Court Opinion

ID: 4511936
Source: CourtListenerOpinion
Date Created: 2020-03-02 19:00:21.591891+00
Date Added: 2024-06-11T13:28:31.703906
License: Public Domain

FOR PUBLICATION

  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

EUGENE SCALIA, Secretary of Labor,       No. 18-16493
U.S. Department of Labor,
                 Plaintiff-Appellee,       D.C. No.
                                        2:16-cv-02916-
                 v.                          ROS

EMPLOYER SOLUTIONS STAFFING
GROUP, LLC, a limited liability            OPINION
company; EMPLOYER SOLUTIONS
STAFFING GROUP II, LLC, a limited
liability company; EMPLOYER
SOLUTIONS STAFFING GROUP III,
LLC, a limited liability company;
EMPLOYER SOLUTIONS STAFFING
GROUP IV, LLC, a limited liability
company,
              Defendants-Appellants.

      Appeal from the United States District Court
               for the District of Arizona
       Roslyn O. Silver, District Judge, Presiding

        Argued and Submitted February 3, 2020
                  Phoenix, Arizona

                  Filed March 2, 2020
2     SCALIA V. EMPLOYER SOLUTIONS STAFFING GRP.

        Before: Susan P. Graber, Andrew D. Hurwitz,
             and Eric D. Miller, Circuit Judges.

                     Opinion by Judge Graber

                            SUMMARY*

                   Fair Labor Standards Act

    The panel affirmed the district court’s summary judgment
entered in favor of the Secretary of Labor in an action
challenging four companies’ failure to pay overtime to
employees who worked more than 40 hours in a workweek in
violation of the Fair Labor Standards Act (“FLSA”).

    Employer Solutions Staffing Companies (“ESSG”)
contracts with other companies to recruit employees and
place them at jobsites for which ESSG handled administrative
tasks. ESSG conceded that it qualified as an “employer” of
the recruited employees under FLSA. ESSG contracted with
Sync Staffing, which placed the recruited employees at a
jobsite run by TBG Logistics. One of ESSG’s employees,
Michaela Haluptzok, was responsible for processing the TBG
Logistics payroll. A Sync employee told Haluptzok to pay
overtime hours as “regular” hours, which was a FLSA
violation.

   Consistent with the law of agency, the panel imputed
Haluptzok’s actions to ESSG. The panel held that because

    *
      This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
     SCALIA V. EMPLOYER SOLUTIONS STAFFING GRP.             3

Haluptzok admitted that she knew the recruited employees
were not being paid overtime owed to them, the district court
correctly found no dispute of material fact as to ESSG’s
ultimate liability under the FLSA.

    Ordinarily, a two-year statute of limitations applies to
claims under FLSA, but for a “willful violation,” the
limitations period extends to three years. The panel held that
through its agent, Haluptzok, ESSG recklessly disregarded
the possibility that it was violating FLSA. Accordingly, the
three-year statute of limitations applied to the Secretary’s
claim, making the action timely.

    FLSA mandates liquidated damages in an amount equal
to the unpaid overtime compensation claims unless the
employer acted in “good faith” and had “reasonable grounds”
to believe it was not violating FLSA. The panel held that
because ESSG’s violations were willful, it could not have
acted in good faith. Accordingly, the panel affirmed the
award of liquidated damages.

    The panel held that there was no indication that Congress
intended to create a right to contribution or indemnification
for liable employers from another employer under FLSA.
The panel further held that no right to contribution or
indemnification arose under federal common law.
4     SCALIA V. EMPLOYER SOLUTIONS STAFFING GRP.

                            COUNSEL

Michael R. Shebelskie (argued), Hunton Andrews Kurth LLP,
Richmond, Virginia; Rebecca J. Levine, Rebecca Levine Law
PLLC, Edina, Minnesota; for Defendants-Appellants.

Katelyn J. Poe (argued), Attorney; Paul L. Frieden, Counsel
for Appellate Litigation; Jennifer S. Brand, Associate
Solicitor; Kate S. O’Scannlain, Solicitor of Labor; United
States Department of Labor, Washington, D.C.; for Plaintiff-
Appellee.

                             OPINION

GRABER, Circuit Judge:

    Employer Solutions Staffing Group and three related
companies (collectively, “ESSG”)1 appeal from the summary
judgment entered in favor of the Secretary of Labor in this
action challenging ESSG’s failure to pay overtime to
employees who worked more than 40 hours in a workweek,
in violation of the Fair Labor Standards Act of 1938
(“FLSA”), 29 U.S.C. §§ 201–219. ESSG also disputes the
dismissal of its cross-claims against other defendants below
for indemnification or contribution. We affirm.

