Commercial Litigation and Arbitration

RICO Claims Not “Preempted” by Fair Labor Standards Act — Caselaw Split

From Kuznyetsov v. West Penn Allegheny Health Sys., Inc., 2009 U.S. Dist. LEXIS 61620 (W.D. Pa. July 20, 2009):

Plaintiffs have sued Defendants alleging, inter alia, violations under the Fair Labor Standards Act ("FLSA"), the Employee Retirement Income Security Act ("ERISA") and the Racketeer Influenced and Corrupt Organizations Act ("RICO"). ***

Defendants' had a "meal-break deduction policy," whereby a computerized time-keeping system automatically deducted one half-hour for every shift worked from every employee's paycheck without confirming that the employee actually was relieved from duty for one half-hour. Plaintiffs claim they often were not relieved for one half-hour and/or were expected to work during this one half-hour meal break, and yet they were not compensated for this half-hour of work....

Defendants had another policy requiring Plaintiffs to perform work before and/or after the end of their scheduled shifts without pay and/or appropriate pay. Finally, Defendants had a policy requiring Plaintiffs to attend training sessions but allegedly did not pay Plaintiffs appropriately for time they spent in these training sessions....

By intending to devise and carry out and by actually devising and carrying out these policies which allegedly deprived employees of wages and/or appropriate pay, Plaintiffs claim Defendants designed a "scheme" to defraud them and other employees. The scheme allegedly includes Defendants' act of intentionally and repeatedly mailing wage and payroll information to employees to mislead them about the amount of wages to which they were entitled, for the purpose of retaining the wages.... Plaintiffs further alleged that when employees "questioned" Defendants about non-payment or inadequate payment of wages, Defendants knowingly misled them into thinking they were not entitled to remuneration....

***Defendants urge dismissal of Plaintiffs' RICO claim (count four of Plaintiffs' complaint) by arguing that Plaintiffs' FLSA claim (count one of the complaint) preempts the RICO claim. Defendants argue that the FLSA provides comprehensive and exclusive remedies and rely primarily on two cases in support of preemption: Anderson v. Sara Lee Corp., 508 F.3d 181 (4th Cir. 2007) and Choimbol v. Fairfield Resorts, Inc., No. 05-463, 2006 WL 2631791 (E.D.Va. September 11, 2006) (hereinafter "Choimbol II" ).

In Anderson, the defendant required the plaintiffs to don their work clothing before walking to the time clock and clocking in for their shift. The plaintiff-workers had to clock out before doffing their work attire and donning their street clothes. Unlike the instant matter, the Anderson plaintiffs did not assert a claim under RICO, but they did raise FLSA and state law claims. The Fourth Circuit held that the FLSA provided the exclusive remedy for violations of its mandates and precluded the plaintiffs' state law claims under a theory of obstacle or conflict preemption.

In the instant matter, Defendants request dismissal of the RICO claim — another federal claim — under a preemption theory. Under the facts pled by Plaintiffs, Defendants intentionally devised a scheme (allegedly through the creation and implementation of policies and centralized business systems) enabling them to, in violation of the FLSA, withhold wages from their employees. Based on these factual allegations, Plaintiffs advanced a civil RICO claim to punish Defendants for purportedly creating, devising and carrying out a scheme to deprive Plaintiffs of their property (i.e. their wages) via illegal activities. This contrasts to Plaintiffs' FLSA claim which simply protects employees from receiving substandard wages and punishes the employers for failing to appropriately pay their workers. Given the variance with respect to the goals of RICO and the FLSA, I do not find the RICO claim to be duplicative of the FLSA claim. For this reason, I do not find Anderson persuasive.

In Choimbol II, the plaintiffs were current or former employees of Fairfield Resorts, Inc.... The other named defendants assisted Fairfield in obtaining immigrant labor for its business. Id. at *1-3. The plaintiffs raised state law, RICO and FLSA claims.... Upon defendant's motion to dismiss all of the claims brought against it, the district court agreed to dismiss all but the FLSA claim finding that the FLSA preempted the plaintiffs' state law claims and that the RICO claim could similarly be barred because it sought additional remedies precluded by the FLSA....

When addressing the RICO claim, the Choimbol II court noted that there was no case "directly on point with respect to the FLSA's preclusion of RICO claims specifically." ... Despite the absence of any case on point, the district court dismissed the RICO claim as preempted by the FLSA relying on the "Fourth Circuit's consideration of whether RICO claims are preempted by statutes comparable to the FLSA" and its own analysis of the remedial scheme of both RICO and the FLSA.... Ultimately, the Choimbol II court determined that the FLSA provided a "sufficiently punitive scheme to address the Defendants' misconduct" in its case and thus preempted the RICO claim.

In the instant matter, Defendants failed to cite any Third Circuit precedent indicating that FLSA preempts RICO, nor did Defendants offer any cases suggesting the Third Circuit has concluded as the Fourth Circuit did in "similar" cases, nor did Defendants provide case law indicating that the Third Circuit or any district court within the Third Circuit would conclude as the Virginia district court did in Choimbol II. As mentioned above, based on the facts as pled, and because I find that the general goals of RICO and the FLSA vary, I do not find that the FLSA can preempt the RICO claim in this case.

Share this article:


Recent Posts