Court Opinion

ID: 9621163
Source: CourtListenerOpinion
Date Created: 2023-08-22 05:52:38.637327+00
Date Added: 2024-06-11T15:04:41.460554
License: Public Domain

ARMSTRONG, J.,
dissenting.
As a matter of federal law, the Fair Labor Standards Act (FLSA) regulates the terms of employment contracts, and claims under the act are claims on a contract. Despite that federal construction of a federal statute, the majority concludes that in Oregon a claim under the FLSA is a tort. It therefore dismisses plaintiffs’ claims for unpaid overtime on the ground that plaintiffs failed to comply with the notice requirements of the Oregon Tort Claims Act (OTCA). The majority’s conclusions arise from a misunderstanding of the applicable federal law and state cases. Because the majority is wrong and this action is in fact contractual in nature, under ORS 30.320 the state has consented to be sued. The trial court therefore erred in dismissing the case, and I dissent from the majority’s action in affirming that decision.
Contrary to the majority’s conclusion, the FLSA does not create a statutory liability; rather it regulates the terms of employment contracts. It does so by imposing two major requirements on employers: to pay minimum wages and to pay premium pay for overtime.1 Each of those requirements regulates the contract of employment between the employer and the employee. 29 USC section 206(a) provides that *239“[e]very employer shall pay to each of his [covered] employees * * * wages at the following [minimum] rates [.]” 29 USC section 207(a)(1) provides that, with various exceptions, “no employer shall employ any of his employees * * * for a workweek longer than forty hours unless such employee receives compensation for his employment” of time and a half for the overtime. Every employment relationship includes an agreement to pay the employee for the employee’s services. Those provisions of the FLSA establish the minimum terms for that part of the employment contract. The FLSA thereby affects the scope of an employer’s duties under its contracts with its employees. As so regulated, those duties continue to arise from the employment contract and do not fall into the definition of “tort” in ORS 30.260(8).
That is precisely how the federal courts describe the effect of the FLSA. In Northwestern Yeast Co. v. Broutin, 133 F2d 628 (6th Cir 1943), the issue was whether the plaintiff had obtained quasi in rem jurisdiction over the defendant in Ohio on an FLSA claim by attaching and garnishing the defendant’s property in that state. The relevant Ohio statute limited such provisional process to claims that arose on a contract. The court held that there was jurisdiction because the claim clearly arose on a contract. It pointed out that the FLSA is premised on the existence of an employment contract and that even the double recovery allowed under 29 USC section 216 is compensation for services, not a penalty. “[T]he claim for overtime compensation is founded upon and is coexistent with the contract.” Northwestern, 133 F2d at 630. The court pointed out that, under the federal decisions, “the statutory obligation contained in the Fair Labor Standards Act is read into and becomes a part of every employment contract between an employer and employee subject to the terms of the Act.” Id. at 631.
In Roland Electrical Co. v. Black, 163 F2d 417 (4th Cir 1947), cert den 333 US 854 (1948), the issue was which Maryland statute of limitations applied to an action for overtime pay due under the FLSA, the three-year period for an action on a contract or the twelve-year period for an action on a specialty, which included actions based on a statute. The Fourth Circuit concluded that actions under the FLSA are actions on contracts:
*240“They depend on the contracts between the parties which arose out of the relationship of employer and employee, and their basic character is not changed by the fact that the terms of employment have been modified by the provisions of the Fair Labor Standards Act. We think that the provisions of the Act with reference to minimum wages, overtime compensation and liquidated damages are read into and become a part of every employment contract that is subject to the terms of the Act. The liability of the employer is for the wages due under working agreements which the federal statute compels employer and employee to make.” 163 F2d at 426 (emphasis added).
The court favorably quoted an English decision that the effect of a statutory minimum wage is that the employment contract “ ‘is to be, as it were, reconstructed by striking out the rate of wages, where it is lower than it ought to be, and by inserting the proper rate of wages in accordance with the statute.’ ” Id. at 427 (quoting Gutsell v. Reeve, 52 TLR 55, 58 (1935)).
The federal district courts uniformly followed those decisions in holding that contract statutes of limitations governed FLSA actions. See, e.g., Fletcher v. Grinnell Bros., 64 F Supp 778, 779 (ED Mich 1946); Keen v. Mid-Continent Petroleum, Corporation, 58 F Supp 915, 921 (ND Iowa 1945). In Cunningham v. Weyerhaeuser Timber Co., 52 F Supp 654 (WD Wash 1943), the court held that the proper Washington limitations period for an FLSA claim was that for a contract, rather than that for a liability founded on a statute. It pointed out that the decision turned on whether the obligations that the FLSA created must be read into the employment contract between the plaintiff and the defendant. It emphasized that, under both federal and Washington law, statutes in existence at the time of making a contract form a part of the contract and become incorporated in it so that they are part of its terms. Thus, the language of the FLSA, which had existed for some time before the oral employment contract, must be considered part of that contract. Cunningham, 52 F Supp at 656.2
*241The federal courts no longer need to consider those issues because of the adoption of a federal statute of limitations for FLSA actions in the Portal to Portal Act of 1947, 29 USC § 255(a). They have, however, never questioned the principles involved and occasionally still refer to them. See Continental Cas. Co. v. Anne Arundel Com. College, 867 F2d 800, 803-04 (4th Cir 1989) (citing Roland Electrical Co. for principle that the defendant’s equal pay obligations, 29 USC § 206(d), could be deemed to be implied or quasi-contractual obligations). The rule that the minimum wage and overtime provisions of the FLSA are read into employment contracts, thus, appears to be settled federal law. That in itself shows that an FLSA claim is not “the breach of a legal duty that is imposed by law, other than a duty arising from contract or quasi-contract” and, thus, is not a “tort” under the OTCA. ORS 30.260(8).3
Even if the federal law is not sufficient to determine the nature of a federal statute, Oregon law is itself consistent with the cases that I have discussed and, on its own, leads to the same result. In Oregon, as in the federal courts, it is well established that the applicable law of the land becomes part of every contract. See, eg., Ocean A. & G. Corp., Ltd. v. Albina M.I. Wks., 122 Or 615, 617, 260 P 229 (1927); Northwest Natural Gas Co. v. Chase Gardens, Inc., 146 Or App 249, 260, 933 P2d 370, on recons 147 Or App 586, 938 P2d 778 (1997), rev’d on other grounds 328 Or 487, 982 P2d 1117 (1999). In Blizzard v. State Farm Automobile Ins. Co, 86 Or App 56, 61, 738 P2d 983, rev den 304 Or 149 (1987), we took that approach with a statute that required insurance companies to offer underinsured motorist coverage to their policyholders. We concluded that, when a company failed to offer the coverage, the appropriate remedy was to read the coverage that the company should have offered into the policy. In the English court’s terms, we “reconstructed” the contract by *242inserting the terms that the statute required the company to offer. The effect was to give the insured a right on the insurance contract, not a tort action for a breach of a statutory duty. That is precisely what the federal courts hold is the result of a failure to comply with the FLSA: the employee has a right to recover on the employment contract with the terms that the statute required it to include.4
The cases on which the majority relies are not relevant to this issue. There was no issue of a contract in Urban Renewal Agency v. Lackey, 275 Or 35, 549 P2d 657 (1976), because there was no contractual relationship between the parties. The question was whether the plaintiff had a statutory duty to the defendant that arose from the plaintiffs condemnation of the defendant’s property. The Supreme Court did not have any reason to consider whether the administrative rules should be read into the nonexistent contract. In Griffin v. Tri-Met, 318 Or 500, 870 P2d 808 (1994), the question was whether an unlawful employment practice was a tort. Although there was a contractual relationship in that case, nothing about the statute modified the terms of the contract or added new terms to it. Rather, the statute created an independent duty that could, in fact, apply even when there was no contract at all, such as in a refusal to hire. Both of the statutes at issue in those cases are unlike the FLSA, which affects the very heart of an employment contract, the terms of compensation, requiring that those terms comply with the statutory mínimums.5
*243As the majority notes, after Alden v. Maine, 526 US 1002, 119 S Ct 2240, 144 L Ed 2d 636 (1999), plaintiffs’ ability to bring this action depends on whether the state has waived its immunity to suit. Because the claim is based on a contract, not a tort, plaintiffs’ failure to give notice within the period that the OTCA requires is irrelevant to that question. Rather, the issue is whether ORS 30.320, which provides for actions against state agencies on contracts made within their authority, is a waiver of immunity for these claims, which are based on employment contracts modified to comply with the requirements of the FLSA. I see no reason to distinguish such claims from any other contract claim and would therefore hold that the state has waived its immunity from suit on them. Because the majority holds otherwise, and because of the potential consequences of its decision on other claims,6 I dissent.

