The Fair Labor Standards Act of 1938 established minimum wage and overtime pay standards that affect employees in the private and public sectors. In the event the FLSA’s overtime or minimum wage requirements are violated, an employer may be liable to the affected employees for the amount of unpaid compensation. Generally, an action for unpaid minimum wages or unpaid overtime under FLSA has a two-year statute of limitations. However, when the jury finds a willful violation, a three-year statute of limitations applies. The determination of willfulness for statute of limitations purposes is an issue of fact for the jury.
In McLaughlin v. Richland Shoe Co., 486 U.S. 128, 131-33 (1988), the United States Supreme Court discussed the distinction between ordinary and “willful” violations of the FLSA. Analyzing the legislative history behind the FLSA’s statute of limitations, the Court recognized that Congress created a “substantive distinction” between ordinary and willful violations of the law. The Court reasoned, “[t]he fact that Congress did not simply extend the limitations period to three years, but instead adopted a two-tiered statute of limitations, makes it obvious that Congress intended to draw a significant distinction between ordinary violations and willful violations” of the statute. Id. at 132. The Court declined to adopt a standard for willfulness that would have required a plaintiff to show only “that an employer knew that the FLSA ‘was in the picture.’” Id. at 132–33. Instead, it adopted a standard requiring a plaintiff to show “that the employer knew or showed reckless disregard for the matter of whether its conduct was prohibited by the statute.” Id.at 133.
Based upon the standard adopted by the Supreme Court in McLaughlin, courts have found a “reckless disregard” based on “action entailing an unjustifiably high risk of harm that is either known or so obvious that it should be known.” Safeco Ins. Co. of America v. Burr, 551 U.S. 47, 68, 127 S. Ct. 2201, 167 L. Ed. 2d 1045 (2007)). Reckless disregard has been found where the evidence shows “(1) admissions that an employer knew its method of payment violated the FLSA prior to the accrual of the action; (2) [the] continuation of a pay practice without further investigation after being put on notice that the practice violated the FLSA; (3) earlier violations of the FLSA that would put the employer on actual notice of the [r]equirements of the FLSA; (4) failure to keep accurate or complete records of employment; and (5) prior internal investigations which revealed similar violations.” Smith v. Keypoint Gov’t Sols., Inc., No. 15-cv-00865-REB-KLM, 2016 U.S. Dist. LEXIS 174332 *4 (D. Colo. Dec. 16, 2016) (collecting cases).
In each of these cases, the employees had evidence of culpability greater than mere negligence or inattentiveness to support their willfulness claim. Courts have reaffirmed that mere negligence is insufficient to support use of the three-year statute of limitations. Terwilliger v. Home of Hope, 21 F. Supp. 2d 1305, 1308 (N.D. Okla. 1998) (“Negligence or an incorrect assumption that a pay plan complies with the FLSA do not meet the criteria for a willful violation of the FLSA.”); see also Bayles v. Am. Medical Response of Colo., Inc., 937 F. Supp. 1477, 1489 (D. Colo. 1996) (finding no willfulness where employer merely chose most advantageous course of action when faced with “conflicting” authority regarding whether exemption applied to ambulance services). But see Flores v. City of San Gabriel, 824 F.3d 890, 906-07 (9th Cir. 2016) (reversing district court’s finding of no willful conduct when the state of the law was unsettled in the Circuit but the City put on no evidence it ever investigated the state of the law, the ambiguity of which would not be dispositive of willfulness in any event).
There is a substantive distinction between ordinary and willful violations of the FLSA for determining which statute of limitations applies. If an employee can prove a willful violation, then the statute of limitations will be extended from two years to three years. To show a willful violation, the evidence must show not only that the FLSA was violated, but also that the employer either knew or showed reckless disregard for whether its conduct violated the FLSA. This finding requires more than just evidence that the employer was negligent or inattentive to its pay practices. Instead, the evidence must show that the employer knew its pay practices violated the FLSA or had some reason to suspect its pay practices violated the FLSA and failed to take any action to investigate or address that belief.