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March 17, 2008
Was Employer's Counter-Suit Retaliatory?
A Virginia sales executive was either fired or laid off less than 2 years after being hired. In response, he sued, alleging that his former employer had misclassified him as exempt under the Fair Labor Standards Act (FLSA) and now owed him overtime. Two weeks later, the company counter-sued, alleging fraud on a particular sales contract. The former employee added a retaliation charge to his FLSA suit.

What happened. The executive began as an independent contractor for Detecon, a small wireless telecommunications consulting firm. In April 2003, he was hired as Director of Sales for North America and "retitled" 8 months later as Vice President of Sales for North America. (Retitled was a better term than promoted, because his salary and job duties did not change.)

Then, on December 27, 2004, Detecon told the executive that his job had been eliminated effective January 31, 2005. The two parties agreed that, in exchange for $50,000, the executive would not sue regarding commission claims. On August 1, 2005, though, he sued in federal district court that he should not have been exempt under FLSA.

Detecon promptly countersued in state court, alleging fraud on a sales contract. The executive removed Detecon's suit to federal court, and it was combined with his suit. When a judge heard the executive's claims, he ruled that the executive couldn't charge that he'd suffered a retaliatory adverse employment step, because he was no longer an employee. The judge also dismissed his FLSA charge. At the same time, he rejected Detecon's fraud suit. The executive, but not Detecon, appealed to the 4th Circuit, which covers Maryland, North Carolina, South Carolina, Virginia, and West Virginia.

What the court said. Before appellate judges, Detecon argued that the executive's FLSA claim had lacked merit, implying that he sued to retaliate for his termination. But judges pointed to several factors about Detecon, including its very small size, which "complicate the application of the key terms of the FLSA's wage and hours exemptions" to his position; so his claim had been reasonable.

Further, judges said, two Supreme Court rulings have extended the protection against retaliation from Title VII of civil rights law to claims under FLSA and to former employees. Detecon's countersuit certainly appeared to have been retaliatory, especially since the fraud claim lacked merit. So judges sent the executive's retaliation claim back to the lower court for reconsideration. Darveau v. Detecon, U.S. Court of Appeals for the 4th Circuit, No. 06-2092 (1/31/08).

Point to remember: Judges affirmed that the executive qualified for an administrative exemption. But retaliation claims are easier to prove, and he may prevail in district court.

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