Opposition Brief — Ho Fat Seto v. McLaughlin

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DEC 28 1988

1 E. SPANIOL, JR,

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No. 88-519

In the Supreme Court of the Gnited States

OCTOBER TERM, 1988

Ho FAT SETO DBA HO FAT OF CALIFORNIA, PETITIONER

ANN MCLAUGHLIN, SECRETARY OF LABOR

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

BRIEF FOR THE RESPONDENT IN OPPOSITION

CHARLES FRIED

Solicitor General

Department of Justice

Washington, D.C. 20530

(202) 633-2217

GEORGE R. SALEM

Solicitor of Labor

ALLEN H. FELDMAN

Associate Solicitor

MARY-HELEN MAUTNER

Counsel for Appellate Litigation

ELLEN L. BEARD

Attorney

Department of Labor

Washington, D.C. 20210

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QUESTION PRESENTED

Whether the district court properly awarded back wages

under the Fair Labor Standards Act, 29 U.S.C. (& Supp.

IV) 201 ef seqg., to nontestifying employees based on the

representative testimony of other employees concerning

hours worked.

(1)

TABLE OF CONTENTS

Page

A A a a a |

aL iy ah ekad bebe R ROK wo awed Fs |

a ge I Pn rer |

eeu Sa. fade kad reek ee Aes ae eR aw DH a 6

SNE EE ree rea a a er ae 10

TABLE OF AUTHORITIES

Cases:

Beliz v. McLeod & Sons Packing Co., 765 F.2d 1317 (Sth

Te eld Lie Uc a) 4 ol Wind wine eke edn Da es )

Brennan v. General Motors Acceptance Corp., 482 .2d

NN, nd lara ngs din Rnd sank Rm ae RA KES 6, 7

Brock v. Norman’s Country Market, Inc., 835 F.2d 823

(llth Cir. 1988), cert. denied, No. 87-1593 (June 20,

ee A ee Ua oa kek cee ke aed a we Ss 7

Brennan vy. Parnham, 366 F. Supp. 1014 (W.D. Pa.

ERTS ee Gel SESE Ca oa 8

Brock v. Seto, 790 F.2d 1446 (9th Cir. 1986) ............ 10

Brock v. Tony & Susan Alamo Foundation, 842 F.2d 1018

er ak Lies a eke ares 8

Castillo v. Givens, 704 F.2d 181 (Sth Cir.), cert. denied,

Se 7

Citicorp Industrial Credit, Inc. v. Brock, No. 86-88

Eo eS a eg ew a 10

Donovan v. Bel-Loc Diner, Inc., 780 F.2d 1113 (4th Cir.

eS Re tL RT gg De apr a Oe 6, 7

Donovan v. Burger King Corp., 672 F.2d 221 (Ist Cir.

NE a een ESO ARIE hg LR a ee ee 8

Donovan v. New Floridian Hotel, Inc., 676 F.2d 468

ST tar re al a wok wd 0, 6, 7

Donovan v. Simmons Petroleum Corp., 725 F.2d 83

AES. Coe Ce ha es vawieeca reach evs 6

Donovan vy. Williams Oil Co., 717 F.2d 503 (10th Cir.

ef ete a te a Ta Sn aetna so 5.2 7

Gilbert v. Old Ben Coal Co., 407 N.E.2d 170 (Ill. App.

RN a CLEP soa Na Ee ee 8

Cases — Continued: Page

Marshall v. Brunner, 500 F. Supp. 116 (W.D. Pa. 1980),

aff'd, 668 F.2d 748 (3d Cir. 1982) ................... 7

Marshall v. R & M Erectors, 429 F. Supp. 771 (D. Del.

ds PORN Pee te Pa ee oe ee a Perr EP Pre Pree 8

Mt. Clemens Pottery Co. v. Anderson, 149 F.2d 461 (6th

Cir. 1945), rev’d, 328 U.S. 680 (1946) ............ 4, 5, 6, 10

Statute and rule:

Fair Labor Standards Act, 29 U.S.C. (& Supp. IV)

Be OTe Pree ore tire ee 2

od wh se ai eg Wag « wiere es a Re 10

I EE es te tn ar) ee 10

Fed. R. Evid.:

ea laa ID Meat > Ba Tet, FA nc <7 RE 8

I hg << See ne ees ae or te a ee y

Miscellaneous:

E. Cleary, McCormick on Evidence (3d ed. 1984) ....... y

In the Supreme Court of the Gnited States

OCTOBER TERM, 1988

No. 88-519

Ho FAT SETO DBA HO FAT OF CALIFORNiA, PETITIONER

ANN MCLAUGHLIN, SECRETARY OF LABOR

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

BRIEF FOR THE RESPONDENT IN OPPOSITION

OPINIONS BELOW

The opinion of the court of appeals (Pet. App. Al-A6)

is reported at 850 F.2d 586. The findings of fact and con-

clusions of law of the district court (Pet. App. D1-D14)

are unreported.

