Employment Law Daily 8th Circuit upholds $92K judgment against daycare 'preschool' for unpaid overtime
Monday, April 11, 2016

8th Circuit upholds $92K judgment against daycare 'preschool' for unpaid overtime

By Brandi O. Brown, J.D. A daycare that was successfully sued by the Secretary of Labor after three investigations over the course of five years turned up repeated FLSA violations was unable to obtain relief on appeal to the Eighth Circuit of a $92,000 judgment against it. The business qualified as a "preschool;" it waived any argument that the employees were exempt from overtime pay; and there were no errors made in calculating damages. The district court's judgment was affirmed (Perez v. Contingent Care, LLC, April 7, 2016, Shepherd, B.). First investigation. In 2005, the Wage and Hour Division of the Department of Labor conducted an investigation of Endless Possibilities, a daycare providing education services and custodial care to toddlers. The DOL determined that the employer had violated the FLSA by failing to pay overtime at the rate of one-and-a-half times the hourly rate. The investigator explained to the owner the overtime and recordkeeping requirements under the FLSA and the owner entered a plan to pay the back wages owed. The owner also promised to correct existing problems and comply with the federal law in the future. Subsequent investigations and suit. Nevertheless, in 2008 and again in 2010 the DOL conducted additional investigations and uncovered similar violations. After the 2008 investigation, the owner agreed to pay back wages and to make changes necessary to comply with the law. At the end of the 2010 investigation, however, the DOL determined that the employer owed over $92,000 in back wages and in 2011 it filed suit against the defendants. At trial, the court held that the business was a "preschool" under the FLSA, and therefore a covered enterprise, because it had established curricula, it employed lesson plan coordinators and titled employees as "teachers," it advertised reading and math services, and it served children averaging three years old. It also found that the defendants failed to maintain timecards for several periods of time and that the available records were inaccurate and contained conflicting accounts. Finally, the district court concluded that the employer failed to pay overtime at the required rate and mis-categorized hours in order to avoid paying overtime. It also found other violations. Daycare was a "preschool." On appeal, the employer made three primary arguments. First, it contended that the employees were exempt teachers under the FLSA. This argument, however, was not raised below and, therefore, was waived. Second, it argued that the business did not qualify as a "preschool" under the FLSA. However, the conclusion that it was a preschool was supported not only by an opinion letter from the Wage and Hour Division, but also by decisions from the Sixth and Tenth Circuits that had found custodial day care centers qualified as "preschools" under section 203(s)(1)(B). There was no error in the district court's conclusion, the appeals court explained. Secretary's damages calculation was supported. Finally, the employer argued that the district court erred in calculating damages by relying on the Secretary of Labor's calculations. The appeals court rejected this contention. The lower court did not err in determining that the employer's records were "inadequate and inaccurate." Evidence established that time cards were missing and the district court had also noted synchronicity between the amount of decrease seen in the wages and the "other pay" indicated. The court did not find credible the employer's explanation for this. In turn, the Secretary provided sufficient evidence upon which the court could make reasonable inferences. The investigator had gone through those time cards and pay stubs that were available and had matched them to determine the unpaid hours. The court was not unreasonable in relying on this information to make its inferences. Furthermore, there was no support for the employer's argument that it had rebutted the evidence put forward by the Secretary. Rather, the employer had relied on the same evidence as the Secretary but provided explanations the lower court had not found credible. The employer could not complain about the difficulty of calculating damages that was caused by its own failure to keep records in accordance with the law.

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