Freeman et al v. Smith et al
Filing
270
OPINION AND ORDER. With respect to Plaintiffs' FLSA claims and Defendants' defenses, the Court makes the findings of fact and conclusions of law stated in this Opinion and Order. The Court will enter a Judgment in Plaintiffs' favor and against Defendants on the claims and for the damages specified herein. IT IS SO ORDERED. Signed on 7/25/2023 by Magistrate Judge Stacie F. Beckerman. (gw)
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IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON
CAROL FERGUSON and LYNDA
FREEMAN, on behalf of themselves and, in
addition, on behalf of others similarly situated,
Case No. 3:18-cv-00372-SB
OPINION AND ORDER
Plaintiffs,
v.
MARIA SMITH, an individual; GLADSTONE
AUTO, LLC, an Oregon limited liability
company; and CARROS, INC., an Oregon
corporation,
Defendants.
BECKERMAN, U.S. Magistrate Judge.
The Court recently held jury and bench trials in this Fair Labor Standards Act (“FLSA”)
collective action. The parties agree that in resolving the issues that were the subject of the bench
trial, the Court may consider all the testimony and evidence received during the jury trial, the
jury’s verdict and findings, and the parties’ pretrial and posttrial submissions to the Court.1
The parties’ positions are reflected in their posttrial submissions. (See Defs.’ Proposed
Findings Fact & Conclusions Law (“Defs.’ Proposed F&C”) at 1-6, ECF No. 261; Defs.’ Mem.
Supp. Proposed F&C (“Defs.’ Mem.”) at 1-8, ECF No. 262; Decl. Ian Maher (“Maher Decl.”)
¶¶ 1-8, ECF No. 263; id. Exs. 1-7, ECF No. 263-1; Pls.’ Proposed F&C at 1-11, ECF No. 264;
1
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After reviewing the testimony and evidence, the jury’s verdict and findings, and the
parties’ pretrial and posttrial submissions and arguments, the Court makes the following findings
of fact and conclusions of law, pursuant to Federal Rule of Civil Procedure (“Rule”) 52(a). See
Univ. Acct. Serv., LLC v. Schulton, No. 3:18-cv-1486-SI, 2020 WL 2393856, at *1-2, *21 (D.
Or. May 11, 2020) (taking the same approach in a mixed jury and bench trial and issuing an
opinion and order setting forth the court’s findings of fact and conclusions of law under Rule
52(a)). “Any finding of fact that constitutes a conclusion of law is adopted as a conclusion of
law, and any conclusion of law that constitutes a finding of fact is adopted as a finding of fact.”
Id. at *2.
FINDINGS OF FACT
1.
On March 1, 2018, Plaintiffs Carol Ferguson (“Ferguson”) and Lynda Freeman
(“Freeman”) (together, “Plaintiffs”) filed this collective action against Defendants Maria Smith
(“Smith”) and Gladstone Auto, LLC and Carros, Inc., which respectively do business as Toyota
of Gladstone and Mazda of Gladstone (together with Smith, “Defendants”). (Compl. at 1-9, ECF
No. 1.) Plaintiffs asserted FLSA claims against Defendants based on their alleged failure to pay
Plaintiffs, and the collective members, minimum wages and overtime by their regular payday.
(Id. at 7-8.)
2.
At all relevant times, Smith owned Gladstone Auto, LLC (“Gladstone”) and
Carros, Inc. (“Carros”). (Jury Trial Tr. vol. 2, 302:13-303:15, May 2, 2023, ECF No. 258.)
Gladstone operated as Toyota of Gladstone, and Carros operated as Mazda of Gladstone. (Id.) In
November 2005, Smith purchased Toyota of Gladstone and adopted the same employee
Pls.’ Mem. Supp. Proposed F&C (“Pls.’ Mem.”) at 1-12, ECF No. 265; Defs.’ Resp. Pls.’
Proposed F&C (“Defs.’ Resp.”) at 1-7, ECF No. 268; Pls.’ Objs. Defs.’ Proposed F&C (“Pls.’
Objs.”) at 1-12, ECF No. 269.)
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handbook that she used at her Washington automobile dealerships, which she stated, without
elaboration, “had been recommended, basically,” and was “the standard handbook . . . provided
by” the Washington State Auto Dealers Association (“WSADA”), the handbook that “pretty
much” all Washington dealerships “were utilizing” and “follow[ed],” and the handbook Rick
Lentini (“Lentini”), a Seattle-based labor and franchise law attorney, prepared for the WSADA.2
(Id. at 307:21-310:4; Jury Trial Tr. vol. 1, 191:7-192:8.) Around the time she adopted this
handbook at Toyota of Gladstone, Smith also “looked at” the “Oregon dealers association
handbook,” which was “[a] pretty similar . . . boilerplate-type manual.” (Jury Trial Tr. vol. 1,
191:7-192:8.)
3.
The employee handbook included this payday policy: “Paychecks are distributed
on the 10th and 25th of each month. If the scheduled day falls on a weekend or holiday, you will
be paid on the preceding business day.” (Jury Trial Tr. vol. 2, 297:18-21; id. at 310:11-20; Pls.’
Trial Ex. 6.)
4.
In or around October 2006, after she trained Toyota of Gladstone’s new general
manager, David Elder (“Elder”), Smith changed the paydays to the 5th and 20th of each month
2
Before trial, Defendants represented that (1) Smith planned to testify that her
dealerships’ long-time litigation and “regular labor and employment counsel,” Robert Bekken
(“Bekken”), who had recently withdrawn from this case, provided this employee handbook to
Smith, who relied on it after having Lentini, who the WSADA “recommended to [Smith],”
conduct an “additional review” regarding whether the handbook’s policies were “legally
compliant,” and (2) Bekken planned to testify that he provided Smith with “a model handbook he
had prepared for automobile dealers, which [Smith] had adapted for the 2005 handbook, and to
his understanding [was also] reviewed by . . . Lentini,” and that “a team of
associates . . . knowledgeable in wage and hour requirements, including under the [FLSA],”
assisted him in “developing the handbook . . . he provided to [Smith].” (Defs.’ Revised Witness
Statements at 2, 5-6, ECF No. 217; Notice Att’y Withdrawal at 1-2, ECF No. 215; Jury Trial
Tr. vol. 1, 5:1-7; id. at 167:17, May 1, 2023, ECF No. 257; Defs.’ Lay Witness List at 2, 5, ECF
No. 195.) Bekken, however, did not testify at trial. (See Jury Trial Tr. vol. 1, 5:1-7; see also Trial
Order Witnesses & Dep. Designations at 5, ECF No. 230.) Nor did Smith testify that Bekken or
Lentini reviewed or provided this handbook.
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because Elder had gained necessary payroll experience, she used the same paydays at her
Washington dealerships, and employees would receive their checks sooner. (See Jury Trial Tr.
vol. 2, 307:21-313:18; id. at 368:4-6; Jury Trial Tr. vol. 1, 193:15-22; id. at 201:17-202:14.)
Around the same time, Smith changed the policy regarding weekends and holidays: “If [the 5th
or 20th] fell on a Saturday, [payday] would be the day before. . . . If it fell on a Sunday, [payday]
would be the day after. . . . [Defendants] would [also] pay the day after the holiday.” (See Jury
Trial Tr. vol. 2, 312:18-313:18; id. at 368:4-10; July Trial Tr. vol. 1, 193:15-22; id. at 202:9205:2.)
5.
Smith, however, never updated the payday policy in the employee handbook,
which remained in effect until November 2017 and applied equally to the Mazda of Gladstone
dealership she purchased in 2012, and Defendants distributed the handbook to new hires at both
dealerships. (See Jury Trial Tr. vol. 2, 337:6-340:9; id. at 368:4-369:18; id. at 391:22-393:19;
Jury Trial Tr. vol. 1, 207:24-213:6.) Smith believes that she may have held a meeting fifteen or
twenty years ago to update Toyota of Gladstone’s then-employees on the new paydays, but she
also stated that her dealerships have an “employee handbook so that if . . . an employee has a
question, they can look up . . . what the company policies are,” and paydays in the handbook “are
the days that [her dealerships] definitely were paying.” (Jury Trial Tr. vol. 2, 366:25-367:8; id. at
368:19-369:5.)
6.
Smith did not ask any “attorneys if it was legal to depart from the paydays that
were listed in the handbook” because she did not “get any complaints.” (Id. at 368:1-3.) Further,
Defendants did not have a lawyer they regularly consulted with respect to day-to-day business
issues unrelated to litigation; Smith is a member of the Oregon Auto Dealers Association
(“OADA”), which makes “compliance assistance” available to its members, but she “never
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[sought] it out” or attended meetings; and Defendants did not subscribe to any legal update
publications. (Jury Trial Tr. vol. 1, 195:24-197:20.) Smith “rel[ies] more” on the WSADA, and
“a CPA firm” that prepares Defendants’ taxes and reports “when things go into effect.” (Id. at
196:24-199:12.)
7.
Relatedly, Defendants’ office manager, Angela Viol (“Viol”), reported that
Defendants’ human resources (“HR”) and payroll representative, Laurie Park (“Park”),
“handle[d] all” matters related to Defendants’ efforts to stay updated on the law, she was not
aware of any subscriptions, dealer association memberships, or newsletters that covered legal
updates, and Defendants did not have a lawyer for non-litigation issues. (Id. at 187:4-191:4; id. at
165:5-168:13; see also Jury Trial Tr. vol. 2, 391:22-396:9, confirming that the dealerships share
the same administrative department, which includes payroll, HR, and the office manager, Smith
sets manager salaries, and Elder is also listed “on paper” as the general manager of Mazda of
Gladstone.)
8.
Park took an accounting class in high school and a college accounting course in
2009, as well as courses that “specialized in payroll and payroll law and human resource[s].”
(Jury Trial Tr. vol. 1, 166:9-24.) Additionally, Park, who started working for Smith in “HR or
payroll” in 2004 and as Defendants’ HR and payroll representative in 2009, stated that she
completed five or six specialty courses “[m]ostly at the beginning” of her time working for
Smith, the specialty courses took place in “a random building . . . through a company that [Park
could not] remember . . . [and] didn’t have their own building,” and Smith paid for the courses.
(Id. at 165:5-167:22.)
9.
Like Smith, Elder recalled that in or around October 2006, Smith changed the
paydays to the 5th and 20th of each month and changed how the policy handled paydays that fell
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on a weekend (i.e., if payday fell on a Saturday or Sunday, payday was Friday or Monday,
respectively). (Id. at 201:10-205:2.) Elder described the holiday-related change differently than
Smith did: “If a holiday interfered with the timely calculation and distribution of payroll, we’d
pay the paycheck the first day—business day after the 5th or 20th.” (Id.; see also Trial Tr. vol. 2,
313:14-15, “And what about if [payday] fell on a holiday? We would pay the day after the
holiday.”)