                         BACKGROUND

   ESSG, a staffing company, contracts with other
companies to recruit employees and place them at jobsites for

    1
      Four related companies with nearly identical names are defendants
here; they usually refer to themselves using the singular “ESSG.”
     SCALIA V. EMPLOYER SOLUTIONS STAFFING GRP.             5

which ESSG handles administrative tasks, such as payroll
processing. ESSG concedes that it qualifies as an “employer”
of the recruited employees under the FLSA, 29 U.S.C.
§ 203(d).

    In 2012, ESSG contracted with Sync Staffing, which
placed the recruited employees at a jobsite run by TBG
Logistics, where the employees unloaded deliveries for a
grocery store. TBG maintained a spreadsheet of the
employees’ hours. For each pay period in November 2012
and thereafter, TBG sent the spreadsheet to Sync, which
forwarded it to ESSG.

    Only one of ESSG’s employees, Michaela Haluptzok, was
responsible for processing the TBG payroll. ESSG trained
Haluptzok on the FLSA’s requirements. The first time that
Haluptzok received one of the spreadsheets, she prepared and
sent to Sync a report showing that employees who had
worked more than 40 hours per week would receive overtime
pay for those hours. But when a Sync employee called
Haluptzok and told her—without explaining why this action
would be appropriate—to pay all of the hours as “regular
hours” instead of overtime, Haluptzok complied.

    To follow the Sync employee’s instructions, Haluptzok
had to dismiss numerous error messages from Defendant’s
payroll software. Haluptzok understood that not paying
overtime for the qualifying employees triggered the error
messages, but she disregarded the messages anyway. After
processing her first spreadsheet in this manner, Haluptzok did
the same thing for every future spreadsheet. ESSG’s
relationship with TBG and Sync ended on July 27, 2014; by
that date, more than 1,000 violations had occurred in which
employees did not receive their earned overtime pay.
6    SCALIA V. EMPLOYER SOLUTIONS STAFFING GRP.

     The Secretary sued ESSG, TBG, Sync, and another
company in August 2016, more than two years after the final
overtime violation occurred. ESSG brought cross-claims for
contribution or indemnification against the other defendants.
The district court dismissed those claims under Federal Rule
of Civil Procedure 12(b)(6). The district court also denied
Defendant’s motion to file a third-party complaint seeking
contribution from a grocery store where some recruited
employees worked.         The Secretary reached consent
judgments with the other companies, so only ESSG remained
in the case when the Secretary moved for summary judgment.
The district court granted the Secretary’s motion, held that
ESSG had violated the FLSA willfully, and ordered ESSG to
pay approximately $78,500 in unpaid overtime wages plus an
equal amount in liquidated damages.

               STANDARD OF REVIEW

    We review de novo a grant of summary judgment. Flores
v. City of San Gabriel, 824 F.3d 890, 897 (9th Cir. 2016). We
also review de novo “the application of legal principles to
established facts.” Id. at 905. Finally, we review de novo a
dismissal under Rule 12(b)(6). Fields v. Twitter, Inc.,
881 F.3d 739, 743 (9th Cir. 2018).

                       DISCUSSION

    We first address ESSG’s arguments that it cannot be
liable for the actions of a low-level employee such as
Haluptzok and that, regardless, any FLSA violations were not
willful and instead occurred in good faith. We then discuss
whether the FLSA allows a liable employer to seek
indemnification or contribution from other employers.
     SCALIA V. EMPLOYER SOLUTIONS STAFFING GRP.                 7