JURISDICTION

The judgment of the court of appeals was entered on

June 28, 1988. The petition for a writ of certiorari was

filed on September 26, 1988. The jurisdiction of this Court

is invoked under 28 U.S.C. 1254(1).

STATEMENT

1. Petitioner Ho Fat Seto owns and operates a gar-

ment factory in Los Angeles, paying piece-rate wages to all

(1)

nonmanagerial employees (Pet. App. A2, D3, D4). Re-

spondent Secretary of Labor brought this action under the

Fair Labor Standards Act (FLSA or Act), 29 U.S.C. (&

Supp. 1V) 201 ef seqg., alleging, among other things, that

petitioner had failed to keep required records and to pay

his employees minimum wage and overtime for all hours

worked (Pet. App. B1-B6). The Secretary sought to enjoin

petitioner from future FLSA violations and to obtain back

wages and an equal amount of liquidated damages for 28

named employees (id. at A2, B1-B6).

At trial, the five employee witnesses presented by the

Secretary all testified that they began work about 7 a.m.

on weekdays but were not permitted to punch the factory

time clock until the starting bell rang at 7:30 a.m. (Pet.

App. A2, DS). Three of the employees testified that they

also worked after punching out when the quitting bell rang

at 4:30 p.m. (id. at A2-A3, AS, DS). Employees received a

half-hour lunch break and two 15-minute rest breaks each

weekday (id. at DS). The Secretary’s witnesses consistently

testified that they worked nearly every Saturday from 7:30

a.m. to 2:15 p.m., but were not allowed to record their

Saturday hours (/d. at A2, D4). They further stated that

the hours reflected on their pay stubs always underrepre-

sented the hours they worked, and that they were not paid

for hours they worked in excess of 40 hours per week (id.

at A3). The Secretary had available many more employee

witnesses who would have given substantially the same

testimony, but the district court permitted only five to

testify on the ground that further testimony would have

been cumulative (/d. at D3). In addition to the employee

witnesses, the Secretary’s compliance officer testified that

she had calculated wages due after interviewing 16 em-

ployees and reviewing petitioner’s payroll records, and ad-

justing tor business fluctuations (id. at A3, DI1-D14).

Petitioner’s payroll records, with One minor exception,

indicated that no employee ever worked on Saturday,

worked more than 40 hours a week, or received any over-

time compensation during the period covered by the com-

plaint (Pet. App. D4). Petitioner presented four rebuttal

witnesses who testified that they never worked before the

Starting bell, after the quitting bell, or on Saturdays (id. at

A3, D3).

2. The district court credited the testimony of the

Secretary’s witnesses, finding that it was “generally con-

sistent and established a pattern of employment conditions

applicable to all employees” of petitioner (Pet. App. D2,

D3). The court specifically found that the five testifying

' employees were “representative of all employees employed

by [petitioner] during the relevant period” and that “fur-

ther testimony would have been cumulative because it was

clear all employees generally worked the same hours and

were paid strictly on a piece-rate basis” (/bid.). In addi-

tion, the court rejected the testimony of petitioner’s

witnesses as “not credible,” and found that petitiOner’s

payroll records were “false and inaccurate” (id. at D3,

D4). .

Based on those credibility determinations, the district

court found that all of petitioner’s employees “regularly

worked over 40 hours per week,” including more than

eight hours Monday through Friday and four to six hours

on Saturdays (Pet. App. D5). Thus, petitioner failed to

pay all 28 named employees for overtime at not less than

one and one-half times their regular rate of pay, and failed

to pay some employees the minimum wage of $3.35 per

hour for all hours worked (/bid.). The court also adopted

as “reasonable and correct” the back wage computations

made for all 28 employees by the compliance officer,

which took into account the employer’s regular pattern of

business fluctuations (id. at D6).'

