Administrative Review Board Decisions

The following case summaries were created by the Administrative Review Board staff.

Abdollahi v. Nugs.Net Enterprises, Inc., ARB No. 2023-0042, ALJ No. 2022-TAX-00008 (ARB July 10, 2024) (Order of Dismissal)

ORDER OF DISMISSAL; APPEAL DISMISSED WHERE COMPLAINANT FILED ORIGINAL ACTION IN DISTRICT COURT

In Abdollahi v. Nugs.Net Enterprises, Inc., ARB No. 2023-0042, ALJ No. 2022-TAX-00008 (ARB July 10, 2024), the ARB dismissed Complainant's complaint because he filed an original de novo complaint in a United States District Court.

Bauche v. Masimo Corp., ARB Nos. 2023-0016, -0031, ALJ Nos. 2022-SOX-00010, -00026 (ARB July 31, 2024) (Decision and Order)

RETALIATION CLAIMS FAILED AS A MATTER OF LAW; REQUESTS FOR JUDICIAL NOTICE AND OTHER ARB ACTION; LATE AND AMENDED FILINGS; MOTION TO SEAL

In Bauche v. Masimo Corp., ARB Nos. 2023-0016, -0031, ALJ Nos. 2022-SOX-00010, -00026 (ARB July 31, 2024), Respondent terminated Complainant's employment and referred him to law enforcement when it allegedly discovered that he embezzled nearly $1 million from the company. Complainant alleged various instances of retaliation, including: referring him to law enforcement and causing him to be criminally charged for mail fraud and money laundering; suing him to recover the money he allegedly stole; causing the Department of Justice to issue a press release regarding his criminal indictment; refusing to rehire him; and obtaining and using a Pretrial Diversion Agreement he signed in his criminal case. An ALJ dismissed each of Complainant's claims.

The ARB affirmed the ALJ's dismissal of Complainant's claims. The ARB also granted Respondent's request to seal a Pretrial Diversion Agreement.

RETALIATION CLAIMS FAILED AS A MATTER OF LAW; ARB AFFIRMS THE ALJ'S DISMISSAL OF EACH OF COMPLAINANT'S CLAIMS OF RETALIATION

Civil Litigation & Criminal Charges as Discrete Forms of Retaliation

Complainant alleged that Respondent retaliated against him in violation of SOX by suing him in civil court and by referring him to law enforcement for criminal prosecution. The ARB affirmed the ALJ's dismissal of these claims as untimely in an earlier appeal, Bauche v. Masimo Corp., ARB No. 2022-0035, ALJ No. 2022-SOX-00010 (ARB Sept. 27, 2022). Consequently, the earlier decision remains the law of the case and Complainant could not relitigate those claims in this appeal.

Civil Litigation & Criminal Charges as Forms of Blacklisting

Complainant attempted to salvage his claims regarding the civil litigation and criminal prosecution by reframing them as forms of blacklisting. The ARB stated that even reframed, the claims remained untimely because the alleged backlisting, if any, occurred when Respondent filed the lawsuit and referred Complainant to federal authorities, not when he allegedly continued to feel the effects of these actions years later.

Additionally, the ARB stated that Complainant's blacklisting claim failed as a matter of law. "Blacklisting occurs when an individual or a group of individuals acting in concert disseminates damaging information that affirmatively prevents another person from finding employment." "Blacklisting requires an objective action—there must be evidence that a specific act of blacklisting occurred." In other words, "there must be some objectively manifest personnel or other injurious employment-related action by the employer against the employee." "Subjective feelings on the part of a complainant toward an employer's action are insufficient to establish that any actual blacklisting took place."

Complainant did not identify any specific position or opportunity which he was denied or any evidence that any lost opportunity was caused, in whole or in part, by the civil lawsuit or referral to federal authorities. Consequently, Bauche offered no proof that these actions "affirmatively prevent[ed]" him from finding employment.

Press Release as a Form of Blacklisting

Complainant also alleged that Respondent, through its connections with the FBI and Department of Justice, caused the Department of Justice to publish a press release regarding his criminal indictment. Complainant argued the press release constituted an additional form of blacklisting, because it "affirmatively and negatively impacts [Complainant]'s ability to earn a living because of its defamatory allegations."

The ARB agreed with the ALJ that Complainant failed to offer any evidence in support of his claim. First, Complainant offered no evidence that Respondent caused the press release to be published or had the power to have the press release removed from the Department of Justice's website.

