Hernandez v. The Fresh Diet Inc.

Background

Fernando Hernandez, Bryant White, Cecilia Jackson, and Teresa Jackson sued The Fresh Diet Inc., other corporate defendants, and individual defendants Judah Schloss and Zalmi Duchman for unpaid overtime under the Fair Labor Standards Act (FLSA) and the New York Labor Law (NYLL). A jury trial held from October 29, 2018, through November 5, 2018, resulted in a verdict against Schloss and Duchman. The jury found that Schloss and Duchman were the plaintiffs’ employers and that the plaintiffs were entitled to unpaid overtime compensation.

The court later held a bench trial limited to liquidated damages. Liquidated damages are additional amounts that wage laws may require an employer to pay on top of unpaid wages. The court’s prior rulings had awarded some unpaid overtime and liquidated damages, but the court held the additional trial because the parties had not adequately addressed the liquidated-damages issue.

Legal standards

Under the FLSA, liquidated damages generally equal the amount of unpaid wages. An employer may avoid that award only by proving both that it acted in subjective good faith and that it had objectively reasonable grounds for believing that its conduct complied with the FLSA. The employer must take active steps to determine what the FLSA requires and then act to comply with it.

The NYLL also provides liquidated damages, but the applicable percentage changed over time. For the period beginning November 24, 2009, the court applied a 25-percent rate through April 8, 2011, and a 100-percent rate beginning April 9, 2011. For the period before November 24, 2009, the court considered whether the defendants’ conduct was willful, meaning that they knew of the legal requirement or recklessly disregarded it. The court also explained that plaintiffs could not receive duplicative liquidated damages under both the FLSA and NYLL for the same violations occurring on or after November 24, 2009.

Court’s analysis

The defendants argued that they acted in good faith because they followed industry practices, believed the drivers’ flexible work arrangements showed that the drivers were independent contractors, relied on attorneys and accountants, and conducted some research.

The court rejected those arguments. Following industry practice alone did not establish good faith. The court found that Schloss and Duchman had not actively sought advice about whether the driver classifications complied with the FLSA. Duchman had brief conversations with an accountant and outside counsel that merely confirmed his existing belief, rather than seeking to determine what the law required. Schloss relied on representations about the professionals’ views without personally participating in the relevant discussions. The court also found that Duchman could not provide enough detail about his limited online research. The court therefore held that the defendants had not satisfied the FLSA good-faith exception.

The court reached a different conclusion on willfulness under the NYLL for the period before November 24, 2009. It found no evidence that the defendants knew they were violating the NYLL before that date and concluded that their conduct was unreasonable but not reckless. The plaintiffs therefore did not prove that the defendants’ misclassification of the drivers was willful.

Ruling and amounts

The court awarded NYLL liquidated damages for violations beginning November 24, 2009. It awarded Bryant White $14,093.73, Cecilia Jackson $1,812.50, and Teresa Jackson $5,321.82. The court also found that Teresa Jackson, the only plaintiff who recovered damages under the FLSA, was entitled to FLSA liquidated damages for violations before November 24, 2009. Because the parties’ submissions did not establish how many hours she worked during that period, the court could not calculate that amount.

The court ordered the parties to submit a proposed judgment addressing the remaining FLSA liquidated damages owed to Teresa Jackson by April 10, 2020.