The district court thus concluded that petitioner vio-

lated the FLSA by falsifying payroll records and by failing

to pay minimum wage and overtime compensation (Pet.

- App. D7). The court held that the Secretary had met her

burden of showing, in the absence of accurate employer

payroll records, that the “employees performed work for

which they were not paid the compensation required under

the Act and the extent of such work ‘as a matter of just

and reasonable inference’ ” (ibid., quoting Anderson v.

Mt. Clemens Pottery Co., 328 U.S. 680, 687 (1946)). The

court noted that, once testimony of representative em-

ployees establishes prima facie proof of a pattern or prac-

tice of FLSA violations, the burden shifts to the employer

to rebut the existence of the violations or to prove that in-

dividual employees are excepted from the pattern or prac-

tice (Pet. App. D8). Here the court concluded that “[rJep-

resentative employee testimony established a pattern of

violations” and that petitioner presented “no credible

evidence to the contrary” (ibid.). Accordingly, the court

enjoined petitioner from further violations of the Act and

awarded back wages plus an equal amount of liquidated

damages to all 28 named employees (/d. at D9-D11).

3. The court of appeals affirmed. It held (Pet. App.

A4-A5) that “the Mr. Clemens Pottery standard allows

district courts to award back wages under the FLSA to

non-testifying employees.” Applying the burdens of proof

set out in Mt. Clemens Pottery, 328 U.S. at 687, the court

of appeals agreed with the district court that the testimony

of the Secretary’s five employee witnesses “established ‘as

Specifically, the district court found that the employees generally

worked 40 hours per week for three months; 42' > hours per week !

three months; 46 hours per week for three months; a :

]

week for three months (Pet. App. D6)

a matter of just and reasonable inference,’ /d., that all of

the employees regularly worked over eight hours on week-

days and over six hours on many Saturdays” (Pet. App.

A5). Because that testimony “directly supports” the dis-

trict court’s finding that “all” petitioner’s employees

regularly worked more than 40 hours per week, the court

of appeals held that the 23 nontestifying employees had

also established a prima facie case that they had worked

unreported hours (/bid.).

Next, the court of appeals held that petitioner had failed

to meet its burden under Mr. Clemens Pottery to negate

the reasonable inference from the testimony that all ot

petitioner’s employees were similarly situated (Pet. App.

AS). The court afforded “great deference” to the trial

court’s determination that petitioner’s witnesses were not

credible, and found that credibility determination “not

clearly erroneous” (id. at AS-A6). As petitioner did not

contest the district court’s tinding that its payroll records

were false and inaccurate, there was no credible evidence

to negate the ‘reasonable inferences” drawn trom the

Secretary's case (id. at A4, A6).

Finally, the court of appeals affirmed the disirict court’s

damages award, applying the Mr. Clemens Pottery stand-

ard that, if an employer tails to carry its burden ot estab-

lishing the precise amount of work performed, damages

are to be awarded “even though the result may be only ap-

proximate” (Pet. App. A6 (quoting Mir. Clemens Pottery,

328 U.S. at 688)). Noting that the district court had “con-

sidered the inconsistencies in the testimony of the Secre

lary’s witnesses when it tormulated the awards,” the cour

concluded that the damages awarded were “properly based

upon reasonadie inferences [rom (the emy

mony” (:bid.)

ARGUMENT

The decision of the court of appeals is correct and does

not conflict with any decision of this Court or of any other

court of appeals. Accordingly, no further review is war-

ranted.

1. In Mt. Clemens Pottery, this Court held that, if an

employer has failed to keep proper records of wages and

hours as required by law, an employee seeking to prove a

violation of the FLSA need only “prove[ ] that he has in

fact performed work for which he was improperly com-

pensated” and “produce[ ] sufficient evidence to show the

amount and extent of that work as a matter of just and

reasonable inference” (328 U.S. at 687). Thereafter, the

burden shifts to the employer “to come forward with evi-

dence of the precise amount of work performed or with

evidence to negative the reasonableness of the inference to

be drawn from the employee’s evidence” (id. at 687-688).

It the employer fails to meet that burden, damages may be

awarded “even though the result be only approximate” (id.

at 688). That allocation of the burden of proof “proper{ly]

and fair[{ly]” avoids penalizing employees by “plac[ing] a

premium on an employer’s failure to keep proper records

in conformity with his statutory duty” (id. at 687).?

