Did Defunct Limousine Company Owe Back Wages?

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By Michael Trimarchi

“We shouldn’t have to abide by the court’s ruling against our company, and us individually, when we didn’t know about the court proceedings,” said Toby, one of two owners of a defunct enterprise.

“You shirked your duties as owners by failing to stay abreast of wage claims brought against your company, so you owe workers the wages you failed to pay them,” said Terry, representing workers and federal labor investigators who claimed the owners owed workers back pay.

FACTS: Two business partners operated a limousine company that provided services in the Chicago area. The company employed drivers for its fleet of vehicles, which could be rented for corporate events, transit to and from airports, and special occasions, such as weddings.

The company ceased operations. Subsequently, two former drivers sued the company and one owner, claiming that the parent company failed to pay overtime wages for hours exceeding 40 in a week, as required by the federal Fair Labor Standards Act, and that the employers made unauthorized wage deductions, violating state law.

In a separate lawsuit, the Labor Department filed FLSA claims against the company and the other owner after the department’s Wage and Hour Division investigated and found that the company failed to compensate drivers for time spent traveling to and from the company garage, waiting for clients to arrive, and cleaning the limousines.

The former drivers and the Labor Department filed requests with the company for information relevant to their cases, but received no response. After waiting a year, they asked the court for a default judgment in their favor.

The employers’ lawyer requested and received permission from the court to withdraw as their legal representative because, after repeated attempts, the lawyer also was unable to reach the employers.

Because the company’s lawyer withdrew, the court ordered an owner to appear for a hearing. When he did not appear, the district court ruled that the employer had failed to defend itself, issued a default judgment in favor of the drivers and the Labor Department, and ordered the company to pay lawyers’ fees.

Several months later, the owners appealed and sought to have the lower-court rulings vacated. The lower court’s ruling on the drivers’ and Labor Department’s separate claims were combined for a federal appeals court’s review.

The owner who was called to appear at the district court hearing claimed that because the company closed months before the hearing, mail was not delivered to the office. So he did not receive the notice from the company’s lawyer asking to withdraw from the case or from the court ordering him to appear at the court hearing.

Further, he had moved to another state and had undergone two surgeries. He had not received forwarded mail or email, had not been in contact with corporate counsel, and had not conducted business affairs while hospitalized or during his recovery, he said.

The second company owner claimed that he had relied on the first owner to advise him on the status of the case.

Both of the company’s owners admitted to seeing a Labor Department online press release that announced the default judgment and claimed that, after reading it, they thought that they were not individually liable. Because the company was closed, they said they were not worried about the judgment against the company.

ISSUE: Should the lower-court judgment be vacated because the business owners did not receive notices after their business closed?

DECISION: Claims by the owners that they were unaware of court notices because of misdirected mail, surgeries, and failure to communicate with one another were insufficient reasons to vacate the lower court’s decision, a federal appeals court ruled, affirming the district court’s ruling.

The appeals court said that it could not excuse the owners’ failure to find out more about the judgment or their lack of a defense in the case. The district court “reasonably concluded that the defendants didn’t establish good cause for their default,” it said.

Despite the executive’s poor health, the district court was within its discretion “to reject this excuse given the timeline and lack of corroborating information,” the appeals court said, noting that it found the executive’s explanation regarding his out-of-state move and mail problems to be “deficient,” and that his surgeries, which occurred before the lawsuits began, did not excuse his failure to learn about the district court’s judgment, it said.

The executive had failed to provide the court with a forwarding address and his health had been adequate for him to attend to some business matters, the appeals court said.

The owners did not need a defense that is “clearly victorious, but it must contain more than ‘bare legal conclusions,’” which is all the owners presented, the court said, noting that the owners claimed only good faith, that the award amounts were excessive, and that they did not receive credit with regard to the judgment amount.

The owners’ failure to respond to the Labor Department’s news release, which included a hyperlink that showed that the limousine company and its owners must pay more than $381,000 in back wages, also was found lacking by the appeals court.

“Despite reading this notice, they didn’t take the easy and prudent step of checking the link in the article to see if the judgment applied to them. Instead, they let more than nine months pass before going to court,” it said, denying the owners’ motion to vacate the district court ruling ( Acosta v. DT & C Global Mgmt. LLC, 7th Cir., No. 16-4076, 10/25/17 ).

POINTERS: The appeals court’s ruling underscores that regardless of whether an employer thinks that it has plausible reason not to inquire into a lawsuit with which it has a connection, it should not ignore a lawsuit.

For a court to set aside a default judgment, the party seeking a favorable ruling “must show good cause, quick action to respond to the default, and a meritorious defense to the underlying allegations,” the appeals court said.

Regarding overtime compensation, the FLSA requires employers to pay covered employees time and one-half their regular rates of pay for each hour or fraction of an hour worked in excess of 40 in a workweek. The law does not require employers to pay overtime for hours worked in excess of a daily maximum and does not specify overtime for work performed on Saturdays, Sundays, or holidays.

Employers do not have to authorize or directly supervise work in excess of 40 hours a week for employees to be compensated at an overtime rate. Employers must pay overtime if they know or have reason to believe that an employee was working overtime and did not intervene to stop the employee from working.

Having a policy that prohibits overtime work or requires advance authorization for overtime work does not exempt employers from paying overtime.

To contact the reporter on this story: Michael Trimarchi at mtrimarchi@bna.com. To contact the editor on this story: Michael Baer at mbaer@bna.com.

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

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