New Jersey Supreme Court Narrowly Construes “Good-Faith” Defense to Wage and Hour Claims

By on March 1st, 2021

Posted in New Jersey

On January 13, 2021, the Supreme Court of New Jersey, in Branch v. Cream-O-Land Dairy, issued an important decision (available here) clarifying the scope of the so-called “good-faith defense” available to employers sued for violating the minimum wage and overtime compensation requirements of the New Jersey Wage and Hour Law (“NJWHL”). The Court’s opinion has significant implications for employers in New Jersey in terms of how they make certain compensation decisions and upon what authority employers can safely rely in ascertaining their legal obligations.

The statute provides an absolute defense to certain NJWHL claims for employers who demonstrate good-faith conformity with and reliance on certain actions and determinations of the New Jersey Department of Labor and Workforce Development (“NJDOL” or “Department”). Specifically, N.J.S.A. 34:11-56a25.2 states that an employer shall not be held liable for failure to pay minimum wages or overtime compensation under the NJWHL if the employer pleads and proves that the act or omission complained of was in good faith in conformity with and in reliance on: (1) “any written administrative regulation, order, ruling, approval or interpretation by the Commissioner of the [NJDOL] or the Director of the [Division of Wage and Hour Compliance]”; or (2) “any administrative practice or enforcement policy of such department or bureau with respect to the class of employers to which he belonged.” The Court’s decision in Branch addressed both categories, but dealt primarily with the first.

In Branch, the plaintiff, a truck driver, filed a putative class action complaint against his employer, Defendant Cream-O-Land Dairy. The plaintiff alleged he and other class members worked sixty-plus hours per week without being paid one-and-one-half times their hourly rate for hours worked in excess of forty hours per week, in violation of the of the NJWHL’s overtime compensation requirements.

In response, Cream-O-Land Dairy argued it did not have to pay its drivers “time-and-a-half” for overtime because it qualified as a “trucking industry employer” exempt from that overtime compensation requirement under the statute. The defendant also asserted it was entitled to invoke the “good-faith defense” and, therefore, was immunized from liability, because it had relied in good faith on three matters in which the NJDOL previously had investigated its operations and concluded it was a “trucking industry employer.” Notably—and crucial to the Court’s analysis—those determinations were reached by a hearing and review officer, a senior investigator, and the Section Chief of the Division of Wage and Hour Compliance (the “Division”), respectively, but not by the Commissioner of Labor or the Director of the Division. Although the employer had received favorable determinations from various NJDOL officials in response to complaints brought by individual employees in the past, none of those matters ever reached the head of the Department (the Commissioner) or the head of the Division (the Director) because none of the complainant drivers appealed those matters and no further proceedings occurred in the Department with respect thereto.

The trial court viewed those decisions and determinations on which Defendant relied as sufficient to satisfy the standard set forth in the statute for assertion of the good-faith defense and, accordingly, granted summary judgment in the employer’s favor and dismissed the plaintiff’s claims (without having to reach the issue of whether Cream-O-Land Dairy did in fact constitute a “trucking industry employer” within the meaning of the statute). On appeal, the Appellate Division reversed, finding that none of the determinations on which Defendant relied met the requirements of the good-faith defense under the plain language of N.J.S.A. 34:11-56a25.2. The matter was then taken up to the State Supreme Court, which agreed with the Appellate Division’s conclusion.

The Court found the plain language of the statute was clear that to satisfy the first prong of the good-faith defense, the employer must show compliance with and reliance on either a regulation or an order, ruling, approval, or interpretation by the Department Commissioner or Director of the Division—not merely determinations by those officials’ subordinate employees within the Department or Division. As the Court explained, the three determinations relied upon by the employer—decisions in its favor by a hearing and review officer, a senior investigator, and a section chief, respectively—fell short of the statutory mark because none were decisions issued by the Commissioner or the Director. Because these matters were resolved in Cream-O-Land Dairy’s favor early enough in the administrative investigative process and there was no appeal by the claimants, they were closed before proceeding to a formal hearing before an Administrative Law Judge (the last step in the administrative process necessary to give rise to a final determination by the Commissioner). The Court reasoned that although the Legislature had empowered the Commissioner, the Director, “and their authorized representatives” to investigate and attempt to resolve potential violations of the NJWHL, the Legislature limited the first prong of the good-faith defense to determinations issued by the Commissioner and the Director themselves.

The Court held the defendant’s reliance on the three previous matters did not satisfy the second alternative prong of the good-faith defense statute either. None of those three matters constituted or gave rise to an “administrative practice or enforcement policy” regarding the “class of employers” to which the defendant belonged. In reaching that conclusion, the Court distinguished the determinations relied upon by Cream-O-Land Dairy—which were merely adjudications of individual complaints against a particular employer—from a Department practice or policy addressing a “class of employers” and their employees, which is necessary to satisfy the second statutory basis for the defense.