10.
Park described Defendants’ payday policy similarly to Elder, but like Smith, also
suggested that the 5th or 20th must fall on a holiday for Defendants’ employees’ payday to be
the next day:
Q. . . . [W]hat is the rule as to what the payday is for any given pay period? A.
So . . . you get paid on the 5th . . . [or] on the 20th . . . [u]nless it falls on a
weekend or a holiday. Then if . . . [payday] falls on Saturday, you get paid Friday.
If it falls on Sunday, you get paid Monday. And if the holiday affects the payroll,
then it’s paid the following business day.
(Trial Tr. vol. 2, 186:5-14) (emphasis added). The policies in both of Defendants’ handbooks
likewise focused on whether the 5th or 20th “falls on” a holiday or weekend. (See Pls.’ Trial Exs.
6-9.)
11.
According to Elder, the changes to the 5th and 20th and policy “pertain[ing] to
weekends” were “set decision[s],” but “senior office staff, so . . . Park, . . . Viol, and . . . Smith,”
collectively made decisions about “holiday[s] impacting a . . . pay period” and the issuance of
any “courtesy reminder two periods” beforehand if “there was going to be a variation.” (Trial
Tr. vol. 1, 204:19-206:7.) Smith and Viol recalled that Elder also participated. (See id. at 195:1020, reflecting that Smith testified that Elder “pretty much act[ed] on his own” but he and Viol
would call Smith based on Viol’s “way in advance review” of the calendar and let her know if
they were changing a payday and “sen[ding] out a notice” one “or two payroll periods prior”; id.
at 189:14-190:9, showing that Viol testified that she and Elder (and occasionally Smith) decided
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when an upcoming pay date would be changed and that they considered various factors, such as
“how the weekend falls, how busy [they] are,” if “banks are open,” and “[h]ow many cars are
sold”).
12.
At times, Defendants changed post-end of the month and holiday (i.e., high traffic
and sale time periods, in part due to manufacturer incentives and when customers often buy cars)
paydays that would have fallen on the 5th because many of their employees worked on graduated
or escalating commission schedules and received various sales-related bonuses, and they were
attempting to capture as many of their employees’ sales and bonuses as possible. (See Jury Trial
Tr. vol. 2, 314:4-316:17; id. at 324:25-332:23; id. at 387:5-397:13; Jury Trial Tr. vol. 1, 192:21193:14.)
13.
Freeman and Ferguson provided varying testimony regarding Defendants’ payday
policy during their periods of employment, which preceded Defendants’ introduction of a new
employee handbook at their dealerships. (See Jury Trial Tr. vol. 1, 211:4-212:17; Jury Instrs. at
28, ECF No. 253.)
14.
For example, Freeman, who served as Defendants’ showroom floor receptionist
from July 2012 to August 2017, testified that when she started working for Defendants, Park
provided her with the original handbook and told her that paydays were on the 5th and 20th of
each month and if a payday “fell on a weekend,” Defendants would distribute employees’
paychecks “prior” to the weekend. (Jury Trial Tr. vol. 2, 252:1-18; id. at 253:2-255:14; id. at
265:18-266:5.)
15.
On cross-examination, Defendants’ counsel asked Freeman whether she “just
testif[ied] that [Park] told [her during orientation] that if a payday . . . fell on a weekend or
holiday, that [employees] would be paid the day before,” and Freeman stated, “yes[,] [t]hat’s my
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recall of what [Park] told me at the time.” (Id. at 259:9-260:14) (emphasis added). After
reviewing portions of her deposition testimony, Freeman confirmed that she previously testified
that she could not “recall” what Park “said on holiday pay” and stated that she “believe[d]” her
lack of recall was related to “the holiday” aspect of her conversation with Park. (Id. at 260:9262:20.)
16.
When Defendants’ counsel stated that Freeman “just testified that [she was] told
that even on a holiday, [the payday] would be the prior day,” Freeman confirmed that she did so.
(Id. at 262:23-25.) Freeman also confirmed that during her deposition, Defendants’ counsel
asked if it was “correct” that Park “never told [her] one way or the other about the weekends or
the holiday” during orientation, and she testified that she did not “recall . . . [Park] doing that.”
(Id. at 263:13-23; id. at 264:15-23.) In an attempt to clarify her testimony on these matters,
Freeman stated that at least a portion of her deposition testimony in question concerned whether
Park told her that Defendants would distribute paychecks the “next business day” if a payday fell
on a holiday, not “whether [they] talked about [paydays that fell on a holiday] at all.” (Id. at
274:24-276:3.)
17.
Additionally, Freeman testified that during her employment, she often received
(and eventually expected to receive) her paycheck the “next business day” when payday fell on a
Sunday or holiday; she occasionally received notices from Defendants that “payday would be
changed” from the 5th to the 6th due to a holiday; she received such notices on her first paycheck
and paychecks that preceded the January 6, 2016, July 6, 2016, July 6, 2017, and September 6,
2017 paydays; Defendants’ employee handbook encouraged employees to raise questions or
concerns with management; and she did not inform Park or dealership management that any of
Defendants’ payday practices were inconsistent with her understanding because she was worried
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about losing a job she needed, given high employee turnover. (Id. at 255:14-24; id. at 264:25274:19.)
18.
Similarly to Freeman, Ferguson, who worked as an administrative assistant and
back-up receptionist for Defendants from November 2016 to July 2017, testified that on her first
day of work, she met with Park, filled out various forms, and received Defendants’ employee
handbook; Park later informed her that paydays were on the 5th and 20th each month; she “was
told [payday] would be the previous business day” if the 5th or 20th “fell on a weekend”; she
was “[n]ot specifically” told anything about paydays that fell on a holiday but the employee
handbook provided that “it would be the previous business day”; and she received notices about
upcoming post-holiday paydays that Defendants changed to the 6th. (Id. at 276:7-22; id. at
277:8-280:10.)
19.
On cross-examination, Ferguson stated that she did not remember the exact words
of a “fleeting conversation” with Park, which she “guess[ed]” took place “within a week” of her
start date and after reading the employee handbook, but Park had told her that payday was on the
5th and 20th “unless it was a holiday,” in which case payday would be “the weekday before, the
Friday.” (Id. at 282:9-286:7.) Ferguson added that if the payday fell on a weekend, she “assumed
it would be the Friday before” but she did not “recall” what Park said about paydays that fell on
a weekend. (Id. at 282:17-20.) Ferguson also testified that she later “understood” that when
payday fell on a holiday, Defendants distributed paychecks after the holiday and provided
notices before the payday, such as the notices that preceded the paydays that Defendants changed
to July 6 and September 6, 2017. (Id. at 286:8-289:12.) Ferguson acknowledged that she did not
follow up with Park with respect to whether she received inaccurate information regarding
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Defendants’ payday practices or express concern about Defendants’ notices. (Id. at 286:16289:16.)
20.
In November 2017, after Plaintiffs no longer worked for Defendants, Defendants
distributed a new employee handbook, which Lentini prepared for Defendants with Smith’s
input. (See id. at 296:24-297:17; id. at 336:5-340:25; id. at 366:25-370:5; id. at 391:22-393:17;
Pls.’ Trial Ex. 7; Jury Trial Tr. vol. 1, 207:24-213:6; Jury Instrs. at 28.) The new handbook
included the following payday policy: “Paychecks are distributed on the 5th and 20th of each
month [and] cover the previous pay period. If a payday falls on a holiday or weekend, your
paycheck will normally be available the next workday.” (Pls.’ Trial Ex. 7; Jury Trial Tr. vol. 2,
297:13-17.)
21.
On May 3, 2023, after the parties presented their evidence and testimony and
rested their cases, the Court submitted agreed-upon portions of the case to the jury. (See ECF
Nos. 244, 247-48, 256, reciting the minutes of the trial). In accordance with the parties’
agreement, the Court asked the jury to address: (1) whether Defendants failed to pay Plaintiffs
and the collective members by their regular payday, and if so, whether Defendants willfully
failed to do so; and (2) whether certain collective members were exempt from the FLSA’s
requirements as highly compensated employees or salesmen, partsmen, or mechanics primarily
engaged in selling or servicing automobiles. (Jury Instrs. at 4, 25-26; Verdict Form at 2-5, ECF
No. 250.)
22.
The jury determined that on four occasions (i.e., January 6 and July 6, 2016 and
July 6 and September 6, 2017), Defendants failed (but did not willfully fail) to pay Plaintiffs and
the collective members by their regular payday. (Verdict Form at 2-3.) In other words, the jury
determined that on Wednesday, January 6, 2016, Wednesday, July 6, 2016, Thursday, July 6,
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2017, and Wednesday, September 6, 2017, four instances in which Defendants’ regular payday
on the 5th did not fall on a weekend or holiday, Defendants failed to pay Plaintiffs and the
collective members by their regular payday. (See Pls.’ Trial Ex. 12 at 2-3; Maher Decl. Ex. 6 at
2-3.)
23.
The verdict is consistent with the jury assigning more weight to the testimony and
evidence showing that (1) between March 2015 (three years before Plaintiffs filed this lawsuit)
and Defendants’ introduction of the new handbook in November 2017, Defendants’ policy was
to pay by the 5th or 20th (instead of the 10th and 25th) unless payday fell on a Saturday, Sunday,
on a holiday, in which case Defendants paid by the preceding Friday, next Monday, or next
workday, respectively (as opposed to the preceding business day in all instances); and (2) after
the new handbook went into effect, Defendants’ policy was to pay by the 5th or 20th unless
payday fell on a holiday or weekend, in which case Defendants regularly paid by the next
workday.
24.
With respect to exemptions, the jury found that the six collective members at
issue were highly compensated employees and seven out of the seventeen collective members at
issue were salesmen, partsmen, or mechanics primarily engaged in selling or servicing
automobiles, and as a consequence, were not subject to the FLSA’s requirements. (Verdict Form
at 4-5.)
25.
On May 4, 2023, the Court held a bench a trial on liquidated damages and
Defendants’ related defenses, all of which depended in part on the jury trial record and jury’s
verdict. (See Bench Trial Tr. 5:11-9:12, May 4, 2023, ECF No. 260, discussing the bench trial’s
scope.)
///
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At the start of the bench trial, the parties reported that they had reached an
agreement on two liquidated damages calculations, both of which were set forth in a spreadsheet
that Defendants’ payroll witness, Drew Voth (“Voth”), a certified public accountant, prepared.
