"Hard cases, it has frequently been observed, are apt to introduce bad law."
- Judge Robert Rolfe, Winterbottom v. Wright, 1842.
"For the want of a nail . . . the Kingdom was lost"
About a year ago, the United States Court of Appeals for the Fourth Circuit held in Cruz v. Maypa, 773 F.3d 138 (4th Cir. 2014), a decision that has received little attention, that an employer covered by the Fair Labor Standards Act of 1938 ("FLSA") who fails to maintain a posted notice explaining to covered employees their statutory right to minimum wages and premium overtime pay may, as a result, forfeit the right to assert an affirmative defense based upon the FLSA's statute of limitations (or "SOL").
The facts of Cruz are admittedly extraordinary, but the holding invites an argument that an employer whose only transgression is the failure to post or maintain the required notice has lost the right to the defense that an FLSA claim, regardless of when the claim is filed, is untimely and therefore barred by law. That an SOL can be "tolled" based on equitable principles is hardly news. Many litigators, however, may be surprised to learn that a defense as elementary (and occasionally critical) as one based on an SOL can be lost by something as simple as the employer's failure to post or maintain a statutorily-required notice of employee rights.
The FLSA requires almost all employers to provide minimum hourly wages and premium overtime pay to "non exempt" employees. 29 U.S.C. §§206 and 207. The FLSA regulations also require covered employers to "post and keep posted a notice explaining the [FLSA] … as prescribed by the Wage and Hour Division [of the U.S. Department of Labor], in conspicuous places in every establishment where such employees are employed so as to permit them to observe readily a copy." 29 C. F. R. §516.4 (2015).
FLSA imposes explicit time limits by which aggrieved employees must file suit. 29 U.S.C. §255. These limits are "within two years after the cause of action accrued, except that a cause of action arising out of a willful violation may be commenced within three years after the cause of action accrued." Id. These limits have been in place for so many years that lawyers who handle FLSA claims, even experienced lawyers, rarely consider that plaintiffs who bring such claims may be able to circumvent an applicable SOL and recover wages that were due more, perhaps a lot more, than three years ago.
Well, based on Cruz, they might.
The Facts in Cruz
The plaintiff, Cristina Cruz (a native of the Philippines), sued Nilda Maypa and others, claiming that Maypa had forced Cruz to work in the United States for wages less than those prescribed by the FLSA from 2002 until 2008. Cruz spoke Tagalog and Kapampangan fluently, but spoke only limited English. A friend had told her about an opportunity to work in the U.S. for Maypa (who, remarkably, was employed by the World Bank and presumably more attuned than most to legal requirements). Maypa provided Cruz with an employment contract to be employed as a domestic employee at Maypa's home in Virginia for two years at a rate of $6.50 per hour. However, before Cruz signed the contract, Maypa told Cruz that she would pay her only $250 per month rather than the promised hourly wage. Cruz did not know that the FLSA requires a much higher minimum hourly wage. Cruz, nonetheless, signed the contract, acquired a passport and visa, and left the Philippines for her new, and presumably better, life in the United States.
To say that Cruz's working conditions were not as represented would be a gross understatement. According to the opinion, Cruz was required to work seven days a week for 17 to 18 hours per day, and she was expected to remain on call at night. Cruz was never allowed to take a day off in the six years she remained under Maypa's control, even when ill. She was expected to cook, clean, and do laundry for as many as eight people, in a four-bedroom, three-bathroom home; provide 24-hour care for four children; and mow lawns, trim trees, shovel snow, clean a swimming pool, and perform other landscaping duties, in exchange for a mere $250 per month, or approximately $8.00 per day. 773 F.3d at 141-142.
As if that were not enough:
The defendants isolated Cruz from her family, friends, and culture. Cruz was dependent on them to help her call home to the Philippines and they would not pay for Cruz's calls. When Cruz was able to call her family, the defendants monitored her conversations. They never permitted Cruz to return to the Philippines to visit her family, even when relatives died and when her daughter and father suffered life threatening health events. The defendants also prohibited Cruz from leaving their home alone except to walk their aggressive dog. Cruz did not know anyone in Virginia besides the defendants, and they lived in rural areas with no sidewalks and no access to public transportation. Cruz was 'effectively trapped in their homes.'
In late 2007, Cruz's fear of being trapped with the defendants for the rest of her life began to outweigh her fear of the repercussions of escaping. She contacted a friend living in the United States, who gave her the contact information for someone who could help her escape. On January 17, 2008, Cruz gathered all of the papers she could find related to her employment and immigration status, ran out of the … home, and got into a waiting van.
Cruz (understandably) sued Maypa and others, but did not do so until more than five years after her escape. The defendants (not surprisingly) moved to dismiss the case pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure on the basis that all of Cruz's claims were timed-barred. The district court granted the defendants' motion.
The Equitable Tolling Argument
Cruz appealed and argued that her FLSA claim should be equitably tolled under the actual notice rule set forth in Vance v. Whirlpool Corp., 716 F. 2d 1010 (4th Cir. 1983). The district court had rejected Cruz's equitable tolling argument in the context of granting a motion to dismiss, so the Fourth Circuit reviewed the district court's determinations de novo.
Cruz's argument based on Vance found a more receptive audience in the Fourth Circuit. The Fourth Circuit had previously found in Vance that the district court had properly held that the 180-day filing requirement of the Age Discrimination in Employment Act ("ADEA") -- where filing a charge of discrimination with the EEOC is a prerequisite to filing suit -- was tolled by reason of the plaintiff's employer's failure to post statutory notice of workers' rights under the ADEA.
