Labor & Employment Law Daily Evidence of tech company’s FLSA audit admissible in misclassification suit
Friday, January 10, 2020

Evidence of tech company’s FLSA audit admissible in misclassification suit

By Wayne D. Garris, Jr.

Employees who were reclassified after the audit filed suit alleging that their employer violated the FLSA by previously classifying them as overtime-exempt.

Affirming a district court’s award in favor of employees of a supply-chain management company, the Fifth Circuit held that the lower court did not abuse its discretion when it found that evidence relating to the employer’s internal audit was admissible under the Federal Rules of Evidence. After conducting the audit, the employer reclassified three employees who were previously FLSA-exempt. The trial court’s decision to admit evidence related to the audit was proper because the evidence did not meet the F.R.E, 407 standard for evidence of subsequent remedial measures, and because information about the audit was relevant with respect to the employee’s job duties and the decision to reclassify (Novick v. Shipcom Wireless, Inc., January 7, 2020, Jolly, E.).

The employees worked as trainers for a supply-chain management and technology company, traveling to VA hospitals to teach staff how to use the employer’s inventory management software. The employer classified the employees as exempt from the FLSA’s overtime requirements.

Internal audit. In 2015, the employer conducted an audit to determines whether positions within the company were properly classified. After the audit, the employer reclassified the employees as nonexempt and paid them at an hourly rate. The two employees who were still working for the employer were given backpay for the overtime that was not previously paid. One employee who no longer worked for the company did not receive backpay, and the fourth employee’s position was not reclassified. The employees filed suit alleging they had been misclassified as exempt from overtime and seeking backpay for the employees who had not been paid, as well as liquidated damages.

Audit evidence admitted. The district court denied the employer’s motion to exclude evidence related to the audit and reclassification (among other motions). A jury found that the employees had been misclassified and that the employer had not acted in good faith in classifying the employees as exempt. The district court awarded the employees actual damages plus liquidated damages.

On appeal, the employer challenged the district court’s decision to admit the evidence related to the audit.

Not a subsequent remedial measure. Under Rule 407, “when measures are taken that would have made an earlier injury or harm less likely to occur, evidence of the subsequent measures is not admissible to prove culpable conduct.” The circuit court agreed with the district court that this rule did not apply to evidence of the employer’s internal audit. Citing its decision in Brazos River Authority v. GE Iconics, Inc., the court explained that Rule 407 only applies when the remedial measures make an ‘injury harm less likely to occur’ rather than merely to improve a product.

Here, the audit was more analogous to the post-accident changes made to improve products from Brazos River Authority. Even though the employer may have conducted the audit in order to ensure that its employees were properly classified, the audit itself did not make the earlier injury less likely to occur. Thus, the evidence related to the audit could not be excluded as evidence of subsequent remedial measures.

Relevance. Nor could the evidence related to the audit be excluded as irrelevant. The evidence was related to the issue of whether the employees’ job descriptions fit within the FLSA’s administrative exemption. The challenged exhibits included information about the employees’ job duties and correspondence about reclassifying the employees and providing back pay.

No effect on substantial rights. Further, even if the trial court abused its discretion in admitting evidence about the internal audit, the employer failed to prove that admission of the evidence affected its substantial rights. The evidence related to the audit and reclassification showed that even though the employer determined it needed to reclassify the employees, its auditors viewed one of the employees, a technical support engineer, as satisfying the administrative exemption. Nevertheless, the jury concluded that the technical support engineer should have been classified as nonexempt. This showed that the audit was not determinative with respect to how the jury viewed the position, and that it was unlikely that evidence from the audit affected the jury’s verdict for the other employees. Further, the trial court instructed the employees not to tell the jury that evidence from the audit was “de facto evidence of a misclassification.”

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