The opinion
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
JULIE A. SU,
Acting Secretary of Labor, Department of
Labor,
23-cv-2119 (NRM) (MMH)
Plaintiff,
MEMORANDUM AND ORDER
v.
ADVANCED CARE STAFFING, LLC,
PRIORITY CARE STAFFING, LLC, and
SAM KLEIN, an individual,
Defendants.
NINA R. MORRISON, United States District Judge:
Plaintiff Julie A. Su, Acting Secretary of Labor (“Department of Labor” or
“DOL”) brings this suit against Advanced Care Staffing, LLC (“ACS”), Priority Care
Staffing, LLC (“PCS”), and the CEO of both ACS and PCS (and owner of PCS), Samuel
Klein (collectively “Defendants”). See Am. Compl. at ¶¶ 15–46, ECF No. 19. ACS and
PCS are staffing agencies that recruit healthcare workers, sometimes from abroad,
to work at medical facilities. Id. at ¶¶ 47, 56, 65. DOL alleges that Defendants
require employees to sign contracts that require a three-year work commitment. Id.
at ¶ 1. If employees leave their employment before the term expires, the contracts
entitle Defendants to recover, among other things, “loss of anticipated profits” from
employees. Id. at ¶¶ 79, 131. DOL contends that this provision violates the Fair
Labor Standards Act (“FLSA”) by converting employees’ wages “into nothing more
than a loan that employees must repay with interest and fees, leaving some
employees with no compensation at all, much less the wages required by the FLSA.”
Id. at ¶ 1.
Defendants move to dismiss on three grounds: (1) DOL lacks standing because
the employees whose interests it seeks to vindicate in this litigation have not suffered
any injury; (2) DOL fails to state a plausible claim because it does not allege that any
employee has received less than the minimum wage or overtime wage the FLSA
requires; and (3) DOL fails to state a plausible claim because potential breach of
contract damages do not constitute “kick-backs” of earned wages under the
FLSA. Mem. of L. in Supp. of Mot. to Dismiss (“Opening Br.”), ECF No. 28-1. For
the reasons to follow, the Court denies Defendants’ motion to dismiss.
BACKGROUND
I. Complaint
On March 20, 2023, DOL commenced the instant action against ACS and Sam
Klein. Compl., ECF No. 1. DOL filed an amended complaint on July 20, 2023, which
added claims against PCS. See Am. Compl. DOL’s amended complaint (hereinafter
“Complaint”) alleges the following facts.1
1 Defendants submitted various exhibits in support of their motion to dismiss,
including Vidal’s and Miclat’s employment agreements, emails between Defendants
and Vidal, and the arbitration demands against Vidal and Miclat. Because courts
can consider documents that a plaintiff relies on in drafting the complaint, Chambers
v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2002), and the parties agree that
these documents were “relied on in the Complaint,” Mem. of L. in Opp’n to Mot. to
Dismiss (“Opp’n Br.”) at 16 n.11, ECF No. 29, the Court considers Defendants’
exhibits. Accordingly, where relevant, the Court incorporates facts drawn from the
exhibits to Defendants’ motion to dismiss in its summary of the allegations in DOL’s
Complaint.
ACS and PCS (collectively, the “Staffing Companies”) are staffing agencies that
recruit and place healthcare workers in positions at medical facilities. Am. Compl.
at ¶¶ 47, 56. The companies share management, follow the same hiring practices,
and use identical contracts. Id. at ¶ 64. They also use the same international
department that recruits nurses from the Philippines and elsewhere to work for the
companies. Id. at ¶ 65.
As relevant here, the Complaint includes the following allegations as to the
Staffing Companies’ contracts and employment practices, which the Court accepts as
true for purposes of deciding Defendants’ motions to dismiss.
A. Allegations as to ACS
In or around 2019, ACS began recruiting Benzor Vidal from the Philippines to
work as a registered nurse in the United States. Id. at ¶¶ 71, 77. Before Vidal moved
to the United States, he signed a contract with ACS. Vidal first signed a contract
that contained a $20,000 liquidated damages clause in the event he stopped working
for ACS prior to a three-year contract term. Id. at ¶ 73. In 2022, shortly before
moving to the United States to work for ACS, Vidal signed a new contract, which
superseded the earlier contract. Id. at ¶¶ 72–73. According to Klein, who sent Vidal
the contract, the 2022 contract “allows for recovery of whatever damages are proven
(which might be higher or lower than the amount specified in the older version).” Id.
at ¶ 76.
The 2022 contract includes provisions stating that ACS will prepare, submit,
and pay for an employment-based immigrant visa petition for Vidal, ACS Contract at
3, ECF No. 28-2, and advance Vidal certain costs relating to relocating and working
as a nurse, id. at 4. However, the contract states that if Vidal fails to complete a
three-year term of employment without “Good Reason,” ACS intends to recover
expenses relating to the visa petition and advanced costs, as well as “loss of profits
(reflecting not only loss of anticipated profits under this Agreement but also resulting
from the impact on Employer’s relationship with its Clients).” Id. at 7. The contract
defines “Good Reason” as “a failure by Employer to correct a material breach” of the
contract provisions requiring ACS to pursue an employment-based visa and pay
wages within 35 days of receiving written notice of such breach. Id. The contract
further states that nearly any dispute between ACS and Vidal “shall be resolved by
arbitration” administered by the American Arbitration Association (“AAA”) under its
Commercial Arbitration Rules. Id. at 12. The contract entitles the prevailing party
in the arbitration to “reasonable attorney’s fees as well as all costs and fees charged
by the AAA and the arbitrator,” id., and requires Vidal to “reimburse [ACS] for all
reasonable costs, including all attorneys’ fees that Employer incurs in enforcing its
rights and remedies,” id. at 8.
