Chipotle prevails in contempt proceeding against employee attempt to enforce blocked DOL overtime rule
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Thursday, March 22, 2018

Chipotle prevails in contempt proceeding against employee attempt to enforce blocked DOL overtime rule

By Kathleen Kapusta, J.D.

When an employee and her counsel—in direct violation of a court order imposing a nationwide injunction against the Department of Labor’s final overtime rule—sued Chipotle under the FLSA and New Jersey law alleging it ignored the rule by not paying proper overtime wages, they pursed a claim “they should have known was unwarranted in fact or law,” a federal district court in Texas ruled, granting Chipotle’s motion for contempt. Observing that they could offer no precedential support for their unique claim that the order only enjoined the DOL’s enforcement of the final rule but not the enforcement of the final rule itself, the court ordered the employee and her counsel to withdraw their allegations, both individual and representative, concerning the final rule against Chipotle and to file a notice of compliance. Further, the court found Chipotle was entitled to compensation for fees and expenses tied to this contempt proceeding (State of Nevada v. U.S. Department of Labor, March 19, 2018, Mazzant, A.).

Directed by President Obama in March 2014 to revise the FLSA’s exemption for “executive, administrative, and professional employees,” the DOL issued a final rule increasing exempt employees’ salaries from $455 per week ($23,660 annually) to $921 per week ($47,892 annually). The rule was soon challenged by a number of states and on November 22, 2016, the court issued a nationwide preliminary injunction enjoining the DOL from implementing and enforcing the rule.

Lawsuit. Six months later, the employee sued Chipotle in New Jersey on behalf of herself and others similarly situated in an effort to certify an FLSA collective and class action. Her counsel acknowledged the injunction in the complaint but stated that it did not apply to them or their client. In a second lawsuit filed in Massachusetts, another attorney representing the employee also argued that the final rule did not apply to him or his client. Contending that they sued to enforce the final rule in violation of the court’s order enjoining it, Chipotle filed a motion for contempt in the federal district court in Texas against the employee and the lawyers representing her (respondents) in the New Jersey action.

Jurisdiction. Although the respondents, who were not parties to the original action giving rise to the court’s order, argued that the court had no jurisdiction over them, the court pointed out that they had notice of the order as some or all of them recognized the injunction in the actions before the federal courts in New Jersey and Massachusetts. As to their contention that the first-filed doctrine locked this litigation in New Jersey, the court pointed out that the respondents sued to recover overtime wages based on the criteria in the final rule in New Jersey while here, Chipotle asked the court to punish them for violating the court’s prior order. Because the substantive issues of these cases did not overlap, the first-filed doctrine did not preclude the court’s jurisdiction here. Finally, rejecting the respondents’ assertion that they did not receive sufficient service, the court observed that Chipotle substantially complied with process requirements and the respondents were not prejudiced by the imperfect process. Thus, the court found it had jurisdiction over the respondents.

Contempt motion. To succeed on its motion, Chipotle had to show a court order was in effect; the order required or prohibited certain conduct by the respondents; and the respondents did not comply with the court’s order. As to the first element, it was undisputed the court’s order was in effect and forbade enforcement of the final rule when the employee filed suit in New Jersey.

Privity. Regarding the second element, the respondents argued that the injunction did not bind them because they were not acting in privity with the DOL, and thus they were not prohibited from bringing suit in New Jersey. Noting that federal courts will bind a nonparty whose interests were adequately represented by a party in the original suit, the court found that the issue was whether the DOL adequately represented the respondents. Here, the court observed, the DOL declared that it represented the rights of employees like the respondent in the original injunction proceeding. In opposing the injunction, it warned that enjoining the final rule would “have a profoundly harmful impact on the public” and would deprive more than four million workers “of the protections that Congress intended they receive on the basis of an outdated and less effective salary level—one that has not been updated in over a decade.”

Adequate representation. The DOL adequately represented the interests of employees like the respondent when advocating for the validity and enforceability of the final rule, said the court, noting that if the DOL had prevailed in the original injunction proceeding, the final rule would have been deemed valid and enforced, and the employee’s cause of action—the recovery of unpaid overtime wages based on the criteria in the final rule—would have been unwarranted. Accordingly, the employee was in privity with the DOL when she asserted the validity and enforceability of the final rule via her lawsuit to recover overtime wages based on the criteria in the rule and as such, she was bound by the injunction. The injunction also bound her counsel, who served as her attorneys with actual notice of the injunction.

Wholly unambiguous. As to the respondents’ assertion that the injunction was ambiguous and did not clearly enjoin the rule’s enforcement by nonparties, the court noted that its order explained that it enjoined the final rule on a nationwide basis. Given the order’s plain language, its direct recognition of the final rule, and the “sheer dearth of parties so confused” by the order, the court found the injunction was “wholly unambiguous” and that it prohibited the respondents from suing to enforce the final rule.

Did not comply. Rejecting the respondents’ contention that their lawsuit to enforce the final rule was not contemptable since it was based on a reasonable, good faith investigation of the injunction, and they relied on several academics before suing to enforce the rule, the court pointed out that good faith is irrelevant. The court’s order enjoined the rule on a nationwide basis and their lawsuit clearly involved enforcing the rule. Thus, the respondents did not comply with the court’s order and contempt was proper.

Not limited to senior attorneys. Finally, the court rejected the respondents’ argument that it should not hold three junior attorneys in contempt because as associates at their respective firms, they did not have decision-making authority over bringing the employee’s lawsuit. Noting that their names appeared on the class action complaint, and that one had practiced law for 35 years while the other two had practiced law for eight years each, the court found that after “three years of law school and eight to thirty-five years of practice, a lawyer should know that signing his or her name to a document has consequences. Given their experience, avidity, and ownership of this case, it is difficult to accept that these seasoned professionals simply followed orders.”

Relief. Finding that the circumstances here warranted compelling both compliance and compensation, the court ordered the respondents to withdraw their allegations, both individual and representative, concerning enforcement of the final rule against Chipotle, affirmed that its order applied to the employee and all similarly situated proposed plaintiffs, and barred her from enforcing the final rule on behalf of herself and all others similarly situated to her. Further, finding Chipotle was entitled to fees and expenses in pursing this contempt proceeding, the court ordered it to submit affidavits in support of all attorneys’ fees related to this proceeding.

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