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Emotional Distress and the FLSA

A Fifth Circuit appeals court ruling on an FLSA claim finds that employees can recover damages for emotional injury resulting from retaliation. Experts say the decision could signal greater risk for employers in a subset of wage-and-hour cases.

Monday, January 30, 2017
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A recent ruling from a Fifth Circuit could add a degree of difficulty for employers in a number -- albeit a small number -- of lawsuits involving FLSA violations.  

Santiago Pineda and his wife, Maria Pena, lived in an apartment leased to Pena by JTCH Apartments. Pineda performed maintenance work in and around the apartment complex, for which JTCH discounted Pena's rent.

The path to the courtroom began when Pineda filed a lawsuit against JTCH and its owner and manager, seeking unpaid overtime under the Fair Labor Standards Act. Just three days after serving the summons to JTCH, however, Pineda and his wife received a notice to vacate their apartment for nonpayment of rent. According to court documents, JTCH demanded an amount equal to the rent reductions Pena had received over the period of Pineda's employment with the apartment complex. In response to the notice, the couple left the apartment.

Pena then joined Pineda's suit, with the amended complaint including retaliation claims based on the back rent demanded after the filing of the lawsuit. A jury found for Pineda on both his overtime wage and retaliation claims.

In post-trial rulings, a district court awarded Pena liquidated damages of $1,426.50, and awarded the plaintiffs' counsel $76,732.88 in attorney's fees, which court records indicate was a 25-percent reduction from the amount requested. Pineda and Pena appealed, arguing that the court should have instructed the jury on damages for emotional harm. The court of appeals for the FifthCircuit concluded that the FLSA allows only employees to bring suit, but that an employee may recover for emotional injury http://magcdn.lrp.com/MAGDATA/servlet/DataServlet?fname=ThinkstockPhotos-522801240FLSAL.jpgresulting from retaliation. 

The appeals court ruling "really isn't a big surprise," says Michael D. Jones, a Philadelphia-based labor and employment partner at Reed Smith, noting that the court did not find that emotional distress damages could be recovered in a "normal" FLSA case involving unpaid overtime or minimum-wage violations.

"The reason for this holding is a matter of straightforward statutory interpretation," says Jones, adding that Congress amended the FLSA in 1977 to provide for a private cause of action to enforce the FLSA's anti-retaliation provisions.

"When it did so, it included the ability to recover ‘such legal or equitable relief as may be appropriate,' in addition to the traditional FLSA remedies of back pay, liquidated damages and attorney's fees," he says. "Thus, relying on this additional language contained in the anti-retaliation provisions of the FLSA, the Fifth Circuit joined the Sixth and Seventh Circuits in holding that emotional distress damages are recoverable."

Jones foresees the availability of emotional distress damages only being a factor in a "small fraction" of wage and hour cases, such as those in which an employee claims an adverse action -- a demotion or termination, for instance.

"These types of claims are far [rarer] than run-of-the-mill claims for substantive violations of the FLSA, such as misclassification as an exempt employee, failure to pay minimum wage or failure to properly pay overtime," he continues. "Consequently, it is almost impossible to see such a claim for emotional distress damages asserted on a class or collective action basis."

Regarding the "relatively few" cases in which emotional distress damages are in play, "the Fifth Circuit's ruling probably helps to drive up the cost of settlement, as emotional distress damages are, by their very nature, not readily quantifiable."

The Fifth Circuit's decision "was a technical one" signaling that other courts could similarly rule that emotional distress damages are available to a prevailing FLSA plaintiff in a retaliation action, says Jason Habinsky, a New York-based partner at Haynes and Boone.

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"Employers must be wary of the risk of additional exposure," he says. "Now, in addition to the danger of a damages award for back pay and liquidated damages, an employer [might] also be liable for a current or former employee's emotional distress damages."

As such, HR professionals will play a critical role in managing those risks by carefully considering any employment decisions that could be construed as retaliation, says Habinsky.

For example, HR professionals must carefully consider the risks of altering employment terms and conditions after an employee has made a complaint about wages or hours.

"In the case at hand, the employer appeared to retaliate against the plaintiff employee by sending an eviction notice and a demand for rent reductions," says Habinsky, "only three days after the employer had been served with a FLSA complaint alleging the failure to pay overtime."

While this represents "a more obvious example of what not to do, caution remains key," he continues, "because even an employee's internal ‘griping' about compensation issues may qualify as a complaint under the FLSA."

Ultimately, court decisions that allow former employees to recover emotional distress damages "could have a substantial impact on the stakes involved" in FLSA retaliation claims, says Dan Beale, an Atlanta-based partner in Dentons' litigation and dispute resolution practice.

"Importantly, [and] unlike the employment discriminations found in Title VII of the Civil Rights Act, the damages allowed for emotional distress for an FLSA retaliation claim do not have a statutory cap," says Beale. "Although emotional distress damages must be proportional to actual damage awards, allowing for their recovery could significantly increase the cost of losing an FLSA retaliation claim."

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