinions was not sufficient after the Wage and Hour Division advised them that they were required to pay overtime compensation to the temporary workers, and that plaintiffs' failure to make further inquiries--over and above obtaining the advice of a professional--constituted a reckless disregard of the requirements of the Act. 44 Although neither party challenges or defends 29 C.F.R. § 578.3(c)'s examples of willful violations, we note their incongruity with the Richland Shoe standard on which the regulation is based. Pursuant to section 578.3(c)(2), an employer knowingly violates the FLSA if its actions are at variance with advice received from a responsible official of the Wage and Hour Division. See 29 C.F.R. § 578.3(c)(2). On its face, such a standard precludes legitimate disagreement between a party and the Wage and Hour Division about whether the party is an employer covered by the Act, leaving a putative employer in an untenable position: either accept the Wage and Hour Division's position and comply with its advice, or risk a finding of a willful violation of the Act. Whether the FLSA covers a particular putative employer has engendered considerable litigation, which has in turn given rise to various court-fashioned tests of employer status. These tests are by necessity fact-driven and context-specific, and in some cases there may be room for legitimate disagreement between a party and the Wage and Hour Division as to whether the party is an employer within the meaning of the FLSA. Because legitimate disagreement may exist about the Act's coverage, we have significant reservations about 29 C.F.R. § 578.3(c)(2)'s blanket assertion that a party's decision not to comply with the Wage and Hour Division's advice constitutes a knowing violation of the Act under the Richland Shoe standard. 45 Furthermore, pursuant to 29 C.F.R. § 578.3(c)(3), an employer shows reckless disregard for the requirements of the Act if it should have inquired further into whether its conduct was in compliance with the Act, and failed to make adequate further inquiry. 29 C.F.R. § 578.3(c)(3). Although it is possible to envision circumstances in which a failure to make further inquiry into the legality of one's conduct might constitute a reckless disregard of the FLSA, section 578.3(c)(3) by its terms--specifically, that a party should have inquired further about the legality of its conduct--embraces a negligence standard of liability. The Richland Shoe Court, however, expressly rejected a negligence standard of liability, see Richland Shoe, 486 U.S. at 133-35, 108 S.Ct. 1677, and noted that an employer does not act willfully even if it acts unreasonably in determining whether it is in compliance with the FLSA, see id. at 135 n. 13, 108 S.Ct. 1677. 46 At best, the regulation's examples of willfulness are incomplete and unhelpful, and we are troubled by the Board's considerable reliance on them in reaching its conclusion that plaintiffs willfully violated the FLSA's overtime compensation provisions. To the extent that the Board failed to take into consideration the Richland Shoe standard of willfulness by placing undue weight on the regulation's dubious examples of such conduct, it did not apply the appropriate standard to the willfulness determination. Accordingly, we conclude that a remand is necessary to permit the Board to take further action consistent with the correct legal standard of a willful violation embodied in the Richland Shoe decision. 16