Federal Circuit: CFC Has Discretion to Deny Liquidated Damages for Erroneous Classification
An NCIS investigations specialist filed suit, alleging that NCIS erroneously classified him as exempt from overtime pay, and for years denied him overtime compensation and premium pay in violation of the Fair Labor Standards Act (FLSA). On September 24, 2020, the United States Court of Appeals for the Federal Circuit affirmed the Court of Federal Claims’ decision, after a trial, to deny liquidated damages, despite finding that NCIS was liable for incorrectly classifying the position as FLSA-exempt.
As the appeals court noted, a trial court has statutory discretion under 29 U.S.C. § 260 to deny or limit liquidated damages in an action to recover unpaid overtime compensation if the employer acted in good faith and had reasonable grounds for believing that the act or omission was not a violation of the FLSA. The employee in this case argued that the Court of Federal Claims misinterpreted the statutory section to deny him liquidated damages, and erred when it found that NCIS denied him overtime pay in good faith and based on a reasonable belief it was not violating the FLSA.
The appeals court began its analysis by observing that there are two prongs to satisfy before a trial court can deny or limit liquidated damages under Section 260. First, the agency must demonstrate, via a subjective showing, that its misclassification was in good faith. Second, the agency must demonstrate, via an objective showing, that it had reasonable grounds to believe it had not misclassified the employee’s position as FLSA-exempt.
The employee argued that the trial court erred when it failed to require the agency to provide evidence for both prongs specific to the erroneous classification at issue, and to show actions the agency took before litigation began. The employee cited the D.C. Circuit’s holding in Thomas v. Howard Univ. Hosp., 39 F.3d 370, 373 (D.C. Cir. 1994) to argue that it is not enough for the agency to show reasonableness or good faith in general, and that instead the showing must be specific to the specific classification at issue.
The appeals court agreed with the employee that “the trial court would likely abuse its discretion by making findings of good faith and reasonable belief” under Section 260 based solely “on non-specific evidence or only on the employer’s actions after an employee files suit.” But the appeals court found that the agency did provide evidence specific to the GS-12 Investigations Specialist position, such as the position description and testimony regarding its interpretation. Although the agency did not provide testimony on the original classification, the trial court analyzed years of published position description, going back to the original position description as it existed in 2009. The trial court also heard testimony from NCIS’ Staffing, Classification, and Compensation division chief regarding the agency’s practices to “classify positions and review decisions” since she began in the position in 2015, a year before the litigation commenced.
The appeals court also found that Section 260 “does not require, as a matter of law, documentation of the original classification decision,” and that to require such documentation “would effectively require employers to classify positions every two to three years.” According to the appeals court, for many employers, “requiring such frequent classification would be untenable.”
In finding that the trial court did not err in holding that the agency met its burden on the reasonable belief prong, the appeals court agreed with the trial court that the position description contained duties “that could reasonably be interpreted as qualifying for the administrative exemption—namely duties listed as criteria under 5 C.F.R. § 551.206 involving ‘office or non-manual work’ related to ‘management or general business operations’ and that require ‘the exercise of discretion and independent judgment with respect to matters of significance.’”
The appeals court noted that it took two days of testimony from the employee, his supervisor, and the agency’s classification witness to determine that the agency’s classification was erroneous. To “require more evidence than the trial court considered…would risk collapsing the objective and subjective prongs into a solitary subjective one,” the court held, which conflicts with the “cardinal principle of statutory construction that courts must give effect, if possible, to every clause and word of a statute.”
In finding that the trial court did not err in holding that the agency met its burden on the good faith prong, the appeals court agreed with the trial court that the agency “demonstrated an intent to comply with the [FLSA] by having a formal process to classify positions and review decisions, executed by a dedicated staff.” The appeals court referenced testimony by the agency’s classification witness that “as part of the annual performance evaluation process, supervisors must certify that the position description has not changed in the past year.” According to that witness, changes in the position description trigger a review and potential reclassification. No such change was flagged for the employee’s position, and so the agency did not have occasion to review and reclassify the position prior to the litigation.
The appeals court therefore held that the trial court “based its good faith finding on pre-litigation evidence specific to the erroneous classification of [the employee’s] position as exempt,” and therefore were not “clear error,” or evident of any “error of law.”
For the above stated reasons, the United States Court of Appeals for the Federal Circuit affirmed the United States Court of Federal Claims’ decision to exercise its discretion to deny liquidated damages to the employee.
Read the full case: Shea v. United States.
This case law update was written by Conor D. Dirks, Associate Attorney, Shaw Bransford & Roth, PC.
For thirty years, Shaw Bransford & Roth P.C. has provided superior representation on a wide range of federal employment law issues, from representing federal employees nationwide in administrative investigations, disciplinary and performance actions, and Bivens lawsuits, to handling security clearance adjudications and employment discrimination cases.