 I do not need to consider the Equal Pay Act portions of the FLSA. See 29 USC 8 206(d).

 The majority notes that in each of these cases the federal court had to decide the effect of a state statute. In none of them, however, was there any suggestion that the state had adopted a meaning for “contract” different from that which *241generally applies in common-law jurisdictions. I do not understand the majority to argue that in the OTCA Oregon has given the term some idiosyncratic meaning. Thus the federal cases are as applicable in Oregon as in every other state, with the possible exception of Louisiana.

 The dictum in Fullerton v. Lamm, 177 Or 655, 163 P2d 941 (1946), does not affect that conclusion. The court, without considering any relevant cases, merely suggested a tentative conclusion that had no effect on its holding, as the relevant statute of limitations was six years in either case.

 As the majority notes, ORS chapter 742 requires that insurance policies contain certain minimum terms. It could also have noted that ORS 742.038 provides that a noncomplying policy is not invalid but will be construed as if it complied with the statute. When that happens, the insurance contract remains in force but its terms are those that the statute requires. An action that relies on ORS 742.038 to establish the terms of an insurance policy is an action on a contract, not on a statute. See Hansen v. Western Home Ins. Co., 89 Or App 68, 747 P2d 1007 (1987), rev den 305 Or 576 (1988) (construing ORS 742.038 under its former designation as ORS 743.059). It is not clear why the majority believes that that is the result when the Oregon Legislature provides for it but that the result is different when Congress provides for it.

 In Maddox v. Clac. Co. Sch. Dist. No. 25, 293 Or 27, 643 P2d 1253 (1982), the Supreme Court expressly recognized that compensation is an interest of the parties that exists by virtue of the contract. Thus, Maddox is consistent with my position that a statute that regulates compensation modifies the contract rather than creates a new claim, unlike the court’s view of a statute that creates a right to be *243free from improper termination, a subject that does not otherwise appear in the contract. The other cases that the majority discusses tend to support my position.

 The majority does not consider the effect of its holding on such things as an employee’s rights under the state minimum wage law, ORS 653.005 through ORS 653.261, or under the wage payment statutes, see, e.g., ORS 652.120; ORS 652.140. Its conclusions could, however, have a serious effect on the enforcement of those essential portions of the state’s public policy protecting workers.