How Will Small Businesses Fare In Court Under Emergency Paid Leave Law?

For small businesses with fewer than 50 employees, the Families First Coronavirus Response Act (“FFCRA”) includes two parts which suddenly present new, unanticipated and complex leave mandates.

 

Emergency Family & Medical Leave Expansion Act

 

The first part amends the Family & Medical Leave Act (“FMLA”) to include leave mandates applicable to school or place of care closures or child care provider unavailability for COVID-19-related reasons.

 

Small businesses with fewer than 50 employees are included in this mandate subject to the authority of the Department of Labor (“DOL”) “to issue regulations for good cause to exclude small businesses …”when the imposition of such a requirement would jeopardize the viability of the business as a going concern.”

 

Only the DOL may bring an enforcement action under this part of the FFCRA. In such an action, the DOL may seek not only actual damages, but also an additional amount equal to the amount of actual damages as liquidated damages to punish the employer.

 

Emergency Paid Sick Leave Act

 

This part prescribes 80 hours of paid sick leave for all employers with fewer than 500 employees. There is no exemption for small businesses with fewer than 50 employees.

 

As to the paid sick leave prescriptions, the FFCRA incorporates the penalty provisions of the Fair Labor Standards Act (“FLSA”) which allow for (1) civil actions by the DOL, (2)  civil actions by “any one or more employees on behalf of himself or themselves and other employees similarly situated”, (3) liquidated damages in an amount equal to the paid sick leave denied by the employer, and (4) attorney’s fees.

 

DOL Guidance

 

The Department of Labor (“DOL”) has provided (1) question & answer guidance to help small businesses understand these mandates, and (2) notice of its intent to delay full enforcement of the Act until April 18, 2020.

 

Included in this guidance is the small business exemption under the first part of the FFCRA. The DOL has stated a small business may claim the exemption if an authorized officer of the business has determined that:

  1. The provision of paid sick leave or expanded family and medical leave would result in the small business’s expenses and financial obligations exceeding available business revenues and cause the small business to cease operating at a minimal capacity;

  2. The absence of the employee or employees requesting paid sick leave or expanded family and medical leave would entail a substantial risk to the financial health or operational capabilities of the small business because of their specialized skills, knowledge of the business, or responsibilities; or

  3. There are not sufficient workers who are able, willing, and qualified, and who will be available at the time and place needed, to perform the labor or services provided by the employee or employees requesting paid sick leave or expanded family and medical leave, and these labor or services are needed for the small business to operate at a minimal capacity.

Litigation Under Emergency Family & Medical Leave Expansion Act

 

Beyond the limited guidance provided by the DOL, little guidance is being offered to small businesses as to what to expect if litigation is brought by the DOL for a violation of the FMLA.

 

1. Who Has Burden of Proving Availability of Small Business Exemption?

 

To be sure, the DOL has provided guidance for small businesses in determination the availability of the small business exemption. But, who would have the burden of proving the availability of this exemption in court?

 

FLSA and the FMLA jurisprudence generally provides it is the employer’s burden to prove the availability of applicable exemptions. If cases under the FFCRA follow such precedent, the courts will look to small businesses to prove they fall within the exemption. A small business unable to meet its burden faces actual and liquidated damages as to each affected employee.

 

2. What Evidence Will Prove Availability of Small Business Exemption?

 

Interestingly, the DOL has stated the availability of the small business exemption hinges upon a “determination by an authorized officer of the business.” There is no similar FLSA or FMLA exemption tied to such a determination.

 

It will thus likely be up to the courts to determine, as a matter of first impression, what evidence is necessary as to the determination. Among the questions which will likely be addressed by the courts are: (1) Must a determination be in good faith? (2) Must a determination be based upon evidence? (3) What evidence must be considered in the determination? These questions will likely make the jeopardy inquiry much more complicated than the three-prong inquiry published by the DOL.

 

3. How Narrowly Will Small Business Exemption Be Construed?

 

The DOL guidance also leaves unanswered the question of how broadly or narrowly the small business exemption will be construed by the courts. For years, cases under the FLSA and FMLA have dictated that statutory exemptions under those statutes be narrowly construed. Several courts have thus held the burden of proving the availability of an exemption under the statutes is a substantial one.

 

If FFCRA cases follow FLSA and FMLA jurisprudence, they will likely require more than minimal evidence of jeopardy. Indeed, close questions as to jeopardy will likely be resolved in favor of the DOL.

 

Litigation Under Emergency Paid Sick Leave Act

 

Similarly, little guidance is being offered to small businesses as to what to expect if litigation is brought by the DOL or an employee for a violation of the paid leave prescriptions.

 

1. How Many Employees Can Join a Suit For Unpaid Sick Leave?

 

The only limitations on the number of employees which can join a suit under the FLSA are (1) the number of employees employed by the employer, (2) the number of employees who are shown to be similarly situated to the lead plaintiff, and (3) the statute of limitations.  Even for a small business, therefore, the stakes of litigation can be liability to multiple employees for unpaid sick leave and liquidated damages.

 

2. What Amount of Attorney’s Fees Can Be Awarded? 

 

The only limitation on the ability of a court to award attorney’s fees to a successful plaintiff is that the fees be reasonable. Indeed, in many FLSA collective actions, the attorneys fees awarded can exceed the combined liability of a defendant employer to all claimants.

 

3. Will Employers be Able to Avail Themselves of a Good Faith Defense?

 

The FLSA (29 U.S.C. 260) expressly allows an employer to avoid liquidated damages if the employer proves the act or omission which violated the Act was in good faith and the employer had reasonable grounds for believing the act or omission was not a violation. No such provision is expressly set forth in this part of the FFCRA.

Accordingly, a question which courts will be presented from the onset is whether a good faith defense exists for failure to provide paid sick leave. This question will be especially important for small businesses which are tackling federally mandated leave for the first time. If the good faith defense does not exist, the stakes of making wrong determinations become more serious for small businesses.

 

Takeaways

 

For small businesses, effective risk management under the FFCRA requires more than merely following DOL guidance. It requires understanding the stakes, expense and evidentiary realities of litigation. A small business which does not account for these realities risks unwanted litigation or, worse, a costly judgment or settlement.

 

So, how will small businesses fare in court under the FFCRA?  The answer depends upon how well they have been prepared by legal counsel for the prospect of  such litigation.

 

DEFENDING MANAGEMENT BLOG

 

 

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