Additionally, Complainant offered no evidence that the press release interfered with any prospective employment or other opportunity. Complainant did not identify any specific position or opportunity he was denied or any evidence that any lost opportunity was caused, in whole or in part, by the press release.

Finally, Complainant's claim was untimely. The Department of Justice published the press release on December 21, 2017, years before Complainant first filed a complaint with OSHA.

Failure to Rehire—January 2022

Complainant alleged that Respondent also retaliated against him by refusing to rehire him for a position for which he applied in January 2022. The ALJ determined that Complainant failed to offer evidence that his alleged protected activity contributed to Respondent's decision not to rehire him. The ARB agreed.

Complainant argued that the ALJ should have determined that his protected activity played a role in Respondent's decision, based on (1) his subjective self-assessment that he was qualified for the position; (2) the fact that Respondent did not notify him of his non-selection and allegedly later readvertised the position with a slight name change; and (3) the fact that the non-selection closely followed some of his alleged protected activity. The ARB determined that this evidence was insufficient as a matter of law to establish that the decision not to rehire Bauche was caused by Bauche's alleged protected activity, based on Complainant's own evidence that, by January 2022, the relationship between Complainant and Respondent was damaged beyond all reasonable hope of repair. By that time, Respondent had accused Complainant of embezzling, referred him for criminal charges, collected under the employee theft provision of its insurance policy, and sued him for his theft. The ARB determined that this history precluded a reasonable factfinder from concluding, based on nothing more than Complainant's subjective assessment of the situation and the short lapse in time between part of Complainant's alleged ongoing protected activity and Respondent's decision not to rehire him, that Complainant's alleged protected activity played any role in the decision.

Pretrial Diversion Agreement

In support of its motion for summary decision before the ALJ, Respondent offered a Pretrial Diversion Agreement signed by Complainant as part of his criminal case, which it argued contradicted Complainant's assertions that he was innocent of the criminal charges levied against him. Complainant subsequently requested permission from the ALJ to amend his complaint to include a new retaliation claim regarding the Pretrial Diversion Agreement, claiming that Respondent "illegal[ly]" obtained the Pretrial Diversion Agreement and arguing that Respondent obtaining and using the Pretrial Diversion Agreement constituted another "retaliatory and adverse action[ ] against him in violation of SOX." The ALJ denied Complainant's request to amend.

The ARB noted that it reviews an ALJ's decision on a request to amend a complaint for an abuse of discretion. Complainant did not argue that the ALJ's decision to deny his request for amendment was an abuse of discretion. Consequently, the ARB would not disturb the ALJ's decision or consider the claim for the first time on appeal.

Failure to Rehire—June 2022

For the first time on appeal, Complainant also referred to another position at Respondent for which he claimed he was not selected for rehire, in June 2022. The ARB typically does not consider claims raised for the first time on appeal and Complainant offered no argument or justification for why the ARB should consider the new claim in this appeal.

MOTION TO SEAL; ARB SEALED PRETRIAL DIVERSION AGREEMENT

Respondent requested the ARB seal complainant's Pretrial Diversion Agreement and portions of a declaration from Respondent's counsel discussing the contents thereof. The ARB stated that to seal judicial records from public view, "[a] court must identify compelling reasons supported by specific factual findings in order to outweigh the strong public policies favoring disclosure."

The ALJ sealed the materials below, stating:

I find the reasons to seal these records outweighs the presumption of public access. This is because disclosure would frustrate the purpose of pre-trial diversion in criminal matters in the United States District Court. Pre-trial diversion allows persons charged with crimes to avoid a public criminal conviction under certain conditions. In this case, it appears the United States Attorney would not have produced the Diversion Agreement to Respondent without ensuring it would not be disclosed to the public. What is more, disclosure or republication of this, or any other, Diversion Agreement could impair the United States Attorney's enforcement of the criminal laws of the United States and the administration of justice.

The ARB determined that the ALJ's analysis was well-reasoned and adopted the ALJ's reasoning and sealed the materials.

Klinger v. BNSF Railway Co., ARB No. 2023-0003, ALJ No. 2016-FRS-00062 (ARB July 23, 2024) (Decision and Order) 

ORDER AFFIRMING ALJ'S D. & O. ON REMAND; CONTRIBUTING FACTOR; AFFIRMATIVE DEFENSE; REMEDIES; POSTING REQUIREMENT PERMISSIBLE UNDER THE FRSA; PUNITIVE DAMAGES

In Klinger v. BNSF Railway Co., ARB No. 2023-0003, ALJ No. 2016-FRS-00062 (ARB July 23, 2024), the ARB affirmed the ALJ's D. & O. on Remand.