> Petitioner’s contention that each employee must testify in order to

establish the “fact of overtime work” (Pet. 9 (emphasis omited)) is

simply wrong. See, e.g., Donovan v. Bel-Loc Diner, Inc., 780 F.2d

1113, 1116 (4th Cir. 1985); Donovan v. Simmons Petroleum Corp.,

725 F.2d 83, 86 (10th Cir. 1983); Donovan v. New Floridian Hotel,

Inc., 676 F.2d 468, 472 (11th Cir. 1982); Brennan v. General Motors

Acceplance Corp., 482 F.2d 825, 829 (Sth Cir. 1973). Indeed, Af.

Clemens itself was a suit by a local union and seven of its members on

behalf of some 300 similarly situated employees, only eight of whom

testified at trial. See M/7. Clemens Pottery Co. v. Anderson, 149 F.2d

461, 462 (6th Cir. 1945), rev’d, 328 U.S. 680 (1946).

The award of back wages to 23 nontestifying employees

in this case is fully consistent with the uniform application

of Mt. Clemens Pottery to permit recovery of back wages

on behalf of nontestifying employees, based on the repre-

sentative testimony of other similarly situated employees. ?

As the Eleventh Circuit recently explained, “(t]he fact that

several employees do not testify does not penalize their

claim; it is clear that each employee need not testify in

order to make out a prima facie case of the number of

hours worked as a matter of just and reasonable infer-

ence.” Brock v. Norman’s Country Market, Inc., 835 F.2d

823, 828 (1988) (internal quotation marks and citations

omitted), cert. denied, No. 87-1593 (June 20, 1988). In-

stead, “[cJourts have frequently granted back wages under

the FLSA to non-testifying employees based upon the

representative testimony of a small percentage of the

employees,” as long as that testimony is “fairly repre-

sentational” of the larger group (Donovan v. Bel-Loc

Diner, Inc., 780 F.2d at 1116). “The Secretary is not re-

quired to present each employee as a witness”; and it is “in-

adequate” to compensate only employees who “chose or

were chosen to testify” if other employees were also im-

> Donovan v. Bel-Loc Diner, Inc., supra (testimony of 22 em-

ployees supports award to 98 employees); Donovan v. Williams Oil

Co., 717 F.2d 503 (10th Cir. 1983) (testimony of 19 employees sup-

ports award to 34 employees at nine separate service stations); Castillo

Vv. Givens, 704 F.2d 181 (5th Cir.) (testimony of 13 employees supports

award to 39), cert. denied, 464 U.S. 850 (1983); Donovan v. New

Floridian Hotel, Inc., supra (testimony of 23 employees supports

award to 207); Brennan \. General Motors Acceptance Corp., 482

F.2d 825 (Sth Cir. 1973) (testimony of 16 employees supports award to

27); Marshall vy. Brunner, 500 F. Supp. 116 (W.D. Pa. 1980)

(testimony of 48 employees supports award to 93), aff'd, 668 F.2d 748

(3d Cir. 1982).

properly paid. Brock v. Tony & Susan Alamo Foundation,

842 F.2d 1018, 1019-1020 (8th Cir. 1988).4

The obvious pragmatic basis for permitting reliance on

such representative testimony is to avoid burdening the

trial courts with unending parades of cumulative wit-

nesses. See, e.g., Donovan v. Burger King Corp., 672 F.2d

221, 225 (Ist Cir. 1982) (approving a significant limitation

on the number of witnesses in an FLSA case as within the

trial court’s broad discretion under Fed. R. Evid. 403 to

prevent the “needless presentation of cumulative

evidence”). In this case, as in Burger King, the district

court itself decided to hear only five employee witnesses

called by the Secretary because further testimony would

have been cumulative (Pet. App. D2-D3). The court of ap-

peals, after reviewing the record, concluded that the testi-

mony of these five employees “directly supports the

district court’s findings that all [petitioner’s] employees

regularly worked over forty hours per week” and estab-

lished a prima facie case on behalf of the 23 nontestifying

employees (Pet. App. A5). Since that prima facie case was

not rebutted, all 28 named employees were awarded back

wages.