Vidal signed the contract and began working at Downtown Brooklyn Nursing
and Rehabilitation Center (“DBNRC”) on or about March 8, 2022. Am. Compl. at ¶
87. During his tenure at DBNRC, Vidal raised concerns about the working conditions
at the facility to both ACS and DBNRC. Id. at ¶ 89. “[F]aced with a good-faith belief
that he could not continue to work under” those conditions, Vidal then notified ACS
on June 15, 2022, that he was resigning, effective June 29, 2022. Id. at ¶ 91. Vidal’s
resignation letter “reiterated his serious safety concerns associated with the working
conditions” and cited physical and mental health effects he attributes to those
conditions. Id. at ¶ 92.
ACS sent Vidal a letter on June 22, 2022, demanding that Vidal continue to
work and threatening that if he stopped working, ACS would initiate an arbitration,
begin to incur arbitration costs and attorneys’ fees which it would then seek to
recover, and seek over $9,000 in future profits per year through the remainder of
Vidal’s three-year term (which DOL estimates would amount to over $24,000). Am.
Compl. at ¶¶ 95–99; Letter dated June 22, 2022 (“June 22 Letter”), ECF No. 28-
3. The $24,000 amount alone is equal to, if not more than, the amount Vidal earned
during his entire period of employment with ACS. Am. Compl. at ¶ 99.
Then, on July 8, 2022, ACS filed an arbitration demand against Vidal, which
demanded “all available damages, including, without limitation, [ACS’s] Advanced
Costs and lost profits; reasonable attorneys’ fees; cost of arbitration;” and “interest in
accordance with New York Law.” Vidal Arbitration Demand at 7, ECF No. 28-7. In
terms of the arbitration costs, ACS incurred a $1,900 filing fee and a $750 case
management fee in connection with the arbitration against Vidal, and the hourly rate
of the appointed arbitrator was stated to be $450/hour. Am. Compl. at ¶¶ 103–04.
On the week ending April 9, 2022, Vidal worked overtime and was paid
$1,480.50 in gross wages for 40.75 hours. Id. at ¶ 110. During his last week of work,
Vidal earned $839.04 in gross wages for 22.08 hours. Id. at ¶ 105. Vidal was paid
$20,372.90 in gross wages for the 512.51 total hours he worked at ACS. Id. at ¶¶
108–09. If ACS’s future profits, attorneys’ fees, arbitration costs, and interest were
deducted from those earnings, his net wages would be below the FLSA minimum
wage rate for his final week of work, and below the FLSA minimum wage and
required overtime rate for his entire period of employment. Id. at ¶¶ 106–07.
According to the Complaint, “ACS and Klein have a policy and practice of
entering into contracts with employees with identical or substantially similar
contract provisions to the 2022 contract with Vidal,” and, “[o]n information and belief,
ACS has followed through on those contracts by clawing back former employees’
wages, obtaining the return of those wages and bringing employees’ compensation
below the levels required by FLSA.” Id. at ¶¶ 112–13.
B. Allegations as to PCS
The Staffing Companies recruited Cherry Lyn Miclat from the Philippines to
work as a registered nurse in the United States. Id. at ¶ 115. Like Vidal, Miclat first
signed a contract with ACS in 2019 that included a $20,000 liquidated damages
clause. Id. at ¶ 118. In 2021, Klein sent Miclat a new contract on behalf of PCS with
virtually identical terms to the 2022 contract that Vidal signed with ACS. Id. at ¶¶
122–36. Klein told Miclat, like he told Vidal, that the new contract “allows for
recovery of whatever damages are proven (which might be higher or lower than the
amount specified in the older version).” Id. at ¶ 128.
Miclat began to work for PCS at Morningside Nursing and Rehabilitation
Center (“MNRC”) on March 1, 2022, where she quickly received an enormous
workload without sufficient help or training. Id. at ¶ 139. Miclat repeatedly
complained about the unsafe and unreasonable conditions at MNRC to PCS and
MNRC staff and unsuccessfully requested to be transferred to other facilities. Id. at
¶¶ 141–50. Eventually, based on these concerns, she resigned on October 27, 2022.
Id. at ¶¶ 151–53. Miclat last worked for PCS on November 19, 2022. Id. at ¶ 154.
PCS filed an arbitration demand against Miclat on December 5, 2022,
demanding “all available damages, including, without limitation, [PCS’s] Advanced
Costs and lost profits; reasonable attorneys’ fees; cost of arbitration” and “interest in
accordance with New York Law.” Miclat Arbitration Demand at 8, ECF No. 28-5. As
part of those arbitration costs, PCS incurred a $2,200 filing fee in connection with the
arbitration and, if the arbitration proceeds, will incur a $750 case management
fee. Am. Compl. at ¶ 157.
On the weeks ending June 25, 2022, July 23, 2022, and November 12, 2022,
Miclat worked overtime. Id. at ¶¶ 161–63. In those weeks, she earned $2,987.18 in
gross wages for 65.74 hours, $2,994.59 in gross wages for 65.87 hours, and $2,166.95
in gross wages for 51.35 hours, respectively. Id. And in her last week of work, Miclat
was paid $1,385.10 in gross wages for 36.45 hours of work. Id. at ¶ 159. The “demand
that Miclat kick back her wages to satisfy PCS’s future profits through February
2025, together with PCS’s attorneys’ fees and arbitration costs, plus interest, would
bring Miclat below the FLSA minimum wage during her final workweek.” Id. at ¶
160.
As with ACS, the Complaint alleges that “PCS and Klein have a policy and
practice of entering into contracts with employees with identical or substantially
similar contract provisions to the 2021 contract with Miclat,” and, “[o]n information
and belief, PCS has followed through on those contracts by clawing back former
employees’ wages, obtaining the return of those wages and bringing employees’
compensation below the levels required by the FLSA.” Id. at ¶¶ 165–66.
