ANN MCLAUGHLIN, SECRETARY OF LABOR, PETITIONER /1/ V. RICHLAND SHOE COMPANY No. 86-1520 In the Supreme Court of the United States October Term, 1987 On Writ of Certiorari to the United States of Appeals for the Third Circuit Reply Brief for the Petitioner We argue in our opening brief that the term "willful violation," as used in the Fair Labor Standards Act statute of limitations, should be read so that the longer, three-year limitations period applies to employers who, though aware of an appreciable possibility that the FLSA requirements apply to their businesses, fail to take steps to determine the statute's demands or, having taken such steps, do not secure a reasonable basis for eliminating uncertainties about their compliance. The language, purposes, and legislative history of the statute render this the most appropriate construction among the many that have been announced by the courts of appeals (Br. 31, 38-39). /2/ In their opposing briefs, respondent and amicus Equal Employment Advisory Council (EEAC) argue that the decision below is correct in adopting the willfulness test articulated in Trans World Airlines, Inc. v. Thurston, 469 U.S. 111 (1985). They also make a number of related assertions, concerning the disruption and unfairness that allegedly would result from the adoption of the Secretary's proposed test, especially from its application on other than a prospective basis. Our opening brief outlines at length (Br. 19-30) the differences between the FLSA statute of limitations provision at issue here (29 U.S.C. 255(a)), and the liquidated damages provision that was involved in Thurston (29 U.S.C. 626(b)). Respondent concedes that "willful" is a word of many meanings (Resp. Br. 10) and neither it nor its amicus disputes that careful attention to context is necessary to determine the appropriate meaning. Nor do they persuasively dispute our conclusion that the willfulness requirement in the FLSA's statute of limitations is designed to protect certain employers from unanticipated liabilities, rather than to punish (as under the ADEA liquidated damages provision). Respondent and amicus EEAC seek to support the court of appeals' application of a strict reckless disregard standard primarily upon the alleged intention of Thurston "to establish a uniform meaning for the term ('willful')" (EEAC Amicus Br. 8; see Resp. Br. 8-10). In fact, however, no such intent can be discerned from the Court's opinion in that case. In accepting the construction of willfulness enunciated by the Second Circuit in that case (though not that court's application of it), the Court in Thurston expressly noted that there may be grounds for distinction in construing the term "willful" as it appears in Section 7(b) of the ADEA, 29 U.S.C. 626(b), and the FLSA provision at issue here, 29 U.S.C. 255(a). Thurston, 469 U.S. at 127-128. The difference in contexts of the two provisions is compatible with some divergence in the meaning of the word "willful" as it appears in each statute. Section 7(b) of the ADEA, dealt with in Thurston, incorporates by reference specified enforcement provisions of the FLSA. The fact that it does not read into the ADEA all of the enforcement provisions of the FLSA (e.g., 29 U.S.C. 216(a), the criminal enforcement provision), or that it does not trigger the liquidated damages provision of the FLSA, 29 U.S.C. 216(b) and (c), except upon proof of a certain concept of willfulness, speaks to the different objectives pursued and means chosen by the Congress that enacted the ADEA. The Court in Thurston relied explicitly (469 U.S. at 125-126) on the punitive character of the ADEA liquidated damages provision before it, a character wholly lacking here (Pet. Br. 24-30). The objectives that animated the Congresses that first enacted and, in 1966, amended the statute of limitations of the FLSA can fully account for any distinction that exists between the concepts of willfulness embodied in the two statutes. /3/ Any such difference is only one more example -- albeit within a single title of the United States Code -- of the wide-ranging variety in constructions of willfulness embodied in federal law. See Pet. Br. 15-18. In any event, Thurston need not be read to embody a willfulness standard that is substantially different from the one we propose here. In our opening brief we note that Thurston has been construed differently by different courts (Br. 21 & n.14) /4/ and that its "reckless disregard" standard need not be construed to require an especially high level of culpability on the part of employers. Indeed, Thurston's application of its own standard suggests an approach not far from the one we propose. Thus, in supporting its conclusion that TWA had not acted in reckless disregard of the provisions of the ADEA, the Court in Thurston noted that "(t)he record makes clear that TWA officials acted reasonably and in good faith in attempting to determine whether their plan would violate in ADEA" (469 U.S. at 129), and