Labor & Employment Law Daily Remote employee can’t advance claim that employer’s counterclaim amounted to retaliation under FLSA
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Thursday, October 8, 2020

Remote employee can’t advance claim that employer’s counterclaim amounted to retaliation under FLSA

By Ronald Miller, J.D.

The employee failed to sufficiently allege that the filing of counterclaims by her employer amounted to an “adverse action” required to prove a retaliation claim under the FLSA.

An employee in an FLSA overtime suit could not persuade the court to dismiss the counterclaims of her employer for breach of contract, fraud, and unjust enrichment, based on its allegations that the employee, who worked from a remote location, misrepresented the hours she worked. The employee had moved to dismiss the counterclaims on the basis that they were retaliatory under FLSA. The federal district court in Michigan determined that while the timing and nature of the counterclaims may create an inference that they were filed with retaliatory motive, the employee offered no other facts to support this conclusion (Morrissey v. CCS Services, PLLC, October 2, 2020, Borman, P.).

Employer counterclaims. The employer is a law firm that specializes in assisting individuals dealing with the IRS. The employee was hired as a settlement officer and was classified as a nonexempt employee. Working remotely from Florida, her job was to field incoming calls from potential clients. According to the employee, she regularly worked in excess of 40 hours without overtime pay.

In October 2019, the employee filed suit against the employer alleging overtime violations of the FLSA and the Michigan Workforce Opportunity Wage Act, as well as breach of contract and unjust enrichment. In December, the employer filed an Amended Answer, bringing counterclaims against the employee for breach of contract, fraud, and unjust enrichment.

According to the employer, after receipt of the employee’s initial demand letter, it investigated her timekeeping practices. It claimed that the employee misrepresented the hours she worked, claiming she was “punching into work in the time card system, but then not working.” In response to the counterclaims regarding her timekeeping, the employee amended her complaint to add a claim of retaliation for enforcing the FLSA. The employee alleged that “the motivating factor” for the employer’s filing of counterclaims “was plaintiff’s initiation of the instant lawsuit,” and that the counterclaims were filed in “retaliation of Plaintiff exercising her legally protected right.” In response, the employer moved to dismiss the employee’s FLSA retaliation claim.

Retaliation claim. To establish a prima facie case of retaliation under the FLSA, an employee must prove that (1) he or she engaged in a protected activity under the FLSA; (2) his or her exercise of this right was known by the employer; (3) thereafter, the employer took an employment action adverse to her; and (4) there was a causal connection between the protected activity and the adverse employment action.

Adverse action. In this instance, the parties only disputed the third prong of the retaliation analysis: whether the employee had sufficiently alleged that the employer’s filing of counterclaims amounted to “adverse action.” The employee directed the court’s focus toward the objective standard—whether the retaliatory conduct “can constitute a materially adverse action that could well dissuade a reasonable worker from making or supporting an FLSA claim.” She pointed to Sixth Circuit cases demonstrating that to satisfy this objective standard, a counterclaim can be an adverse action “if the counterclaims ‘are not brought in good faith but instead motivated by retaliation.’” She further argued that her pleading of retaliatory motivation satisfied the standard.

After reviewing the cases within the Sixth Circuit that have considered counterclaims as retaliation, the court here determined that no court has recognized a strict rule requiring at this stage a sufficient allegation of baselessness, frivolousness, or bad faith. At the same time, however, no court in the circuit has determined a retaliation claim against an employer filing counterclaims satisfied the prima facie showing without a sufficient factual allegation of bad faith, baselessness, or frivolousness. Rather, district courts in the circuit have limited decisions finding employer counterclaims to satisfy the prima facie showing for adverse action to instances when the counterclaims were allegedly brought, at minimum, in bad faith.

Bad faith standard. Here, the court determined that the employee’s allegations were insufficient to satisfy the materially adverse action element of the FLSA retaliation analysis. To sufficiently allege that a counterclaim is an adverse action in a FLSA retaliation claim, a plaintiff must put forth facts that the counterclaims were either baseless, frivolous, or in bad faith with retaliatory motivation.

In this instance, the employee did not specifically allege that the counterclaims were filed in bad faith. Beyond denying the timekeeping allegations in her answer to the counterclaims, she did not attack the underlying legal or factual allegations in the counterclaims. Accordingly, the court determined that it could not properly make an inference of bad faith that is needed to satisfy the prima facie showing.

While the court agreed with the employee that it was possible the prospect of an investigation into personal timekeeping practices and the potential for a lawsuit might well dissuade a reasonable worker from joining a suit regarding FLSA claims, her claims appeared to be nothing more than legal conclusions and a recitation of the objective standard needed. Thus, the employee’s claim of a retaliatory motive without additional factual support failed. While the timing and nature of the counterclaims may create an inference that the counterclaims were filed with retaliatory motive, the employee offered no other facts to support this conclusion.

Compulsory nature of counterclaims. Finally, the court addressed the employer’s contention that its counterclaims were compulsory under FRCP 13, and had to be filed at this juncture or lost. Because the employer’s counterclaims arose out of the same transaction or occurrence that was the subject matter of the employee’s FLSA claim (the hours worked by the employee), the court agreed that its counterclaims were compulsory.

In this case, the employer could have investigated the employee’s timekeeping practices at any time, but did not do so until after the FLSA claims were filed. Accordingly, based on the timing, the employee’s allegation that “the motivating factor” for filing the counterclaims “was plaintiff’s initiation of the instant lawsuit,” was plausible. However, no court in the Sixth Circuit has recognized a counterclaim to be retaliatory with only an allegation that the motivating factor was retaliation. Further, the factual basis for compulsory counterclaims went to the very root of the employee’s FLSA claims. Thus, the employer was granted its motion to dismiss the employee’s retaliation claim.

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