(Id. at 5:11-8:23.) Specifically, the parties stipulated on the record to Voth’s determinations that
given the jury’s verdict and findings, there would be “$98,116.63 in minimum wage liquidated
damages and . . . $1,568.40 in overtime hours liquidated damages.” (Id. at 6:20-8:23.)
27.
The parties also reported that Voth’s liquidated damages calculations
appropriately accounted for the jury’s verdict and findings regarding any of the collective
members’ exempt or non-exempt status and the fact that only three of Defendants’ four nonwillful FLSA violations (i.e., July 6, 2016 and July 6 and September 6, 2017) fell within the
FLSA’s standard and applicable “two-year statute of limitations.”3 (Id.) The parties
acknowledged that given the absence of a willful violation, there would be “no damages”
associated with the January 6, 2016 payday. (Id.)
28.
Based on their stipulation regarding Voth’s liquidated damages calculations, the
parties explained that the bench trial could be limited to the “value” or “amount” of any potential
liquidated damages award stemming from the straight time portion of the non-exempt collective
members’ overtime on the “three [relevant] paydays,” and Defendants’ “good faith defenses” to
a liquidated damages award and the “jury trial record” related thereto. (Id. at 5:20-6:1; id. at 8:98:23.)
29.
With respect to potential “straight time overtime liquidated damages,” Plaintiff
called Jennifer Murphy (“Murphy”), a certified public accountant, to testify on the matter. (Id. at
“If a particular employer’s conduct embodies [a] willful violation of [the] FLSA, 29
U.S.C. § 255(a) permits extension of the FLSA’s standard two-year statute of limitations to a
three-year period.” Standorf v. Out W. Ventures, Inc., No. 22-15060, 2022 WL 17984020, at *2
(9th Cir. Dec. 29, 2022) (quoting Alvarez v. IBP, Inc., 339 F.3d 894, 908 (9th Cir. 2003)).
3
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5:20-22; id. at 9:14-17:7.) Murphy testified that “for each impacted employee who . . . was found
to be non-exempt and potentially eligible for the overtime liquidated damages,” she
“summarized” the “pay period at issue, [the employee’s] regular hours and regular pay for that
pay period, . . . [the employee’s] overtime hours for that particular pay period,” and the
employee’s “straight time pay” for the pay period given the “regular hours” and “regular pay.”
(Id. at 11:10-23.) Murphy further testified that she “add[ed] [the straight time pay] for each pay
period and each impacted employee during the period, [and] the total [was] $20,707.30 for the
group,” and thus $20,707.30 is the total for the “straight pay portion of the overtime liquidated
damages.” (Id. at 11:24-12:13.)
30.
At the close of direct examination, the Court admitted the necessary portions of
Murphy’s PowerPoint presentation (pages six and seven) into evidence without objection. (Id. at
12:14-13:5.) After Defendants’ brief cross-examination of Murphy, the bench trial concluded.
(Id. at 13:10-17:13.)
31.
On May 25 and June 27, 2023, the parties submitted their proposed findings of
fact and conclusions of law and memoranda in support, and response briefs. (ECF Nos. 261-65,
268-69.) Consistent with their discussions with the Court, the parties’ posttrial submissions
focused on two issues: (1) whether, given the jury trial record, Defendants successfully
established a good faith defense to liquidated damages under the FLSA; and (2) whether
Plaintiffs’ claim for straight time liquidated damages is a legally viable theory. (See id.; Bench
Trial Tr. 5:20-6:1; id. at 8:19-23.)
CONCLUSIONS OF LAW
I.
JURISDICTION AND LIABILITY
1.
The Court has jurisdiction under 28 U.S.C. § 1331 and 29 U.S.C. § 216(b), and all
parties have consented to the jurisdiction of a magistrate judge under 28 U.S.C. § 636. (ECF No.
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161, consent; Answer ¶¶ 2-3, ECF No. 20, venue is proper and there is jurisdiction under the
FLSA and § 1331.)
2.
At all relevant times, there was FLSA coverage and Defendants were subject to
the FLSA’s minimum wage and overtime requirements. See Chao v. A-One Med. Servs., Inc.,
346 F.3d 908, 914-16 (9th Cir. 2003) (discussing FLSA enterprise coverage in a case where two
companies were under the common control of the same individual defendant, engaged in related
activities, shared a common business purpose, constituted a single enterprise, and were both
subject to the FLSA’s rules, even though only one company satisfied enterprise coverage’s
revenue requirement, i.e., an employer that was enterprise engaged in interstate commerce with
an “annual gross revenue of $500,000 or greater” (quoting 29 U.S.C. §§ 203(r)(1) and 203(s)));
29 U.S.C. § 206(a) (minimum wage); id. § 207(a)(1) (overtime); (see also Jury Trial Tr. vol. 2,
292:3-10, id. at 370:6-15, reflecting that counsel did not believe that the parties disputed FLSA
coverage requirements and Smith testified that each of the dealerships she controlled sold more
than $500,000 worth of cars each year and had at least two employees selling goods in interstate
commerce).
3.
The evidence adduced at trial supported the Court’s past decisions and
demonstrated that for purposes of the FLSA, Defendants were joint employers of the collective
members, and the Court has personal jurisdiction over Defendants. See Ferguson v. Smith, No.
3:18-cv-00372-SB, 2018 WL 3733665, at *2-6 (D. Or. July 18, 2018) (recommending that the
district judge deny a motion to dismiss Smith for lack of personal jurisdiction), findings and
recommendation adopted, 2018 WL 3732657, at *1 (D. Or. Aug. 6, 2018); Ferguson v. Smith,
No. 3:18-cv-00372-SB, 2020 WL 5731821, at *2-6 (D. Or. Aug. 12, 2020), findings and
recommendation adopted, 2020 WL 6112186, at *1-4 (D. Or. Oct. 16, 2020) (adopting without
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objection the Court’s finding that Plaintiffs presented sufficient evidence that Smith’s Oregon
dealerships were joint employers); Ferguson v. Smith, No. 3:18-cv-00372-SB, 2021 WL
5203152, at *8-9 (D. Or. May 21, 2021) (“Smith was well-positioned to ensure compliance with
the FLSA and . . . Smith’s actions and decisions can be traced directly to the alleged FLSA
violations in this case. The Court therefore concludes that Plaintiffs have presented sufficient
evidence to establish that Smith meets the FLSA’s expansive definition of employer based on her
role and level of control.”), findings and recommendation adopted, 2021 WL 4330851, at *1-5
(D. Or. Sept. 23, 2021).
4.
On three occasions within the FLSA’s applicable two-year statute of limitations,
July 6, 2016 and July 6 and September 6, 2017, Defendants failed to pay all wages due to
Plaintiffs and the collective members by their regular payday. (Verdict Form at 2-3; Bench Trial
Tr. 6:20-8:23; Jury Instrs. at 22.) As a result, Defendants violated the FLSA. See Biggs v. Wilson,
1 F.3d 1537, 1538 (9th Cir. 1993) (observing that the state paid “wages 14-15 days late because
there was no state budget, and thus no funds appropriated for the payment of salaries, on
payday,” agreeing with the district court that “granted a summary judgment declaring that the
failure to issue paychecks promptly when due violated the FLSA,” and holding that “under the
FLSA wages are ‘unpaid’ unless they are paid on the employees’ regular payday”); see also
Standorf, 2022 WL 17984020, at *2 (explaining that “[a] cause of action for unpaid wages under
FLSA accrues each ‘day the employee’s paycheck is normally issued, but isn’t’” (quoting Biggs,
1 F.3d at 1540)).
///
///
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LIQUIDATED DAMAGES
A.
Good Faith Defense
1.
5.
Applicable Law
It is well settled that “successful FLSA plaintiffs,” such as Freeman, Ferguson,
and the other collective members, are entitled to liquidated damages. See Haro v. City of L.A.,
745 F.3d 1249, 1259 (9th Cir. 2014) (observing that “successful FLSA plaintiffs are entitled to
liquidated damages”). That is true even in cases like this one, where the jury determined that
Defendants did not willfully violate the FLSA. See Alvarez, 339 F.3d at 910 (“[Even] [a] finding
that the employer did not act willfully does not preclude an award of liquidated damages.”)
(citation omitted).
6.
Although successful FLSA plaintiffs are entitled to liquidated damages, the FLSA
provides that a court “need not award liquidated damages in every instance[.]”Alvarez, 339 F.3d
at 909. If an employer successfully makes out a “good faith defense” under 29 U.S.C. § 260, see
Walsh v. Wellfleet Commc’ns, No. 20-16385, 2021 WL 4796537, at *2 (9th Cir. Oct. 14, 2021)
(stating that § 260 sets forth the “FLSA good faith defense” to liquidated damages), a court
retains the discretion to “award no liquidated damages” or “award less” than the amount the
FLSA requires. See Alvarez, 339 F.3d at 909 (noting that if the employer establishes a good faith
defense, “courts retain discretion to withhold a liquidated damages award, or to award less than
the statutory liquidated damages total, . . . despite the failure [timely] to pay appropriate wages”);
Flores v. City of San Gabriel, 824 F.3d 890, 905 (9th Cir. 2016) (recognizing that if the
employer establishes a good faith defense, courts retain the “discretion” to “award no liquidated
damages or award any amount thereof not to exceed the amount specified in section 216”)
(simplified).
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a.
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The Employer’s Burden
The employer bears the burden of establishing both the subjective and objective
components of the good faith defense against liquidated damages. See Alvarez, 339 F.3d at 90910 (explaining that “a FLSA-liable employer” bears the burden of satisfying the “subjective” and
“objective” components of the good faith defense under § 260). To satisfy the subjective
component, “the employer must ‘establish that it had an honest intention to ascertain and follow
the dictates of the [FLSA].’” Flores, 824 F.3d at 905 (quoting Local 246 Util. Workers Union of
Am. v. S. Cal. Edison Co., 83 F.3d 292, 298 (9th Cir. 1996)). To satisfy the objective component,
the employer must establish that it had “reasonable grounds for believing that [its] conduct
complie[d] with the [FLSA].” Id. (quoting Local 246, 83 F.3d at 298). If the employer fails to
establish either component, liquidated damages are mandatory. See Haro, 745 F.3d at 1259
(explaining that if the employer does not meet its burden of “proving both” the subjective and
objective components, liquidated damages are “mandatory” (citing Alvarez, 339 F.3d at 90910)).
b.
8.
