Employers Generally Cannot Assert Setoffs & Counterclaims in FLSA Cases
In Brennan v. Heard, the Fifth Circuit held that both setoffs and counterclaims are inappropriate in cases brought to enforce the minimum wage and overtime provisions of the FLSA. 491 F.2d 1, 4 (5th Cir. 1974) (rev’d on other grounds, McLaughlin v. Richard Shoe Co., 486 U.S. 128 (1988)). A set-off is pay that an employee receives to which he or she was not otherwise entitled that is subtracted from any amount of overtime compensation owed. Mercer v. Palm Harbor Homes, Inc., 2005 WL 3019302, at *2 (M.D. Fla. 2005), at *2.
The Court emphasized that “[t]he federal courts were not designated by the FLSA to be either collection agents or arbitrators for an employee’s creditors.” Brennan, 491 F.2d at 4. “The only economic feud contemplated by the FLSA involves the employer’s obedience to minimum wage and overtime standards,” and “[t]o clutter [FLSA] proceedings with the minutiae of other employer-employee relationships would be antithetical to the purpose of the Act.” Id.
See also Donovan v. Pointon, 717 F.2d 1320, 1323 (10th Cir. 1983) (emphasis added) (“[T]he purpose of the present [FLSA] action is to bring [the employer] into compliance with the Act …. To permit him in such a proceeding to try his private claims, real or imagined, against his employees would delay and even subvert the whole process. [The employer] is free to sue his employees in state court … for any sum which he feels is due and owing him.”).
The Fifth Circuit has carved out a narrow exception to Brennan, allowing employers to assert a set-off in FLSA cases, if and only if, the claim is based on an overpayment or pre-payment of wages. See Singer v. City of Waco, 324 F.3d 813, 828 n. 9 (5th Cir. 2003). However, even where this limited exception applies, “[a] set-off is only permissible in an FLSA case when it will not cause a plaintiff’s wages to fall below the statutory minimum.” Tapia v. Fla. Cleanex, Inc., No. 09-21569-CIV, 2013 WL 12198827, at *2 (S.D. Fla. Mar. 27, 2013).In Martin v. PepsiAmericas, Inc., 628 F.3d 738 (5th Cir. 2010), the Fifth Circuit reaffirmed Brennan noting, “we said that set-offs and counterclaims are inappropriate in any case brought to enforce the FLSA’s minimum wage and overtime provisions.” Id. at 740–41.
Federal Court’s in Florida have followed Brennan and “[t]hus, courts in this Circuit have dismissed counterclaims or struck affirmative defenses [in FLSA cases] where the set-off is not based on an overpayment or pre-payment of wages, but on an arrangement distinct from the employer’s ordinary employment obligations.” Bautista v. Disc. Warehouse, Inc., No. 1:15-cv-24206, 2016 WL 1028358, at *2 (S.D. Fla. Mar. 15, 2016).
See, e.g., Nicopior v. Moshi Moshi Palm Grove, LLC, 375 F. Supp. 3d 1278, 1287 (S.D. Fla. 2019) (dismissing compulsory counterclaims in FLSA action because any recovery on Defendants’ counterclaims, in the absence of an allegation of overpayment or prepayment, would run afoul of Brennan); Barrios v. So. & Caribbean Agencies, Inc., No. 18-21550-CIV, 2019 WL 341178 at *4 (S.D. Fla. Jan. 28, 2019) (denying leave to file a counterclaim asserting computer fraud against the employee-plaintiff because “any such recovery would directly cut into the ‘cash in hand’ Plaintiff would receive should he prevail on his FLSA claim” and concluding that the counterclaim was an improper set-off under Brennan); Podzemelnyy v. Prolog Corp., No. 18-62395-CIV, 2019 WL 2255571 at *4 (S.D. Fla. March 1, 2019) (“Any recovery under Defendants’ Counterclaims would reduce [Plaintiff’s] FLSA recovery below the minimum amount required by statute and would therefore be inappropriate.”).
In Perez v. Elite Imaging, LLC, No. 16-CV-24555, 2017 WL 666108 (S.D. Fla. Feb. 17, 2017), the plaintiff filed an FLSA action for unpaid overtime, and the employer sought leave to file a counterclaim for conversion, breach of duty of loyalty and violation of the Florida Computer Abuse and Data Recovery Act based upon allegations that the plaintiff deleted her email and other files belonging to her employer. Id. at *1. The plaintiff objected to leave under Brennan. Id. The Court reasoned, “[t]he rationale for the dismissal of counterclaims is akin to the dismissal for set-offs because – in cases where there are no allegations of overpayment or pre-payment – counterclaims can only serve to reduce a plaintiff’s FLSA recovery.” Id. at *4. “This means that the Brennan rule may bar counterclaims irrespective of ‘whether the counterclaims are compulsory or permissive.’” Id. (emphasis added). The Court denied the defendant’s motion for leave to assert the counterclaims. Id.
In Perez v. S. Fla. Landscape Maint., Inc., No. 13–80620–CIV, 2014 WL 293774 (S.D. Fla. Jan. 23, 2014), the Court noted “while the defense of set-off is not barred in all FLSA cases [per se] … the instant case falls under the Brennan rule, and not the exception identified in Singer.” Id. at *3. There, the plaintiff claimed that he was not paid for overtime hours worked. Id. “Any set-off applied to a recovery by Plaintiff would result in Plaintiff failing to receive his ‘cash in hand.’” Id. “Unlike Singer, the set-off (and counterclaim) asserted does not involve an overpayment of wages by Defendants to Plaintiff, but instead damages allegedly caused by Plaintiff by failing to pay for a lawn mower as promised to Defendants.” Id. (emphasis added).
In other words, allowing such a set-off would invariably cause Plaintiff not to receive the overtime payments to which he was allegedly entitled under the FLSA Therefore, given that this type of set-off is not an appropriate affirmative defense in a FLSA case, it would be inappropriate to allow these counterclaims to proceed. If Defendants were to prevail on their counterclaims, any judgment in Plaintiff’s favor on the FLSA count would be reduced to below the minimum wage. Such a result would run afoul of Brennan.
Id. “For that reason, Defendants should instead file a separate action in the proper forum to pursue the claims alleged in the counterclaims.” Id.
In Mizelle v. Edgewood Nursing Ctr., Inc., No. 3:09-cv-605, 2010 WL 11507128 (M.D. Fla. Feb. 25, 2010), the Court granted the plaintiff’s motion to dismiss an employer’s counterclaim in an FLSA action. Id. at *2. The Court rejected the defendant’s argument that its claim fell under the exception to Brennan. Id. “[T]he Singer exception is inapplicable here because Plaintiff claims she was not paid minimum wage for the last two weeks she worked for Defendant, and the set-off proposed by Defendant will necessarily result in her not receiving her statutory minimum ‘cash in hand’ from her employer for work performed.” Id. (emphasis added).
“Unlike Singer, the set-off asserted in the Counterclaim is not one for an employer’s overpayment–essentially negating its underpayment–but rather for alleged theft committed by Plaintiff.” Mizelle, No. 3:09-cv-605, 2010 WL 11507128, at *2 (emphasis added). “This appears to be the type of inappropriate set-off that would ‘clutter these proceedings with the minutiae of other employer-employee relationships’ and deprive Plaintiff of her ‘cash in hand.’” Id. (quotation omitted).