The Fourth Circuit, doubtlessly moved by Cruz's alleged "virtual imprisonment," concluded that "[i]t makes good sense to extend our reasoning in Vance to the FLSA," because:
[t]he notice requirements in the ADEA and the FLSA are almost identical .… The purpose of these requirements is to ensure that those protected under the Acts are aware of and able to assert their rights. Although Vance tolled an administrative filing deadline rather than a statute of limitations, the FLSA lacks an equivalent administrative filing requirement; thus, the FLSA's deadline to sue is, like the ADEA's administrative filing deadline, the critical juncture at which a claimant's rights are preserved or lost. Neither the ADEA nor the FLSA inflicts statutory penalties for failure to comply with the notice requirements …. Therefore, absent a tolling rule, employers would have no incentive to post notice since they could hide the fact of their violations from employees until any relevant claims expired. For all of these reasons, this Court's analysis in Vance applies with equal force to the notice requirement of the FLSA.
773 F.3d at 146-147 (internal quotation marks and citations omitted, emphasis supplied).
The Vance Analysis
So what is the Vance analysis? According to the Fourth Circuit, equitable tolling, which is admittedly "a rare remedy available only where the plaintiff has 'exercised due diligence in preserving her legal rights,'" is available only when "(1) the plaintiffs were prevented from asserting their claims by some kind of wrongful conduct on the part of the defendant or (2) extraordinary circumstances beyond plaintiffs' control made it impossible to file the claims on time." Id. at 145-146. The court noted that Cruz's "virtual imprisonment prevented her from seeking legal redress," which sounds as though the court had identified extraordinary circumstances beyond her control that made it impossible for her to file her claims on time.
That, however, is not exactly what the Fourth Circuit held. Rather, the court held that its reasoning in Vance should be extended to the FLSA because neither the ADEA nor FLSA inflicts a statutory penalty for failure to comply with the applicable notice requirements, and employers, absent a tolling rule, would have no incentive to post notice. The Cruz court decided that such an incentive is overdue and that it should fill in the gap. The Fourth Circuit therefore held that the tolling rule it had applied to an ADEA claim in Vance applies just as well to an FLSA claim of the kind made in Cruz.
The Fourth Circuit did not expressly state whether the employer's failure to comply with the notice requirements of the FLSA amounted to "wrongful conduct" on the part of the employer, thus satisfying the first trigger of the Vance test or "extraordinary circumstances beyond a plaintiff's control," thereby satisfying the second trigger of the Vance test. Regardless of which argument carries the most weight, the opinion clearly holds that an employer's failure to post the required FLSA notice, standing alone, may warrant application of the extraordinary doctrine of equitable tolling, which may gut an otherwise available (and sometimes dispositive) affirmative defense. See, e.g., Mata vs. G.O. Contractors Group, Ltd., 2015 WL 6674650, * _____ n. 1 (D. Md. 2015) (citing Cruz for the proposition that "the statute of limitations may be equitably tolled … in cases in which … a defendant fails to post signs advising employees of their wage rights").
Implications of Cruz
If an SOL is suspended based upon equitable tolling, will that suspension ever end and thus trigger the application of the SOL? Yes, but that may provide employers small comfort. The Fourth Circuit wrote in Cruz that "tolling based on lack of notice continues until the claimant retains an attorney or obtains actual knowledge of her rights." 773 F.3d at 147. The first possibility sounds objective and straightforward enough, but the second, which implicates what the plaintiff subjectively knows and when the plaintiff learned it, is rather astounding. If a plaintiff never retains counsel, or if the date of engagement is unclear, then the employer will have to prove when the employee obtained actual knowledge of the employee's rights, which may be a considerable challenge and may require a trial. The Cruz court indicated that the factual record it was reviewing was limited to the amended complaint, and it failed to identify when Cruz first retained a lawyer or learned of her rights under the FLSA. Therefore, the Fourth Circuit remanded the case to the district court to allow discovery to determine whether Cruz's FLSA claim was time-barred despite being equitably tolled.
So what does Cruz mean for lawyers handling FLSA claims and their clients in the Fourth Circuit? Attorneys representing employers in FLSA cases will surely argue that Cruz should be limited to cases involving facts as extraordinary as those present in that case, but the decision means at least the following:
- Plaintiffs bringing FLSA claims for unpaid wages that were due more than three years before suit was filed may be able to overcome the SOL by relying on equitable tolling if they can show that the employer engaged in "wrongful conduct" in the form of nothing more than the failure to post or keep posted the notice of employee rights required by the FLSA;
- An employer whose reliance upon an SOL has been called into question based on its failure to post or maintain the required notice may be required to prove when the plaintiff retained counsel or (more daunting) when the plaintiff obtained "actual knowledge" of the plaintiff's FLSA rights, which may in some cases scuttle any hope of obtaining dismissal of untimely claims on summary judgment, thus increasing the potential settlement value of the case; and,
- Employers had better "post and keep posted" the required FLSA notice, or risk the assertion of claims for unpaid wages and equal liquidated damages, going back for many years, and attorney's fees.
The facts of Cruz appear to have made it an especially hard case in which to deny relief to the plaintiff. In the words of Judge Rolfe, this may have resulted in "bad law" for all employers and their counsel in FLSA "failure to post" cases. Counsel for employers in FLSA matters should therefore consider advising their clients that, "for the want of a [post], the Kingdom," or at least an expensive lawsuit, may be lost."