C. Causes of Action and Prayer for Relief
Based on the foregoing allegations, DOL alleges that Defendants violated
Section 6(a) of the FLSA, which requires every employer engaged in commerce to pay
their employees minimum wage, 29 U.S.C. § 206(a), and Section 7(a) of the FLSA,
which requires employers to pay employees at a rate of at least one and one-half times
the regular rate at which he is employed if the employee works more than forty hours
per week, 29 U.S.C. § 207(a). Id. at ¶¶ 167–72. The FLSA wage requirements will
not be met “where the employee ‘kicks-back’ . . . to the employer . . . for the employer’s
benefit the whole or part of the wage delivered to the employee,” and unless wages
“are paid finally and unconditionally or ‘free and clear.’” 29 C.F.R. § 531.35. DOL
contends that by demanding employees pay Defendants damages that account for
anticipated future profits, arbitration costs, and attorneys’ fees upon their early
departure from employment, Defendants are illegally requiring the employees to
“kick-back” wages, which brings their wages below the FLSA minimum and overtime
wage requirements. Am. Compl. at ¶¶ 168, 171.
DOL seeks a declaration that Defendants’ contract violates the FLSA,
injunctive relief permanently restraining Defendants from violating Sections 6, 7,
11(c), 15(a)(2), and 15(a)(5) of FLSA, and award of damages. Id. at 22–23.
II. Related Proceedings
Vidal and Miclat have filed separate actions against Defendants based on
many of the same facts underlying this case. See Complaint, Vidal v. Advanced Care
Staffing, LLC, No. 22-cv-5535, ECF No. 1 (E.D.N.Y. Sept. 16, 2022); Complaint,
Miclat v. Advanced Care Staffing, LLC et al, No. 23-cv-5296, ECF No. 1 (E.D.N.Y.
July 12, 2023). The Court granted a preliminary injunction pausing the arbitration
brought against Vidal by ACS. Vidal v. Advanced Care Staffing, LLC, No. 22-cv-
05535, 2023 WL 2783251, at *1 (E.D.N.Y. Apr. 4, 2023). PCS then “voluntarily
entered into a stay of Miclat’s pending arbitration in light of the proceedings in
Vidal.” Mot. to Stay at 1, Miclat v. Advanced Care Staffing, LLC et al, 23-cv-5296,
ECF No. 15 (E.D.N.Y. Aug. 9, 2023). The Second Circuit has since affirmed this
Court’s entry of a preliminary injunction in Vidal’s case, see Vidal v. Advanced Care
Staffing, LLC, No. 23-303, 2024 WL 980634, at *2 (2d Cir. Mar. 7, 2024), and the
arbitrations against Vidal and Miclat remain paused.
III. Motion to Dismiss
On September 28, 2023, Defendants filed a fully briefed motion to dismiss
based on lack of subject matter jurisdiction and failure to state a claim. See Mot. to
Dismiss, ECF No. 28; Mem. of L. in Opp’n to Mot. to Dismiss (“Opp’n Br.”), ECF No.
29; Reply Br., ECF No. 30. Defendants argue that the Complaint should be dismissed
for lack of subject matter jurisdiction under Rule 12(b)(1), and for failure to state a
claim under Rule 12(b)(6).
LEGAL STANDARD
“In considering a facial motion to dismiss [for lack of Article III standing] under
Rule 12(b)(1), the Court must ‘determine whether the [complaint] alleges facts that
affirmatively and plausibly suggest that the plaintiff has standing to
sue.’” Bloomberg Fin. L.P. v. UBS AG, 358 F. Supp. 3d 261, 277 (S.D.N.Y. 2018)
(quoting Carter v. HealthPort Techs., LLC, 822 F.3d 47, 56–57 (2d Cir. 2016)). “The
Court must accept as true all material factual allegations of the complaint and draw
all reasonable inferences in favor of the plaintiff.” Id. (cleaned up). Moreover, to
demonstrate Article III standing, the party invoking federal jurisdiction must
plausibly plead (1) an injury in fact; (2) a causal connection between the injury and
conduct complained of; and (3) that it is likely that the injury will be redressed by a
favorable decision. Id. “At the pleading stage, general factual allegations of injury
resulting from the defendant’s conduct may suffice, for on a motion to dismiss,” the
court presumes “‘that general allegations embrace those specific facts that are
necessary to support the claim.’” Lujan v. Defs. of Wildlife, 504 U.S. 555, 561 (1992)
(quoting Lujan v. Nat’l Wildlife Fed’n, 497 U.S. 871, 889 (1990)).
To survive a 12(b)(6) motion to dismiss, a plaintiff “must plead facts sufficient
to show that her claim has substantive plausibility.” Johnson v. City of Shelby, Miss.,
574 U.S. 10, 12 (2014). When considering a motion to dismiss under Rule 12(b)(6) for
failure to state a claim, the court “accept[s] as true all factual statements alleged in
the complaint and draw[s] all reasonable inferences in favor of the non-moving
party.” McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 191 (2d Cir. 2007).
DISCUSSION
Defendants bring three arguments as to why DOL’s claims should be
dismissed. They argue that (1) DOL lacks standing to bring its claims because it does
not allege a concrete and particularized harm, Opening Br. at 9–13; (2) DOL’s
Complaint fails to state a plausible claim because it does not allege that any employee
actually received less than the minimum wage or overtime wage required by the
FLSA, id. at 14–18; and (3) DOL’s Complaint fails to state a plausible claim because
potential breach of contract damages are not “kick-backs” of earned wages, id. at 18–
26. Because the Court finds each of these arguments unavailing, it denies
Defendants’ motion.
I. Standing
As mentioned above, to demonstrate Article III standing, a party must
plausibly plead (1) an injury in fact; (2) a causal connection between the injury and
conduct complained of; and (3) that it is likely that the injury will be redressed by a
favorable decision. Lujan, 504 U.S. at 560–61. Defendants argue that DOL’s
Complaint must be dismissed for lack of subject matter jurisdiction because it cannot
demonstrate that the employees whose interests it asserts in this litigation have
suffered an injury in fact, the first of three required elements for establishing
standing.
According to Defendants, neither Vidal nor Miclat has suffered any concrete
injury because their arbitrations have not gone forward and, as a result, they have
not been required to pay Defendants any sum of money. Instead, Defendants point
out that a number of uncertain events must occur before Vidal and Miclat suffer an
FLSA violation: (1) an arbitration would have to proceed; (2) Defendants would have
to prevail at arbitration; (3) Defendants would have to prove damages; and (4) those
damages would have to bring Vidal’s and Miclat’s wages under FLSA-required
minimums. Defendants argue that this chain of events is too speculative to satisfy
Article III standing.