On August 9, 2015, Complainant injured his shoulder while working for Respondent. Complainant later submitted a letter signed by his doctor, dated August 13, 2015, stating that he should remain off work until September 25, 2015. Respondent granted Complainant's request for leave. Over the ensuing months, Complainant submitted three requests from his doctor to extend his medical leave by approximately one month each time. The extension requests did not include any additional information regarding Complainant's condition or treatment. Respondent granted each extension.

Respondent automatically enrolled Complainant in its Medical Care Management Program (MCMP), a voluntary program designed to help injured workers safely return to work. Respondent's employee who coordinated the MCMP for Complainant contacted Complainant by phone and letter regarding additional medical documentation, and, on at least one occasion, contacted Complainant's doctor directly. After Complainant failed to respond, the matter was escalated to Respondent's General Manager of the Southwest Division, who ordered Complainant to provide additional medical documentation and warned that if Complainant did not comply, he would be subjected to discipline. Complainant asked his doctor to send the requested records to Respondent, but the doctor's office forgot to send them.

Respondent issued Complainant a notice of investigation on November 2, 2015, stating that Respondent would conduct a hearing regarding Complainant's alleged failure to comply with instructions. After receiving the notice of investigation, Complainant called Respondent on November 9, 2015, and supplied Respondent with a medical release on November 11. Despite receiving the medical release, Respondent conducted a hearing on November 23, 2015. As a result, Complainant received Complainant a level S serious, 30-day record suspension. Although Complainant did not lose any pay, he was placed on a three-year review period during which any rules violations could result in further discipline.

Complainant filed a complaint with OSHA alleging that Respondent retaliated against him for engaging in protected activity. On November 30, 2018, the ALJ issued a D. & O. finding that Respondent violated the FRSA by suspending Complainant's employment for reporting a workplace injury. The ALJ found that Complainant established that his protected activity was a contributing factor in Respondent's decision to discipline him based on an "inextricably intertwined" analysis.

Respondent appealed the ALJ's D. & O. to the ARB. While the case pended, the ARB overturned application of the inextricably intertwined doctrine in Thorstenson v. BNSF Ry. Co., ARB Nos. 2018-0059, -0060, ALJ No. 2015-FRS-00052, slip op. at 8 (ARB Nov. 25, 2019). In light of the ARB's holding in Thorstenson, the ARB issued an Order Reversing and Remanding on March 18, 2021. The ARB concluded that the ALJ committed reversible legal error in applying the inextricably intertwined analysis and that the ALJ's analysis improperly evaluated the merits of the MCMP as opposed to evaluating whether Complainant's injury report contributed to his suspension.

On September 29, 2022, the ALJ issued the D. & O. on Remand in Complainant's favor. The ALJ found that Complainant established causation based on evidence of pretext and a pattern of antagonism, and that Respondent failed to establish the same-action defense. The ALJ ordered Respondent to, among other things, post the D. & O. on Remand for a minimum of 60 days and pay punitive damages in the amount of $40,000.

On appeal, the ARB affirmed the ALJ's D. & O. on Remand.

CONTRIBUTING FACTOR; EVIDENCE OF PRETEXT; DISPARATE TREATMENT; FALSITY OF RESPONDENT'S EXPLANATIONS; INCONSISTENT APPLICATION OF POLICIES; ANTAGONISM

The ALJ found that Complainant established by a preponderance of the evidence that Complainant's protected activity of reporting a work-related injury contributed to Complainant's 30-day record suspension based on the evidence of pretext.

First, the ALJ found that Respondent treated workers who were injured off the job differently than Complainant. None of the workers whose reported injuries occurred away from the job were subjected to the level of scrutiny and incessant record demands that Respondent subjected Complainant to. Respondent contended the ALJ erred in finding other injured employees were similarly situated to Complainant because those employees did not refuse to provide medical documentation. The ARB found that the ALJ properly compared whether Respondent treated Complainant differently than other injured workers who had engaged in protected activity.

Second, the ALJ found that Respondent's argument that it acted solely because it needed additional medical information from Complainant for manpower planning purposes and because it believed Complainant's medical leave was longer than reasonably necessary is unpersuasive. The ALJ found that Respondent's witnesses were not credible in explaining the reasons for their actions because their explanations shifted and were inconsistent and one witness was duplicitous in communications with Complainant. The ARB agreed with the ALJ's credibility determinations.

