To avoid an award of liquidated damages in an Fair Labor Standards Act (FLSA) action asserting that a defendant willfully violated the FLSA’s overtime provisions, the defendant must prove that it “acted in subjective ‘good faith’ and had objectively ‘reasonable grounds’ for believing that the acts or omissions giving rise to the failure did not violate the [statute].” FLSA defendants frequently therefore assert that they sought and followed the advice of counsel in assessing whether overtime payments were required under the FLSA, which results in an implied waiver of the attorney-client and attorney work product privileges. The scope of that waiver was subject of a recent United States District Court of the Southern District of New York decision in Foster v. City of New York, 14 Civ. 4142 (SDNY Feb. 5, 2016) and a related case De la Cruz v. City of New York, 14 Civ. 9220 (SDNY Feb. 5, 2016).
The case involved New York City employees who claimed that the city willfully violated their rights under FLSA by failing to pay overtime compensation. The city argued that liquidated damages were not appropriate in this case because it acted in good faith by consulting with its legal department when making its FLSA policy decisions. The plaintiffs argued that, as a consequence of this defense, the city waived its attorney-client privilege and they were entitled to discovery on “all relevant communications related to FLSA compliance,” which included not only communications between attorneys and employees of the city, but also internal communications between attorneys.
The court agreed that the good faith defense is an implied waiver of the privilege, but analyzed how broad the waiver should be. Were discoverable communications limited to those between the attorneys and city employees? Or, did they also include communications between attorneys within the legal department and between attorneys in the legal department and outside counsel? Ultimately, the court agreed with the city, that communications between attorneys were not discoverable because the good faith defense depends on the city’s “state of mind,” which could not have been influenced by information it never heard. The court noted, however, that communications between attorneys could be discoverable if the plaintiffs could show that the attorneys’ analysis was flawed and that the city “knew (or should have known) that the analysis was deficient.” With no such showing here, there was no waiver of attorney-to-attorney communications.
This case should serve as a reminder to employers and their counsel that, to the extent they are giving advice regarding FLSA compliance, that advice may ultimately be discoverable if the employer later seeks to rely on that advice to avoid an award of liquidated damages. The best practice is to keep these discussions narrow and limited only to advice concerning compliance with the FLSA. Keep discussions of extraneous matters in separate communications.