DIVIDED FIFTH CIRCUIT PANEL HOLDS EMPLOYERS NOT OBLIGATED TO REIMBURSE CERTAIN FOREIGN RECRUITMENT FEES, CREATING POTENTIAL SPLIT WITH THE ELEVENTH CIRCUIT

In a sharply-divided (8-6)[1] en banc opinion, Castellanos-Contreras, et. al. v. Decatur Hotels LLC, No. 07-30942 (5th Cir. Oct. 1, 2010), available at http://www.ca5.uscourts.gov/opinions/pub/07/07-30942-CV3.wpd.pdf, the Fifth Circuit Court of Appeals disagreed with the Department of Labor and held that the FLSA does not require employers to reimburse H-2B workers for certain travel, visa, and recruitment expenses. In the wake of Hurricane Katrina, the defendant Decatur Hotels petitioned the government for permission to hire foreign workers to compensate for the void of local employees. The foreign workers filed suit, alleging that the recruiting firms hired by Decatur charged them thousands of dollars as placement fees, to secure visas, and to travel to the United States.

According to the plaintiffs, the FLSA requires employers to reimburse employees for such expenses, and deducting these expenses from their first week of work brought their pay below the minimum wage. At the district court level, both parties moved for summary judgment on the issue of reimbursement. The lower court denied Decatur’s motion, granted the plaintiffs’ motion in part (leaving the calculation of deductions and potential liability for trial), and certified its order for interlocutory appeal.

Reimbursement obligations under the FLSA
The majority held, as a matter of law, that none of the three expense/cost categories were the responsibility of the employer.

1. Inbound travel and visa expenses

Citing the absence of any explicit statutory or regulatory language, the majority held that neither inbound travel nor visa expenses were subject to reimbursement. While there are laws outside the FLSA requiring the reimbursement of outbound travel expenses for H-2B workers and inbound expenses for H-2A workers,[2] there is no law requiring the reimbursement of inbound travel for H-2B workers. “Silence on this issue, in the face of these specific laws governing transportation, is deafening.” Id. at 9.

The plaintiffs offered several arguments for reimbursement under the FLSA. First, they argued that the expenses were required for the performance of their duties and incurred primarily for the benefit of the employer. As such, they constitute “tools of the trade” under 29 C.F.R. § 531.35. The majority disagreed, holding that this interpretation stretched the concept too far. “A visa and physical presence at the job site are not ‘tools’ particular to this ‘trade’ within the meaning of the applicable regulations.” Id. at 10. The majority also noted that an H-2B visa is not limited to a particular employer. An employee can change employers by petitioning the government to extend his or her stay. Id. at 10 & n.7. According to the dissent, the “tools of the trade” language in the regulations is merely an example of reimbursable costs that are for the employer’s benefit, not a specific limiting device. Id. at 36. The dissent dismissed the notion that the expenses were not tied to the specific employer, explaining that employees in the H-2B program are legally prohibited from working for other employers who may pay higher wages, have to work several months just to recoup the initial expenses, and are required to immediately leave the country if they are dismissed from their jobs. Id. at 18-19 & n.2.

The plaintiffs’ second argument focused on the Department of Labor’s (“DOL”) interpretation of the FLSA regulations. The DOL, which filed an amicus brief, argued that it has consistently interpreted travel and visa expenses as recoverable under the FLSA. The DOL also relied on the general rule that the agency’s interpretation should be controlling unless plainly erroneous or inconsistent with the regulations being interpreted. Auer v. Robbins, 519 U.S. 452 (1997). According to the dissent, the DOL’s stance on reimbursement of certain expenses incurred by foreign workers has been consistent for nearly fifty years. Citing a series of opinion letters and handbooks starting in 1960, the dissent argued that transportation costs are reimbursable when they are primarily for the benefit of the employer. This interpretation, according to the dissent, countered the majority’s position that the absence of specific coverage for H-2B workers in other statutes barred recovery under the FLSA. “But [narrowly construing regulations] is a rule governing judicial interpretation of statutes and regulations, not a limitation on the Secretary’s power to resolve ambiguities in his own regulations. A rule requiring the Secretary to construe his own regulations narrowly would make little sense, since he is free to write the regulations as broadly as he wishes, subject only to the limits imposed by the statute.” Id. at 32.