Third, the ALJ found that Respondent's failure to follow its own company policy regarding disqualification from the MCMP constituted circumstantial evidence that the decision to suspend Complainant was pretextual. The MCMP's policy stated that the program was voluntary and those who did not participate would be disqualified. Despite this, Complainant was not disqualified. The ARB found that Respondent's failure to follow its policy and inability to explain its deviation from policy constituted circumstantial evidence that its decision to suspend Complainant was pretextual.

Fourth, the ALJ found that Respondent engaged in a pattern of antagonism against Complainant after he reported a workplace injury. However, the ALJ also found that Respondent's employee who supervised the MCMP changed their behavior after Complainant failed to comply with the MCMP's requirements. The ARB found that this did not support the ALJ's finding of causation because the behavior changed after Complainant failed to comply with the MCMP and not when Complainant engaged in protected activity. However, the ARB found that evidence of pretext outweighed this.

Based on the disparate treatment of Complainant, the falsity of Respondent's explanations for its actions, and Respondent's inconsistent application of its policies, the ARB affirmed the ALJ's finding that Complainant's reporting of a workplace injury contributed to Respondent's decision to suspend him.

AFFIRMATIVE DEFENSE

The ALJ found that Respondent failed to meet the clear and convincing standard to establish that it would have taken the same action against Complainant in the absence of protected activity. The ALJ did not credit testimony from Respondent's witness that Respondent imposed the standard discipline for failing to comply with instructions because Respondent did not provide examples of any other employee who was disciplined for failing to comply with instructions, and because its witness did not address the voluntary nature of the MCMP. The ALJ also found that Respondent's temporal proximity argument was not compelling. The ARB agreed and affirmed the ALJ's finding did not establish by clear and convincing evidence that it would have taken the same action in the absence of Complainant's protected activity.

REMEDIES; POSTING REQUIREMENT; PUNITIVE DAMAGES

The ALJ ordered Respondent to post the D. & O. on Remand for a minimum of 60 days in a place and manner that is usual and customary for employees to gather and review employment related information. Respondent contended that this remedy is not available under the FRSA. The ARB affirmed the ALJ's posting requirement. The ARB found that the regulations authorize the ALJ to take "[a]ffirmative action to abate the violation," and the preamble to the regulations explicitly states that "[t]he posting of a notice to employees regarding the resolution of a whistleblower complaint can be important to remedying the reputational harm an employee has suffered as a result of retaliation." The ARB also found that a remedy may be permissible if it is necessary to make a complainant whole. The ARB further found that a posting requirement is a standard remedy in discrimination cases.

The ALJ also ordered Respondent to pay $40,000 in punitive damages because it engaged in behavior that demonstrated a callous indifference to Complainant's right to report his work-related injury without fear of retaliation. The ARB found that the ALJ's decision was well-reasoned and supported by substantial evidence. The ARB further found that the amount of the punitive damages award was comparable and within the ranges of other punitive damages awards.

Leary v. Prime Marketing of America, ARB No. 2024-0037, ALJ No. 2020-ACA-00005 (ARB July 1, 2024) (Decision and Order Approving Settlement, Denying Motion to Seal, and Dismissing Case with Prejudice)

VOLUNTARY DISMISSAL; APPROVAL OF SETTLEMENT

In Leary v. Prime Marketing of America, ARB No. 2024-0037, ALJ No. 2020-ACA-00005 (ARB July 1, 2024), the parties filed a Joint Motion to File Settlement Agreement Under Seal and for Approval, requesting that ARB permit the settlement agreement to be filed under seal to protect Respondents' confidential business practices. The ARB issued an Order denying the seal request as premature given that the parties did not submit the settlement agreement. The parties subsequently filed a second Joint Motion to File Settlement Agreement Under Seal and for Approval and included the settlement agreement as an exhibit.

ARB approved the parties' settlement agreement as fair, adequate, and reasonable, and not in contravention of the public interest. The ARB noted that this determination was restricted only to the ACA case over which it has jurisdiction. Further, the ARB construed the settlement agreement's "Applicable Law" provision, which states that the agreement shall be interpreted under the laws of the State of Colorado, as not limiting the authority of the Secretary of Labor, the ARB, and any federal court regarding any issue arising under the ACA. The ARB denied the request to seal because the parties did not identify any provision of the settlement agreement that contained confidential business practices or explain why the parties' interest in preserving the confidentiality of the agreement outweighed the presumption of public access.