DOL contends that this argument fails for two reasons. First, DOL argues that
it has standing because it is enforcing federal law under Article II; and (2) even if the
traditional standing requirements apply to DOL, its Complaint can satisfy them. The
Court addresses each argument in turn.
A. DOL Has Standing to Enforce the FLSA on Behalf of the
Aggrieved Employees
DOL first argues that Defendants’ challenge to DOL’s standing under the
three-part Article III test that applies to private plaintiffs is the wrong framework.
It argues instead that it has standing to bring suit because it is exercising its
authority under Article II of the U.S. Constitution, which Congress recognized when
enacting the FLSA. DOL points to the text of the FLSA itself, which specifically
confers upon DOL the authority to “bring an action in any court of competent
jurisdiction to recover” unpaid minimum wages or overtime compensation and
liquidated damages, 29 U.S.C. § 216(c), and the exclusive authority to seek
injunctions restraining violations of the FLSA, 29 U.S.C. §§ 211(a), 217.
In support of this argument, DOL cites TransUnion LLC v. Ramirez, 594 U.S.
413, 429 (2021), wherein the Supreme Court described the Article III injury
requirement for private plaintiffs as distinct from the Executive Branch’s Article II
authority. The Court explained that requiring private plaintiffs to demonstrate an
injury in fact prevents infringement “on the Executive Branch’s Article II authority”
to determine “how to prioritize and how aggressively to pursue legal actions against
defendants who violate the law” because, unlike the Executive Branch, “[p]rivate
plaintiffs are not accountable to the people and are not charged with pursuing the
public interest in enforcing a defendant’s general compliance with regulatory law.”
Id. (citing Lujan v. Defenders of Wildlife, 504 U.S. at 577). Put differently, because
the U.S. Constitution charges the Executive with “tak[ing] Care that the Laws be
faithfully executed,” U.S. Const. art. II, § 3, the Executive has “a judicially cognizable
interest in the enforcement and defense of federal law,” Tara Leigh Grove, Standing
Outside of Article III, 162 U. Pa. L. Rev. 1311, 1322 (2014). As such, “the executive
may assert in court the federal government’s sovereign interests without satisfying
the injury, causation, or redressability requirements that the judiciary applies to
other actors.” Id.
Defendants dispute DOL’s claim that the FLSA’s text confers standing on DOL
here. Notably, however, Defendants have been unable to point to a single case—in
their briefing or at oral argument — in which any court has held that, despite the
FLSA’s express delegation of authority to DOL to bring enforcement actions, DOL
must nevertheless satisfy the traditional Article III standing requirements. Nor have
Defendants been able to locate any other case in which a party has even challenged
DOL’s standing to seek relief on behalf of aggrieved employees in an FLSA
enforcement action, as Defendants do here.
In the absence of such authority, and in light of the Executive’s “constitutional
duty[] to ‘take Care that the Laws be faithfully executed,’” Lujan, 504 U.S. at 577
(quoting U.S. Const. art. II, § 3), the Court declines Defendants’ invitation to impose
additional constraints on the authority Congress has expressly given DOL to bring
suit to enforce the FLSA.
Defendants’ challenge to DOL’s standing thus fails. In an abundance of
caution, however, the Court proceeds to consider whether DOL satisfies the
traditional Article III standing requirements—and specifically whether Defendants
are correct in claiming that the employees described in the complaint have suffered
no “injury” sufficient to confer standing.
B. The Complaint Plausibly Alleges an Injury to Defendants’
Employees Sufficient to Confer Standing
DOL argues that it has standing because, in the alternative, it satisfies the
injury requirements “more generally applicable to private plaintiffs.” Opp’n Br. at 5.
DOL contends that the employees on whose behalf it brings the lawsuit can establish
“injury in fact.” Spokeo, Inc. v Robins, 578 U.S. 330, 339 (2016). The Court agrees
that DOL has standing under the traditional Article III framework.
To start, the Complaint alleges sufficient facts regarding the threat of future
injury to Vidal and Miclat to satisfy standing for injunctive and declaratory relief.
“Standing under Article III of the Constitution requires that an injury be concrete,
particularized, and actual or imminent[.]” Monsanto Co. v. Geertson Seed Farms, 561
U.S. 139, 149 (2010). “Although imminence is concededly a somewhat elastic concept,
it cannot be stretched beyond its purpose, which is to ensure that the alleged injury
is not too speculative for Article III purposes — that the injury is certainly
impending.” Clapper v. Amnesty Int’l USA, 568 U.S. 398, 409 (2013) (citation
omitted). Therefore, “[a]n allegation of future injury may suffice if the threatened
injury is certainly impending, or there is a substantial risk that the harm will occur.”
Susan B. Anthony List v. Driehaus, 573 U.S. 149, 158 (2014) (cleaned up). Moreover,
where “plaintiffs seek declaratory and injunctive relief,” they “must show [they are]
suffering an ongoing injury or face[] an immediate threat of injury” to satisfy Article
III standing. Dearth v. Holder, 641 F.3d 499, 501 (D.C. Cir. 2011) (citation omitted).2
While the arbitration proceedings against Vidal and Miclat have not yet
occurred, the Complaint alleges a chain of events indicating that the injury DOL
complains of is imminent. Specifically, DOL alleges that: Vidal and Miclat signed
contracts entitling Defendants to recoup lost profits and other costs and fees if they
terminated their employment without “Good Reason” prior to a three-year term of
employment; Vidal and Miclat did terminate their employment agreements prior to
the three-year contract term; ACS wrote Vidal a letter threatening to seek damages
of at least $24,000 if he followed through with his resignation; Defendants initiated
arbitrations against both Vidal and Miclat alleging that they terminated their
employment without “Good Reason” and seeking lost profits, attorneys’ fees, costs of
2 Declaratory Judgment Act actions “are justiciable only in cases in which an
‘actual controversy’ exists,” and “[t]he relevant inquiry for this prerequisite is
coextensive with the analysis applicable to the ‘case or controversy’ standard
embodied in Article III of the United States Constitution.” Dow Jones & Co. v.