Relevant Circuit Caselaw
In past decisions, the Ninth Circuit has referred to liquidated or “double” damages
(i.e., additional damages equal to unpaid minimum wages and/or overtime compensation, see
Flores, 824 F.3d at 904-05 (citing 29 U.S.C. § 216(b))) as “the norm” and an award of no
liquidated damages or “single damages” as the “exception,” and to an employer’s “difficult” and
“heavy” burden of proving both the subjective and objective components of a good faith defense
under § 260. See Haro, 745 F.3d at 1259 (“Double damages are the norm; single damages are the
exception. Liquidated damages are ‘mandatory’ unless the employer can overcome the ‘difficult’
burden of proving both subjective ‘good faith’ and objectively ‘reasonable grounds’ for believing
that it was not violating the FLSA.” (citing Chao, 346 F.3d at 919-20 and quoting Alvarez, 339
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F.3d at 909-10)); Flores, 824 F.3d at 890 (referring to “§ 260’s heavy burden” (citing Alvarez,
339 F.3d at 910)).
9.
In a recent, albeit divided, decision, the Ninth Circuit observed that “[a] review of
[its] cases addressing willfulness and the assessment of liquidated damages under the FLSA
reflect that a determination of willfulness and the assessment of liquidated damages are reserved
for the most recalcitrant violators.” Ray v. L.A. Cnty. Dep’t of Pub. Soc. Servs., 52 F.4th 843, 851
(9th Cir. 2022) (per curiam), cert. denied, --- S. Ct. ---- , 2023 WL 3937617, at *1 (U.S. June 12,
2023). In support of this observation and its conclusion that the defendant did “not belong in
th[is] group of recalcitrant employers,” the Ninth Circuit cited Alvarez’s observations that courts
“will not presume that conduct was willful in the absence of evidence” and “need not award
liquidated damages in every instance,” and Bratt v. County of Los Angeles, 912 F.2d 1066, 1072
(9th Cir. 1990), which “not[ed] that the [good faith defense there] was not one ‘like many of
those cited by the [e]mployees, where the employer [was] using ticky-tack reasons to attempt to
evade the wage and hour laws.’” Ray, 52 F.4th at 851 (quoting Alvarez, 339 F.3d at 909-10 and
Bratt, 912 F.2d at 1072).
10.
In support of its holding that the district court in Ray “did not err in granting
partial summary judgment to the [defendant] on the issue of willfulness and denying partial
summary judgment to [the plaintiff] on the issue of liquidated damages,” the Ninth Circuit
emphasized that it was “undisputed that the [defendant] [c]ounty had no ability to pay overtime
wages in the absence of the [s]tate making funds available to satisfy the overtime obligations” at
issue, that the defendant “had no authority or ability to implement overtime pay” for in-home
support services program workers like the plaintiff, and that a state department, not the
defendant, controlled the relevant payroll systems, which were on a “centralized . . . state-wide
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database.” Id. at 851-52 (simplified). The Ninth Circuit explained that “[t]he facts of [the Ray]
case [were] more akin to [cases] declining to impose a willfulness penalty on the employer in the
absence of an affirmative refusal to comply with the requirements of the FLSA.” Id. at 852. The
Ninth Circuit cited Bratt as an example of such a case, noting that Bratt reasoned that there was
no evidence that the defendant “attempted to evade its responsibility under the [FLSA],” the
defendant’s decision was “more likely” made in good faith because it was “made above board
and justified in public,” and “liquidated damages ‘are designed in part to compensate for
concealed violations, which may [otherwise] escape scrutiny.’” Id. (quoting Bratt, 912 F.2d at
1072).
11.
The Ninth Circuit also explained that the facts in Ray were “in stark contrast to
those in Alvarez, in which [the Ninth Circuit] upheld the district court’s determination of ‘willful
conduct.’” Id. (quoting Alvarez, 339 F.3d at 909). The Ninth Circuit noted that in Alvarez, the
defendant “took no affirmative action to assure compliance with [the FLSA’s requirements],”
“attempt[ed] to evade compliance, or to minimize the actions necessary to achieve compliance,”
and “‘could easily have inquired into . . . the type of steps necessary to comply’ with the
provisions of the FLSA, but failed to do so.” Id. (quoting Alvarez, 339 F.3d at 909). By contrast,
in Ray, there was “no evidence . . . that the [defendant] ‘attempt[ed] to evade compliance, or to
minimize the actions necessary to achieve compliance’ with the overtime provisions of the
FLSA,” and the record instead “reflect[ed] that the only reason that the [defendant] failed to pay
the required overtime wages sooner [was] because the [s]tate controlled the purse strings.” Id.
(quoting Alvarez, 339 F.3d at 909). For these reasons, the Ninth Circuit affirmed “the district
court’s decisions granting partial summary judgment to the [defendant] on the issue of
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willfulness and denying partial summary judgment to [the plaintiff] on the issue of liquidated
damages[.]” Id.
12.
Judge Berzon dissented from the majority’s willfulness and liquidated damages
holdings in Ray. See id. at 852-58. Judge Berzon stated that she would have reversed both of the
district court’s decisions because, “[a]lthough the result the majority reache[d] on liquidated
damages and willfulness may seem equitable, it [was] not consistent with the standards [the Ray
court was] obligated to apply under the [FLSA].” Id. at 853. With respect to liquidated damages,
Judge Berzon explained that the plaintiff was entitled to partial summary judgment because the
defendant fell short of overcoming the “difficult” burden of proving both of the good faith
defense’s components. Id. (quoting Haro, 745 F.3d at 1259). Judge Berzon further explained that
the majority’s “starting premise”—that “the assessment of liquidated damages [is] reserved for
the most recalcitrant of violators”—was “just wrong.” Id. In support, Judge Berzon noted that
liquidated or double damages are the norm and “represent compensation . . . , not a penalty,” and
that “single damages are the exception.” Id. (quoting Chao, 346 F.3d at 920). Judge Berzon
rejected the suggestion that the defendant showed subjective good faith, simply because
“complying with the FLSA was difficult and took time, and the [s]tate and [c]ounty implemented
overtime pay as quickly as they could.” Id. at 854. Judge Berzon added that, in her view, “the
majority’s liquidated damages discussion d[id] not address th[e] essential [objective] prong at
all.” Id. at 855.
2.
13.
Application of Law to Fact
The Court concludes that Defendants have failed to meet their burden of proving
both the subjective and objective components of their good faith defense, and therefore Plaintiffs
and the collective members are entitled to liquidated damages. See Haro, 745 F.3d at 1259
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(explaining that liquidated damages are “mandatory” unless the employer carries its burden of
proving both components).
14.
“To avail itself of [a good faith] defense, the employer must establish that it had
an honest intention to ascertain and follow the dictates of the [FLSA] and that it had reasonable
grounds for believing that its conduct complied with the [FLSA].” Flores, 824 F.3d at 905
(simplified). The Ninth Circuit’s decision in Flores is an illustrative example of how and when
an employer fails to meet its burden of proving the subjective and objective components of its
good faith defense.
15.
In Flores, the plaintiffs, who were current and former city police officers, alleged
that the city violated the FLSA by failing to “include payments of unused portions of the
[plaintiffs’] benefits allowances when calculating their regular rate of pay, resulting in a lower
overtime rate and a consequent underpayment of overtime compensation.” Id. at 894-95. To
establish its good faith defense, the defendant relied exclusively on its payroll department
employee’s testimony. Id. at 905. The employee’s testimony focused on the “[c]ity’s process for
determining whether a particular payment must be included in the regular rate of pay,” and how
the “[c]ity’s payroll and [HR] departments work[ed] together to determine whether a particular
type of payment should be included in the calculation of the regular rate of pay when the
payment [was] first provided.” Id. Although the employee testified that the HR “department
notifies the payroll department if it learn[ed] of new authority concerning the classification of a
payment,” the city conducted “no further review of a payment’s designation” post-initial
classification and thus the cash-in-lieu of benefits payments at issue had “never been included in
the calculation of the regular rate of pay.” Id.
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In reversing the district court and holding that the plaintiffs were entitled to
liquidated damages and entry of judgment in their favor, the Ninth Circuit explained that the
city’s “paltry evidence [was] not sufficient to carry the [c]ity’s burden to demonstrate that it
acted in good faith.” Id. In so holding, the Ninth Circuit emphasized that the city’s evidence
needed (but failed) to address “what steps the [HR] department took to determine that the cashin-lieu of benefits payments were appropriately classified as a ‘benefit’ under the FLSA and
excluded from the calculation of the regular rate of pay,” and “how either [the HR or payroll]
department[s] determined that the payment’s designation as a ‘benefit’ complied with the
FLSA.” Id. The Ninth Circuit also emphasized that contrary to the city’s argument, “[e]vidence
that the [c]ity complied with its other obligations under the [FLSA,] or that it agreed to pay
overtime more generously than required by law[,] d[id] not demonstrate what [it had] done to
ascertain whether its classification of the payments at issue . . . complied with the FLSA.” Id. at
906. After recognizing that “[a]n employer ‘who fail[s] to take the steps necessary to ensure
[its] . . . practices complied with the [FLSA]’ and who ‘offers no evidence to show that it
actively endeavored to ensure such compliance’ has not satisfied [its burden under] § 260,” the
Ninth Circuit held that the city failed to meet its burden and, therefore, the plaintiffs were
entitled to liquidated damages and entry of judgment. Id. at 905-06 (quoting Alvarez, 339 F.3d at
910).
17.
Defendants’ evidence is likewise insufficient to carry its burden under § 260.
Similar to the evidence in Flores, Defendants’ evidence fails adequately to address what they did
or steps they took to ascertain whether, at all relevant times, their ad hoc decisions to pay after
the regular payday and issue a notice complied with the FLSA, or how they arrived at such a
conclusion. As discussed below, much of Defendants’ evidence amounts to ex post explanations
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and justifications. See Alvarez, 339 F.3d at 910 (“Mistaking ex post explanation and justification
for the necessary affirmative ‘steps’ to ensure compliance, [the defendant] offers no evidence to
show that it actively endeavored to ensure such compliance. Instead, it reiterates the value of its
read of [an unhelpful Tenth Circuit case], of [an agency’s] litigation strategy[, which is different
than rulings or interpretations], and of [a] four-minute compliance plan. [These] efforts do not
constitute evidence of taking the steps necessary to ensure FLSA compliance, and, without such
evidence, we cannot say that the district court abused its discretion in awarding liquidated
damages.”); see also id. (noting that non-willful violations do not preclude awarding liquidated
damages) (citation omitted).
18.
Defendants argue that their good faith and honest intention to ascertain what the
FLSA required is demonstrated by “the fact that [Park] took payroll law courses and Defendants
received legal updates from automobile associations and their accounting firm,” and the jury’s
finding that Defendants did not commit any willful violations of the FLSA. (Defs.’ Mem. at 6.)
