Willful Overtime Violation Charge Against Horse Race Operator Revived

​Citing several points that reveal genuine issues of material facts as to whether an employer's overtime violations were willful, the 6th U.S. Circuit Court of Appeals vacated a lower court's ruling granting an employer summary judgment against a U.S. Department of Labor (DOL) charge of willful violation of the Fair Labor Standards Act (FLSA). Among those was the fact that the employer previously had been warned about its overtime violations.

The employer is one of the largest horse race operations in the United States. It runs four thoroughbred racehorse training and care facilities in three states and employs between 120 and 150 employees. Among the types of employees are grooms and "hotwalkers."

Hotwalkers and grooms work similar hours; both work every day of the week. Some hotwalkers work additional hours in the afternoons every other day. On race days, grooms have an opportunity to earn extra pay if one of their horses is racing. On average, hotwalkers work approximately 44.25 hours per week and grooms work between 48.5 and 52.5 hours per week.

Most of the employees did not submit time sheets for additional hours worked, while others submitted inaccurate time sheets. Because the employer did not keep adequate time sheet records, the 6th Circuit stated, it was impossible to determine how many hours each employee worked.

The DOL filed a lawsuit in district court alleging violations of various provisions of the FLSA, including failing to pay overtime wages and failure to keep adequate and accurate records. The DOL also requested the court find that the employer acted willfully.

Employers that violate the overtime provisions of the FLSA are liable for unpaid overtime compensation for up to two years' worth of back wages, unless their violations are found to be willful, in which case they are liable for up to three years' worth. Employers also can be held liable for liquidated damages equal to the amount of unpaid compensation due under the statute, in effect doubling the amount of back wages to which employees are entitled.

After a bench trial the court found the employer had violated the overtime and record-keeping requirements of the FLSA, but denied the DOL's request as to the willful and liquidated damages. The DOL and the employer both appealed.

The employer argued that its pay practices met the overtime requirements under a salary plan that paid a fixed overtime amount for a regular fixed number of overtime hours; or as a fluctuating workweek salary plan, or by providing lump-sum payments for additional tasks. The 6th Circuit quickly dismissed all three arguments and upheld the lower court's overtime and record-keeping rulings, noting that:

• Neither the grooms nor the hotwalkers worked a fixed number of hours.
• The time sheets were too inaccurate—and too few—to calculate overtime premiums under the flexible workweek plan.
• The employer did not qualify under the narrow requirements of the lump-sum payment regulations.

Moving to the issue of whether the employer acted willfully, the 6th Circuit explained, the DOL had to prove that the employer "knew or showed reckless disregard for the matter of whether its conduct was prohibited by the statute."

In this case, the 6th Circuit noted that the employer was a repeat offender that:

• Had previously been investigated and found in violation of the FLSA.
• Was enjoined by a district court from continuing to violate the statute and ordered to pay unpaid overtime compensation.
• Made assurances that it would comply in the future.

Although these facts do not automatically mean an employer's violations are willful, the appeals court said, they "strongly suggest that the employer had actual notice of the requirements of the FLSA" and disregarded them.

The 6th Circuit further explained that employer's own statements, and the testimony of its payroll manager that time sheets often were not used to determine an employee's pay, provided further evidence from which a reasonable juror could infer that the company only intended to simulate compliance with the overtime requirements by maintaining time sheets that were not actually used to issue payroll.

Concluding that the lower court's grant of summary judgment on the issue of willfulness in favor of the employer was inappropriate, the 6th Circuit vacated the ruling because genuine issues of material fact existed as to whether the employer willfully failed to pay its employees in compliance with the FLSA. In addition, the appeals court vacated the district court's ruling against the willful damages claim, noting that liquidated damages are available for potentially willful violations of the FLSA's provision.

Walsh v. KDE Equine, LLC, 6th Cir., Nos. 21-5054/5133 (Dec. 22, 2022), petition for en banc rehearing denied (Feb. 9, 2023).

Robert S. Teachout, SHRM-SCP, works in the Washington D.C., area and is a legal editor for Brightmine™ HR & Compliance Centre, a service helping HR build successful and purposeful workplaces.