Harrods, Ltd., 237 F. Supp. 2d 394, 406 (S.D.N.Y. 2002). Therefore, the Court
assesses DOL’s standing to seek injunctive and declaratory relief in tandem.
arbitration, and interest; and, if Vidal and Miclat were required to pay those
damages, their net wages would be brought below what the FLSA requires. DOL also
alleges that Defendants “have a policy and practice of entering into,” Am. Compl. at
¶¶ 112, 165, such contracts with employees, and have previously followed through on
these contracts by “clawing back” former employees’ wages, id. at ¶¶ 113, 166. Taken
together, these allegations create a “substantial risk that the harm” at issue here —
that Defendants’ employees will not be paid their statutorily-required wages free and
clear — “will occur.” Susan B. Anthony List, 573 U.S. at 158 (citation omitted).
Despite Defendants’ assertions otherwise, the uncertainty associated with the
outcome of the arbitration proceedings does not render Vidal’s and Miclat’s injuries
impermissibly attenuated. Indeed, courts have consistently found the injury in fact
requirement satisfied where plaintiffs’ injuries might hinge on future legal
proceedings. For example, courts have found that plaintiffs who are seeking a
declaratory judgment relating to a proceeding that has not yet been filed have shown
“a sufficient likelihood of future injury” based on that future proceeding. Gov’t Emps.
Ins. Co. v. Saco, No. 12-cv-5633, 2014 WL 639419, at *8 (E.D.N.Y. Feb. 14, 2014); see
also Maryland Cas. Co. v. Pac. Coal & Oil Co., 312 U.S. 270, 274 (1941).
Additionally, the Second Circuit has reached the same conclusion in an
employment-related case. In Xin Wei Lin v. Chinese Staff & Workers’ Association,
No. 11-cv-3944, 2012 WL 5457493, at *1 (S.D.N.Y. Nov. 8, 2012), plaintiffs brought
claims against labor organizations based on “contracts in which [p]laintiffs promised
to pay [the labor organizations] portions of any recovery that [p]laintiffs received from
lawsuits against their employers[.]” On appeal, the Second Circuit determined that
the plaintiffs had “alleged a sufficient likelihood of future injury stemming from”
those contracts. Xin Wei Lin v. Chinese Staff & Workers’ Ass’n, 527 F. App’x 83, 87
(2d Cir. 2013) (unpublished). The plaintiffs had not yet paid the labor organizations
the amounts owed under some of those agreements, and the labor organizations had
not brought suit to enforce the agreements. Yet the Court found that the plaintiffs’
allegations of the organizations’ efforts to collect the payments rendered the
likelihood of future injury “more than hypothetical or conjectural, and sufficiently
concrete and imminent to create standing for declaratory and injunctive relief.” Id.
Similarly, in Ketner v. Branch Banking & Trust Co., 143 F. Supp. 3d 370, 375
(M.D.N.C. 2015), plaintiffs disputed their former employer’s requirement that they
repay costs for a mandatory training associated with their employment if they
resigned before completing a five-year term of employment. The defendant moved to
dismiss for lack of standing because the plaintiff had “not repaid any portion of his
loan obligation.” Id. at 382. Because the plaintiff alleged that the former employer
had demanded payment, threatened legal action, and enforced the repayment
agreement against other former employees, the court concluded that the plaintiff’s
injury was “neither speculative or hypothetical” but based on “an objective and
reasonable apprehension of future litigation.” Id. at 383 (citation omitted).
So too, here. Defendants have taken concrete steps to recoup the costs owed to
them pursuant to the employment agreements signed by Vidal and Miclat. Beyond
merely threatening litigation as the defendants did in Xin Wei Lin and Ketner,
Defendants initiated arbitrations against both Vidal and Miclat.3 While those
arbitrations are presently stayed due to a court order in parallel litigation,
Defendants have made no indication that they will not seek to proceed with the
arbitrations absent such judicial intervention. Accordingly, the likelihood of future
injury in this case is “sufficiently concrete and imminent to create standing for
declaratory and injunctive relief.” Xin Wei Lin, 527 F. App’x at 87.
It is true that the specific harms DOL alleges have been suffered by Vidal and
Miclat to date can only be redressed by injunctive or declaratory relief. At present,
because Vidal and Miclat (unlike the other unnamed employees in the complaint)
have not paid Defendants the breach of contract damages that Defendants are
seeking through arbitration, “an award of money damages will not redress” their
injuries, and “they lack standing for such claims.” Id. at 87. But “[t]he FLSA grants
the Secretary of Labor the right ‘to bring an action by or on behalf of any employee’
to recover unpaid minimum wages or overtime compensation.” Solis v. SCA Rest.
Corp., 938 F. Supp. 2d 380, 394 (E.D.N.Y. 2013) (quoting 29 U.S.C. § 216(c)). And
here, DOL also brings this lawsuit on behalf of certain unnamed former employees
who were subject to similar treatment as Vidal and Miclat, and whose wages
3 Defendants’ assertion that any injury to Vidal and Miclat is too speculative
because damages would have to be determined by an arbitrator, Opening Br. at 21;
Reply Br. at 16 n.3, is a red herring. While the defendants in Xin Wei Lin and Ketner
sought concrete amounts of money from the plaintiffs, an adjudicator in those cases
would still have had to determine that the defendants’ demands could be enforced
before the employees were required to make any payments. That an arbitrator,
rather than another adjudicator, would determine liability and the precise amount of
damages in this case is a distinction without a difference.
Defendants allegedly “followed through with clawing back . . ., obtaining the return
of those wages and bringing employees’ compensation below the levels required by
the FLSA.” Am. Compl. at ¶¶ 5, 7.4 The harm that DOL alleges as to those employees
— namely, that their compensation has been reduced to below the levels protected by
the FLSA because Defendants have already succeeded in unlawfully “clawing back”
their wages — is “concrete, particularized, and actual.” Thole v. U. S. Bank N.A, 140
S. Ct. 1615, 1618 (2020). Accordingly, DOL has standing to pursue the monetary
damages allegedly owed to these employees under the FLSA.