The Court disagrees.
19.
Park’s testimony suggests that her “payroll law” and HR classes preceded the
time period and payday-related decisions in question by many years, and fails to reflect that these
courses had anything to do with the decisions underlying the FLSA claims Plaintiffs presented
here. (See Jury Trial Tr. vol. 1, 165:5-167:22; id. at 166:9-24, showing that Park took an
accounting class in high school and a college accounting course in 2009, as well as courses that
“specialized in payroll and payroll law and human resource[s],” Park started working for Smith
in “HR or payroll” in 2004 and as Defendants’ payroll and HR representative in 2009, Park
completed five or six specialty courses “[m]ostly at the beginning” of her time working for
Smith, the specialty courses took place in “a random building . . . through a company that [Park
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could not] remember . . . [and] didn’t have their own building,” and Smith paid for Park’s
specialty courses).
20.
The same is true with respect to Defendants’ evidence related to legal guidance.
In 2005, Smith adopted the same employee handbook that she used at her Washington
dealerships, which she stated, without explanation, “had been recommended, basically,” and
referred to as “the standard handbook . . . provided by” the WSADA, the handbook that “most”
and “pretty much” all Washington dealerships “were utilizing” and “follow[ed],” and the
handbook Lentini prepared for the WSADA. (Jury Trial Tr. vol. 2, 307:21-310:4; Jury Trial
Tr. vol. 1, 191:7-192:8.) Smith also “looked at” the OADA handbook, which was a “pretty
similar . . . boilerplate-type manual.” (Jury Trial Tr. vol. 1, 191:7-192:8.) As relevant here,
however, Defendants later adopted, and made ad hoc decisions to deviate from, an unwritten
payday policy that differed from the initial handbook; failed to update their written policy, or
consult an attorney with respect to their practices and deviations from their regular paydays, until
2017; and for many years, distributed the old written policy to new hires at both dealerships. (See
Jury Trial Tr. vol. 2, 297:18-21; id. at 307:21-313:18; id. at 314:4-316:17; id. at 324:25-332:23;
id. at 337:6-340:9; id. at 368:4-369:18; id. at 387:5-397:13; Jury Trial Tr. vol. 1, 187:4-191:4; id.
at 192:21-193:14-22; id. at 195:10-197:20; id. at 201:17-206:7; id. at 207:24-213:6; Pls.’ Trial
Exs. 6-9; Verdict Form at 2-3.)
21.
Despite these facts, Smith stated that her dealerships have an “employee
handbook so that if . . . an employee has a question, they can look up . . . what the company
policies are,” the handbook paydays “are the days that [her dealerships] definitely were paying,”
and she did not ask any “attorneys if it was legal to depart from the paydays that were listed in
the handbook” because she did not “get any complaints.” (Jury Trial Tr. vol. 2, 366:25-367:8; id.
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at 368:1-369:5.) Smith added that she “rel[ies] more” on the WSADA, and “a CPA firm” that
prepares Defendants’ taxes and reports “when things go into effect.” (Jury Trial Tr. vol. 1,
196:24-199:12.)
22.
A lack of employee complaints does not address what Defendants did to ascertain
whether their unwritten practices (which differed from the original WSADA handbook an
attorney prepared and predated Lentini’s preparation of, and consultation regarding, a new
handbook in 2017), and deviations therefrom, complied with the FLSA. Nor does it obviate the
need to do so. There are valid, non-legal, and not unexpected reasons why an employee might
not complain about payday policies. (See Jury Trial Tr. vol. 2, 256:19-22; id. at 274:8-19, “Was
there any reason you didn’t complain about these late paychecks? A. Well, I was worried about
losing my job [as a single mom with two kids living in a rental]. I didn’t want to upset anybody,
because . . . I needed that job. Q. Was there anything that you observed about the business that
would lead you to think that you wouldn’t get a fair hearing [given the] open door policy [in the
initial handbook]? A. We just had a lot of turnover there, just a lot of turnover. The people were
in and out regularly. And I was just in a place in my life that I needed to be employed and I
couldn’t afford to possibly lose my job at that time.”) Further, general references to Smith’s
reliance on the WSADA and a CPA firm fail to demonstrate that Defendants attempted to
ascertain whether the conduct at issue complied with the FLSA, and Smith’s testimony in fact
suggests that neither source weighed in on FLSA compliance either generally or specifically with
respect to the payday issue here.
23.
On the issue of willfulness, the Court finds unpersuasive Defendants’ reliance on
the jury’s finding that Plaintiffs failed to demonstrate that Defendants willfully failed to pay all
wages due by the regular payday. (See Defs.’ Mem. at 7; Verdict Form at 2-3.) A willfulness
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finding defeats a good faith defense. See Haro, 745 F.3d at 1258-59 (stating that “[t]he facts
outlined in [the decision] showing willfulness . . . also show[ed] a lack of good faith or
reasonable grounds under § 216(b),” and “thus affirm[ing] the district court’s grant of liquidated
damages”); Chao, 346 F.3d at 920 (noting that “good faith is plainly inconsistent with a finding
of willfulness” and “the contrapositive, that a finding of good faith precludes a finding of
willfulness” (citing Bothell v. Phase Metrics, Inc., 299 F.3d 1120, 1130 (9th Cir. 2002))). But
non-willful does not necessarily mean good faith. See Alvarez, 339 F.3d at 910 (“[A] finding that
the employer did not act willfully does not preclude an award of liquidated damages.”) (citation
omitted); Helton v. Factor 5, Inc., 26 F. Supp. 3d 913, 923 n.9 (N.D. Cal. 2014) (noting that
good faith “requires more than ignorance of the prevailing law or uncertainty about its
development; it requires that an employer first take active steps to ascertain the dictates of the
FLSA and then move to comply with them” (citing Reich v. S. New Eng. Telecomms. Corp., 121
F.3d 58, 71 (2d Cir. 1997))).
24.
As the Court instructed the jury (see Jury Instrs. at 23), a FLSA violation is
“willful if the employer knew or showed reckless disregard for the matter of whether its conduct
was prohibited by the FLSA,” and “merely negligent conduct will not suffice.” Flores, 824 F.3d
at 906 (simplified). By comparison, a good faith defense depends on whether the defendant
presented sufficient evidence regarding the active steps it took to ascertain whether the
challenged conduct complied with the FLSA and whether it had reasonable grounds for believing
it complied. To be sure, in Flores, the Ninth Circuit held that an employer does not meet its
burden by failing to “take the steps necessary to ensure its practices complied with FLSA” and
offering “no evidence to show that it actively endeavored to ensure such compliance,” noted that
it had previously affirmed “an award of liquidated damages where the employer believed [it
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complied] . . . , but had failed to consult an objective authority or seek advice on the legality of
its position,” and added the defendant “[g]rasp[ed] at straws” and “miss[ed] the mark” in arguing
good faith based on “its inclusion of other types of payments in the regular rate of pay and its
payment of overtime more generously than the FLSA requires,” none of which addressed what it
had “done to ascertain whether its classification of the payments at issue [i.e., the unused cashin-lieu of benefit payments excluded from regular rates and resulting in lower overtime rates]
complied with the FLSA.” Id. at 895, 905-06 (simplified).
25.
Defendants also argue that their good faith and honest intention to ascertain what
the FLSA required is demonstrated by the fact that the “pre-2017 handbook payday policy
was . . . implemented in an above board and open manner that was fully disclosed to employees,”
and based, in part, on their desire to pay employees earlier than the 10th and 25th and capture the
most sales for graduated commission schedule purposes. (Defs.’ Mem. at 6-7, citing, inter alia,
Bratt, 912 F.2d at 1072.) These reasons fail adequately to demonstrate that Defendants have
satisfied their burden under § 260. See Flores, 824 F.3d at 906 (stating that evidence that the
defendant “agreed to pay overtime more generously than required by law d[id] not demonstrate
what the [defendant] ha[d] done to ascertain whether [the conduct the plaintiffs challenged]
complied with the FLSA”); see also Alvarez, 339 F.3d at 910 (“Mistaking ex post explanation
and justification for the necessary affirmative ‘steps’ to ensure compliance, [defendant] offers no
evidence to show that it actively endeavored to ensure such compliance. . . . [W]ithout such
evidence, we cannot say that the district court abused its discretion in awarding liquidated
damages.”).
26.
With respect to Defendants’ reliance on Bratt, it is true that the Ninth Circuit has
observed that “‘a decision made above board and justified in public’ . . . ‘is more likely’ made in
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good faith.” Ray, 52 F.4th at 852 (citing Bratt, 912 F.2d at 1072). However, neither Bratt nor
Ray is sufficiently similar to assist Defendants here.
27.
In Bratt, the defendant county’s decision concerned whether employees were
exempt from FLSA coverage and the county’s “incorrect” and “not unreasonable” interpretation
of supporting regulations, which did “not specifically address” the type of employees at issue but
whose duties “reasonably could be construed as analogous to those of [certain employees] cited
in the regulations as examples of exempt employees.” 912 F.2d at 1072. The defendant assigned
an individual who “arguably was adequately qualified” to “make [such] coverage decisions . . . ,
and his decisions whether to make more extensive studies of individual jobs and corresponding
data involved practical considerations on how best to complete the required evaluations in a
timely fashion.” Id. The Ninth Circuit held that the district court did not abuse its discretion in
refusing to award liquidated damages, noting that the above facts showed that the defendant had
an honest intention to comply with the FLSA and reasonable grounds for believing it had done
so. Id.
28.
Ray involved the U.S. Department of Labor’s (“DOL”) issuance of a new rule,
which entitled certain workers to overtime pay under the FLSA. 52 F.4th at 845. A district court
vacated the rule before its effective date, the D.C. Circuit later reversed the district court and
upheld the rule, and the state, which jointly employed the workers at issue, decided to begin
paying overtime wages a few months after the D.C. Circuit’s mandate. Id. In affirming the
district court’s denial of partial summary judgment to the plaintiff on the issue of liquidated
damages, the Ninth Circuit noted that it was “undisputed that resolution of the overtime wages
for [the workers] played out in public, including numerous training sessions on implementing the
new FLSA requirement,” and that Bratt supported the district court’s determination that the
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defendant acted in good faith under the circumstances. Id. at 852. The Ninth Circuit also noted
“the record reflect[ed] that the only reason [the defendant] failed to pay the required overtime
wages sooner [was] because the [s]tate controlled the purse strings,” i.e., a state department
controlled the relevant payroll systems, which were on a “centralized . . . state-wide database.”
