Employment: "Advice-Of-Counsel" Defense Won't Work if You Disregard the Advice

04.01.11

Under the Fair Labor Standards Act ("FLSA"), there is a limited defense which employers sometimes assert - reliance upon advice of legal counsel. However, this defense won't work if you didn't actually "rely" upon the advice.

In Mumby v. Pure Energy Services (USA), Inc., the Tenth Circuit Court of Appeals recently ruled that an employer cannot raise the advice-of-counsel defense when it chose to disregard the advice provided by counsel. The employer employed field workers who worked 12 hour shifts, seven days a week, with one week off for every three weeks worked. The employees worked approximately 84 hours per workweek. However, the employer paid its employees under a "day rate" compensation plan where employees received a single daily payment regardless of the number of hours actually worked. The employer did not keep track of either daily or weekly hours worked by its employees. Because the employees worked more than 40 hours per week, the employer should have paid overtime for all hours worked over 40. A group of employees filed suit seeking lost wages and liquidated damages.

The employer argued that it did not willfully violate the FLSA because it consulted with legal counsel regarding its compensation policy. The FLSA provides a defense to liquidated damages when an employer has acted in good faith. The defense requires both subjective good faith (the employer actually believed it was following the law) and objective good faith (it was reasonable for the employer to have believed that). However, the employer did not make any changes to its compensation policy or investigate the actual hours worked by its employees after receiving advice from counsel that it must pay weekly overtime for each hour worked over 40. Because the employer disregarded counsel's advice, the court found that the employer was not entitled to assert an advice-of-counsel defense.

The Tenth Circuit ruled that the employer applied its compensation policy in reckless disregard of FLSA requirements, subjecting it to the three year statute of limitations for lost wages and liquidated damages.

By Kenneth T. Short, kshort@dsda.com

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Rebecca D. Bullard

Rebecca D. Bullard

Rebecca represents clients primarily in labor and employment litigation and counsels clients regarding everyday employment matters. 

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