II. Failure to Allege FLSA Violations
Defendants also seek to dismiss DOL’s Complaint for failure to state a claim.
DOL brings two causes of action under the FLSA. First, it claims that Defendants
violate Sections 6(a) and 15(a)(2) of the FLSA, which require employers to pay
employees certain minimum wages. See 29 U.S.C. § 206(a). Second, it claims that
4 To the extent Defendants contend that the Court must ignore DOL’s
allegations as to the unnamed employees because they are not sufficiently specific,
this Court disagrees. While the Second Circuit has set forth certain requirements for
pleading FLSA claims, it has also held that “[w]hat aspects of Plaintiffs’ position, pay,
or dates of employment are necessary to state a plausible claim for relief consistent
with [those requirements] is a case-specific inquiry for the trial court.” Nakahata v.
New York-Presbyterian Healthcare Sys., Inc., 723 F.3d 192, 201 (2d Cir. 2013)
(emphasis in original). Here, the Court concludes that the specific allegations as to
Vidal and Miclat, together with DOL’s allegations that Defendants engaged in a
broad practice of entering into similar contracts with other employees, render the
allegations as to the unnamed employees plausible at this juncture. Acosta v. A.C.E.
Rest. Grp., Inc., No. 15-cv-7149, 2017 WL 2539387, at *2 (D.N.J. June 12, 2017)
(concluding that the Secretary of Labor’s complaint “satisfie[d]” the FLSA overtime
“pleading standard by alleging examples of dates and times when employees worked
in excess of forty hours in a work week without the benefit of overtime compensation.”
(emphasis supplied)); Su v. Ernie’s Auto Detailing Inc., No. 20-cv-17785, 2023 WL
8643794, at *3 (D.N.J. Dec. 14, 2023) (similar).
Defendants violate Sections 7(a) and 15(a)(2) of the FLSA, which require employers
to pay employees certain overtime wages if the employees work over forty hours in a
week. See 29 U.S.C. § 207(a). “To state an FLSA minimum wage claim, it is sufficient
for a plaintiff to allege facts about her salary and working hours, such that a simple
arithmetical calculation can be used to determine the amount owed per pay period.”
Lopez-Serrano v. Rockmore, 132 F. Supp. 3d 390, 402 (E.D.N.Y. 2015) (cleaned up).
And “to state a plausible FLSA overtime claim, a plaintiff must sufficiently allege 40
hours of work in a given workweek as well as some uncompensated time in excess of
the 40 hours.” Lundy v. Cath. Health Sys. of Long Island Inc., 711 F.3d 106, 114 (2d
Cir. 2013).
Defendants argue that, for similar reasons that DOL lacks standing, it fails to
state a claim for violations of these FLSA provisions. That is, “[b]ecause DOL does
not allege that Defendants paid their employees less than minimum wage or the
overtime wages to which they are entitled, its Amended Complaint should be
dismissed.” Opening Br. at 14.
In their motion to dismiss, Defendants contend that DOL’s claims fail because
it has only made allegations regarding Vidal’s and Miclat’s earnings—it has not
alleged that those earnings have “been reduced below the FLSA floor.” Opp’n Br. at
18. However, the string of cases Defendants cite in support of that proposition are
distinguishable. In those cases, the plaintiffs alleged that their employers had
already failed to pay them what the FLSA requires but failed to show that the actual
wages they received were less than what the FLSA requires. Those plaintiffs failed,
for example, to demonstrate that they were, in fact, paid below FLSA minimums,
Marcial v. New York Hudson Fam. Rest. Inc., No. 18-cv-0663, 2019 WL 1900336, at
*6 (S.D.N.Y. Apr. 29, 2019), or to allege their earnings with specificity, e.g., Walsh v.
Lalaja, 565 F. Supp. 2d 766, 772 (E.D.N.C. 2021).
Here, by contrast, DOL is not alleging that Defendants set an hourly pay rate
or otherwise failed to pay Vidal and Miclat what the FLSA requires in the first
instance. Rather, DOL alleges that Defendants are pursuing damages in arbitrations
that, if obtained, would bring Vidal’s and Miclat’s take-home wages below FLSA
minimums. Unlike the plaintiffs in Defendants’ cited cases, DOL pleads specific facts
about the hours Vidal and Miclat worked during particular weeks, what they were
paid for those weeks, the amounts of money Defendants are seeking to recoup from
them through arbitration, and the effect that would have on their wages.5
5 Specifically, DOL alleges that Vidal was paid $20,372.90 in gross wages for
his entire period of employment (for a total of 512.51 hours), $1,480.50 in gross wages
for 40.75 hours of work the week ending April 9, 2022, and $839.04 in gross wages for
22.08 hours of work in his last week of work. Compl. ¶¶ 105–10. DOL further alleges
that ACS has demanded $24,000 in future profits, id. ¶ 99, and has already incurred
a $1,900 filing fee and $750 case management fee in connection with the arbitration
against him, id. ¶ 103. DOL thus alleges that Defendants’ demand for future profits,
attorneys’ fees, arbitration costs, and interest “would bring Vidal below the FLSA
minimum wage during his final workweek,” and below the FLSA minimum wage and
required overtime rate (in overtime workweeks) for his entire period of employment
with ACS. Id. ¶¶ 106–07.