Accordingly, the ARB approved the settlement agreement and dismissed the appeal.

Miller v. Rhino, Inc., ARB No. 2024-0002, ALJ No. 2021-STA-00041 (ARB July 18, 2024) (Order Vacating and Remanding)

DEFAULT JUDGMENT; DISCOVERY SANCTION; ABUSE OF DISCRETION; CONCURRENCE

In Miller v. Rhino, Inc., ARB No. 2024-0002, ALJ No. 2021-STA-00041 (ARB July 18, 2024), the ARB vacated and remanded the ALJ's default judgment against Respondent as a sanction for its failure to comply with several discovery and other orders. The ALJ determined that because Respondent failed to comply with a May 14, 2021 Pre-Hearing Order, a September 15, 2021 Order to Compel Discovery, and an October 7, 2021 Order to Show Cause, a default judgment against Respondent under 29 C.F.R. § 18.57(b)(1)(vi), was an appropriate sanction.

The ARB found, however, that the ALJ abused her discretion in issuing a default judgment against Respondent because she failed to properly consider several factors as outlined in ARB precedent and required by the Eleventh Circuit. These factors included: (1) prejudice to the other party; (2) the amount of interference with the judicial process; (3) the culpability, willfulness, bad faith or fault of the litigant; (4) whether the party was warned in advance that dismissal of the action [or default judgment] could be a sanction for failure to cooperate or noncompliance; and (5) whether the efficacy of lesser sanctions [was] considered. Accordingly, the ARB remanded the case back to the ALJ to consider the above-mentioned factors as applied to Respondent's conduct and consider what sanction(s), if any, are appropriate.

The concurrence further explained that Respondent's conduct in this case did not rise to the level of "bad faith" or "gross negligence" to support the harsh sanction of default judgment and that the short delay resulting from Respondent's non-compliance did not result in such prejudice against Complainant or the court as to warrant a severe penalty. Thus, the concurrence instructed the ALJ to withhold from issuing a default judgment under these circumstances.

Administrator, Wage and Hour Div., USDOL v. Next Level Security Service, LLC, ARB No. 2024-0028, ALJ No. 2021-FLS-00009 (ARB July 31, 2024) (Decision and Order)

ASSESSMENT OF CMPs FOR VIOLATIONS OF FLSA MINIMUM WAGE AND OVERTIME PROVISIONS

In Administrator, Wage and Hour Div., USDOL v. Next Level Security Service, LLC, ARB No. 2024-0028, ALJ Nos. 2021-FLS-00009 (ARB July 31, 2024), the Department of Labor's Wage and Hour Division Administrator assessed Civil Money Penalties (CMPs) on Respondents for violations of the overtime provisions of the Federal Labor Standards Act (FLSA). After a hearing, the ALJ issued an order reducing the total CMPs from $151,050 to $36,440 after finding the Administrator's assessment was disproportionate to back wages owed individually to some workers. The ALJ relied on United States v. Bajakajian 524 U.S. 321 (1998) to conclude that this disproportionality called for a reduction in the CMPs to avoid a violation of the Eighth Amendment's prohibition against excessive fines. The ALJ also based the reduction on the conclusions that Respondents were unable to pay the back wages, the size of Respondents' business based on number of employees, and the CMPs would financially burden Respondents. 

REDUCTION IN CMPs UNWARRANTED UNDER MANDATORY AND DISCRETIONARY FACTORS

In reviewing the matter de novo, the ARB considered the mandatory factors outlined in the FLSA's CMP provision, which are the gravity or seriousness of the violations and the size of a respondents' business. The ARB held that willful or repeated violations were serious and found that as there was strong evidence of the willful nature of Respondents' violations, which were not repeated, the WHD's assessment of 80% of the maximum penalty was warranted. The ARB agreed with the ALJ's reduction of the total CMP by 15% because the Respondents were a small business.

The ARB found that the discretionary regulatory factors also supported the WHD's CMP assessment and did not warrant any reduction because Respondents had a reckless disregard for compliance, did not provide justification for WHD's substantiated findings, gave shifting excuses, structured the business to obscure overtime violations, committed serious violations impacting at least 73 workers, committed ongoing violations which they attempted to hide from WHD, and continued violating the FLSA during WHD's investigation. The ARB assessed a CMP of $124,968 for 73 violations.