    A. Liability

    Haluptzok knew that the relevant employees were
working more than 40 hours per week without receiving
overtime pay. ESSG chose Haluptzok as its agent for payroll
processing, so it cannot disavow her actions merely because
she lacked a specific job title or a certain level of seniority in
the company. See United States v. Graf, 610 F.3d 1148, 1156
(9th Cir. 2010) (“As an inanimate entity, a corporation must
act through agents.” (quoting CFTC v. Weintraub, 471 U.S.
343, 348 (1985))); see also Restatement (Third) of Agency
§ 1.01 (defining “agent” as one who “act[s] on the principal’s
behalf and subject to the principal’s control”). Allowing
ESSG to evade liability simply because none of its
“supervisors” or “managers” processed the payroll would
create a loophole in the FLSA and run counter to the statute’s
purpose of “protect[ing] all covered workers from
substandard wages and oppressive working hours.”
Williamson v. Gen. Dynamics Corp., 208 F.3d 1144, 1150
(9th Cir. 2000) (internal quotation marks omitted).
Consistent with the law of agency, we impute Haluptzok’s
actions to ESSG. Because Haluptzok admitted that she knew
the recruited employees were not being paid overtime owed
to them, the district court correctly found no dispute of
material fact as to ESSG’s ultimate liability under the FLSA.
See Forrester v. Roth’s I.G.A. Foodliner, Inc., 646 F.2d 413,
414 (9th Cir. 1981) (“[A]n employer who knows or should
have known that an employee is or was working overtime
must comply with the provisions of [29 U.S.C. §] 207[(a)].”).

    B. Willfulness

    Ordinarily, a two-year statute of limitations applies to
claims under the FLSA. 29 U.S.C. § 255(a). But for a
8       SCALIA V. EMPLOYER SOLUTIONS STAFFING GRP.

“willful violation,” the limitations period extends to three
years. Id. Because the Secretary sued ESSG more than two
years after the last violation, ESSG must have acted willfully
for this action to be timely.

    A violation is willful when “the employer either knew or
showed reckless disregard for . . . whether its conduct was
prohibited by the [FLSA.]” McLaughlin v. Richland Shoe
Co., 486 U.S. 128, 133 (1988). For more than a year,
Haluptzok dismissed the payroll software’s repeated warnings
that employees might not be receiving earned overtime pay.
Although she (at least initially) acted on Sync’s instructions
not to pay overtime, she never received any explanation from
Sync that justified dismissing the software’s error messages.
Thus, through its agent, ESSG recklessly “disregarded the
very possibility that it was violating the statute.” Alvarez v.
IBP, Inc., 339 F.3d 894, 908–09 (9th Cir. 2003) (internal
quotation marks omitted).2 Accordingly, the three-year
statute of limitations applies to the Secretary’s claim, making
this action timely.

    C. Liquidated Damages

   The FLSA mandates liquidated damages in an amount
equal to the unpaid overtime compensation unless an
employer acted in “good faith” and had “reasonable grounds”

    2
       ESSG questions whether our decision in Alvarez comports with the
“reckless disregard” standard set forth in Richland Shoe. See Flores v.
City of San Gabriel, 824 F.3d 890, 907–08 (9th. Cir. 2016) (Owens, J.,
concurring). Of course, we are not free to revisit Alvarez. See Miller v.
Gammie, 335 F.3d 889, 892–93 (9th Cir. 2003) (en banc). In any event,
based on Haluptzok’s admissions, we have little trouble concluding that
ESSG recklessly disregarded its obligations under the FSLA even under
the strictest reading of Richland Shoe.
     SCALIA V. EMPLOYER SOLUTIONS STAFFING GRP.             9

to believe that it was not violating the FLSA. 29 U.S.C.
§§ 216(b), 260. Because ESSG’s violations were willful, it
could not have acted in good faith. See Chao v. A-One Med.
Servs., Inc., 346 F.3d 908, 920 (9th Cir. 2003) (“[A] finding
of good faith is plainly inconsistent with a finding of
willfulness.”).

    ESSG insists that an employer can act in good faith while
willfully violating the FLSA. But, as a three-judge panel we
cannot overrule Chao in the absence of intervening en banc
or Supreme Court precedent. Miller v. Gammie, 335 F.3d
889, 892–93 (9th Cir. 2003) (en banc). Indeed, Chao aligns
with precedent in most other circuits that have reached the
issue. See Alvarez Perez v. Sanford-Orlando Kennel Club,
Inc., 515 F.3d 1150, 1166 (11th Cir. 2008) (agreeing with
Chao, joining “the majority side of the circuit split on this
issue,” and collecting cases). Thus, we affirm the award of
liquidated damages.

   D. Indemnification/Contribution

    The FLSA’s text does not expressly address whether an
employer may seek indemnification or contribution from
another employer, but ESSG contends that the statute
implicitly permits those remedies. Alternatively, ESSG asks
us to recognize those remedies under federal common law.

       1. Whether the FLSA Implicitly                 Allows
          Indemnification or Contribution

    “In determining whether a federal statute that does not
expressly provide for a particular private right of action
nonetheless implicitly created that right, our task is one of
statutory construction.” Nw. Airlines, Inc. v. Transp. Workers
10       SCALIA V. EMPLOYER SOLUTIONS STAFFING GRP.

