Executive Summary: On April 27, 2021, a sharply divided panel of the U.S. Court of Appeals for the Second Circuit, covering New York, Vermont, and Connecticut, held that in Fair Labor Standards Act Overtime cases (FLSA), to take advantage of the statute's three-year statute of limitations for "willful" overtime violations, plaintiffs must plausibly plead willfulness under the heightened pleading standards of Twombly and IqbalSee Whiteside v. Hover-Davis, Inc., (2d Cir. Apr. 27, 2021). The decision creates a circuit split with the Tenth Circuit (covering Oklahoma, Kansas, New Mexico, Colorado, Wyoming, and Utah) and may be ripe for Supreme Court review.

Claims for unpaid overtime compensation generally are governed by a two-year statute of limitations. 29 U.S.C. § 255(a). But claims for unpaid compensation arising out of an employer's willful violation of the FLSA are subject to a longer, three-year limitations period. In this case, Plaintiff Whiteside's claim was dismissed by the district court as falling outside the statute of limitations for failing to plausibly plead willfulness. In an opinion by Chief Judge Livingston, the Second Circuit affirmed.

Whiteside argued that an FLSA plaintiff need not plead any facts giving rise to an inference of willfulness for the three-year limitations period to apply. Instead, Whiteside argued that an FLSA plaintiff needs only to assert in his pleading that the defendant willfully violated the FLSA. The Second Circuit disagreed.

In doing so, the Second Circuit parted ways with the Tenth Circuit, which had held in 2018 that the mere allegation of willfulness suffices for the extended limitations period to apply. "We respectfully disagree with the Tenth Circuit and hold that FLSA plaintiffs must plausibly allege willfulness to secure the benefit of the three-year exception at the pleadings stage." The panel grounded its conclusion in Twombly and Iqbal, writing that under those cases' framework, a court need not accept as true bald legal conclusions by plaintiffs. "In requiring FLSA plaintiffs to allege willfulness plausibly, we merely conform that obligation to the plausibility pleading regime," the court wrote. The court concluded that requiring a plausible showing of willfulness at the pleadings stage was faithful to the Supreme Court's decision in McLaughlin v. Richland Shoe Co., 486 U.S. 128 (1988), which expressly highlighted the distinction between ordinary FLSA violations and willful ones, writing that "Congress intended to draw a significant distinction between ordinary violations and willful violations" of the FLSA.

In keeping with this precedent, the Second Circuit concluded that "a plaintiff must allege facts that permit a plausible inference that the defendant willfully violated the FLSA for that exception to apply." Thus, plaintiffs in the Second Circuit must, consistent with Twombly and Iqbal, plead facts that justify a reasonable inference of willfulness at the pleadings stage.

Employers' Bottom Line: The decision potentially makes it more difficult for plaintiffs to take advantage of the three-year statute of limitations period, but the panel's holding may not be the last word on the subject. The decision heralds a circuit split that the Supreme Court may be inclined to resolve next term if Whiteside petitions the Court for certiorari. Meanwhile, FLSA litigators in the Second Circuit have another tool at their disposal to defend unpaid compensation cases, potentially limiting clients' exposure to these types of claims.

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