Third Circuit Endorses Successor Liability for Wage and Hour Violations

Third Circuit Endorses Successor Liability for Wage and Hour Violations

In the recent case of Thompson v. Real Estate Mortgage Network, the U.S. Court of Appeals for the Third Circuit has endorsed successor liability for claimed wage-and-hour violations of the Fair Labor Standards Act (FLSA). The ruling reinstates a class action lawsuit against a mortgage underwriter for allegedly cheating employees out of overtime.

Facts of the case

In June of 2009, Patricia Thompson was hired as a mortgage underwriter by the now defunct Security Atlantic Mortgage Co. of Edison. Security Atlantic was one of fifteen mortgage companies under investigation by the U.S. Department of Housing and Urban Development (HUD) for high claims rates against the Federal Housing Administration’s mortgage insurance program.

In 2010, Security Atlantic asked its employees, including Thompson, to fill out job applications with Real Estate Mortgage Network Inc. of Iselin (REMN), a sister company. Afterward, the employees’ paychecks were issued by REMN, but all other aspects of the job remained unchanged. Thompson quit in August of 2010.

Thompson alleged that she and other employees worked significant amounts of overtime without receiving overtime compensation and that their employment was mischaracterized as being salaried and exempt from overtime pay requirements.

Thompson filed her “class and collective action” complaint on March 16, 2011. On December 30, 2011, the District Court dismissed the complaint without prejudice for failure to state a claim. Thompson filed her Amended Complaint on January 27, 2012. On August 31, 2012, the District Court dismissed without prejudice the entirety of Thompson’s Amended Complaint. Thompson filed a timely notice of appeal.

The Third Circuit ruling

The Third Circuit held that the lower court’s dismissal of plaintiff’s causes of action alleging overtime violations under FLSA and the New Jersey Wage and Hour Law was erroneous and directed that the case be reinstated and remanded. The court noted that there is ample precedent to support a broad interpretation of who is an employer in order to facilitate the public policy goals of the both federal and state wage & hour laws. The court further found that Thompson’s allegations were sufficient to demonstrate a plausible “continuity in operations and work force” relationship between Security Atlantic and REMN. Accordingly, the court concluded that the defendants were on fair notice that the alleged violations occurred during a possible “joint employment” could also be sufficient to support a successor liability claim against REMN.

If you have any questions about the Fair Standards Labor Act or would like to discuss your company’s employee policies and procedures, please contact me or the Scarinci Hollenbeck Labor and Employment Law attorney with whom you work.