that "(i)n an attempt to bring its retirement policy into compliance with the ADEA, while at the same time observing the terms of the collective-bargaining agreement, TWA sought legal advice and consulted with the Union" (id. at 130). The concept of willfulness as a failure reasonably to resolve an uncertainty as to coverage should be viewed, at most, as a variation on Thurston's standard that is appropriate in the non-punitive, compensatory-recovery context of the FLSA statute of limitations provision. For that reason, several of the arguments raised by respondents and amicus as to the consequences of the change in the government's position and the unfairness of applying to this case the standard we advocate are without merit. Contrary to the urging of respondent (Resp. Br. 7-8) and amicus EEAC (EEAC Amicus Br. 17-18), the Secretary's articulation for the first time in this Court of the appropriate willfulness standard does not offer any basis on which to deny consideration of the merits of her position. /5/ The standard now advanced is fairly characterized as somewhere between the poles represented by the Jiffy June "in the picture" standard and Thurston's reckless disregard standard adopted by the court below. Surely some formulation that draws elements from both of those standards, which represented the competing positions in the litigation in the lower courts, was always a possible resolution as this case progressed. The fact that the Secretary has now adopted a position that is some distance away from the Jiffy June standard -- and toward the Thurston standard respondent supports -- does not suggest that the discussion begun in the lower court as to the proper definition of the word "willful" cannot properly continue before this Court. Nor, for very similar reasons, can the argument (EEAC Amicus Br. 26-28) be taken seriously that, in view of the change in the government's position, only prospective relief should be awarded if our substantive position is accepted. /6/ The standard we propose is more favorable to respondent and other employers than the prevailing appreciable possibility standard that was applied by the district court. It will accordingly be easier in the future for employers to defend against a third year of liability under our standard than under the standard that governed this litigation until it reached the court of appeals. The inquiry under our standard does not end with a determination that the employer was aware of an appreciable possibility that the FLSA applied to its employees. Instead, under the standard we propose, employers may avoid a third year of backpay liability if their practices reflect reasonable reliance on advice resolving uncertainties as to legality (see Pet. Br. 42). It is not apparent how our standard would have altered respondent's conduct prior to this suit or its litigation in the district court would have been altered had our standard been in effect at that time. The EEAC contends (EEAC Amicus Br. 18-24) that the standard we propose requires a drastic shift in the burden of proof and threatens to disrupt employers' relationships with their lawyers. The issue of which party has the burden of proof when the employer pleads the FLSA's statute of limitations as a defense is unresolved in the lower courts, where few courts have directly addressed the issue. /7/ The question of burden of proof has not been litigated in this case, and it is not at issue now. It would be fairly presented only where the evidence on a particular issue was in equipoise. Nothing about the willfulness concept we propose requires or foreshadows a resolution of the burden of proof issue one way or the other. Similarly, the EEAC seriously overstates the disruption possible from requiring employers to take steps to resolve doubts about the legality of their pay practices. A similar mechanism for relief from liquidated damages has existed for over 40 years under Section 11 of the Portal-to-Portal Act, 29 U.S.C. 260 (see Pet. Br. 35) -- although there the burden of proof is clearly on the employer -- and has caused no noticeable impairment in the way employers do business. /8/ Only where an employer faces uncertainty about compliance with the FLSA -- not in the case of "all employment issues" (EEAC Amicus Br. 22) -- need reasonable inquiry or other steps be taken to avoid a willfulness finding. Nor is there a significant danger that willfulness disputes will center on whether an attorney's advice, if relied on, is "reasonable" (ibid.). The requirement that advice -- attorney or otherwise -- be "reasonable" means that a court must examine the advice as one factor in determining whether it was reasonable for an employer to have believed its pay practices were legal. /9/ For example, a court may conclude that advice correctly stating the law but assuming facts different from an employer's actual situation provides no reliable basis for the employer to believe its pay practices were