An Employment Law Prelude to SCOTUS's October Term 

PDF

The U.S. Supreme Court begins its next term on October 7, 2024, and it will hear oral argument in E.M.D. Sales Inc. v. Carrera and Lackie v. Stinney, two cases of potential significance to employers across the country. This article will provide an overview of the issues and possible implications for employers in advance of the October Term. 

Proving the Applicability of FLSA Exemptions

Employers are familiar with the process of identifying and implementing Fair Labor Standards Act (“FLSA”) exemptions for qualifying employees. FLSA exemptions are beneficial to employers, but the cost of unlawfully exempting employees can be severe. Should litigation arise, the employer has the burden of proving that an employee is FLSA-exempt, but just how heavy is this burden?

The Supreme Court granted certiorari in E.M.D. Sales Inc. v. Carrera to resolve a split between the U.S. Circuit Courts of Appeals and answer “[w]hether the burden of proof that employers must satisfy to demonstrate the applicability of an FLSA exemption is a mere preponderance of the evidence—as six circuits hold—or clear and convincing evidence, as the Fourth Circuit alone holds.” 

Here, the three plaintiffs are sales representatives alleging that E.M.D. failed to pay them for overtime work. E.M.D. argued the employees were properly exempt from the FLSA’s overtime requirements under the outside salesperson exemption. Notwithstanding E.M.D.’s supporting evidence, the Fourth Circuit unanimously affirmed the district court’s decision that E.M.D. failed to establish the applicability of this exemption by clear and convincing evidence, a far more stringent standard of proof than the majority of jurisdictions’ preponderance of the evidence standard.

The preponderance of the evidence standard merely requires proof that it is more likely than not that an employee is FLSA-exempt. However, in the event the Supreme Court adopts the Fourth Circuit’s standard, employers would need to show that it is far more likely than not that an employee is exempt under the FLSA. The latter is a significantly higher bar that will increase the difficulty of defending FLSA suits and if adopted, will require employers to review their current exemptions to ensure they pass muster.

Oral argument is set for November 5, 2024, and regardless of the outcome, employers will benefit from a uniform standard across all federal courts.

“Prevailing Party” Attorney Fee Awards and Preliminary Injunctions 

42 U.S.C. § 1988 allows the “prevailing party” in various civil rights actions to recover reasonable attorney fees and extends to 42 U.S.C. § 1981 discrimination cases against employers. However, the standard for obtaining “prevailing party” status in the preliminary injunction context varies in most Circuit Courts of Appeals, particularly where a plaintiff succeeds at the preliminary injunction stage but later loses on the merits because the claim is mooted by a subsequent change in the law or the defendant’s behavior.

In Lackey v. Stinnie, plaintiffs sued the Commissioner of the Virginia Department of Motor Vehicles alleging due process violations for a state statute that required loss of a driver’s license for failure to pay court fees and fines. Plaintiffs obtained a preliminary injunction to reinstate their licenses because the district court determined they were likely to succeed on the merits. Before trial, the state legislature repealed the statute at issue, and the case was dismissed as moot. The district court denied the plaintiffs’ request for attorney’s fees under 42 U.S.C. § 1988 because they were not “prevailing parties.” In a split decision, the Fourth Circuit vacated the denial of attorney’s fees and adopted a standard that is more in line with the other Circuit Courts of Appeals.  However, its ruling only extended to the limited factual circumstances of the case, holding that mootness does not preclude an award of attorney’s fees where the preliminary injunction affords plaintiffs concrete relief. 

The Supreme Court granted certiorari, and the issues presented are somewhat broader than those of Lackey v. Stinney. The Supreme Court will answer whether “a party must obtain a ruling that conclusively decides the merits in its favor, as opposed to merely predicting a likelihood of later success, to prevail under 42 U.S.C. § 1988” and whether “a party must obtain an enduring change in the parties’ legal relationship from a judicial act, as opposed to a non-judicial event that moots the case, to prevail under 42 U.S.C. § 1988.” 

It is unclear whether the Supreme Court will limit its decision to constitutional challenges that are rendered moot after a change in law as in Lackey v. Stinney, or if it will extend its anticipated “prevailing party” definition to the other causes of action outlined in 42 U.S.C. § 1988 and/or other contexts in which a party may succeed on a preliminary injunction, lose on the merits, but still recover a fee award. Oral argument is set for October 8, 2024, which will provide a better indication of the breadth and gravity of the impending decision for employers.

Maynard Nexsen’s Employment and Labor group is closely monitoring these cases for the Supreme Court’s decisions and any subsequent considerations for employers.