Additionally, the Complaint alleges that Miclat was paid $2,987.18 in gross
wages for 65.74 hours the week ending June 25, 2022, $2,994.59 in gross wages for
65.87 hours the week ending July 23, 2022, $2,166.95 in gross wages for 51.35 hours
the week ending November 12, 2022, and $1,385.10 in gross wages for 36.45 hours of
work in her last week of work. Compl. ¶¶ 159–63. The Complaint further alleges
that PCS has already incurred a $2,200 filing fee in connection with the arbitration
Therefore, while Defendants are correct that plaintiffs must plead FLSA
claims with specificity, DOL has plainly done so with its allegations as to Vidal and
Miclat. It is true that the Complaint does not allege that Defendants already clawed
back Vidal’s and Miclat’s wages below what the FLSA requires. But the cases
Defendants cite do not hold that a past FLSA violation is a prerequisite to bringing
an enforcement action under the statute. While this Court is unaware of any case
law within this circuit on the issue, DOL points to persuasive out of circuit cases that
allowed actions to prevent employers from collecting FLSA “kick-backs” to proceed,
despite the fact that the plaintiffs had not yet paid the alleged “kick-backs” to their
employers. See Stein v. HHGREGG, Inc., 873 F.3d 523, 534–35 (6th Cir. 2017);
Ketner, 143 F. Supp. 3d at 382–84.
Absent a requirement that a plausible FLSA claim allege a prior violation of
the statute’s wage mandates, the Court understands Defendants’ 12(b)(6) argument
as a restatement of their previous contention that DOL lacks standing. This Court
already rejected Defendants’ Article III argument. Dressed up as a motion to dismiss
against her. Id. ¶ 157. DOL thus alleges that Defendants’ demand for future profits,
attorneys’ fees, arbitration costs, and interest, would bring her “below the FLSA
minimum wage during her final workweek.” Id. ¶ 160.
Finally, Defendants suggested at oral argument that they are no longer
seeking to shift the costs at arbitration to their employees. Tr. of Mar. 21, 2024
Proceedings at 14:23–25, ECF No. 36. To the extent Defendants argue that, despite
their contractual prerogative to do so, they are no longer seeking to shift arbitration
costs to their employees, the Court does not consider that assertion at this juncture
because “[i]n considering a motion to dismiss for failure to state a claim, a district
court must limit itself to the facts stated in the complaint, documents attached to the
complaint as exhibits and documents incorporated by reference in the complaint.”
Hayden v. Cty. of Nassau, 180 F.3d 42, 54 (2d Cir. 1999).
for failure to state a claim for relief under the FLSA, that argument fares no better.
Accordingly, for the reasons stated in Section III.A.2, supra, DOL has sufficiently
alleged that Defendants’ conduct violates the FLSA.
III. Failure to Allege Contract Damages are “Kick-backs”
Finally, Defendants argue that DOL’s Complaint fails to state a claim because
the theory of its case fails as a matter of law. The parties’ dispute centers on an FLSA
implementing regulation, which states that:
Whether in cash or in facilities, “wages” cannot be considered to have
been paid by the employer and received by the employee unless they are
paid finally and unconditionally or “free and clear.” The wage
requirements of the Act will not be met where the employee “kicks-back”
directly or indirectly to the employer or to another person for the
employer’s benefit the whole or part of the wage delivered to the
employee. This is true whether the “kick-back” is made in cash or in
other than cash. For example, if it is a requirement of the employer that
the employee must provide tools of the trade which will be used in or are
specifically required for the performance of the employer’s particular
work, there would be a violation of the Act in any workweek when the
cost of such tools purchased by the employee cuts into the minimum or
overtime wages required to be paid him under the Act.
29 C.F.R. § 531.35.
DOL argues that, by seeking to recoup lost profits, arbitration costs, and
attorneys’ fees from their former employees, Defendants are unlawfully kicking back
the employees’ wages and violating their duty under the FLSA to pay employees free
and clear. Defendants contend that this argument fails because contract damages
cannot constitute “kick-backs” in this context.
While there are few reported cases addressing whether damages sought for
breach of contract may be considered illegal “kick-backs” under FLSA, the parties
jointly rely on a small body of cases addressing whether employers’ training cost
repayment policies violate the FLSA that helps guide this Court’s reasoning. The
first of those cases is Gordon v. City of Oakland, 627 F.3d 1092, 1093 (9th Cir. 2010),
wherein the Ninth Circuit considered a “policy requiring police officers to repay a
portion of their training costs if they voluntarily leave the City’s employment before
completing five years of service.”6 The plaintiff, who was required to repay the City
$6,500 at the time of her resignation, argued that the policy violated the FLSA
because, “subtracting the costs she paid to the City for the training program, she was
actually paid a negative sum for her last week of work.” Id. at 1095. The Ninth
Circuit rejected the plaintiff’s argument because the payment she “made to the City
is repayment of a voluntarily accepted loan, not a kick-back.” Id. at 1096.
Relying on Gordon, courts have rejected FLSA “kick-back” claims where
employees challenged policies requiring them to repay their employers for fees upon
their termination where the fee “corresponds to the maximum value of the training”
the employer provided the employee, Park v. FDM Group (Holdings) PLC, No. 16-cv-
1520, 2017 WL 946298, at *4 (S.D.N.Y. Mar. 9, 2017), vacated in part on other
grounds, Park v. FDM Grp., Inc., No. 16-cv-1520, 2018 WL 4100524 (S.D.N.Y. Aug.
18, 2018), or was “incurred for [the] employee’s benefit,” Bland v. Edward D. Jones &
Co., L.P., 375 F. Supp. 3d 962, 977 (N.D. Ill. 2019). But at least one court has found
6 Gordon and its progeny rely on a Seventh Circuit decision, Heder v. City of
Two Rivers, 295 F.3d 777 (7th Cir. 2002), which upheld a requirement that former
employees repay training costs. However, because Heder considered whether the
agreement in question “was valid and enforceable under Wisconsin law,” the Court
does not rely on that case here. Ketner, 143 F. Supp. 3d at 383 (emphasis supplied).
that where the training program did not confer to the employee “any benefit that is
recognized within the broader marketplace or to him as an associate,” the
requirement that the employee repay the costs of the training program could
constitute a “kick-back” that violates the FLSA. Ketner, 143 F. Supp. 3d at 384.