Union, 451 U.S. 77, 91 (1981). We must ascertain “whether
Congress intended to create the private remedy—for example,
a right to contribution—that the [litigant] seeks to invoke.”
Id. In recent decades, the Supreme Court has adopted a
“cautious course before finding implied causes of action.”
Ziglar v. Abbasi, 137 S. Ct. 1843, 1855 (2017). Four factors
guide our inquiry: (1) the statute’s text; (2) “the underlying
purpose and structure of the statutory scheme”; (3) “the
likelihood that Congress intended to supersede or to
supplement existing state remedies”; and (4) the statute’s
legislative history. Nw. Airlines, 451 U.S. at 91; accord Tex.
Indus., Inc. v. Radcliff Materials, Inc., 451 U.S. 630, 639
(1981).

    ESSG largely ignores the relevant factors and argues that,
because employers face joint and several liability under the
FLSA, they necessarily must have a right to seek contribution
from one another. Defendant emphasizes 29 C.F.R. § 791.2
(2019), which provides that “all joint employers are
responsible, both individually and jointly, for compliance
with all of the applicable provisions of the act.” A newer,
not-yet-effective version of this regulation refers expressly to
joint and several liability: “[A] joint employer is jointly and
severally liable with . . . any other joint employers for
compliance with all of the applicable provisions of the Act.”
Id. (2020).3 Of course, the regulation does not clarify what
Congress intended when it enacted the FLSA in 1938; it
provides only the Secretary’s current interpretation of the
FLSA.

    But the Supreme Court has rejected the argument that
joint and several liability always goes hand-in-hand with

     3
         The newer version takes effect on March 16, 2020.
     SCALIA V. EMPLOYER SOLUTIONS STAFFING GRP.              11

contribution. See Tex. Indus., 451 U.S. at 646 (“Nor does the
judicial determination that defendants should be jointly and
severally liable suggest that courts also may order
contribution, since joint and several liability simply ensures
that the plaintiffs will be able to recover the full amount of
damages from some, if not all, participants.”). And the
common law “provided no right to contribution among joint
tortfeasors.” Id. at 634. ESSG does not merely owe a debt to
its employees; it committed a wrong against them. Thus, we
remain unpersuaded that Congress necessarily codified a right
to contribution when it enacted the FLSA.

    We turn now to the four factors. The Second Circuit,
applying the four-factor framework from Northwest Airlines,
has held that the FLSA does not provide a right to
contribution or indemnification for liable employers. Herman
v. RSR Sec. Servs. Ltd., 172 F.3d 132, 144 (2d Cir. 1999).
We agree.

    First, the FLSA’s text says nothing about a right to
contribution or indemnification for employers who have
violated the statute. That silence “is not dispositive if, among
other things,” the statute’s text suggests that it was “enacted
for the special benefit of a class of which [ESSG] is a
member.” Nw. Airlines, 451 U.S. at 91–92. But, the FLSA’s
text suggests exactly the opposite. See 29 U.S.C. § 202
(noting the congressional policy behind the FLSA of
eliminating “labor conditions detrimental to the maintenance
of the minimum standard of living necessary for health,
efficiency, and general well-being of workers”).

    Second, as its text suggests, the FLSA’s “central purpose”
is to “enact minimum wage and maximum hour provisions
designed to protect employees,” not employers. Williamson,
12   SCALIA V. EMPLOYER SOLUTIONS STAFFING GRP.

208 F.3d at 1154; see also Herman, 172 F.3d at 144 (stating
that the FLSA “was designed to regulate the conduct of
employers for the benefit of employees”). In other words,
ESSG belongs to the class whose conduct Congress intended
to control “for the protection and benefit of an entirely
distinct class.” Tex. Indus., 451 U.S. at 639 (quoting Piper v.
Chris-Craft Indus., Inc., 430 U.S. 1, 37 (1977)). The FLSA’s
statutory scheme resembles those of the Equal Pay Act and
Title VII of the Civil Rights Act, for which Northwest
Airlines found no implied right to contribution for employers.
Similarly, the FLSA “has a comprehensive remedial scheme
as shown by the ‘express provision for private enforcement
in certain carefully defined circumstances,’” Herman,
172 F.3d at 144 (quoting Nw. Airlines, 451 U.S. at 93), and
for enforcement by the federal government in other
circumstances, 29 U.S.C. § 217. Indeed, “broader or more
comprehensive coverage of employees . . . would be difficult
to frame.” United States v. Rosenwasser, 323 U.S. 360, 362
(1945).