NO REQUIREMENT OF PROPORTIONALITY OF CMPs IN RELATION TO BACK WAGES OWED TO INDIVIDUAL EMPLOYEES

The ARB found that requiring the assessment of CMPs be directly proportional to each amount of back wages owed per worker was contrary to the FLSA, the applicable regulations, and ARB precedent as explained in detail in Adm'r, Wage & Hour Div., U.S. Dep't of Lab. v. TAFS Corp., ARB No. 2023-0007, ALJ Nos. 2021-FLS-00005, -00006 (July 18, 2024).

ASSESSED CMPs DID NOT VIOLATE EIGHTH AMENDMENT PROHIBITION OF EXCESSIVE FINES

The ARB found that Supreme Court case law and circuit court case law interpreting the excessive fines clause did not require that penalties be proportional to the violations they are intended to deter. The ARB disagreed with the ALJ's assessment of United States v. Bajakajian, as its holding was based on facts which were distinguishable from the facts in this case. In Bajakajian, the penalty was found excessive because Bajakajian had not engaged in the more serious violations intended to be deterred by the statute. In contrast, Respondents willful nonpayment of overtime wages was exactly the type of violation the FLSA CMPs were meant to deter. It noted that unlike Bajakajian's violation for a simple failure to report, Respondents intentionally structured their business to deny workers overtime premiums they were entitled to, including by issuing two checks to avoid paying the premium, and treating some employees as exempt supervisors without consistent justification. The ARB also found significant that Respondents disregarded WHD's advice on compliance, refused to come into compliance, and obstructed WHD's investigation.

The ARB found the assessment of the CMPs at 80% of the maximum penalty reasonable as the violations were severe, and the CMPs assessed were standardized and applied to similar violations across cases. It also noted that Congress set the maximum CMPs for each violation, adjusted annually for inflation to preserve their deterrent impact. The ARB noted that Congress' establishment of the CMPs was entitled to due deference. The ARB determined that the table of back wages the ALJ generated and utilized to recalculate and reduce the CMPs originally assessed by the WHD undermined the consistent treatment of serious violations across cases.

The ARB found that the ALJ erred in failing to apply Bajakajian's multi-factor test to review whether a penalty is grossly disproportionate, which includes the nature or essence of the substantive offense, the class of persons to whom the statute is directed, the maximum penalty that could have been imposed, and the harm caused by the defendant's conduct.

The ARB found that in applying this multi-factor test, WHD's assessment and the ARB's de novo assessment were proportional to the Respondents' FLSA violations, such that the CMP assessed was not an excessive fine under the Eighth Amendment's proportionality principles. 

In reviewing the factor of the harm caused by Respondents' conduct under the Bajakajian factor test, the ARB noted that monetary and non-monetary harms were to be considered. The ARB also noted that willful violations that impacted many employees were particularly harmful. As Respondents withheld a total of more than $138,000 in wages from 73 employees, the monetary harm was significant.

The ARB noted that reviewing the non-monetary harm caused by the violations entailed considering the deterrent effect of the penalties on others who could engage in the same type of conduct. As Respondents underpaid wages to 73 employees, exactly the type of conducted targeted by the FLSA CMPs, any erosion of those CMPs would undermine the overtime pay requirements proscribed by Congress. 

The ARB found that the CMP of $124,968.70 was commensurate with the harm Respondent caused to the 73 employees, the deprivation of $138,755.78 in overtime wages. As such, after considering all factors under the Bajakajian factor test, the CMPs assessed for Respondents' willful FLSA violations were not an excessive fine under the Eighth Amendment.

FINANCIAL IMPACT OF CMPs NOT A MITIGATING FACTOR IN ASSESSING CMPs

The ARB's decision in TAFS Corp. explained that it is inappropriate to weigh a respondent's finances in assessing CMPs because the relevant regulations, the applicable appellate circuit, and ARB precedent do not include financial hardship among the mitigating factors considered to reduce CMPs. Further, Bajakajian did not require consideration of whether the penalty would deprive a respondent of their livelihood to comply with the Eighth Amendment bar on excessive fines.

The ARB noted that courts considering financial hardship have set a high bar for a finding that a penalty is unconstitutional on livelihood deprivation grounds, such as finding that the penalty must be a ruinous monetary punishment that could be so detrimental as to deprive respondents of the future ability to earn a living.

