Mumby v. Pure Energy Serv. (usa) Inc., 10–8030.

• Decision Date: 22 February 2011
• Docket Number: No. 10–8030.,10–8030.
• Citation: 636 F.3d 1266
• Parties: Paul A. MUMBY; Eric Holtzclaw; William G. Johnson; John Pazej, Jr.; Ritta Peavler; James G. Rauch; Jerome G. Rauch; David Reddin; and others similarly situated, Plaintiffs–Appellees,v.PURE ENERGY SERVICES (USA), INC., Defendant–Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

636 F.3d 1266

160 Lab.Cas. P 35,879

17 Wage & Hour Cas.2d (BNA) 449

Paul A. MUMBY; Eric Holtzclaw; William G. Johnson; John Pazej, Jr.; Ritta Peavler; James G. Rauch; Jerome G. Rauch; David Reddin; and others similarly situated, Plaintiffs–Appellees,

v.PURE ENERGY SERVICES (USA), INC., Defendant–Appellant.

No. 10–8030.

United States Court of Appeals, Tenth Circuit.

Feb. 22, 2011.

Walter V. Siebert of Sherman & Howard L.L.C., Denver, CO, for Defendant–Appellant.Alan S. Kaufman of Chamberlain, Kaufman & Jones, Albany, NY, for Plaintiffs–Appellees.Before MURPHY, McKAY, and O'BRIEN, Circuit Judges.McKAY, Circuit Judge.

Pure Energy Services appeals the district court's decision on summary judgment, which found Pure Energy's violations of the Fair Labor Standards Act (“FLSA”) to be willful and unreasonable. The thrust of Pure Energy's argument is that it should be allowed to both rely on and disregard advice of counsel in order to avoid a three-year statute of limitations and liquidated damages. We disagree, and we therefore affirm.

BACKGROUND

Pure Energy, a subsidiary of a Canadian oilfield services company, has provided services to U.S. gas and oil wells since 2004. Its field employees, which include Plaintiffs, work twelve-hour shifts, seven days per week, with one week off for every three weeks worked. Thus, employees work approximately eighty-four hours per workweek.

During the events leading to this litigation, Pure Energy paid its field employees under a “day rate” compensation plan, whereby employees received a single daily payment regardless of the number of hours actually worked. Pure Energy defined its “day rate” not by the relevant regulation, 29 C.F.R. § 778.112, but rather as a daily rate consisting of a defined regular rate for the first eight hours and an overtime rate for the remaining four hours of the day. For those employees paid in this fashion, Pure Energy did not keep track of either daily or weekly hours worked.

Pure Energy's pay scheme, however, violated the FLSA, which requires employers to compensate their employees “for a workweek longer than forty hours ... at a rate not less than one and one-half times the regular rate at which [the employee] is employed.” 29 U.S.C. § 207(a)(1). For an employee to be correctly paid under a day rate, a weekly “regular rate” is first calculated “by totaling all the sums received at such day rates ... and dividing by the total hours actually worked.” 29 C.F.R. § 778.112. The employee “is then entitled to extra half-time pay at this [regular] rate for all hours worked in excess of 40 in the workweek.” ¹ Id.

Since its field employees' work schedules exceeded forty hours per week, Pure Energy should have paid overtime for all hours worked over forty. Instead, Pure Energy paid only what it believed was a day rate which included, by its calculations, four hours of overtime per day. This formula did not comply with 29 C.F.R. § 778.112. Even by its own erroneous calculation, four hours of overtime per day falls well short of the FLSA-mandated overtime owed for all hours over forty where the employee works eighty-four hours each week.

In 2005, after one year of U.S. operations, Pure Energy began transferring management of its U.S. operations from Canada to the United States. When it transferred payroll functions to its new domestic management team, it hired a new manager, Cindy Rucker, to run payroll operations in compliance with U.S. labor standards. At the time of her hiring, Ms. Rucker was aware of the FLSA, but she was unfamiliar with day rates. When she expressed concerns about the company's compensation policy, Pure Energy's management referred Ms. Rucker to a Colorado attorney, Paul Hurcomb.

In January 2006, after speaking with Ms. Rucker and reviewing some of Pure Energy's employment offer letters, Mr. Hurcomb advised Ms. Rucker that Pure Energy's day rate policy complied with the FLSA so long as the company itemized regular and overtime rates and did not have its field employees work more than twelve hours per day. Mr. Hurcomb also discussed with Ms. Rucker that any weekly hours over forty had to be paid as overtime, regardless of the day rate. Mr. Hurcomb did not perform any legal research regarding day rates or the FLSA. Although he essentially stated the forty-hour overtime requirement correctly, his other advice was incorrect.