Taken together, these cases articulate a coherent framework for assessing
FLSA “kick-back” claims. That is, a policy requiring employees to repay costs that
the employer incurred for the employees’ benefit — such as “training costs for
portable licenses and certifications,” McClain v. Cape Air, No. 22-cv-10649, 2023 WL
3587284, at *6 (D. Mass. May 22, 2023) — does not constitute a “kick-back” under the
FLSA. But if the incurred costs primarily benefit the employer, they cannot lawfully
be shifted to the employees. That framework accords with the FLSA statute and
regulations, which state that “‘kick-back[s]’ . . . for the employer’s benefit” violate the
statute’s wage requirements, 29 C.F.R. § 531.35 (emphasis supplied), and while “the
reasonable cost” of furnishing an employee “with board, lodging, or other facilities,”
can be included in the calculation of an employee’s wage, 29 U.S.C. § 203(m)(1), “the
cost of furnishing ‘facilities’ which are primarily for the benefit or convenience of the
employer will not be recognized as reasonable,” 29 C.F.R. § 531.32(c) (emphasis
supplied)
In Carmen v. Health Carousel, LLC, No. 1:20-cv-313, 2023 WL 5104066, at *15
(S.D. Ohio Aug. 9, 2023), the District Court for the Southern District of Ohio applied
that framework to deny a motion to dismiss an FLSA claim that closely resembles
the instant case. There, as here, plaintiffs brought a case against a recruiting and
staffing company “that enlists foreign nurses, primarily from the Philippines, to work
in healthcare facilities across the United States.” Id. at *2. The defendant staffing
company sponsored nurses’ applications for permanent residence and, if the nurses
terminated their employment before three years, required the nurses to pay
liquidated damages. Id. In assessing the plaintiff’s claim that the liquidates damages
provision constituted a “kick-back” under the FLSA, the court framed the issue as
“whether any portion of the $20,000 liquidated damages” that the plaintiff paid the
defendant “was intended to recoup expenses incurred for [the defendant’s] benefit.”
Id. at *14. Because the plaintiff “plausibly alleged that $8,000 of her liquidated
damages covered [the defendant’s] own operating expenses,” and “an $8,000 kickback
would reduce [the plaintiff’s] net pay below zero,” the Court held that the plaintiff
“ha[d] nudged th[e FLSA] claim into the realm of plausibility.” Id. at *15.
Applying that same test here, the Court concludes that DOL plausibly alleges
that at least some of the damages Defendants seek to collect through arbitration are
for Defendants’ benefit and thus constitute an unlawful “kick-back.” Most notably,
in their contracts, Defendants reserve the right to recover “loss of profits (reflecting
not only loss of anticipated profits under this Agreement but also resulting from the
impact of Employer’s relationships with its clients)” if the employees do not fulfill
their three-year contract. ACS Contract at 6 (emphasis supplied). The contracts also
require employees to reimburse Defendants “for all reasonable costs, including all
attorneys’ fees that Employer incurs in enforcing its rights and remedies.” Id. at 7.
In line with those provisions, Defendants specifically sought “lost profits,”
“reasonably attorneys’ fees,” and arbitration costs in their arbitration demand letters
against Vidal and Miclat. Vidal Arbitration Demand at 7, Miclat Arbitration Demand
at 8. The Court agrees with DOL that these sought-after damages “are categorically
for Defendants’ benefit.” Opp’n Br. at 19.
Nevertheless, Defendants appear to contend that their requested damages
cannot constitute “kick-backs” because they do not seek a specified amount of money
from their employees; rather, they have demanded that these employees appear at
arbitration, where they seek “all available damages.” See Reply Br. at 7. Quite the
opposite. That Defendants specifically seek to recover categories of damages that
inherently benefit them only bolsters DOL’s “kick-back” claim. Unlike in Carmen,
where the court had to inquire into how the liquidated damages would be used, the
contracts here demarcated which damages would recover costs Defendants incurred
for their employees’ benefit (such as certain credentialing costs, which DOL does not
challenge), and which costs they incurred for their own benefit (such as the lost profits
at issue here).
Of course, Defendants “may eventually show, with additional facts, that” the
damages they seek were incurred primarily for their employees’ benefit. Carmen,
2023 WL 5104066, at *15. But at this juncture, DOL’s allegations that Defendants
initiated arbitrations to pursue “loss of anticipated profits,” arbitration costs and fees,
and attorney’s fees are enough to survive Defendants’ motion to dismiss. Whether
the damages Defendants seek do, in fact, constitute “kick-backs” “is best resolved
with the benefit of discovery.” McClain, 2023 WL 3587284, at *7.
Finally, the Court is not persuaded by the parade of horribles that Defendants
predict will result from a decision allowing DOL’s lawsuit to proceed to discovery.
Contrary to Defendants’ foreboding characterization, by concluding that the damages
Defendants seek could amount to “kick-backs” under the FLSA, the Court is not
holding that “any employment agreement with an arbitration provision would violate
the FLSA . . . if the employee might have to pay contractual damages to the non-
breaching employer.” Opening Br. at 28.
In Mayhue’s Super Liquor Stores, Inc. v. Hodgson, 464 F.2d 1196, 1198 (5th
Cir. 1972), the Fifth Circuit explained that while an employer could not, under the
FLSA, require employees to repay cash register shortages they did not cause, an
employer could require employees to repay cash register shortages that could be
specifically attributed to the employees’ theft. In determining that the FLSA could
preclude the sought-after damages here, the Court’s decision is not in tension with
Mayhue’s holding; as there, employers remain free to recoup costs that “obviously
would not collide with the Act.” Id. Put differently, the Court does not hold that
employers can never seek contract damages based on their employees’ wrongdoing;
nor does it hold that such claims can never be subject to arbitration. Rather, it simply
concludes that on these facts, DOL has plausibly alleged that the damages
Defendants seek to collect from the employees described in the Complaint violate the
FLSA.
CONCLUSION
For the foregoing reasons, Defendants’ motion to dismiss Plaintiff’s Complaint
is denied.
SO ORDERED.
/s/ NRM
NINA R. MORRISON
United States District Judge
Dated: May 8, 2024
Brooklyn, New York