The DOL’s interpretation did not persuade the majority. According to the majority, the only clear position in favor of reimbursement came in a 2009 Bulletin, issued long after the events in question. The DOL, it argued, did not address the reimbursement issue until 1994, when it decided not to enforce reimbursement obligations while it deliberated over the issue. In 2008, the DOL formally announced that it would not require reimbursement, and then reversed itself 98 days later with the 2009 Bulletin. Id. at 12. The majority dismissed a 1986 letter cited by the dissent, because it involved agricultural workers (now defined as H-2A workers) making direct payments to their employer. The dissent countered that an agency’s enforcement practices are distinct from an agency’s interpretation of the law. If the DOL chooses not to enforce certain obligations, the workers have a private cause of action to seek relief.

Finally, plaintiffs cited the Eleventh Circuit’s decision in Arriago v. Fla. Pac. Farms, LLC, 305 F.3d 1228 (11th Cir. 2002), which held that certain travel and visa expenses are primarily for the benefit of the employer and subject to reimbursement. The majority distinguished the case because it dealt with H-2A, not H-2B, workers. It noted that there are distinct regulatory and administrative regimes for these two classes of workers. Because certain regulations provide for the reimbursement of fees for some, but is silent as to the other, the Eleventh Circuit’s holding involving H-2A workers was deemed distinguishable. Id. at 13. The dissent criticized this distinction as arbitrary. According to the dissent, just because the Immigration and Nationality Act (INA) statutes and regulations require only certain expenses to be covered does not automatically implicate the FLSA, which is “a separate statutory scheme with distinct regulations that must be given their own meaning and effect.” Id. at 37. According to the dissent, the Supreme Court has held that when the FLSA’s requirements overlap with those of another statutory scheme, courts should interpret both provisions as applying unless it is impossible to comply with both. The dissent also cited another Eleventh Circuit case, and several district court cases, applying the Arriaga reasoning to the H-2B context. Id. at 43.

2. Recruitment expenses

In addition to the arguments made above, the plaintiffs argued that the recruiting fees were required, and thus should be considered part of the job. The majority disagreed, citing the absence of any evidence that Decatur either required the payment of fees or required the workers to use certain recruiters. According to the majority, each side paid recruiting fees for their own benefit—employers to find workers and navigate regulations, and employees to find work. Finally, the majority cited newly-enacted DOL regulations to support its holding that the fees are not reimbursable. New regulations require employers who use recruiting services to include provisions in their contracts stating that the recruiters will not charge fees to potential employees.

Conclusion
In Castellanos-Contreras, the Fifth Circuit held that H-2B workers could not seek reimbursement for inbound travel expenses, or visa and recruitment fees. In doing so, it focused on the absence of any regulatory provisions calling for reimbursement—a notable absence considering the express requirement to reimburse H-2A workers for these fees and to reimburse H-2B workers for outbound travel home—and rejected the Department of Labor’s interpretation as a post hoc rationalization in the context of active litigation. It remains to be seen whether this decision creates a true split of authority between the Fifth and Eleventh Circuit’s, or whether the H-2A/H-2B distinction is sufficient to harmonize the opinions.

Ashe, Rafuse & Hill

1 In addition to the merits dispute, the parties disagreed on the exercise of appellate jurisdiction. This issue, decided 12-2, was not nearly as contentious. The plaintiffs argued that the only question certified was whether the FLSA applied to them—not whether the expenses were reimbursable. The majority disagreed, holding that “[u]nder § 1292(b), it is the order, not the question, that is appealable.” Id. at 6 (citation omitted). Since the summary judgment order necessarily involved the consideration of the potential reimbursement of expenses, it was the proper subject of interlocutory review.

2 Without trying to oversimplify the differences, H-2A workers are defined as those performing agricultural labor and services while H-2B workers are defined as those performing non-agricultural labor or services. 8 U.S.C. § 1101(a)(15)(H)(ii)(a).

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