Fifth Circuit Court of Appeals Rejects a Broad Manager Exception for Retaliation Claims Under the Fair Labor Standards Act
On February 24, 2017, a three-judge panel of the United States Court of Appeals for the Fifth Circuit issued a significant decision interpreting the anti-retaliation provision of the Fair Labor Standards Act (FLSA). Starnes v. Wallace, 849 F.3d 627, (5th Cir. 2017) (Starnes), found that the provision applies to managers reporting wage and hour violations of the FLSA.
The plaintiff, LeAnn Starnes, worked as a risk manager in the corporate offices of one of the co-defendants, Daybreak Ventures, L.L.C., a company that employs nursing home workers in Texas. The risk manager position involved investigating workplace injuries and reviewing any liability for the company, providing information to the Texas Workforce Commission, reviewing and denying workplace-related injury claims, working on opposition statements for Equal Employment Opportunity Commission discrimination cases, and attending mediation for lawsuits involving her department.
In 2010, an employee, Ludy Estrada, complained to Starnes that Daybreak was not paying Estrada's husband, Vincent, a maintenance worker, for his travel time or overtime. Starnes reviewed the information Estrada had provided, but she referred Estrada to Andy Shelton, the Director of Human Resources, because Starnes believed the human resources department exclusively handled FLSA claims. Estrada refused to speak with Shelton for fear of losing her job if she reported the violation. Starnes then held a meeting with Shelton on Estrada's behalf, during which she told Shelton that Daybreak was "violating the law" by the way it was paying Estrada's husband. Starnes subsequently spoke with Daybreak's president, Mike Rich, where she reiterated that it looked to her that the company was breaking the law by the way it was paying Estrada's husband. Rich assured Starnes that they would resolve the situation.
In 2011, each Daybreak employee was required to sign a job description. Starnes's job description required her to report "all allegations and finding related to violations of Federal and State laws including Anti-Kickback and fraud." Previously, Starnes only had a self-written "Job Analysis" which described the amount of time she spent on various duties, none of which involved reporting violations of law.
Also in 2011, the Estradas began to pursue a back pay claim of over $68,000 with Shelton. Ludy Estrada ultimately met with Rich to discuss the claim, but Starnes was not present at that meeting. During negotiations over the claim, Rich stated that he believed that Starnes "was to blame" for the problems with Vincent's wage claim. He agreed to resolve the dispute (they subsequently reached a settlement of $40,000) and assured Ludy she would not lose her job.
In early 2012, Daybreak terminated the employment of five employees, including Starnes and Ludy, purportedly due to financial difficulties. One employee, Rich's son, went to another company before being terminated and two other employees were rehired. Thus, only Starnes and Ludy were unemployed. Both filed a lawsuit in the United District Court for the Eastern District of Texas claiming retaliation under both the FLSA and the Texas state statute regulating nursing homes.
Daybreak filed a motion with the district court for summary judgment on liability under the FLSA. It denied the motion on Ludy by finding that she had established a prima facie case of retaliation and that a jury could conclude that the cost cutting justification for her termination was pretextual primarily because only she and Starnes wanted to stay, but were instead terminated as a result of the supposed downsizing. Ludy settled with Daybreak before trial. On Starnes, the district court granted summary judgment, in part because it concluded that she did not engage in activity protected from retaliation because she did not act outside of her job duties in reporting the wage dispute. The district court also concluded that Starnes could not establish causation because more than a year elapsed between her reporting activity and termination.
Overview of the Court of Appeals Decision
With regard to the plaintiff's retaliation claim, the court of appeals considered whether Starnes had engaged in activity protected from retaliation (i.e. by making a complaint), as well as whether there were causal links between her reporting activity and termination. The court noted that for a plaintiff's communication to constitute a protected-from-retaliation complaint it would first need to give the employer fair notice that an employee is making a complaint that could subject the employer to a later claim of retaliation. In addition, the complaint must be sufficiently clear and detailed for an employer to understand it as an assertion of protected rights and a call for protection. Importantly, the court has also explained that such an assertion of rights requires that an employee step outside of his or her normal job role and assert a right adverse to the company. Furthermore, the court cited the "manager rule" whereby a manager merely voicing concerns about pay issues will not constitute sufficient notice that the manager is asserting rights.
The court found that Starnes had done more than merely voice a concern of others that Daybreak's actions might be illegal. Rather, it noted that Starnes asserted on two separate occasions that Daybreak was "violating the law" by not paying Vincent for travel and overtime. Even though the job description for Starnes states that she investigates all violations of federal and state law, including FLSA violations, the court could not reach a judgment as a matter of law, rather than as a factual matter for determination by a jury, whether the job description applied at the time Starnes made her report. Furthermore, the court found that Starnes never dealt with pay issues apart from the Estrada situation, as her primary responsibility involved insurance and workers compensation claims. The court also pointed to the fact that Starnes did not consider the Estrada FLSA dispute to be part of her duties and that Starnes's conduct reflects typical behavior in sizable companies: a separate HR department handles pay issues.
The court also differentiated the current case from past cases in various federal circuits involving managerial retaliation cases that were dismissed at the summary judgment stage, by noting that in that those cases the plaintiffs were acting in a managerial role that indisputably dealt with pay issues. The court further observed that in the other cases the plaintiff had raised concerns about the classification of all workers or entire categories of workers, whereas Starnes's only concern was about Vincent Estrada-even though other maintenance workers were subject to the same pay policies-and thus her expressed concern was more akin to asserting rights adverse to the company.
While the decision in Starnes only serves as a precedent in FLSA cases for claims of retaliation brought by managers, it could also be cited as case law authority in various cases brought under numerous other statutes that provide anti-retaliation protection, such as the Age Discrimination in Employment Act and the Americans With Disabilities Act. To avoid retaliation, employers may want to determine whether any managers potentially subject to adverse actions (e.g., terminations, pay reductions, or demotions) have previously made assertions that their company had violated statutes that did not relate to their normal job duties.