Id. at 851-52.
29.
Unlike Ray, this case does not involve any new rule or law, and Defendants
always had and controlled the funds necessary to satisfy their obligations. (See Jury Trial Tr. vol.
1 195:21-196:4, reflecting that Smith confirmed as much; id. at 15:25-16:1, arguing that this case
is “a judicially-created situation” stemming from the Ninth Circuit’s decision in “the Biggs
case”); see also Biggs, 1 F.3d at 1538 (recognizing that the state paid “wages 14-15 days late
because there was no state budget, and thus no funds appropriated for the payment of salaries, on
payday,” agreeing with the district court that “granted a summary judgment declaring that the
failure to issue paychecks promptly when due violated the FLSA,” and holding that “under the
FLSA wages are ‘unpaid’ unless they are paid on the employees’ regular payday”); Standorf,
2022 WL 17984020, at *2 (explaining that “[a] cause of action for unpaid wages under FLSA
accrues each ‘day the employee’s paycheck is normally issued, but isn’t’” (quoting Biggs, 1 F.3d
at 1540)).
30.
This case is also distinguishable from Bratt because Defendants do not claim or
present evidence demonstrating that during the relevant time period and with respect to the
decisions underlying the FLSA violations the jury identified, Defendants attempted to interpret,
or assess their compliance with, the FLSA, or made an incorrect, but “not unreasonable,”
decision related thereto. Defendants’ good faith defense appears to be based, in part, on an
argument that conflicts with the jury’s verdict. (See Defs.’ Mem. at 7-8, arguing that Defendants
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had “objectively reasonable grounds for believing the three paydays at issue did not violate the
FLSA,” and stating “Defendants [in fact] complied with their [regular] payday policy as the July
6, 2016, July 6, 2017, and September 6, 2017 paydays were affected by intervening weekends
and holidays on July 4th in 2016 and 2017 and Labor Day in 2017 such that there were only two
business days after the 1st prior to the payday”; see also Verdict Form at 2-3, finding that on
these dates, “Plaintiffs prove[d] by a preponderance of the evidence that Defendants failed to pay
all wages due by the regular payday”; Jury Trial Tr. vol. 2, 313:14-15, “And what about if it fell
on a holiday? We would pay the day after the holiday.”; Jury Trial Tr. vol. 1, 186:5-14, “[W]hat
[was] the rule as to what the payday is for any given pay period? . . . [Y]ou get paid on the
5th . . . [or] on the 20th . . . [u]nless it falls on a weekend or a holiday.”; Pls.’ Trial Exs. 6-9,
reciting payday policies based on whether the payday “falls on a weekend or holiday” or “falls
on a holiday or weekend”).
31.
With respect to the objective component of their defense, Defendants cite a
decision from this district, Allison v. Dolich, 148 F. Supp. 3d 1142, 1156 (D. Or. 2015), for the
proposition that the “FLSA allows employers to have a payday policy by which a holiday delays
the payday.” (Defs.’ Mem. at 7.) Nothing in the record demonstrates that Defendants relied on
Allison during the relevant time period. Furthermore, the paydays in Allison were the 5th and
20th and the allegedly late paychecks from within the statute of limitations were February 21,
2012 (i.e., payday fell on President’s Day and comported with the defendants’ policy that “a
holiday delayed the checks by a day”) and September 23, 2011, a date “inconsistent” with the
defendants’ uncontroverted evidence that “September 20, 2011 [was the] check date in the
payroll register.” 148 F. Supp. 3d at 1156. Allison does not support Defendants’ position, as the
jury assigned more weight to evidence showing that during the period at issue, their policy was
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to pay on the 5th or the 20th unless payday fell on a holiday, in which case they would “pay the
day after the holiday.” (See Jury Trial Tr. vol. 2, 313:14-15, “And what about if it fell on a
holiday? We would pay the day after the holiday.”; Jury Trial Tr. vol. 2, 186:5-14, “[W]hat [was]
the rule as to what the payday is for any given pay period? . . . [Y]ou get paid on the 5th . . . [or]
on the 20th . . . [u]nless it falls on a weekend or a holiday.”; Pls.’ Trial Exs. 6-9, reciting policies
about whether the payday “falls on a weekend or holiday” or “falls on a holiday or weekend”).
The jury did not credit or assign more weight to evidence suggesting that holiday-related
interference with payroll and notice was part of Defendants’ regular payday, or find that
Defendants complied with the FLSA with respect to the three paydays in question.
32.
In summary, Defendants have failed adequately to demonstrate that they took the
steps necessary to ensure that their challenged practices complied with the FLSA and offered no
evidence that they actively endeavored to ensure such compliance. See Solis v. R.M. Int’l, Inc.,
No. 3:09-cv-0863-BR, 2012 WL 1445575, at *3 (D. Or. Apr. 26, 2012) (stating that the
defendants had not met their burden, ex-post explanations and justifications are insufficient,
there was “not any direct evidence as to the purpose” of defense counsel’s representation, it was
“fair to infer that [the defendants’] counsel was hired to ensure [their] compliance with [related,
non-FLSA] regulations rather than to ensure [they] were compliant with FLSA,” and “[i]n any
event, there [was] not any evidence on [the] record from which the [court could] find that [they]
took the steps necessary to ensure its practices complied with FLSA”) (simplified).
Consequently, Defendants have failed to satisfy their burden of proving a good faith defense
under § 260, and Plaintiffs and the collective members are entitled to the following stipulated
amounts of liquidated damages:
///
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Employee
Minimum Wage
Liquidated Damages
Overtime Hours
Liquidated Damages
Aaron Waxenfelter
$1,805.40
$0.00
Benjamin Phillip Doan
$703.03
$0.00
Braden Allard
$768.94
$0.00
Bryan Dowd
$1,118.60
$0.00
Camille Abu Khzam
$2,292.16
$0.00
Carlos Barrera
$2,297.68
$0.00
Carmen Lukowski
$2,614.72
$0.00
Carol Ferguson
$635.83
$25.68
Chai Xiong
$1,460.01
$0.00
Christopher Popp
$1,706.58
$0.00
Colton Gledhill
$1,511.92
$0.00
Daniel Hernandez
$2,120.34
$0.00
Dereck Messer
$2,133.60
$0.00
Domonique Stewart
$1,916.10
$0.00
Dustin Franke
$3,566.63
$0.00
Eric Blaha
$2,257.87
$0.00
Erma L. Gonzales
$874.50
$0.00
Freddy Garcia
$1,614.72
$0.00
Gabriel Gasca
$1,867.60
$305.17
Gayle Wilson
$1,729.64
$0.00
Hugo Aguirre Najera
$659.03
$338.63
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Employee
Minimum Wage
Liquidated Damages
Overtime Hours
Liquidated Damages
Ignacio Ortiz Sanchez
$1,881.39
$36.90
Jai Xiong
$1,361.85
$0.00
James Dailey
$2,263.09
$0.00
Jeffrey Potter II
$35.16
$0.00
Jeffrey R. Karlin
$2,981.28
$0.00
Jeffrey S. Karlin
$2,651.26
$0.00
Jeremy Colen
$2,856.29
$0.00
Jeremy Ovalle
$2,408.02
$0.00
Jordan Martine
$1,596.89
$0.00
Joseph Pietila
$1,848.03
$0.00
Joshua Lemus
$2,407.08
$0.00
Kevin Wyatt
$685.49
$0.00
Linda Kay Landrum
$657.65
$0.00
Lynda Freeman
$1,156.38
$86.67
Lynn Sanchez
$2,705.20
$0.00
Manuel Vargas
$2,506.40
$0.00
Mckenzie Heeley
$716.23
$0.00
Michael Schmitt
$663.59
$0.00
Mohssen Fooladjoush
$1,619.94
$0.00
Nannette Lackey
$1,784.24
$4.20
Nicholas A. Niemeyer
$3,051.90
$0.00
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Employee
Minimum Wage
Liquidated Damages
Overtime Hours
Liquidated Damages
Nue Xiong
$1,610.38
$0.00
Patrick Bliss
$1,620.89
$0.00
Phouthaleth Kittirath
$1,778.14
$0.00
Raymond G. Gonzales
$352.13
$0.00
Reymundo Vargas-Martinez
$98.38
$0.00
Richie Flores
$1,519.60
$135.90
Robert Baker
$2,018.11
$0.00
Robert Utley
$782.13
$0.00
Ryan Patershall
$900.74
$0.00
Sandy Wayne Smith
$642.35
$537.75
Sergio Polanco Dominguez
$1,992.30
$91.50
Stafford Grindy
$2,013.04
$0.00
Steven Welborn
$663.59
$0.00
Tavish Winscott
$645.25
$6.00
Taylor Willis
$1,734.86
$0.00
Tyler Vaughn
$2,422.81
$0.00
Wesley Kennedy
$777.71
$0.00
You Tsuruta
$729.42
$0.00
Zachary McClure
$1,553.60
$0.00
Zachery Rangel
$768.94
$0.00
Total
$98,116.63
$1,568.40
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(See Pls.’ Proposed F&C at 4-5, providing the same table based on the parties’ stipulation to
Voth’s calculations; Defs.’ Proposed F&C at 4, noting the stipulation to the relevant totals listed
above.)
B.
Straight Time
33.
The remaining issue for the Court to address is the parties’ dispute as to whether
Plaintiffs’ claim for straight time liquidated damages is a legally viable theory. (See Pls.’ Mem.
at 8-10; Defs.’ Mem. at 3-6; Pls.’ Objs. at 10-12; Defs.’ Resp. at 5-7; Bench Trial Tr. 5:20-6:1;
id. at 8:19-23.)
34.
The FLSA provides that “[a]n employer who violates [its provisions] ‘shall be
liable to the employee or employees affected in the amount of their unpaid minimum wages, or
their unpaid overtime compensation, as the case may be, and in an additional equal amount as
liquidated damages.’” Flores, 824 F.3d at 904-05 (emphasis added) (quoting 29 U.S.C.
§ 216(b)); see also 29 U.S.C. § 207(a)(1) (prohibiting employment “for a workweek longer than
forty hours unless [the] employee receives compensation for his employment in excess of the
hours above specified at a rate not less than one and one-half times the regular rate at which he is
employed”).
35.