legal. It should reach a similar conclusion if the employer relied on legal advice that expressly warned the employer of a risk of illegality. The standard we propose would not "shift the inquiry from whether the employer has violated the law to the employer's relationship with its lawyer" (EEAC Amicus Br. 23), but would give effect to the principle, well-established in criminal law, that "'legal advice does not under all circumstances constitute an impregnable wall of defense.'" United States v. Schaefer, 299 F.2d 625, 631 (7th Cir.), cert. denied, 370 U.S. 917 (1962) (quoting Linden v. United States, 254 F.2d 560, 568 (4th Cir. 1958)). CONCLUSION The judgment of the court of appeals should be vacated. Respectfully submitted. CHARLES FRIED Solicitor General GEORGE R. SALEM Solicitor of Labor FEBRUARY 1988 /1/ Pursuant to Sup. Ct. R. 40.3, Ann McLaughlin is automatically substituted as petitioner in this case. /2/ Since our opening brief, two courts of appeals have addressed the meaning of "willful" in the context of the FLSA's limitations provision. In Brock v. Shirk, 833 F.2d 1326, 1329 n.2 (9th Cir. 1987), the court adhered to its "appreciable possibility" standard. In Russo v. Trifari, Krussman & Fishel, Inc., No. 87-7517 (2d Cir. Jan. 8, 1988), the court adopted a "reckless disregard" standard. /3/ The statute of limitations determines the period over which backpay is to be awarded to employees who were paid at an illegally low rate. Backpay can be denied, if at all, "only for reasons which, if applied generally, would not frustrate the central statutory purposes." Albemarle Paper Co. v. Moody, 422 U.S. 405, 421 (1975); see also Mitchell v. Robert De Mario Jewelry, Inc., 361 U.S. 288, 292 (1960). /4/ The Tenth Circuit has construed Thurston to allow yet another variation on the "reckless disregard" standard for determining when an employer is liable for liquidated damages for a willful violation of the Age Discrimination in Employment Act. See Cooper v. Asplundh Tree Expert Co., No. 85-2316 (10th Cir. Jan. 15, 1988) (in disparate treatment case, discrimination must be the "predominant factor" behind an employer's decision). /5/ The EEAC mistakenly asserts (EEAC Amicus Br. 18) that the standard proposed in our brief differs from the standard proposed in our certiorari petition. At both places we explained, in nearly identical language (Pet. 15; Pet. Br. 41) that an employer's violation is willful if the employer, recognizing it may be covered by the FLSA, acts without a reasonable basis for believing that it is complying with the statute -- either because it fails to seek a reliable determination of its obligations under the FLSA, or because the advice it receives affords no reliable basis for eliminating existing uncertainties about the employer's compliance. The EEAC's partial quotation from the petition is actually one court's formulation of a willfulness standard that the Secretary identified as the basis, or starting point, for her proposed standard. /6/ A decision of this Court is normally retroactive in application. See Solem v. Stumes, 465 U.S. 638, 642 (1984). In the civil context, however, the Court may conclude that an exception is required after considering (1) whether the decision "establishe(s) a new principle of law, either by overruling clear past precedent on which litigants may have relied * * * or by deciding an issue of first impression whose resolution was not clearly foreshadowed * * * ;" (2) "whether retrospective operation will further or retard (the operation of the rule in question)"; and (3) "the inequity imposed by retroactive application." Chevron Oil Co. v. Huson, 404 U.S. 97, 106-107 (1971). /7/ It is well settled in the lower courts that the employer must at least plead the FLSA statute of limitations as a defense. See, e.g., Lopez v. Rodriguez, 668 F.2d 1376, 1379 n.4 (D.C. Cir. 1981); Mumbower v. Callicott, 526 F.2d 1183, 1187 n.5 (8th Cir. 1975); Hodgson v. Humphries, 454 F.2d 1279, 1284 (10th Cir. 1972). /8/ The EEAC asserts that our interpretation of "willful" in the limitations provision creates a conflict with the 29 U.S.C. 260 possible defense to liquidated damages (EEAC Amicus Br. 20-21), but offers no reason why the two provisions cannot operate harmoniously together under our interpretation, as we think they can (see Pet. Br. 33-37). See also Richards, Monetary Awards in Equal Pay Act Litigation, 29 Ark. L. Rev. 328, 340 (1975) (it "makes sense" to look to defenses in Sections 10 and 11 of the Portal-to-Portal Act for guidance in construing "willful" in the limitations context). /9/ The EEAC's fear of excessive intrusion into attorney-client confidences is unfounded. Common sense requires that an employer asserting reliance on an attorney's advice in structuring its pay practices be the source of the information as to what the advice was. It does not follow that any unrelated confidences disclosed by the employer to his lawyer will likewise have to be disclosed.