* None of the cases on which petitioner relies (Pet. 11) in any way

undermines the general validity of representative testimony in FLSA

cases. Gilbert v. Old Ben Coal Co., 407 N.E.2d 170 (Ill. App. 1980),

Was not a pattern and practice case at all, but merely an unpersuasive

claim by two individual plaintiffs. In Marshall vy. R & M Erectors, 429

F. Supp. 771 (D. Del. 1977), the court actually awarded benefits to 12

identified, nontestifying employees based on testimony by 11 other

employees, denying relief only to 11 unidentified employees as to

whom there was virtually no record evidence. In Brennan v. Parnham,

366 F. Supp. 1014 (W.D. Pa. 1973), the court also awarded back

wages to unidentified employees. Here, of course, the Secretary

sought relief only for 28 employees specifically named in her com-

plaint, whose periods of employment and wages were reflected on

petitioner’s payroll records (Pet. App. B6, D11).

Petitioner also complains that in this case there was “no

reliable, admissible evidence of the fact of damage” to the

23 nontestifying employees, contending that the claim on

their behalf was supported only by “insubstantial, bald

hearsay” (Pet. 10). That argument is plainly wrong. The

Secretary’s five witnesses testified concerning the hours

worked by themselves and their fellow workers based on

personal knowledge and direct observation.* On appeal,

petitioner did not challenge either the admissibility of that

evidence or its reliability as to the hours worked by the

testifying employees. Nor was that evidence “hearsay”: the

witnesses testified based on personal observation of their

coworkers’ presence in the garment factory, not by repeat-

ing their coworkers’ out-of-court statements that they had

worked overtime. See Fed. R. Evid. 801(c); E. Cleary, Mc-

Cormick on Evidence § 246 (3d ed. 1984) (definitions of

hearsay). The district court did not err by admitting and

crediting the testimony of the Secretary’s witnesses about

their coworkers’ hours.

2. Petitioner now asks this Court to “re-examine[ }”

Mt. Clemens Pottery by holding, contrary to the unani-

mous opinion of the courts of appeals, that it does not

authorize recovery of back wages under the FLSA on

behalf of nontestifying employees (Pet. 9). Instead, peti-

tioner wants this Court to require, for the first time, that

each employee on whose behalf an award of back wages is

sought “testify briefly in open court,” adding that “since

the statute directs the Secretary to pay each employee his

5 The Secretary’s witnesses not only testified as to their own hours

of work, but also stated that their fellow employees worked the same

hours that they did (Tr. 29, 78-79, 187, 366-367 (naming other em-

ployees who worked the same hours as testifying employees)). Cf.

Beliz v. McLeod & Sons Packing Co., 765 F.2d 1317, 1331 45th Cir.

1985) (representative witnesses may testify based on personal knowl-

edge of the work performed by their nontestifying coworkers).

share of the recovery, it seems ludicrous to allow any

recovery for an employee whose whereabouts are un-

known” (Pet. 14). Mt. Clemens Pottery, however, needs

no reassessment; it has stood well the test of time and has

been faithfully and sensibly applied by the lower courts.

An employer who fails to keep accurate records as re-

quired by the FLSA “ ‘cannot be heard to complain’ ” if an

award of damages lacks “ ‘precision of measurement.’ ”

Brock v. Seto, 790 F.2d 1446, 1448 (9th Cir. 1986)

(quoting Mt. Clemens Pottery, 328 U.S. at 688). An

honest employer has nothing to fear from the rule that

reasonable inferences about nontestifying workers’ hours

can be drawn from the testimony of other workers. Only

because petitioner’s records were “false and inaccurate”

(Pet. App. D4) was it necessary to engage in any process of

inference in order to reconstruct his employees’ hours.

Petitioner now seeks to benefit from the falsity and inac-

curacy of his own records. As the Mr. Clemens Court held

(328 U.S. at 687), no such benefit is due.°®

* Moreover, the FLSA expressly authorizes awards of back wages

that are unclaimed by employees after three years to revert to the

Treasury of the United States (29 U.S.C. 216(c)). That rule, and the

tull disgorgement ordered against petitioner in this case, serve not

only to ensure that an emplover will lack the incentive to underpay

employees in the hope that they cannot be found later, but also to

“eliminate the competitive advantage enjoyed by goods produced

under sudstandard conditions.” Circorp Industrial Credit, Inc. v.

Broce, No. 86-88 (June 22, 1987), slip op. 8; see 29 U.S.C. 202(a).

CONCLUSION

The petition for a writ of certiorari should be denied.

Respectfully submitted.