The Supreme Court has observed that the FLSA’s liquidated damages provision,
29 U.S.C. § 216(b), addresses issues related to recovery for “retention of a workman’s pay,
which might result in damages too obscure and difficult of proof for estimate other than by
liquidated damages,” and reflects that Congress had “seen fit to fix” and “enumerat[e] the sums
recoverable” thereunder. Brooklyn Sav. Bank v. O’Neil, 324 U.S. 697, 707-09, 715-16 (1945)
(citations omitted). On its face, the FLSA’s liquidated damages provision characterizes such
damages to an “equal amount” of “unpaid minimum wages” and/or “unpaid overtime
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compensation.” See 29 U.S.C. § 216(b) (referring to liquidated damages as amounts equal to
such wages).
36.
Notably, however, there are “situations . . . that fall between” the FLSA’s federal
minimum wage and overtime provisions. See Conner v. Cleveland Cnty., N.C., 22 F.4th 412,
420-21 (4th Cir. 2022) (discussing 29 U.S.C. §§ 206(a)(1) and 207(a)(1)). Specifically, “[i]n
addition to seeking unpaid overtime compensation, employees may seek to recover wages for
uncompensated hours worked that ‘fall between the minimum wage and the overtime provisions
of the FLSA,’ otherwise known as ‘gap time.’” Id. at 421 (quoting Davis v. Abington Mem’l
Hosp., 765 F.3d 236, 244 (3d Cir. 2014), which quoted Adair v. City of Kirkland, 185 F.3d 1055,
1062 (9th Cir. 1999)). “Gap time” means time that is not directly covered by the FLSA’s
“overtime provisions because it does not exceed the overtime limit,” and “minimum wage
provisions because . . . the employees are still being paid a minimum wage when their salaries
are averaged across their actual time worked.” Adair, 185 F.3d at 1062 n.6; Conner, 22 F.4th at
421.
37.
There are two types of gap time claims: (1) “pure gap time,” i.e., “the employee
seeks to recover for unpaid straight time in a week in which they worked no overtime,” and (2)
“overtime gap time,” i.e., “the employee seeks to recover unpaid straight time for a week in
which they did work overtime.” Conner, 22 F.4th at 421. Although “direct minimum wage and
overtime violations can clearly be addressed by the FLSA, 29 U.S.C. §§ 206-207, no provision
of the FLSA explicitly governs employee claims to recover for unpaid gap time.” Id. As
explained in Conner, courts, including the Fourth Circuit, “widely agree” that “there is no cause
of action under the FLSA for pure gap time when there is no evidence of a minimum wage or
maximum hour violation by the employer,” but courts “are divided on whether an employee can
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bring an overtime gap time claim for unpaid straight time worked in an overtime week.” Id.
(quoting Monahan v. Cnty. of Chesterfield, 95 F.3d 1263, 1280 (4th Cir. 1996) and Davis, 765
F.3d at 244).
38.
In Adair, the Ninth Circuit concluded that the plaintiffs were not entitled to
overtime given the applicability of an exemption from the FLSA’s normal overtime limit and did
not reach the plaintiffs’ alternative claim for “gap time” related to “uncompensated hours worked
that f[e]ll between the minimum wage and the overtime provisions of the FLSA,” but noted that
it was “not clear that a gap time claim may be asserted under the FLSA[.]” 185 F.3d at 1058-62
n.6 (citing, inter alia, Monahan, 95 F.3d at 1282); see also Monahan, 95 F.3d at 1282
(disagreeing with any “authority that implies claims for pure gap time, straight time when no
overtime has been worked, are cognizable under the FLSA when the employer has not violated
the FLSA’s minimum wage/maximum hour provisions,” and questioning whether “even the most
liberal interpretation [of the FLSA] can encompass such claims” given “the legislative history
and intent behind [it]” (citing, inter alia, Donovan v. Crisostomo, 689 F.2d 869, 872 & n.3 (9th
Cir. 1982)).
39.
Courts in this circuit have noted that the Ninth Circuit has not addressed whether
gap time claims are viable under the FLSA, and adopted the majority position discussed in
Conner that there is no cause of action under the FLSA for pure gap time claims. See Kouchi v.
Am. Airlines, Inc., No. 18-cv-7802, 2019 WL 994011, at *2-3 (C.D. Cal. Jan. 23, 2019)
(observing that the defendant “correctly note[d]” that the “Ninth Circuit has not yet weighed in”
on whether “pure gap time claims are cognizable under the FLSA,” stating that the “majority
position,” including for “most district courts in this circuit,” is that there is no cause of action
under the FLSA for pure gap time, adopting the majority position, and dismissing a pure gap
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time); Young v. Beard, No. 2:11-cv-02491, 2015 WL 1021278, at *12 (E.D. Cal. Mar. 9, 2015)
(stating that “the Ninth Circuit has not resolved whether a plaintiff may bring ‘gap time’ claims
under the FLSA” and “[m]any circuits do not allow pure gap time claims brought under the
FLSA,” and adopting the “majority position” (citing Adair, 185 F.3d at 1062 n.6 and Donovan,
689 F.2d at 876)).
40.
Plaintiffs’ liquidated damages theory is based on overtime (not pure) gap time, as
they seek to recover liquidated damages in amounts equal to unpaid straight time in weeks in
which they worked overtime. (See Pls.’ Mem. at 8-9, addressing “liquidated damages for
straight-time hours worked in overtime weeks,” and stating that “there can be no ‘gap time’
claim in a non-overtime week”). Plaintiffs’ “basic case” in support is based on the Ninth
Circuit’s decision in Donovan and 29 C.F.R. § 778.315, a DOL regulation on which Donovan
relied and provides interpretative guidance on the FLSA’s overtime provision. (See Pls.’ Mem. at
8-12, focusing on Donovan and this regulation, with background quotes from Adair on “gap
time”; Pls.’ Objs. at 10-12, stating that Plaintiffs’ “basic case” is set forth in their memorandum.)
41.
The DOL “provides an official interpretation of the FLSA overtime provisions in
part 778 of the Code of Federal Regulations, title 29,” such as § 778.315, which is titled
“[p]ayment for all hours worked in overtime workweek is required” and provides, in relevant
part, that the “extra compensation for the excess hours of overtime work under the [FLSA]
cannot be said to have been paid to an employee unless all the straight time compensation due
him for the nonovertime hours under his contract (express or implied) or under any applicable
statute has been paid.” Conner, 22 F.4th at 421-22 (citing 29 C.F.R. § 778.1(a) and quoting 29
C.F.R. § 778.315).
///
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In Donovan, the DOL Secretary sued an employer under the FLSA because its
employees worked overtime but were not compensated for doing so, and were required to
“kickback” part of their straight time wages, which caused them to receive “$.38 an hour less”
than their agreed-upon hourly rate and the amounts listed on payroll, but not “less than the
minimum wage specified in the FLSA.” 689 F.2d at 871-72 & n.3. The district court concluded
that the employer violated the FLSA’s overtime provision by “failing to compensate their
employees at a rate of at least one and one half times the employees’ regular hourly rate for all
hours worked over 40 in each workweek,” and awarded actual damages and an equal amount of
liquidated damages, which accounted for “[f]ifteen dollars for each overtime workweek . . . to
allow restitution for the amount of straight time compensation that had been kicked back.” Id. at
872 & n.4. The district court “ordered no restitution for kickbacks in non-overtime weeks.” Id. at
872 n.3.
43.
On appeal, the Ninth Circuit addressed whether the DOL Secretary had “authority
under the FLSA to sue for restitution of the kickbacks taken from the employees’ wages and
[whether] the district court [was able] to award damages for underpayment of straight time
wages under the FLSA.” Id. at 873. The Ninth Circuit noted that “[i]n the weeks when no
overtime was worked,” the DOL Secretary “had no authority to seek restitution of the kickbacks
as part of unpaid overtime compensation,” where the “kickbacks did not result in the employees
receiving less than the minimum wage specified in the FLSA.” Id. at 873 n.2. The Ninth Circuit,
however, held that the DOL Secretary could “seek restitution for kickbacks from straight time
wages as overtime compensation for those weeks in which overtime [was] worked.” Id. at 876.
In support, the Ninth Circuit emphasized that (1) “[i]f an employer were permitted to take
kickbacks from straight time pay during overtime weeks, the [FLSA’s overtime provision’s]
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purpose . . . to spread work and . . . provide for the strain of long hours by making overtime work
more expensive would be circumvented,” (2) “an employer could effectively eliminate the
premium paid for overtime by taking kickbacks out of straight time wages in an amount equal to
or greater than the overtime premium,” and (3) a contrary holding “would allow employers to
frustrate the policy of [the FLSA’s overtime provision] through the use of kickbacks.” Id.
Further, the Ninth Circuit emphasized that the DOL Secretary has “interpreted the [FLSA’s]
overtime provision as requiring full payment for all straight time hours worked as a prerequisite
to satisfying the overtime provision[,]” noted that its holding recognized that the DOL
Secretary’s interpretation of “the statute he administers [was] entitled to deference,” and rejected
the argument that “the kickback issue was not pleaded and should not be considered” because
“kickbacks were an integral part of the overtime violation and required no additional pleading.”
Id. at 876 & n.13-14 (citing 29 C.F.R. § 778.315).
44.
Defendants argue that there is “no basis in law” for Plaintiffs’ “novel” straight
time liquidated damages theory. (Defs.’ Mem. at 4-5.) In Defendants’ view, the “plain text” of
the liquidated damages provision, 29 U.S.C. § 216(b), precludes liquidated damages for gap time
in overtime weeks, “numerous courts have found liquidated damages in the amount of [gap] time
pay are not available under the FLSA,” and Plaintiffs fail to “identify any authority that
liquidated damages can be assessed for [gap] time wages that were fully paid but slightly
delayed and for which advance notice was given.” (Defs.’ Mem. at 3-5) (emphasis altered).
Defendants add that this Court has previously supported their view. (Id. at 3, 5, quoting ECF No.
170 at 2-3.)
45.
The Court rejects Defendants’ argument for several reasons. First, the cases
Defendants cite are merely persuasive decisions that do not address the Ninth Circuit’s Donovan
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decision, or the circumstances and precise theory that Plaintiffs present here. See Ming Hui v.
Shorty’s Seafood Corp., No. 15-7295, 2017 WL 5054401, at *8 (E.D.N.Y. Sept. 6, 2017)
(finding that a New York statute allowed an employee to recover all unpaid wages, including
“straight time compensation,” and the “FLSA provides for liquidated damages in the amount of
actual damages for just unpaid minimum wage and overtime compensation,” and focusing on
whether the plaintiff could “stack” liquidated damages under both statutes), report and
recommendation adopted, 2017 WL 5125527, at *1 (E.D.N.Y. Nov. 2, 2017); Koelker v. Mayor
& City Council of Cumberland (Md.), 599 F. Supp. 2d 624, 638 n.18 (D. Md. 2009) (declining to
award liquidated damages based on a good faith defense, and stating in a footnote that “[e]ven if
liquidated damages were warranted in this case, liquidated damages would apply only to the
award of FLSA overtime; the straight time compensation awarded for gap hours is not subject to
liquidated damages”); Hernandez v. Martinez, No. 12-6133, 2014 WL 3962647, at *12 (N.D.