The ARB found that, even if financial hardship was a consideration in this case, there was insufficient evidence to support a finding that the CMPs were a ruinous punishment that would deprive Respondents of the ability to earn a living in the future. The ARB also found that considering the seriousness of the violations together with the CMPs' financial impact on Respondents, reduction in the CMPs was inappropriate.

Finally, the ARB determined that the ALJ's reduction in the CMPs due to Respondents' statements they could not pay the back wages and liquidated damages, was not supported by the record, and was undercut by Respondents' inconsistent testimony and other evidence tending to show that Respondents were unwilling, and not unable, to pay.

Administrator, Wage and Hour Div., USDOL v. TAFS Corp., ARB No. 2023-0007, ALJ Nos. 2021-FLS-00005, -00006 (ARB July 18, 2024) (Decision and Order)

ASSESSMENT OF CMPs FOR VIOLATIONS OF FLSA MINIMUM WAGE AND OVERTIME PROVISIONS 

In Administrator, Wage and Hour Div., USDOL v. TAFS Corp., ARB No. 2023-0007, ALJ Nos. 2021-FLS-00005, -00006 (ARB July 18, 2024), the Department of Labor's Wage and Hour Division Administrator assessed Civil Money Penalties (CMPs) against Respondents for violations of the overtime and minimum wage provisions of the Federal Labor Standards Act (FLSA). After a hearing, the ALJ issued an order reducing the total CMPs from $45,722.75 to $13,800. The ALJ noted in the order that the CMPs were greater than the total back wages owed. The ALJ based the reduction of the CMPs on the finding that the CMPs assessed by the Administrator were disproportionate to back wages owed individually to some of the 52 employees involved. Relying on United States v. Bajakajian 524 U.S. 321 (1998), the ALJ concluded that the perceived disproportionality necessitated a reduction in the CMPs to avoid a violation of the Eighth Amendment's prohibition against excessive fines. 

REDUCTION OF CMPs UNWARRANTED UNDER MANDATORY REGULATORY FACTORS

In reviewing the matter de novo, the ARB considered the mandatory factors outlined in the FLSA's CMP provision and its implementing regulations in assessing CMPs: the size of a respondent's business and the gravity of the FLSA violations. With respect to the first mandatory factor, the ARB affirmed the ALJ's reduction in the applicable CMPs by 30 percent due to the relatively small size of Respondent's business. With respect to the second factor, the ARB noted that to warrant a CMP under the applicable regulation, the conduct must be either repeated or willful. As the ARB agreed that the conduct in this case was both repeated and willful, it concluded that any reduction in the maximum CMP was unwarranted.

REDUCTION OF CMPs UNWARRANTED UNDER DISCRETIONARY REGULATORY FACTORS

The ARB then turned to the discretionary regulatory factors, including a respondent's good faith efforts to comply, its explanations for the violations, its previous history of violations, its commitment to future compliance, the interval between violations, the number of affected employees, and any pattern of violations. Examining the facts related to each factor, the ARB found that a reduction in CMPs was not warranted because: Respondents committed very serious violations impacting 52 workers; did not demonstrate a good faith effort to comply and displayed a reckless disregard for compliance; continued violating the FLSA at the conclusion of WHD's investigations; took steps to evade detection by giving an illusion of compliance; gave no justification for WHD's substantiated findings; continued violating the FLSA after receiving information on how to comply; committed violations which were close in time; and had a pattern of violations that spanned from 2015 to 2018.

REQUIREMENT OF PROPORTIONALITY OF CMPs IN RELATION TO BACK WAGES OWED TO INDIVIDUAL EMPLOYEES CONTRARY TO THE FLSA, REGULATIONS, AND ARB PRECEDENT

The ARB conducted a thorough review of the FLSA, the regulations' minimum wage and overtime provisions, WHD guidance, and ARB precedent. The ARB found that requiring that the assessment of CMPs be directly proportional to each amount of back wages owed per worker was contrary to the FLSA, the applicable regulations, and ARB precedent.

In reaching this conclusion, the ARB noted that the FLSA required only that the gravity of the violation and the size of the employer's business be considered in reaching the CMP assessment. It also noted that the FLSA stipulated a maximum penalty per individual violation without reference to the back wages owed as a result of those violations. The ARB similarly reviewed the applicable regulations' list of factors which must or can be considered in setting CMPs and found that these factors also exclude consideration of the individual back wages owed to each employee.    

