Informal Conversations with Department of Labor are Insufficient to Avoid Liquidated Damages in Class Action

In McLean v. Garage Management Corp., Judge Denise Cote of the Southern District of New York reaffirmed the high standards an employer must meet in order to avoid liquidated damages under the Fair Labor Standards Act–holding that lessons learned from a previous government investigation into an employer’s pay practices may not permit an employer to avoid liquidated damages.

In McLean, the plaintiffs, who were current and former parking garage employees, brought claims against Garage Management Corp. (“GMC”) for violations of the FLSA and the New York Labor Law’s overtime provisions.  The plaintiffs worked in the position of Garage Manager and alleged that they were misclassified as exempt from the FLSA’s overtime requirements and denied overtime pursuant to the FLSA’s “bona fide executive exemption.”

After granting summary judgment in favor of the plaintiffs on liability, Judge Cote issued a separate opinion as to whether GMC acted in good faith, and whether its violation of the FLSA was willful for purposes of triggering the FLSA’s three-year statute of limitations.

Under the FLSA, liquidated damages (or double damages), as a general matter, are “the norm.”  In other words, if an employer is found to violate the FLSA, then the amount of back-pay owed to the employee is doubled.  However, an employer can avoid liquidated damages by proving that its actions were in “good faith” and that it had “objectively reasonable grounds” for believing its actions did not violate the FLSA.  The Second Circuit has held employers to a very high standard for making a good faith showing–they must prove good faith by “plain and substantial evidence.”  The employer must show that it took “active steps” to learn and comply with the FLSA.

In order to show good faith, GMC argued that it had been the subject of previous investigations by the US Department of Labor into its practices, and had learned about the requirements of the FLSA during those investigations.  However, Judge Cote was unimpressed; she held that “informal conversations” with government officials do not constitute the “active steps” required to show good faith under the FLSA.  Furthermore, Judge Cote noted that the previous investigation focused on Garage Attendants, not Garage Managers, and GMC had not given the department of labor all pertinent information about Garage Managers in connection with the previous investigation.

GMC also attempted to show good faith by highlighting that it periodically consulted with outside counsel.  However, Judge Cote held that an advice of counsel defense without a waiver of attorney client privilege–which GMC was unwilling to do here–could not pass muster.

Abbey Spanier, LLP, located in New York City, is a well-recognized national class action and complex litigation law firm.