Two recent decisions by the United States District Court for the Southern District of Florida (the “Court” or “S.D. Fla.”) discuss whether an employer may reduce or preclude employee recovery of unpaid wages under the Fair Labor Standards Act (“FLSA”) through an affirmative defense and a counterclaim asserting employee theft, fraud, other misconduct, or breach of contract.
In Bautista v. The Discount Warehouse, et al., the employee who sued to recover overtime wages had failed to repay money he owed pursuant to a promissory note. The defendants whom he sued filed a counterclaim to recover the amount due under that note. The S.D. Fla. dismissed the counterclaim and struck the affirmative defense of “set-off.” Its March 14, 2016 Order granting the employee’s motion to dismiss and strike said, “Thus, courts in this [the Eleventh] Circuit have dismissed counterclaims or struck affirmative defenses where the set-off is not based on an overpayment or prepayment of wages, but on an arrangement distinct from the employer’s ordinary employment obligations.”
The Court concluded that the employee’s indebtedness under the promissory note did not arise from facts and circumstances pertaining to the employee’s claim for wages: “In deciding whether Plaintiff failed to pay the note, the Court would not need to determine questions of fact similar to those of the FLSA case, such as Plaintiff’s employment status and hours Plaintiff worked.” The Court said that the defense of setoff, “is inappropriate in the context of FLSA cases where the set-off will cause the plaintiff’s wages to fall below the statutory minimum, and deprive plaintiff of the ‘cash in hand’ contemplated by the FLSA.”
In Garcia v. Nachon Enters, Inc., the employee’s complaint alleged failure to pay wages and retaliation in violation of FLSA, breach of agreement, quantum meruit, and unjust enrichment. The defendants’ counterclaim alleged that the employee received pay for hours he did not work, misused corporate accounts to make unauthorized purchases, and conducted unauthorized transactions during the work day for his personal benefit.
The counterclaim asserted breach of fiduciary duty and conversion. The S.D. Fla. denied the employee’s motion to dismiss the counterclaim: “to the extent [Plaintiff's] overtime claims are based on the hours he did not work, the Defendants’ counter-claims do not conflict with the set-off rule; and should [Plaintiff] prevail on his FLSA claim, [Defendant] shall be permitted to recover on its counterclaims only to the extent that recovery does not reduce [Plaintiff's] claim below the minimum wage.”
In reaching this conclusion on March 18, 2016, the Court discussed a 2014 case, Rivero v. Lefeld & Son, which denied the employee’s motion to dismiss the employer’s counterclaim for theft, fraud, conversion, and breach of contract. There, the employee submitted false time records, retained overpayment for hours he never worked, disabled surveillance cameras to hide his misconduct, and kept money he was not entitled to receive.
These recent cases apply well-settled Eleventh Circuit FLSA case law, Rule 13 of the Federal Rules of Civil Procedure (differentiating mandatory and permissive counterclaims), and the statutes that limit federal court jurisdiction. They vividly remind employers and their counsel of the risk that a court will strike affirmative defenses and dismiss counterclaims that do not plead facts and circumstances reflecting the requisite “logical relationship” between employees’ wage claims and their alleged misconduct.