The ARB examined ARB precedent reviewing CMP assessments. It found that while the precedent indicated that the back wages owed each employee could be considered as a mitigating factor to lower CMPs, none of the precedent applied or adopted a rule requiring proportionality between the individual assessments and the outstanding individual back wages.  

CMPs AS ASSESSED DID NOT VIOLATE EIGHTH AMENDMENT PROHIBITION OF EXCESSIVE FINES

The ARB held that the lack of perceived proportionality between the individual back wages owed to each employee and the CMPs assessed per violation did not violate the Eighth Amendment's bar on excessive fines, as concluded by the ALJ. The ARB examined case law interpreting the excessive fines clause and found that the case law demonstrated that penalties are not required to be directly proportional to the violations they are intended to deter. The ARB disagreed with the ALJ's assessment of United States v. Bajakajian, which cautioned against a requirement of strict proportionality. The ARB additionally noted that the penalty meted out in Bajakajian was found excessive because Bajakajian failed to report funds removed from the U.S., meeting the minimal level of culpability required; Bajakajian did not fit into the class of individuals engaged in graver violations intended to be deterred by the statute; and the harm caused by Bajakajian's infraction was minimal.

The ARB disagreed with the ALJ's consideration of the financial health of Respondents' business in reducing the CMPs on Eighth Amendment grounds. The ARB further noted that with respect to considerations of the impact a penalty or fine would have on the offender's livelihood, appellate courts, including the Third Circuit, have set a high bar for finding a penalty unconstitutional. Unconstitutionally excessive fines included ruinous monetary punishment that could be so detrimental as to deprive a respondent of the future ability to earn a living.

In unpacking the Supreme Court case law and ARB precedent cited by the ALJ in support of the Eighth Amendment basis for reducing the CMP assessment, the ARB noted that upon close reading, neither source stood for the proposition that the state of the employer's business was even a discretionary factor in assessing the penalty for violating the FLSA's minimum wage and overtime pay provisions. The ARB also found that such a consideration would weaken the deterrent impact of the FLSA's CMPs.  

CMPs NOT EXCESSIVE UPON DE NOVO BAJAKAJIAN ANALYSIS

The ARB then applied de novo Bajakajian's analysis to the CMPs assessed. It found that the CMPs were proportional to Respondents' violations of the FLSA because: Respondents' violations captured the essence of the conduct targeted by the FLSA's minimum wage and overtime provisions through repeated violations impacting 52 employees and attempts to evade detection, as well as Respondents' disregard for guidance on compliance and continued violations at the conclusion of each investigation. The ARB found that the repeated and willful FLSA violations were also of the precise variety intended to be deterred by FLSA CMPs.

The ARB noted that the CMPs assessed by the WHD were less than the statutory maximum set by Congress (adjusted annually for inflation). It further noted that the WHD's treatment of the CMPs was consistent with its treatment of similar violations involving per-employee CMPs. 

Despite the lack of requirement that the financial state of Respondents' business or the impact of the CMPs on Respondents' capacity to earn a livelihood be considered in setting CMPs, the ARB concluded that even if considered, the record did not support a CMP reduction. There was no record evidence showing the CMPs would result in a ruinous monetary punishment that could be so detrimental as to deprive Respondents of the future ability to earn a living. In fact, Respondents' business had yielded profits and the closure of one of its businesses was unconnected to the Department of Labor's actions.

Vollendorf v. Blue Northern Distributing, ARB No. 2024-0011, ALJ No. 2022-STA-00068 (ARB July 30, 2024) (Decision and Order Approving Settlement and Dismissing Case with Prejudice) 

APPROVAL OF SETTLEMENT

In Vollendorf v. Blue Northern Distributing, ARB No. 2024-0011, ALJ No. 2022-STA-00068 (ARB July 30, 2024), the ARB approved Complainant and Respondent's settlement agreement. On May 29, 2024, the Respondent filed Respondent's Notice of Settlement, in which Respondent notified the ARB that the parties reached an agreement to resolve this case and that they intended to file a motion to dismiss. On July 24, 2024, Complainant filed the signed Release and Resignation Agreement (Agreement).

The ARB approved the parties' settlement agreement as fair, adequate, and reasonable, and not in contravention of the public interest. The ARB noted that this determination was restricted only to the STAA case over which it has jurisdiction. The ARB also noted that it construed the language of the agreement's non-disparagement clause as allowing Complainant to communicate with or provide information to state and federal authorities about suspected violations of law involving Respondent. Accordingly, the ARB approved the agreement and dismissed the complaint with prejudice.