Successful FLSA plaintiffs will likely receive not only the claimed unpaid overtime or minimum wage, but also liquidated (double) damages and payment of their attorney fees. But what if they want . . . more? Will a RICO claim get them additional funds?
That was the question the Sixth Circuit has answered in a pair of cases arising out of a small local pizza chain in western Michigan. In Torres v. Vitale, Case No. 19-1515 (6th Cir. March 31, 2020), and in Collier v. Logiudice, Case No. 19-1829 (6th Cir. June 26, 2020), the plaintiffs worked at one or more of the five “Vitale’s” family-owned pizza restaurants near Grand Rapids. According to the complaints, the company operated essentially two payroll systems. Hours up to 40 per week were recorded and paid through the regular payroll. Hours over 40 were recorded separately by hand and then paid out in cash at regular (not overtime) rates and (apparently) without any tax withholding.
If true, it’s a pretty good case for the plaintiffs. And if the plaintiffs met their relatively light burden under the two-step process for conditional certification, it would also be an easy case to manage.
The plaintiffs, however, sought to proceed under both the FLSA and the Racketeer Influenced and Corrupt Organizations Act (“RICO”) 18 U.S.C. §§ 1961 et seq., a decision that likely will prolong any recovery in the case. We’ve blogged RICO class issues in the past. For a brief rundown on how the statute works, see our blog of March 18, 2014, involving the 11th Circuit’s rejection of RICO claims in the context of alleged suppression of wages. Fortunately, the case did not involve Godfather’s Pizza, which would have had its own peculiar irony.
Rather than assert a straightforward FLSA claim, the plaintiff in the Torres case filed what the court of appeals called a “barrage of lawsuits” regarding the underpayment of overtime. The first of these cases was an FLSA claim. The second lawsuit arose in part out of the same set of facts, but alleged RICO claims based on (1) claimed “wage theft” based on the two-timecard system, (2) fraud in connection with reporting payroll to an insurance carrier for workers compensation purposes, and (3) alleged failure to pay federal and state taxes on wages for hours in excess of 40 per week (i.e. the amounts paid to the workers in cash).
The plaintiff in Collier did much the same thing. She filed a collective action under the FLSA and, similarly, also filed a RICO claim based on the same three alleged schemes.
Both RICO cases were ultimately dismissed by the district court either on a motion to dismiss or one for judgment on the pleadings. Ultimately, the Sixth Circuit upheld those dismissals with one exception based on the structure and purpose of the FLSA and RICO.
The Sixth Circuit treated each of the three RICO claims separately.
First, as to the largely duplicative claims under RICO for “wage theft”, the court found that the FLSA prescribed the remedies for wage and hour violations, and that RICO’ more general damages provisions did not apply. Legally, this was the most significant part of the court’s holding – an FLSA plaintiff is entitled to FLSA damages, not RICO damages for the same type of misconduct. And while the court did not mention it, violations of the FLSA are not among the dozens of the so-called “predicate acts” of racketeering activity such as bribery, witness tampering, or embezzlement, necessary to support a RICO claim. 28 U.S.C. § 1961(1).
Second, as to the claimed workers compensation/insurance claim, the court noted that, even if true, the injured party would have been the insurance carrier, not the plaintiffs.
The third claim, for alleged underreporting of wages to taxing authorities was more problematic. In the earlier-filed Torres case, the Sixth Circuit was unable to determine if there was any remedy apart from the FLSA or not. While the plaintiffs argued that the underreporting might result over time in lower Social Security wages or tax penalties to the employee, it concluded that the briefing on the issue was not adequate to decide, and it remanded that one claim to the District Court for further determination as to whether the alleged conduct resulted in damages other than wages.
In the later Collier case, however, the court noted that the plaintiff herself had a duty to report her wages truthfully to the taxing authorities. When she had filed her tax returns, she (like she contended the employer had done) had failed to report the amounts paid to her in cash. Because the employee had the primary duty to report her own income, the court found that she could not establish proximate cause between the employer’s misconduct and the claimed losses.
For what it’s worth the Court also affirmed the trial court’s handling of an ugly discovery dispute arising out of depositions in which, among other things, one party objected 300 times to the other side’s questioning and ultimately walked out.
All of this begs the question: Given (a) what the plaintiffs alleged to be a lay-down collective action FLSA case, (b) the courts’ disfavor of the use of RICO in disputes involving no serious criminal activity, (c) a potential class that probably did not desire years of litigation before receiving any recovery and (d) the technically difficult issues in establishing a RICO claim, what real benefit could reasonably be expected to flow from the assertion of RICO claims?
The bottom line: A plaintiff cannot recover RICO damages for claimed violations of the FLSA, and the assertion of such causes of action will needlessly complicate resolution of the plaintiffs’ claims.