11th Circuit: Employer Aware of Employee's Underreported Hours Cannot rely on "Unclean Hands" Defense in FLSA Case

Santonias Bailey, a TitleMax employee, underreported his hours worked.  His supervisor instructed him to do so, and the supervisor would also himself routinely revise Baily’s time records to reflect even less hours worked.  Bailey’s self-underreporting of hours violated TitleMax’s policy, however, which requires employees to verify time worked; further, his failure to report his supervisor for the supervisor’s instructions and revisions violated a second TitleMax policy relating to reporting of problems with supervisors. 

When Bailey resigned and sued TitleMax seeking unpaid wages and overtime under the Fair Labor Standards Act (FLSA), TitleMax raised the equitable defenses of "unclean hands" and in pari delicto based upon these policy violations. Broadly speaking, these defenses relieve a defendant from liability where the defendant can show that the plaintiff bears equal responsibility for his damages. The trial court granted TitleMax summary judgment based upon these equitable defenses. 

On appeal in the case, Bailey v. TitleMax of Ga., No. 14-11747, 2015 WL 178346 (11th Cir. Jan. 15, 2015), the 11th Circuit Federal Court of Appeals reversed. The court held that, if an employer knows or has reason to know that its employee underreported his hours, the employer cannot then invoke an equitable defense based on that underreporting to bar the employee's FLSA claim. The appellate court reserved judgment as to whether equitable defenses based upon employee misconduct could ever bar an FLSA claim—and distinguished cases in which the employer did not know of underreporting—but the tone of the opinion suggests any such defense would face a high hurdle given the deterrent purposes underlying the FLSA.