Employers Must Be Cautious Using Good-Faith Defense in FLSA Actions

In Scott v. Chipotle Mexican Grill, Inc., No. 12-08333, 2014 U.S. Dist. LEXIS 175775 (S.D.N.Y December 18, 2014), the court held that the employer waived the attorney-client privilege by invoking a good-faith defense and thereby putting at issue otherwise privileged communications between the employer and its lawyers regarding the classification of employees under the Fair Labor Standards Act (FLSA). In asserting its good-faith defense, the employer claimed to have relied on state and federal regulations but specifically denied relying “upon advice of counsel.” However, the court found that “such artful pleading cannot negate an element of a statutory defense, especially here, where it is evident that [the employer] did in fact have the advice of counsel on the very topic at issue.” The court held that “where the defendant has clearly benefitted from the advice of counsel on the very issue on which it asserts good faith, it puts its relevant attorney-client communications at issue and thereby waives its privilege.”

The FLSA allows a defendant to avoid liability for failure to pay overtime if the defendant “pleads and proves that the act or omission complained of was in good faith in conformity with and in reliance on any written administrative regulation, order, ruling, approval, or interpretation” of the administrator of the Wage and Hour Division of the Department of Labor. 29 U.S.C. § 259. The act also allows an employer found liable for past wages to avoid liability for liquidated damages by proving a reasonable, good-faith belief that it was not violating the FLSA. 29 U.S.C. § 260. Additionally, an employer’s lack of willfulness limits the statute of limitations for claims under the FLSA from three to two years. 29 U.S.C. § 255(a). The court’s decision in Scott, however,demonstrates that employers must proceed with caution when asserting such “good faith” defenses to alleged violations of the FLSA. If an employer relies on advice of counsel in determining the proper classification of its employees, asserting such a defense could subject its otherwise privileged communications with counsel to discovery.