Cal. Aug. 13, 2014) (explaining that the employee “could have accrued overtime despite working
less than 40 regular weekly hours by working more than eight hours a day” given that state law
“mandate[d] overtime for ‘work in excess of eight hours in one workday and any work in excess
of 40 hours in any one workweek,’” the “FLSA awards overtime only for a workweek longer
than forty hours,” and the employee was “entitled to FLSA liquidated damages only for hours
beyond 40 in a given week,” not “the number of regular hours less than 40 that were worked”)
(simplified).
46.
Defendants do not address Plaintiffs’ claim that “Donovan specifically and
explicitly awarded liquidated damages for unpaid straight time in overtime weeks” and “[t]his
Court should do the same” (Pls.’ Objs. at 11), other than to note this case is “solely for late pay”
and does not involve “overtime gap time,” “failure to pay any straight time,” or “kickbacks from
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straight time wages” like Donovan, which is “a far cry from the situation here where employees
were fully paid but slightly delayed and for which advance notice was given.” (Defs.’ Resp. at 56) (emphasis altered). However, the jury determined here that Defendants violated the FLSA,
even if their FLSA violation was of a different character than in Donovan. Furthermore, some
courts and commentators appear to have endorsed Plaintiffs’ position on overtime gap time. See
Hannah Schoeb, Comment, Bridging the Gap: Overtime Gap Time under the Fair Labor
Standards Act, 66 Kan. L. Rev. 603, 603-05 & n. a1-3, 617-24 (2018) (thanking the attorneys at
the DOL solicitor’s local office, stating that “overtime gap time” was illustrated by a
hypothetical where the employee worked more than forty hours but was only credited for thirtyfive and still earned an hourly rate greater than the federal minimum wage, noting that three
circuits “have implicitly or explicitly considered overtime gap time” and “no clear consensus has
emerged,” and Donovan “considered an issue nearly identical to overtime gap time” and “used
reasoning that illuminates the current overtime gap time inquiry, and set the stage for the cases
that would follow”).
47.
Notably, in Conner, a case Defendants cite (Defs.’ Mem. at 5), the Fourth Circuit
reviewed the DOL’s interpretative guidance given the FLSA’s silence regarding overtime gap
time, and stated that the gap overtime related interpretation, 29 C.F.R. § 778.315, “made sense”
in light of the “policy objective” underlying the FLSA’s overtime provision. 22 F.4th at 422. In
support, Conner cited Donovan:
[In Donovan, the Ninth Circuit found] a violation of the FLSA’s overtime
provisions and frustration of its objectives when an employer, in a scheme similar
in effect to overtime gap time violations, required its employees to pay a cash
‘kickback’ to the employer during overtime weeks, resulting in a reduction in the
employees’ regular rate of pay compared to the employment agreement.
Id. (quoting Donovan, 689 F.2d at 876). The Fourth Circuit also explained that § 778.315
supported the conclusion that “an employee must be compensated at the agreed-upon or regular
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straight-time rate (rather than the statutory minimum wage rate) before any computation for
overtime.” Id. Relying on § 778.315’s guidance, as in Donovan, the Fourth Circuit held that
overtime gap time claims are cognizable under the FLSA, thus resolving “any doubt” about its
position. Id. at 424.
48.
Defendants suggest that Conner supports their view that § 778.315 “does not say
that overtime wages include the straight time pay for all regular hours worked” or “anything
about how liquidated damages are calculated,” and has merely “been interpreted as precluding an
employer from reducing regular pay to offset overtime compensation owed.” (Defs.’ Mem. at 45.) With respect to the latter proposition, Defendants cite the following example that Conner
provided:
For example, assume an employee’s salary is $1,500 each work week for straighttime wages, and in a given work week, the employee earns $750 in overtime pay.
Instead of issuing the employee a paycheck for $2,250, the employer issues a
paycheck in the amount of $1,750. The paystub designates a payment of $1,000 as
‘salary’ and $750 as ‘overtime compensation.’ In this scenario, there is a violation
of the overtime provisions of the FLSA according to § 778.315 because it is
improper to designate $750 as ‘overtime pay’ without first having paid all
straight-time wages. Effectively, the employer has only paid the employee $250
in overtime pay out of the $750 owed.
22 F.4th at 422-23 (footnote omitted).
49.
In Conner, the Fourth Circuit recognized that gap time can include nonpayment
for a period of time, or underpayment, based on the “gap between what is promised to be paid as
an employee’s regular salary and what is actually paid,” nothing in § 778.315 “suggests a
difference between underpayment and nonpayment of straight time wages,” and “all [straight
time] means all,” and proceeded to expand on its previous example in discussing how there are
multiple types of overtime gap time:
In a previous example, we assumed an employer owed their employee $1,500 in
straight-time wages and $750 in overtime wages; however, the employer only
paid a total of $1,750, designating $1,000 as straight-time wages and $750 as
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overtime. In this example, there is not a direct lack of payment for a period of
time, so the gap is not precisely the same as the one in [a past case]. Instead, the
‘gap’ is the $500 owed for straight-time wages, effectively meaning the employee
has been paid for only 2/3 of their straight time worked ($1,000 out of $1,500).
Because overtime ‘cannot be said to have been paid . . . unless all the straight
time’ is paid, 29 C.F.R. § 778.315, we would deem the first $500 of the overtime
payment to be straight-time wages in order to fill that gap. That would, in turn,
create an underpayment of overtime and, thus, an overtime violation under the
FLSA.
Id. at 424-25.
50.
The Fourth Circuit’s decision is instructive and supports Plaintiffs’ reliance on
Donovan. Plaintiffs are entitled to liquidated damages in an “equal amount” to “unpaid minimum
wages” and “unpaid overtime compensation.” 29 U.S.C. § 216(b). The DOL’s interpretative
guidance addresses “overtime compensation” and provides that the “extra compensation for the
excess hours of overtime work under the [FLSA] cannot be said to have been paid to an
employee unless all the straight time compensation due him for the nonovertime hours under his
contract (express or implied) or under any applicable statute has been paid.” 29 C.F.R. § 778.315
(emphasis added). For an employer to meet its overtime obligations, “an employee must be
compensated at the agreed-upon or regular straight-time rate (rather than the statutory minimum
wage rate) before any computation for overtime.” Conner, 22 F.4th at 422. This regular straighttime rate may be “obvious” from the parties’ compensation arrangement and regular pay
practices. Id. at 427.
51.
Given these authorities, it would be improper to limit any overtime week
liquidated damages to the federal minimum wage rate multiplied by non-overtime hours, plus the
overtime hours multiplied one and one-half times the regular straight-time rate. Indeed, if
“overtime cannot be said to have been paid unless all the straight time is paid” and “all [straight
time compensation] means all” and is based on the “regular straight-time rate,” not “the statutory
minimum wage rate,” Conner, 22 F.4th at 422, 424-25 (simplified), awarding the product of
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these figures would effectively mean Plaintiffs would not receive an amount equal to “unpaid
minimum wages” plus “unpaid overtime compensation” because they would not receive the gap
in overtime weeks stemming from (1) their regular straight-time rate multiplied by non-overtime
hours, minus (2) the federal minimum wage rate multiplied by the same non-overtime hours.
(Both Voth’s and Murphy’s calculations include (2), the sum produced by the federal minimum
wage in overtime weeks. Awarding that twice would exceed several members’ regular straighttime compensation.) The following liquidated damages totals account for this gap in straighttime compensation:
Employee
Straight-Time Liquidated Damages
Carol Ferguson
$767.37
Gabriel Gasca
$1,521.80
Hugo Aguirre Najera
$704.47
Ignacio Ortiz Sanchez
$1,319.11
Lynda Freeman
$1,105.62
Nannette Lackey
$647.32
Richie Flores
$604.35
Sandy Wayne Smith
$686.65
Sergio Polanco Dominguez
$1,673.30
Tavish Winscott
$244.75
Total
$9,274.74
52.
This conclusion is effectively the same as the result in Donovan. See 689 F.2d at
871-72 & n.3-4 (observing that the employees “worked 8 hours a day, six days a week, from
Monday through Saturday” and were not compensated for the overtime on Saturday, kickbacks
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in overtime weeks caused the employees to receive “$.38 an hour less” than their regular
straight-time rate but not “less than the minimum wage specified in the FLSA,” and the court’s
award of equal amounts of damages and liquidated damages included “[f]ifteen dollars for each
overtime workweek” given “the amount of straight time compensation that had been kicked
back”).
53.
Finally, Defendants note that in resolving the parties’ disputes about the collective
action notice’s contents, the Court rejected Plaintiffs’ proposed short-form notice’s framing of
liquidated damages as “$7.25 for every hour they worked in a pay period they were paid late, or
if they worked overtime, full time-and-a-half for that pay period, whichever is more.” (See Pls.’
Mot. Issuance Collective Action Notice at 3, ECF No. 165; Defs.’ Mem. Supp. at 3, 5; Op. &
Order at 2-3, ECF No. 170.) The Court endorsed Defendants’ proposed characterization of
liquidated damages as “an extra 50% of their regular wage rate for all hours over 40 in a week,”
and cited the language in the FLSA’s liquidated damages provision in support. (Op. & Order at
2-3.) The Court also stated that Defendants’ “proposed language more accurately reflect[ed] the
proper calculation of liquidated damages under the FLSA,” and that Plaintiffs had thus far
presented “no authority for their position that they are entitled to overtime wages and liquidated
damages for all hours in the relevant pay period, as opposed to any hours over 40 hours per
week.” (Id. at 2-3.)
54.
At the notice stage, the parties provided only cursory briefing on this legal issue
and did not cite case law related thereto. The parties have now presented full briefing and an
adequately developed record on this issue. With the benefit of this record and briefing, the Court
finds, as a matter of law, that Plaintiffs and the collective members are entitled to the above
liquidated damages.
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CONCLUSION
With respect to Plaintiffs’ FLSA claims and Defendants’ defenses, the Court makes the
findings of fact and conclusions of law stated in this Opinion and Order. The Court will enter a
Judgment in Plaintiffs’ favor and against Defendants on the claims and for the damages specified
herein.
IT IS SO ORDERED.
DATED this 25th day of July, 2023.
HON. STACIE F. BECKERMAN
United States Magistrate Judge
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