Second Circuit Examines Pleading Requirements for FLSA Overtime Claims, Rejects FLSA “Gap-Time” Claims

The U.S. Court of Appeals for the Second Circuit recently ruled that a group of current and former employees of New York area hospitals and health care systems may be able to plead statutory overtime claims for alleged off-the-clock work, as well as some common law claims, but could not maintain a “gap-time” claim under the Fair Labor Standards Act (“FLSA”).  Nakahata v. New York-Presbyterian Healthcare System, Inc., __ F.3d __, 2013 WL 3743152 (2d Cir. July 11, 2013).

In four lawsuits filed against more than thirty hospitals, health care systems, corporate heads, and related entities, the plaintiffs alleged that they were regularly required to (1) work during meal breaks even though defendants had a policy of automatically deducting time allotted for such breaks from the plaintiffs’ paychecks, (2) engage in work activities both before and after their shift without compensation, and (3) attend training sessions for which they were not compensated.  The plaintiffs sought to recover the allegedly unpaid compensation pursuant to the FLSA, New York Labor Law (“NYLL”), and New York common law.  Plaintiffs further alleged that their paychecks were misleading and part of a fraudulent scheme to disguise the underpayment in violation of the Racketeer Influenced and Corrupt Organizations Act (“RICO”) and New York common law.  The United States District Court for the Southern District of New York granted the defendants’ motions to dismiss, and disposed of each complaint in its entirety.

On appeal, the Second Circuit found as an initial matter that the allegations regarding the plaintiffs’ overtime claims lacked the requisite specificity.  Citing its recent decision in Lundy v. Catholic Health System of Long Island Inc., 711 F.3d 106 (2d Cir. 2013), the Court of Appeals held that “[t]o plead a plausible FLSA overtime claim, plaintiffs must provide sufficient detail about the length and frequency of their unpaid work to support a reasonable inference that they worked more than forty hours in a given week.”  Absent allegations that the plaintiffs were scheduled to work more than forty hours per week, the overtime claims were insufficiently pleaded.

However, the Second Circuit also determined that the district court abused its discretion by not allowing the employees an opportunity to amend their complaints before entering final judgment in the case.  Though, notwithstanding the district court’s dismissal of their suits, the plaintiffs remained free to re-file new actions alleging the same basic FLSA and NYLL violations, the error was not harmless, as the plaintiffs lost the opportunity to pursue some claims that had become time-barred.  The Court of Appeals therefore remanded the FLSA and NYLL overtime claims back to the district court to allow the plaintiffs an opportunity to file amended complaints stating plausible overtime pay claims, if possible.

As to the plaintiffs’ gap-time claims, the Second Circuit, again relying on Lundy, noted that the FLSA does not provide a cause of action for unpaid time worked under forty hours per week, or gap-time, provided the alleged uncompensated time does not drop employees’ remuneration below the minimum wage, as the FLSA “is unavailing where wages do not fall below the statutory minimum and hours do not rise above the overtime threshold.”  Although the Court of Appeals upheld the lower court’s dismissal of the plaintiffs’ gap-time claims under the FLSA, it at the same noted “that a gap-time claim would be consistent with the language of NYLL § 663(1), which states that ‘if any employee is paid by his or her employer less than the wage to which he or she is entitled he or she shall recover in a civil action the amount of any such underpayments.’”  Accordingly, the Second Circuit remanded the plaintiffs’ NYLL gap-time claim to be considered in light of any amended pleadings.

The Second Circuit then considered the plaintiffs’ contention that the district court improperly dismissed their common law claims as preempted by the applicable collective bargaining agreements and Section 301 of the Labor-Management Relations Act.  Without resolving the merits of the preemption issue, the Circuit Court reversed on the ground that the district court erred by considering materials outside the pleadings, namely the collective bargaining agreements attached by the defendants to their dismissal motions.

Finally, the Second Circuit affirmed the dismissal of the plaintiffs’ claims accusing the defendants of committing mail fraud in violation of RICO because, rather than perpetuating a fraud, the paychecks “would have revealed (not concealed) that plaintiffs were not being paid for all of their alleged compensable overtime.”

This was the second time in a matter of months that the Second Circuit addressed the pleading requirements for FLSA overtime claims and rejected gap-time claims under the FLSA.  Nakahata applies the holding of Lundy that, so long as wages do not fall below the statutory minimum, employees do not have a claim for uncompensated hours under forty per week pursuant to the FLSA.  In Lundy, the Second Circuit held that employees must plead “some” amount of uncompensated but compensable time worked over 40 hours in a week in order to state a cognizable FLSA overtime claim, while leaving open the possibility, depending on the case, that employees may need to also plead an approximation of overtime hours.  Nakahata clarifies that plaintiffs need only provide sufficient detail about the “length and frequency of their unpaid work.”

Lawrence Peikes

Caroline Park

Wiggin and Dana LLP

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