Separate from the three earlier matters cited, the defendant also attempted to invoke the good-faith defense by referencing a 2006 Opinion Letter by the Director of the Division that interpreted the application of the NJWHL’s overtime compensation requirements to trucking industry employers. While the Court found such an Opinion Letter would implicate both prongs of the good-faith defense statute, it rejected the defendant’s invocation thereof because the company never asserted, let alone pled and proved, that it actually relied on that Opinion Letter when it made the compensation decisions complained of in this case.

Having agreed with the Appellate Division that the trial court improperly dismissed the plaintiff’s claims on the basis of the employer’s reliance upon the good-faith defense, the Supreme Court remanded the matter back to the trial court for consideration of whether Defendant is a trucking-industry employer within the meaning of the NJWHL’s overtime compensation exemption and whether Defendant otherwise complied with the applicable NJWHL standards in compensating its employees.

The Take-Away

There are many key “takeaways” from the Court’s holding in Cream-O-Land Dairy. To begin with, the ruling may be unsatisfactory and unsettling to New Jersey employers. Indeed, the Supreme Court expressly acknowledged its interpretation of the statute leaves employers such as the defendant in a difficult position:

Having prevailed in three disputes that ended at an early stage, defendant was afforded no procedural route to secure a ruling by the Commissioner or Director with respect to those determinations. . . . Although the Department communicated to defendant three times in the span of a decade that it was a trucking-industry employer exempt from the WHL’s general overtime requirements under [the statute], defendant was not entitled to assert the good-faith defense based on those determinations.

The Court itself seemed unsettled with the fact that under the statute, repeated findings by Department investigator’s that the Cream-O-Land Dairy’s employees were properly compensated for overtime work was insufficient to give the employer a legitimate basis to prevail on its defense of good-faith under the statute.

Although bound by the plain language of the statute in this case, the Court uncharacteristically took the time to suggest that the Department develop a procedure that would enable employers like Cream-O-Land Dairy to seek an opinion letter or other ruling from the Commissioner or Director regarding a claimed exemption from the NJWHL’s overtime (or minimum wage) requirements. “Such a procedure would assist employers who intend in good faith to comply with their obligations under the WHL, clarify the employer’s obligations under the WHL, and avoid unnecessary litigation.” The Court also suggested the Legislature and the Department determine whether additional statutory and/or regulatory guidance should be provided to both employers and employees regarding the good-faith defense in NJWHL proceedings.

It remains to be seen whether the Legislature or the Department heed the Court’s suggestions and establish new mechanisms or provide additional clarity for employers seeking official guidance as to what is required of them to comply with their wage and hour obligations under State law. For now, the availability of the good-faith defense remains incredibly narrow, and employers must exercise great caution in making wage and hour decisions with respect to their workforce—even when they believe their actions are legally justified because they have previously received what they consider to be a “green light” from State agency officials. Failure to comply with the requirements of the wage and hour laws can subject businesses to significant exposure and liability far greater than just the amount of any alleged underpayment itself.

Of course, the Court’s decision does not mean the defendant in this case, Cream-O-Land Dairy, has lost or will lose the case. It still will have the opportunity to argue the applicability of the trucking industry exemption and that it did not actually violate the NJWHL at all. Reliance upon earlier Department determinations in its favor as an absolute defense, however, is out of the question.

Whether or not an employer must pay “time-and-a-half” to their employees for hours worked in excess of forty per week often is not a straight-forward question and will depend upon all the unique circumstances surrounding the employment relationship and the nature of the work being performed. Compliance with wage and hour laws requires an understanding of what it means to be exempt or non-exempt from overtime obligations. There are numerous exemptions and carveouts, and employers of non-exempt employees are often unaware that some requirements of the positions may trigger payment/overtime obligations. Furthermore, while state wage and hour laws often closely track or follow the federal Fair Labor Standards Act (FLSA), employers must remain mindful of the differences between the FLSA and their own state’s wage and hour regulations. For example, the type of determinations relied upon by the employer in the Cream-O-Land Dairy case may have been sufficient to satisfy the standard for the good-faith defense under the FLSA but were not enough under the correspondent state law.

Business owners and Human Resource representatives who are concerned or have any questions about their obligations to their companies’ employees under state and/or federal wage and hour (or other) laws would be wise to consult with their employment counsel to ensure compliance with all applicable legal requirements. Likewise, if you are an employee who believes you have been underpaid by your employer, you should contact an attorney to review the matter. Either way, the Labor and Employment attorneys at Stark & Stark are ready to help. Contact us by phone at 609-895-7278 or email at employmentlaw@stark-stark.com.

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