December 05, 2023

No Take Backs Court Rules After FLSA Violation

When a group of bakery distribution drivers filed a lawsuit alleging the would-be employer owed them overtime compensation and misclassified them as independent contractors rather than employees covered by the Fair Labor Standards Act (FLSA), the company countersued the workers. In its counterclaim, the company demanded that the workers be required to pay back the money they earned while working for the company to offset wages and liquidated damages the court might award if it concluded the workers were employees owed overtime pay.

On December 5, 2023, the U.S. District Court for the District of Vermont rejected that countersuit. The court noted the employer was trying to benefit from its allegedly unlawful misclassification decision and concluded that the FLSA does not allow for state law counterclaims where they cut against the act’s central purpose.

The court also recognized that employer counterclaim could give employers an incentive to violate federal wage laws and then seek reimbursement for their violations. In addition, the court pointed out such a counterclaim might discourage workers from asserting their rights privately or with the department.

The U.S. Department of Labor’s Solicitor of Labor Seema Nanda said of the decision, “The Department of Labor will always be concerned when an employer engages in conduct that discourages employees from raising their voices. This includes retaliation, coercive employment terms or—as the court recognized here—illegal attempts to assert counterclaims against workers who may have legitimate claims for unpaid wages.”

Take Away #1. Get it right the first time.  When an employer improperly classifies a worker as an independent contractor rather than an employee, the employer faces penalties for doing so.  As this case illustrates, you will likely be unable to offset those penalties be recouping wages, perks, or other benefits you previously provided to the covered workers.

Take Away #2. Getting it right is not always easy. An employer must follow myriad rules when it comes to worker classification. The U.S. Department of Labor (DOL), the IRS, and myriad state codes, such as workers’ compensation and unemployment insurance, may each have their own definitions and list of factors to consider in worker classification.  When in doubt (and maybe even if you are pretty sure you have it right), talk to your company’s employment counsel for guidance.