    Third, “[t]he comprehensive character of the remedial
scheme expressly fashioned by Congress strongly evidences
an intent not to authorize additional remedies” beyond those
expressly allowed under the statute. Nw. Airlines, 451 U.S.
at 93–94. The FLSA provides “comprehensive statutory
remedies,” Williamson, 208 F.3d at 1155, and it is “not within
our competence as federal judges to amend . . .
comprehensive enforcement schemes” by adding private
remedies that Congress never intended to allow, Nw. Airlines,
451 U.S. at 94.

    Fourth, and finally, the FLSA’s legislative history is
“silent on a right to contribution or indemnification” for
employers. Herman, 172 F.3d at 144 (collecting the relevant
     SCALIA V. EMPLOYER SOLUTIONS STAFFING GRP.            13

legislative history). In sum, we see no indication that
Congress intended to create a right to contribution or
indemnification for employers under the FLSA.

    ESSG argues that allowing it to seek contribution or
indemnification from other employers would advance the
FLSA’s purpose in various ways, including by encouraging
employers to be more proactive about complying with the
statute. Maybe so, but such policy questions belong to
“Congress, not the courts, to resolve.” Tex. Indus., 451 U.S.
at 646. “If the statute itself does not ‘display an intent’ to
create ‘a private remedy,’ then ‘a cause of action does not
exist and courts may not create one, no matter how desirable
that might be as a policy matter, or how compatible with the
statute.’” Ziglar, 137 S. Ct. at 1856 (brackets omitted)
(quoting Alexander v. Sandoval, 532 U.S. 275, 286–87
(2001)). Following the Supreme Court’s “cautious course,”
id. at 1855, we decline to find an implied cause of action for
contribution or indemnification under the FLSA.

       2. Whether a Right to Contribution or
          Indemnification Arises Under Federal Common
          Law

    Federal courts have the authority to craft federal common
law in limited circumstances. First, we may undertake this
type of lawmaking “in those few instances where ‘a federal
rule of decision is necessary to protect [a] uniquely federal
interest.’” Mortgs., Inc. v. U.S. Dist. Court, 934 F.2d 209,
213 (9th Cir. 1991) (per curiam) (quoting Tex. Indus.,
451 U.S. at 640). “The right of recovery from another
wrongdoer, however, does not implicate any such interests.”
Id. Thus, this category does not help ESSG.
14   SCALIA V. EMPLOYER SOLUTIONS STAFFING GRP.

    Similarly, we may create federal common law “in those
areas dominated by strong national or federal concerns such
as controversies between states, admiralty matters, or foreign
relations.” Id. Plainly, this category does not apply here.

    Finally, “Congress may empower federal courts to make
federal common law when a statute contains sweeping
language and its legislative history indicates Congress’s
expectation that the courts will ‘give shape to the statute’s
broad mandate by drawing on common-law tradition.’” Id.
(quoting Nat’l Soc’y of Prof’l Eng’rs v. United States,
435 U.S. 679, 688 (1978)). In National Society of
Professional Engineers, for example, the Court addressed the
Sherman Act, for which “[t]he legislative history makes it
perfectly clear that [Congress] expected the courts to give
shape” to the statute’s broad contours. 435 U.S. at 688. By
contrast, neither the FLSA’s text nor its legislative history
suggests that Congress expected the courts to go beyond the
“judicial interpretation of ambiguous or incomplete
provisions” that proves necessary for “almost any statutory
scheme.” Nw. Airlines, 451 U.S. at 97.

    When “Congress has enacted a comprehensive legislative
scheme” that includes “integrated procedures for
enforcement,” we presume that Congress did not intend for us
“to supplement the remedies enacted.” Mortgs., 934 F.2d
at 213. The FLSA is just such a comprehensive statute. It
includes procedures for both “private enforcement in certain
carefully defined circumstances,” Herman, 172 F.3d at 144
(internal quotation marks omitted), and (as in this case)
enforcement by the Secretary, § 217. Thus, this final
category also does not help ESSG.
     SCALIA V. EMPLOYER SOLUTIONS STAFFING GRP.           15

    We thus join the Second Circuit in holding that the FLSA
does not imply a right to contribution or indemnification for
liable employers. We also decline to make new federal
common law that recognizes those rights.

   AFFIRMED.