After receiving Mr. Hurcomb's advice, Ms. Rucker confirmed with management that Pure Energy was paying its employees correctly so long as it broke down the day rate into regular and overtime hourly rates and did not exceed twelve-hour shifts. However, until it changed its compensation policies in late 2007 to finally comply with the FLSA, Pure Energy continued to underpay its field employees for overtime. Field employees also continued to occasionally work more than twelve hours per day without additional compensation, in violation of Mr. Hurcomb's advice.

In 2007, a group of field employees sued Pure Energy for its violation of the FLSA, based on, inter alia, its failure to pay sufficient overtime. See Condos v. Pure Energy Servs. (USA), Inc., 07–CV–00127–ABJ (D.Wyo. filed June 12, 2007). The district court granted the Condos plaintiffs partial summary judgment, finding that Pure Energy had failed to pay the overtime required by the FLSA. Shortly thereafter, Pure Energy and the Condos plaintiffs settled.

Plaintiffs in this case are similarly situated to the plaintiffs in Condos, and as such, Pure Energy has already admitted it owes Plaintiffs back pay for missed overtime. There were only two issues at summary judgment: first, whether Plaintiffs may be awarded compensatory damages under the extended three-year statute of limitations for Pure Energy's “willful” violation of the FLSA; and second, whether Pure Energy should be required to pay liquidated damages. The district court denied Pure Energy's motion and granted Plaintiffs' motion in part, reserving judgment on the liquidated damages issue until after trial. The parties agreed to have the court rule on liquidated damages based on their existing briefs, and the district court then found Pure Energy liable for the full amount of liquidated damages. This appeal followed.

DISCUSSION

I.

We first consider whether the district court erred in concluding at summary judgment that Pure Energy's violation of the FLSA was willful. We review the district court's decision de novo, applying the same legal standard as the district court and viewing the evidence in the light most favorable to the nonmoving party. See In re Wal–Mart Stores, Inc., 395 F.3d 1177, 1189 (10th Cir.2005). Summary judgment is proper if there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a).

The FLSA generally imposes a two-year statute of limitations unless the defendant's violations are shown to be willful, in which case a three-year period applies. See 29 U.S.C. § 255(a). To fall under the three-year limitation, the plaintiff must show that “the employer either knew or showed reckless disregard for the matter of whether its conduct violated the statute.” McLaughlin v. Richland Shoe Co., 486 U.S. 128, 133, 108 S.Ct. 1677, 100 L.Ed.2d 115 (1988). Reckless disregard can be shown through “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) (internal quotation marks omitted).

Although consultation with an attorney may help prove that an employer lacked willfulness, such a consultation is, by itself, insufficient to require a finding in favor of the employer. The court's operative inquiry focuses on the employer's diligence in the face of a statutory obligation, not on the employer's mere knowledge of relevant law. See McLaughlin, 486 U.S. at 134–35, 108 S.Ct. 1677; see also Trans World Airlines, Inc. v. Thurston, 469 U.S. 111, 129–30, 105 S.Ct. 613, 83 L.Ed.2d 523 (1985) (airline did not recklessly disregard the Age Discrimination in Employment Act where it sought legal advice, negotiated with union representatives, and then finally implemented a new retirement policy). We have also stated the inverse in our unpublished decisions: that failure to consult with a lawyer is equally insufficient to prove recklessness. See Fowler v. Incor, 279 Fed.Appx. 590, 602 (10th Cir.2008). These principles are consistent with similar “advice-of-counsel” rules in other contexts. See, e.g., United States v. Wenger, 427 F.3d 840, 853 (10th Cir.2005) (in the securities fraud context, “[g]ood faith reliance on counsel ... is merely one factor a jury may consider when determining whether a defendant acted willfully”); Takecare Corp. v. Takecare of Oklahoma, Inc., 889 F.2d 955, 957 (10th Cir.1989) (in a trademark infringement action, absent a showing of other factors, “counsel's advice alone will not shield the actor from the consequences of his act”) (internal quotation marks omitted).

While not a complete defense, an employer may still assert a good-faith reliance on counsel provided it shows “(1) a request for advice of counsel on the legality of a proposed action, (2) full disclosure of the relevant facts to counsel, (3) receipt of advice from counsel that the action to be taken will be legal, and (4) reliance in good faith on counsel's advice.” Wenger, 427 F.3d at 853 (internal quotation marks omitted); see also United States v. Bush, 626 F.3d 527, 539 (9th Cir.2010) (“An advice-of-counsel instruction requires the defendant to show that he made a full disclosure of all material facts to his attorney and that he then relied in good faith on the specific course of conduct recommended by the attorney.”) (internal quotation marks omitted).

We now turn to the evidence available to the district court at summary judgment, which is either undisputed or viewed in the light most favorable to Pure...